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Www freefilefillableforms com Publication 584-B - Introductory Material Table of Contents What's New Introduction What's New The IRS has created a page on IRS. Www freefilefillableforms com gov for information about Publication 584-B, at www. Www freefilefillableforms com irs. Www freefilefillableforms com gov/pub584b. Www freefilefillableforms com Information about any future developments affecting Publication 584-B (such as legislation enacted after we released it) will be posted on that page. Www freefilefillableforms com Introduction This workbook is designed to help you figure your loss on business and income-producing property in the event of a disaster, casualty, or theft. Www freefilefillableforms com It contains schedules to help you figure the loss to your office furniture and fixtures, information systems, motor vehicles, office supplies, buildings, and equipment. Www freefilefillableforms com These schedules, however, are for your information only. Www freefilefillableforms com You must complete Form 4684, Casualties and Thefts, to report your loss. Www freefilefillableforms com Prev  Up  Next   Home   More Online Publications
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Www freefilefillableforms com Publication 1212 - Main Content Table of Contents Definitions Debt Instruments on the OID List Debt Instruments Not on the OID List Information for Brokers and Other MiddlemenShort-Term Obligations Redeemed at Maturity Long-Term Debt Instruments Certificates of Deposit Bearer Bonds and Coupons Backup Withholding Information for Owners of OID Debt InstrumentsExceptions. Www freefilefillableforms com Adjustment for premium. Www freefilefillableforms com Adjustment for acquisition premium. Www freefilefillableforms com Adjustment for market discount. Www freefilefillableforms com Form 1099-OID How To Report OID Figuring OID on Long-Term Debt Instruments Figuring OID on Stripped Bonds and Coupons How To Get Tax HelpLow Income Taxpayer Clinics Definitions The following terms are used throughout this publication. Www freefilefillableforms com “Original issue discount” is defined first. Www freefilefillableforms com The other terms are listed alphabetically. Www freefilefillableforms com Original issue discount (OID). Www freefilefillableforms com   OID is a form of interest. Www freefilefillableforms com It is the excess of a debt instrument's stated redemption price at maturity over its issue price (acquisition price for a stripped bond or coupon). Www freefilefillableforms com Zero coupon bonds and debt instruments that pay no stated interest until maturity are examples of debt instruments that have OID. Www freefilefillableforms com Accrual period. Www freefilefillableforms com   An accrual period is an interval of time used to measure OID. Www freefilefillableforms com The length of an accrual period can be 6 months, a year, or some other period, depending on when the debt instrument was issued. Www freefilefillableforms com Acquisition premium. Www freefilefillableforms com   Acquisition premium is the excess of a debt instrument's adjusted basis immediately after purchase, including purchase at original issue, over the debt instrument's adjusted issue price at that time. Www freefilefillableforms com A debt instrument does not have acquisition premium, however, if the debt instrument was purchased at a premium. Www freefilefillableforms com See Premium, later. Www freefilefillableforms com Adjusted issue price. Www freefilefillableforms com   The adjusted issue price of a debt instrument at the beginning of an accrual period is used to figure the OID allocable to that period. Www freefilefillableforms com In general, the adjusted issue price at the beginning of the debt instrument's first accrual period is its issue price. Www freefilefillableforms com The adjusted issue price at the beginning of any subsequent accrual period is the sum of the issue price and all the OID includible in income before that accrual period minus any payment previously made on the debt instrument, other than a payment of qualified stated interest. Www freefilefillableforms com Debt instrument. Www freefilefillableforms com   The term “debt instrument” means any instrument or contractual arrangement that constitutes indebtedness under general principles of federal income tax law (including, for example, a bond, debenture, note, certificate, or other evidence of indebtedness). Www freefilefillableforms com It generally does not include an annuity contract. Www freefilefillableforms com Issue price. Www freefilefillableforms com   For debt instruments listed in Section I-A and Section I-B, the issue price generally is the initial offering price to the public (excluding bond houses and brokers) at which a substantial amount of these instruments was sold. Www freefilefillableforms com Market discount. Www freefilefillableforms com   Market discount arises when a debt instrument purchased in the secondary market has decreased in value since its issue date, generally because of an increase in interest rates. Www freefilefillableforms com An OID debt instrument has market discount if your adjusted basis in the debt instrument immediately after you acquired it (usually its purchase price) was less than the debt instrument's issue price plus the total OID that accrued before you acquired it. Www freefilefillableforms com The market discount is the difference between the issue price plus accrued OID and your adjusted basis. Www freefilefillableforms com Premium. Www freefilefillableforms com   A debt instrument is purchased at a premium if its adjusted basis immediately after purchase is greater than the total of all amounts payable on the debt instrument after the purchase date, other than qualified stated interest. Www freefilefillableforms com The premium is the excess of the adjusted basis over the payable amounts. Www freefilefillableforms com See Publication 550 for information on the tax treatment of bond premium. Www freefilefillableforms com Qualified stated interest. Www freefilefillableforms com   In general, qualified stated interest is stated interest that is unconditionally payable in cash or property (other than debt instruments of the issuer) at least annually over the term of the debt instrument at a single fixed rate. Www freefilefillableforms com Stated redemption price at maturity. Www freefilefillableforms com   A debt instrument's stated redemption price at maturity is the sum of all amounts (principal and interest) payable on the debt instrument other than qualified stated interest. Www freefilefillableforms com Yield to maturity (YTM). Www freefilefillableforms com   In general, the YTM is the discount rate that, when used in figuring the present value of all principal and interest payments, produces an amount equal to the issue price of the debt instrument. Www freefilefillableforms com The YTM is generally shown on the face of the debt instrument or in the literature you receive from your broker. Www freefilefillableforms com If you do not have this information, consult your broker, tax advisor, or the issuer. Www freefilefillableforms com Debt Instruments on the OID List The OID list on the IRS website can be used by brokers and other middlemen to prepare information returns. Www freefilefillableforms com If you own a listed debt instrument, you generally should not rely on the information in the OID list to determine (or compare) the OID to be reported on your tax return. Www freefilefillableforms com The OID amounts listed are figured without reference to the price or date at which you acquired the debt instrument. Www freefilefillableforms com For information about determining the OID to be reported on your tax return, see the instructions for figuring OID under Information for Owners of OID Debt Instruments, later. Www freefilefillableforms com The following discussions explain what information is contained in each section of the list. Www freefilefillableforms com Section I. Www freefilefillableforms com   This section contains publicly offered, long-term debt instruments. Www freefilefillableforms com Section I-A: Corporate Debt Instruments Issued Before 1985. Www freefilefillableforms com Section I-B: Corporate Debt Instruments Issued After 1984. Www freefilefillableforms com Section I-C: Inflation-Indexed Debt Instruments. Www freefilefillableforms com For each publicly offered debt instrument in Section I, the list contains the following information. Www freefilefillableforms com The name of the issuer. Www freefilefillableforms com The Committee on Uniform Security Identification Procedures (CUSIP) number. Www freefilefillableforms com The issue date. Www freefilefillableforms com The maturity date. Www freefilefillableforms com The issue price expressed as a percent of principal or of stated redemption price at maturity. Www freefilefillableforms com The annual stated or coupon interest rate. Www freefilefillableforms com (This rate is shown as 0. Www freefilefillableforms com 00 if no annual interest payments are provided. Www freefilefillableforms com ) The yield to maturity will be added to Section I-B for bonds issued after December 31, 2006. Www freefilefillableforms com The total OID accrued up to January 1 of a calendar year. Www freefilefillableforms com (This information is not available for every instrument. Www freefilefillableforms com ) For long-term debt instruments issued after July 1, 1982, the daily OID for the accrual periods falling in a calendar year and a subsequent year. Www freefilefillableforms com The total OID per $1,000 of principal or maturity value for a calendar year and a subsequent year. Www freefilefillableforms com Section II. Www freefilefillableforms com   This section contains stripped coupons and principal components of U. Www freefilefillableforms com S. Www freefilefillableforms com Treasury and Government-Sponsored Enterprise debt instruments. Www freefilefillableforms com These stripped components are available through the Department of the Treasury's Separate Trading of Registered Interest and Principal of Securities (STRIPS) program and government-sponsored enterprises such as the Resolution Funding Corporation. Www freefilefillableforms com This section also includes debt instruments backed by U. Www freefilefillableforms com S. Www freefilefillableforms com Treasury securities that represent ownership interests in those securities. Www freefilefillableforms com   The obligations listed in Section II are arranged by maturity date. Www freefilefillableforms com The amounts listed are the total OID for a calendar year per $1,000 of redemption price. Www freefilefillableforms com Section III. Www freefilefillableforms com   This section contains short-term discount obligations. Www freefilefillableforms com Section III-A: Short-Term U. Www freefilefillableforms com S. Www freefilefillableforms com Treasury Bills. Www freefilefillableforms com Section III-B: Federal Home Loan Banks. Www freefilefillableforms com Section III-C: Federal National Mortgage Association. Www freefilefillableforms com Section III-D: Federal Farm Credit Banks. Www freefilefillableforms com Section III-E: Federal Home Loan Mortgage Corporation. Www freefilefillableforms com Section III-F: Federal Agricultural Mortgage Corporation. Www freefilefillableforms com    Information that supplements Section III-A is available on the Internet at http://www. Www freefilefillableforms com treasurydirect. Www freefilefillableforms com gov/tdhome. Www freefilefillableforms com htm. Www freefilefillableforms com   The short-term obligations listed in this section are arranged by maturity date. Www freefilefillableforms com For each obligation, the list contains the CUSIP number, maturity date, issue date, issue price (expressed as a percent of principal), and discount to be reported as interest for a calendar year per $1,000 of redemption price. Www freefilefillableforms com Brokers and other middlemen should rely on the issue price information in Section III only if they are unable to determine the price actually paid by the owner. Www freefilefillableforms com Debt Instruments Not on the OID List The list of debt instruments discussed earlier does not contain the following items. Www freefilefillableforms com U. Www freefilefillableforms com S. Www freefilefillableforms com savings bonds. Www freefilefillableforms com Certificates of deposit and other face-amount certificates issued at a discount, including syndicated certificates of deposit. Www freefilefillableforms com Obligations issued by tax-exempt organizations. Www freefilefillableforms com OID debt instruments that matured or were entirely called by the issuer before the tables were posted on the IRS website. Www freefilefillableforms com Mortgage-backed securities and mortgage participation certificates. Www freefilefillableforms com Long-term OID debt instruments issued before May 28, 1969. Www freefilefillableforms com Short-term obligations, other than the obligations listed in Section III. Www freefilefillableforms com Debt instruments issued at a discount by states or their political subdivisions. Www freefilefillableforms com REMIC regular interests and CDOs. Www freefilefillableforms com Commercial paper and banker's acceptances issued at a discount. Www freefilefillableforms com Obligations issued at a discount by individuals. Www freefilefillableforms com Foreign obligations not traded in the United States and obligations not issued in the United States. Www freefilefillableforms com Information for Brokers and Other Middlemen The following discussions contain specific instructions for brokers and middlemen who hold or redeem a debt instrument for the owner. Www freefilefillableforms com In general, you must file a Form 1099 for the debt instrument if the interest or OID to be included in the owner's income for a calendar year totals $10 or more. Www freefilefillableforms com You also must file a Form 1099 if you were required to deduct and withhold tax, even if the interest or OID is less than $10. Www freefilefillableforms com See Backup Withholding, later. Www freefilefillableforms com If you must file a Form 1099, furnish a copy to the owner of the debt instrument by January 31 in the year it is due. Www freefilefillableforms com File all your Forms 1099 with the IRS, accompanied by Form 1096, by February 28 in the year it is due (March 31 if you file electronically). Www freefilefillableforms com Electronic payee statements. Www freefilefillableforms com   You can issue Form 1099-OID electronically with the consent of the recipient. Www freefilefillableforms com More information. Www freefilefillableforms com   For more information, including penalties for failure to file (or furnish) required information returns or statements, see the General Instructions for Certain Information Returns (Forms 1098, 1099, 3921, 3922, 5498, and W-2G) for the appropriate calendar year. Www freefilefillableforms com Short-Term Obligations Redeemed at Maturity If you redeem a short-term discount obligation for the owner at maturity, you must report the discount as interest on Form 1099-INT. Www freefilefillableforms com To figure the discount, use the purchase price shown on the owner's copy of the purchase confirmation receipt or similar record, or the price shown in your transaction records. Www freefilefillableforms com If you sell the obligation for the owner before maturity, you must file Form 1099-B to reflect the gross proceeds to the seller. Www freefilefillableforms com Do not report the accrued discount to the date of sale on either Form 1099-INT or Form 1099-OID. Www freefilefillableforms com If the owner's purchase price cannot be determined, figure the discount as if the owner had purchased the obligation at its original issue price. Www freefilefillableforms com A special rule is used to determine the original issue price for information reporting on U. Www freefilefillableforms com S. Www freefilefillableforms com Treasury bills (T-bills) listed in Section III-A. Www freefilefillableforms com Under this rule, you treat as the original issue price of the T-bill the noncompetitive (weighted average of accepted auction bids) discount price for the longest-maturity T-bill maturing on the same date as the T-bill being redeemed. Www freefilefillableforms com This noncompetitive discount price is the issue price (expressed as a percent of principal) shown in Section III-A. Www freefilefillableforms com A similar rule is used to figure the discount on short-term discount obligations issued by the organizations listed in Section III-B through Section III-F. Www freefilefillableforms com Example 1. Www freefilefillableforms com There are 13-week and 26-week T-bills maturing on the same date as the T-bill being redeemed. Www freefilefillableforms com The price actually paid by the owner cannot be established by owner or middleman records. Www freefilefillableforms com You treat as the issue price of the T-bill the noncompetitive discount price (expressed as a percent of principal) shown in Section III-A for a 26-week bill maturing on the same date as the T-bill redeemed. Www freefilefillableforms com The interest you report on Form 1099-INT is the OID (per $1,000 of principal) shown in Section III-A for that obligation. Www freefilefillableforms com Long-Term Debt Instruments If you hold a long-term OID debt instrument as a nominee for the true owner, you generally must file Form 1099-OID. Www freefilefillableforms com For this purpose, you can rely on Section I of the OID list to determine the following information. Www freefilefillableforms com Whether a debt instrument has OID. Www freefilefillableforms com The OID to be reported on the Form 1099-OID. Www freefilefillableforms com In general, you must report OID on publicly offered, long-term debt instruments listed in Section I. Www freefilefillableforms com You also can report OID on other long-term debt instruments. Www freefilefillableforms com Form 1099-OID. Www freefilefillableforms com   On Form 1099-OID for a calendar year show the following information. Www freefilefillableforms com Box 1. Www freefilefillableforms com The OID for the actual dates the owner held the debt instruments during a calendar year. Www freefilefillableforms com To determine this amount, see Figuring OID, next. Www freefilefillableforms com Box 2. Www freefilefillableforms com The qualified stated interest paid or credited during the calendar year. Www freefilefillableforms com Interest reported here is not reported on Form 1099-INT. Www freefilefillableforms com The qualified stated interest on Treasury inflation-protected securities may be reported on Form 1099-INT in box 3 instead. Www freefilefillableforms com Box 3. Www freefilefillableforms com Any interest or principal forfeited because of an early withdrawal that the owner can deduct from gross income. Www freefilefillableforms com Do not reduce the amounts in boxes 1 and 2 by the forfeiture. Www freefilefillableforms com Box 4. Www freefilefillableforms com Any backup withholding for this debt instrument. Www freefilefillableforms com Box 7. Www freefilefillableforms com The CUSIP number, if any. Www freefilefillableforms com If there is no CUSIP number, give a description of the debt instrument, including the abbreviation for the stock exchange, the abbreviation used by the stock exchange for the issuer, the coupon rate, and the year of maturity (for example, NYSE XYZ 12. Www freefilefillableforms com 50 2006). Www freefilefillableforms com If the issuer of the debt instrument is other than the payer, show the name of the issuer in this box. Www freefilefillableforms com Box 8. Www freefilefillableforms com The OID on a U. Www freefilefillableforms com S. Www freefilefillableforms com Treasury obligation for the part of the year the owner held the debt instrument. Www freefilefillableforms com Box 9. Www freefilefillableforms com Investment expenses passed on to holders of a single-class REMIC. Www freefilefillableforms com Boxes 10-12. Www freefilefillableforms com Use to report any state income tax withheld for this debt instrument. Www freefilefillableforms com Figuring OID. Www freefilefillableforms com   You can determine the OID on a long-term debt instrument by using either of the following. Www freefilefillableforms com Section I of the OID list. Www freefilefillableforms com The income tax regulations. Www freefilefillableforms com Using Section I. Www freefilefillableforms com   If the owner held the debt instrument for the entire calendar year, report the OID shown in Section I for the calendar year. Www freefilefillableforms com Because OID is listed for each $1,000 of stated redemption price at maturity, you must adjust the listed amount to reflect the debt instrument's actual stated redemption price at maturity. Www freefilefillableforms com For example, if the debt instrument's stated redemption price at maturity is $500, report one-half the listed OID. Www freefilefillableforms com   If the owner held the debt instrument for less than the entire calendar year, figure the OID to report as follows. Www freefilefillableforms com Look up the daily OID for the first accrual period in the calendar year during which the owner held the debt instrument. Www freefilefillableforms com Multiply the daily OID by the number of days the owner held the debt instrument during that accrual period. Www freefilefillableforms com Repeat steps (1) and (2) for any remaining accrual periods for the year during which the owner held the debt instrument. Www freefilefillableforms com Add the results in steps (2) and (3) to determine the owner's OID per $1,000 of stated redemption price at maturity. Www freefilefillableforms com If necessary, adjust the OID in (4) to reflect the debt instrument's stated redemption price at maturity. Www freefilefillableforms com Report the result on Form 1099-OID in box 1. Www freefilefillableforms com Using the income tax regulations. Www freefilefillableforms com   Instead of using Section I to figure OID, you can use the regulations under sections 1272 through 1275 of the Internal Revenue Code. Www freefilefillableforms com For example, under the regulations, you can use monthly accrual periods in figuring OID for a debt instrument issued after April 3, 1994, that provides for monthly payments. Www freefilefillableforms com (If you use Section I-B, the OID is figured using 6-month accrual periods. Www freefilefillableforms com )   For a general explanation of the rules for figuring OID under the regulations, see Figuring OID on Long-Term Debt Instruments under Information for Owners of OID Debt Instruments, later. Www freefilefillableforms com Certificates of Deposit If you hold a bank certificate of deposit (CD) as a nominee, you must determine whether the CD has OID and any OID includible in the income of the owner. Www freefilefillableforms com You must file an information return showing the reportable interest and OID, if any, on the CD. Www freefilefillableforms com These rules apply whether or not you sold the CD to the owner. Www freefilefillableforms com Report OID on a CD in the same way as OID on other debt instruments. Www freefilefillableforms com See Short-Term Obligations Redeemed at Maturity and Long-Term Debt Instruments, earlier. Www freefilefillableforms com Bearer Bonds and Coupons If a coupon from a bearer bond is presented to you for collection before the bond matures, you generally must report the interest on Form 1099-INT. Www freefilefillableforms com However, do not report the interest if either of the following apply. Www freefilefillableforms com You hold the bond as a nominee for the true owner. Www freefilefillableforms com The payee is a foreign person. Www freefilefillableforms com See Payments to foreign person under Backup Withholding, later. Www freefilefillableforms com Because you cannot assume the presenter of the coupon also owns the bond, you should not report OID on the bond on Form 1099-OID. Www freefilefillableforms com The coupon may have been “stripped” (separated) from the bond and separately purchased. Www freefilefillableforms com However, if a long-term bearer bond on the OID list is presented to you for redemption upon call or maturity, you should prepare a Form 1099-OID showing the OID for that calendar year, as well as any coupon interest payments collected at the time of redemption. Www freefilefillableforms com Backup Withholding If you report OID on Form 1099-OID or interest on Form 1099-INT for a calendar year, you may be required to apply backup withholding to the reportable payment at a rate of 28%. Www freefilefillableforms com The backup withholding is deducted at the time a cash payment is made. Www freefilefillableforms com See Pub. Www freefilefillableforms com 1281, Backup Withholding for Missing and Incorrect Name/TIN(s), for more information. Www freefilefillableforms com Backup withholding generally applies in the following situations. Www freefilefillableforms com The payee does not give you a taxpayer identification number (TIN). Www freefilefillableforms com The IRS notifies you that the payee gave an incorrect TIN. Www freefilefillableforms com The IRS notifies you that the payee is subject to backup withholding due to payee underreporting. Www freefilefillableforms com For debt instruments acquired after 1983: The payee does not certify, under penalties of perjury, that he or she is not subject to backup withholding under (3), or The payee does not certify, under penalties of perjury, that the TIN given is correct. Www freefilefillableforms com However, for short-term discount obligations (other than government obligations), bearer bonds and coupons, and U. Www freefilefillableforms com S. Www freefilefillableforms com savings bonds, backup withholding applies only if the payee does not give you a TIN or gives you an obviously incorrect number for a TIN. Www freefilefillableforms com Short-term obligations. Www freefilefillableforms com   Backup withholding applies to OID on a short-term obligation only when the OID is paid at maturity. Www freefilefillableforms com However, backup withholding applies to any interest payable before maturity when the interest is paid or credited. Www freefilefillableforms com   If the owner of a short-term obligation at maturity is not the original owner and can establish the purchase price of the obligation, the amount subject to backup withholding must be determined by treating the purchase price as the issue price. Www freefilefillableforms com However, you can choose to disregard that price if it would require significant manual intervention in the computer or recordkeeping system used for the obligation. Www freefilefillableforms com If the purchase price of a listed obligation is not established or is disregarded, you must use the issue price shown in Section III. Www freefilefillableforms com Long-term obligations. Www freefilefillableforms com   If no cash payments are made on a long-term obligation before maturity, backup withholding applies only at maturity. Www freefilefillableforms com The amount subject to backup withholding is the OID includible in the owner's gross income for the calendar year when the obligation matures. Www freefilefillableforms com The amount to be withheld is limited to the cash paid. Www freefilefillableforms com Registered long-term obligations with cash payments. Www freefilefillableforms com   If a registered long-term obligation has cash payments before maturity, backup withholding applies when a cash payment is made. Www freefilefillableforms com The amount subject to backup withholding is the total of the qualified stated interest (defined earlier under Definitions) and OID includible in the owner's gross income for the calendar year when the payment is made. Www freefilefillableforms com If more than one cash payment is made during the year, the OID subject to withholding for the year must be allocated among the expected cash payments in the ratio that each bears to the total of the expected cash payments. Www freefilefillableforms com For any payment, the required withholding is limited to the cash paid. Www freefilefillableforms com Payee not the original owner. Www freefilefillableforms com   If the payee is not the original owner of the obligation, the OID subject to backup withholding is the OID includible in the gross income of all owners during the calendar year (without regard to any amount paid by the new owner at the time of transfer). Www freefilefillableforms com The amount subject to backup withholding at maturity of a listed obligation must be determined using the issue price shown in Section I. Www freefilefillableforms com Bearer long-term obligations with cash payments. Www freefilefillableforms com   If a bearer long-term obligation has cash payments before maturity, backup withholding applies when the cash payments are made. Www freefilefillableforms com For payments before maturity, the amount subject to withholding is the qualified stated interest (defined earlier under Definitions) includible in the owner's gross income for the calendar year. Www freefilefillableforms com For a payment at maturity, the amount subject to withholding is only the total of any qualified stated interest paid at maturity and the OID includible in the owner's gross income for the calendar year when the obligation matures. Www freefilefillableforms com The required withholding at maturity is limited to the cash paid. Www freefilefillableforms com Sales and redemptions. Www freefilefillableforms com   If you report the gross proceeds from a sale, exchange, or redemption of a debt instrument on Form 1099-B for a calendar year, you may be required to withhold 28% of the amount reported. Www freefilefillableforms com Backup withholding applies in the following situations. Www freefilefillableforms com The payee does not give you a TIN. Www freefilefillableforms com The IRS notifies you that the payee gave an incorrect TIN. Www freefilefillableforms com For debt instruments held in an account opened after 1983, the payee does not certify, under penalties of perjury, that the TIN given is correct. Www freefilefillableforms com Payments outside the United States to U. Www freefilefillableforms com S. Www freefilefillableforms com person. Www freefilefillableforms com   The requirements for backup withholding and information reporting apply to payments of OID and interest made outside the United States to a U. Www freefilefillableforms com S. Www freefilefillableforms com person, a controlled foreign corporation, or a foreign person at least 50% of whose income for the preceding 3-year period is effectively connected with the conduct of a U. Www freefilefillableforms com S. Www freefilefillableforms com trade or business. Www freefilefillableforms com Payments to foreign person. Www freefilefillableforms com   The following discussions explain the rules for backup withholding and information reporting on payments to foreign persons. Www freefilefillableforms com U. Www freefilefillableforms com S. Www freefilefillableforms com -source amount. Www freefilefillableforms com   Backup withholding and information reporting are not required for payments of U. Www freefilefillableforms com S. Www freefilefillableforms com -source OID, interest, or proceeds from a sale or redemption of an OID instrument if the payee has given you proof (generally the appropriate Form W-8 or an acceptable substitute) that the payee is a foreign person. Www freefilefillableforms com A U. Www freefilefillableforms com S. Www freefilefillableforms com resident is not a foreign person. Www freefilefillableforms com For proof of the payee's foreign status, you can rely on the appropriate Form W-8 or on documentary evidence for payments made outside the United States to an offshore account or, in case of broker proceeds, a sale effected outside the United States. Www freefilefillableforms com Receipt of the appropriate Form W-8 does not relieve you from information reporting and backup withholding if you actually know the payee is a U. Www freefilefillableforms com S. Www freefilefillableforms com person. Www freefilefillableforms com   For information about the 28% withholding tax that may apply to payments of U. Www freefilefillableforms com S. Www freefilefillableforms com -source OID or interest to foreign persons, see Publication 515. Www freefilefillableforms com Foreign-source amount. Www freefilefillableforms com   Backup withholding and information reporting are not required for payments of foreign-source OID and interest made outside the United States. Www freefilefillableforms com However, if the payments are made inside the United States, the requirements for backup withholding and information reporting will apply unless the payee has given you the appropriate Form W-8 or acceptable substitute as proof that the payee is a foreign person. Www freefilefillableforms com More information. Www freefilefillableforms com   For more information about backup withholding and information reporting on foreign-source amounts or payments to foreign persons, see Regulations section 1. Www freefilefillableforms com 6049-5. Www freefilefillableforms com Information for Owners of OID Debt Instruments This section is for persons who prepare their own tax returns. Www freefilefillableforms com It discusses the income tax rules for figuring and reporting OID on long-term debt instruments. Www freefilefillableforms com It also includes a similar discussion for stripped bonds and coupons, such as zero coupon bonds available through the Department of the Treasury's STRIPS program and government-sponsored enterprises such as the Resolution Funding Corporation. Www freefilefillableforms com However, the information provided does not cover every situation. Www freefilefillableforms com More information can be found in the regulations under sections 1271 through 1275 of the Internal Revenue Code. Www freefilefillableforms com Including OID in income. Www freefilefillableforms com   Generally, you include OID in income as it accrues each year, whether or not you receive any payments from the debt instrument issuer. Www freefilefillableforms com Exceptions. Www freefilefillableforms com   The rules for including OID in income as it accrues generally do not apply to the following debt instruments. Www freefilefillableforms com U. Www freefilefillableforms com S. Www freefilefillableforms com savings bonds. Www freefilefillableforms com Tax-exempt obligations. Www freefilefillableforms com (However, see Tax-Exempt Bonds and Coupons, later. Www freefilefillableforms com ) Obligations issued by individuals before March 2, 1984. Www freefilefillableforms com Loans of $10,000 or less between individuals who are not in the business of lending money. Www freefilefillableforms com (The dollar limit includes outstanding prior loans by the lender to the borrower. Www freefilefillableforms com ) This exception does not apply if a principal purpose of the loan is to avoid any federal tax. Www freefilefillableforms com   See chapter 1 of Publication 550 for information about the rules for these and other types of discounted debt instruments, such as short-term and market discount obligations. Www freefilefillableforms com Publication 550 also discusses rules for holders of REMIC interests and CDOs. Www freefilefillableforms com De minimis rule. Www freefilefillableforms com   You can treat OID as zero if the total OID on a debt instrument is less than one-fourth of 1% (. Www freefilefillableforms com 0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. Www freefilefillableforms com Debt instruments with de minimis OID are not listed in this publication. Www freefilefillableforms com There are special rules to determine the de minimis amount in the case of debt instruments that provide for more than one payment of principal. Www freefilefillableforms com Also, the de minimis rules generally do not apply to tax-exempt obligations. Www freefilefillableforms com Example 2. Www freefilefillableforms com You bought at issuance a 10-year debt instrument with a stated redemption price at maturity of $1,000, issued at $980 with OID of $20. Www freefilefillableforms com One-fourth of 1% of $1,000 (the stated redemption price) times 10 (the number of full years from the date of original issue to maturity) equals $25. Www freefilefillableforms com Under the de minimis rule, you can treat the OID as zero because the $20 discount is less than $25. Www freefilefillableforms com Example 3. Www freefilefillableforms com Assume the same facts as Example 2, except the debt instrument was issued at $950. Www freefilefillableforms com You must report part of the $50 OID each year because it is more than $25. Www freefilefillableforms com Choice to report all interest as OID. Www freefilefillableforms com   Generally, you can choose to treat all interest on a debt instrument acquired after April 3, 1994, as OID and include it in gross income by using the constant yield method. Www freefilefillableforms com See Constant yield method under Debt Instruments Issued After 1984, later, for more information. Www freefilefillableforms com   For this choice, interest includes stated interest, acquisition discount, OID, de minimis OID, market discount, de minimis market discount, and unstated interest, as adjusted by any amortizable bond premium or acquisition premium. Www freefilefillableforms com For more information, see Regulations section 1. Www freefilefillableforms com 1272-3. Www freefilefillableforms com Purchase after date of original issue. Www freefilefillableforms com   A debt instrument you purchased after the date of original issue may have premium, acquisition premium, or market discount. Www freefilefillableforms com If so, the OID reported to you on Form 1099-OID may have to be adjusted. Www freefilefillableforms com For more information, see Showing an OID adjustment under How To Report OID, later. Www freefilefillableforms com The following rules generally do not apply to contingent payment debt instruments. Www freefilefillableforms com Adjustment for premium. Www freefilefillableforms com   If your debt instrument (other than an inflation-indexed debt instrument) has premium, do not report any OID as ordinary income. Www freefilefillableforms com Your adjustment is the total OID shown on your Form 1099-OID. Www freefilefillableforms com Adjustment for acquisition premium. Www freefilefillableforms com   If your debt instrument has acquisition premium, reduce the OID you report. Www freefilefillableforms com Your adjustment is the difference between the OID shown on your Form 1099-OID and the reduced OID amount figured using the rules explained later under Figuring OID on Long-Term Debt Instruments. Www freefilefillableforms com Adjustment for market discount. Www freefilefillableforms com   If your debt instrument has market discount that you choose to include in income currently, increase the OID you report. Www freefilefillableforms com Your adjustment is the accrued market discount for the year. Www freefilefillableforms com See Market Discount Bonds in chapter 1 of Publication 550 for information on how to figure accrued market discount and include it in your income currently and for other information about market discount bonds. Www freefilefillableforms com If you choose to use the constant yield method to figure accrued market discount, also see Figuring OID on Long-Term Debt Instruments, later. Www freefilefillableforms com The constant yield method of figuring accrued OID, explained in those discussions under Constant yield method, is also used to figure accrued market discount. Www freefilefillableforms com For more information concerning premium or market discount on an inflation-indexed debt instrument, see Regulations section 1. Www freefilefillableforms com 1275-7. Www freefilefillableforms com Sale, exchange, or redemption. Www freefilefillableforms com   Generally, you treat your gain or loss from the sale, exchange, or redemption of a discounted debt instrument as a capital gain or loss if you held the debt instrument as a capital asset. Www freefilefillableforms com If you sold the debt instrument through a broker, you should receive Form 1099-B or an equivalent statement from the broker. Www freefilefillableforms com Use the Form 1099-B or other statement and your brokerage statements to complete Form 8949, and Schedule D (Form 1040). Www freefilefillableforms com   Your gain or loss is the difference between the amount you realized on the sale, exchange, or redemption and your basis in the debt instrument. Www freefilefillableforms com Your basis, generally, is your cost increased by the OID you have included in income each year you held it. Www freefilefillableforms com In general, to determine your gain or loss on a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. Www freefilefillableforms com   See chapter 4 of Publication 550 for more information about the tax treatment of the sale or redemption of discounted debt instruments. Www freefilefillableforms com Example 4. Www freefilefillableforms com Larry, a calendar year taxpayer, bought a corporate debt instrument at original issue for $86,235. Www freefilefillableforms com 00 on November 1 of Year 1. Www freefilefillableforms com The 15-year debt instrument matures on October 31 of Year 16 at a stated redemption price of $100,000. Www freefilefillableforms com The debt instrument provides for semiannual payments of interest at 10%. Www freefilefillableforms com Assume the debt instrument is a capital asset in Larry's hands. Www freefilefillableforms com The debt instrument has $13,765. Www freefilefillableforms com 00 of OID ($100,000 stated redemption price at maturity minus $86,235. Www freefilefillableforms com 00 issue price). Www freefilefillableforms com Larry sold the debt instrument for $90,000 on November 1 of Year 4. Www freefilefillableforms com Including the OID he will report for the period he held the debt instrument in Year 4, Larry has included $4,556. Www freefilefillableforms com 00 of OID in income and has increased his basis by that amount to $90,791. Www freefilefillableforms com 00. Www freefilefillableforms com Larry has realized a loss of $791. Www freefilefillableforms com 00. Www freefilefillableforms com All of Larry's loss is capital loss. Www freefilefillableforms com Form 1099-OID The issuer of the debt instrument (or your broker, if you purchased or held the debt instrument through a broker) should give you a copy of Form 1099-OID or a similar statement if the accrued OID for the calendar year is $10 or more and the term of the debt instrument is more than 1 year. Www freefilefillableforms com Form 1099-OID shows all OID income in box 1 except OID on a U. Www freefilefillableforms com S. Www freefilefillableforms com Treasury obligation, which is shown in box 8. Www freefilefillableforms com It also shows, in box 2, any qualified stated interest you must include in income. Www freefilefillableforms com (However, any qualified stated interest on Treasury inflation-protected securities can be reported on Form 1099-INT in box 3. Www freefilefillableforms com ) A copy of Form 1099-OID will be sent to the IRS. Www freefilefillableforms com Do not attach your copy to your tax return. Www freefilefillableforms com Keep it for your records. Www freefilefillableforms com If you are required to file a tax return and you receive Form 1099-OID showing taxable amounts, you must report these amounts on your return. Www freefilefillableforms com A 20% accuracy-related penalty may be charged for underpayment of tax due to either negligence or disregard of rules and regulations or substantial understatement of tax. Www freefilefillableforms com Form 1099-OID not received. Www freefilefillableforms com   If you held an OID debt instrument for a calendar year but did not receive a Form 1099-OID, refer to the discussions under Figuring OID on Long-Term Debt Instruments, later, for information on the OID you must report. Www freefilefillableforms com Refiguring OID. Www freefilefillableforms com   You must refigure the OID shown on Form 1099-OID, in box 1 or box 8, to determine the proper amount to include in income if one of the following applies. Www freefilefillableforms com You bought the debt instrument at a premium or at an acquisition premium. Www freefilefillableforms com The debt instrument is a stripped bond or coupon (including zero coupon bonds backed by U. Www freefilefillableforms com S. Www freefilefillableforms com Treasury securities). Www freefilefillableforms com The debt instrument is a contingent payment or inflation-indexed debt instrument. Www freefilefillableforms com See the discussions under Figuring OID on Long-Term Debt Instruments or Figuring OID on Stripped Bonds and Coupons, later, for the specific computations. Www freefilefillableforms com Refiguring interest. Www freefilefillableforms com   If you disposed of a debt instrument or acquired it from another holder between interest dates, see the discussion under Bonds Sold Between Interest Dates in chapter 1 of Publication 550 for information about refiguring the interest shown on Form 1099-OID in box 2. Www freefilefillableforms com Nominee. Www freefilefillableforms com   If you are the holder of an OID debt instrument and you receive a Form 1099-OID that shows your taxpayer identification number and includes amounts belonging to another person, you are considered a “nominee. Www freefilefillableforms com ” You must file another Form 1099-OID for each actual owner, showing the OID for the owner. Www freefilefillableforms com Show the owner of the debt instrument as the “recipient” and you as the “payer. Www freefilefillableforms com ”   Complete Form 1099-OID and Form 1096 and file the forms with the Internal Revenue Service Center for your area. Www freefilefillableforms com You must also give a copy of the Form 1099-OID to the actual owner. Www freefilefillableforms com However, you are not required to file a nominee return to show amounts belonging to your spouse. Www freefilefillableforms com See the Form 1099 instructions for more information. Www freefilefillableforms com   When preparing your tax return, follow the instructions under Showing an OID adjustment in the next discussion. Www freefilefillableforms com How To Report OID Generally, you report your taxable interest and OID income on the interest line of Form 1040EZ, Form 1040A, or Form 1040. Www freefilefillableforms com Form 1040 or Form 1040A required. Www freefilefillableforms com   You must use Form 1040 or Form 1040A (you cannot use Form 1040EZ) under either of the following conditions. Www freefilefillableforms com You received a Form 1099-OID as a nominee for the actual owner. Www freefilefillableforms com Your total interest and OID income for the year was more than $1,500. Www freefilefillableforms com Form 1040 required. Www freefilefillableforms com   You must use Form 1040 (you cannot use Form 1040A or Form 1040EZ) if you are reporting more or less OID than the amount shown on Form 1099-OID, other than because you are a nominee. Www freefilefillableforms com For example, if you paid a premium or an acquisition premium when you purchased the debt instrument, you must use Form 1040 because you will report less OID than shown on Form 1099-OID. Www freefilefillableforms com Also, you must use Form 1040 if you were charged an early withdrawal penalty. Www freefilefillableforms com Where to report. Www freefilefillableforms com   List each payer's name (if a brokerage firm gave you a Form 1099, list the brokerage firm as the payer) and the amount received from each payer on Form 1040A, Schedule B, Part I, line 1, or Form 1040, Schedule B, line 1. Www freefilefillableforms com Include all OID and periodic interest shown on any Form 1099-OID, boxes 1, 2, and 8, you received for the tax year. Www freefilefillableforms com Also include any other OID and interest income for which you did not receive a Form 1099. Www freefilefillableforms com Showing an OID adjustment. Www freefilefillableforms com   If you use Form 1040 to report more or less OID than shown on Form 1099-OID, list the full OID on Schedule B, Part I, line 1, and follow the instructions under 1 or 2, next. Www freefilefillableforms com   If you use Form 1040A to report the OID shown on a Form 1099-OID you received as a nominee for the actual owner, list the full OID on Schedule B, Part I, line 1 and follow the instructions under 1. Www freefilefillableforms com If the OID, as adjusted, is less than the amount shown on Form 1099-OID, show the adjustment as follows. Www freefilefillableforms com Under your last entry on line 1, subtotal all interest and OID income listed on line 1. Www freefilefillableforms com Below the subtotal, write “Nominee Distribution” or “OID Adjustment” and show the OID you are not required to report. Www freefilefillableforms com Subtract that OID from the subtotal and enter the result on line 2. Www freefilefillableforms com If the OID, as adjusted, is more than the amount shown on Form 1099-OID, show the adjustment as follows. Www freefilefillableforms com Under your last entry on line 1, subtotal all interest and OID income listed on line 1. Www freefilefillableforms com Below the subtotal, write “OID Adjustment” and show the additional OID. Www freefilefillableforms com Add that OID to the subtotal and enter the result on line 2. Www freefilefillableforms com Figuring OID on Long-Term Debt Instruments How you figure the OID on a long-term debt instrument depends on the date it was issued. Www freefilefillableforms com It also may depend on the type of the debt instrument. Www freefilefillableforms com There are different rules for each of the following debt instruments. Www freefilefillableforms com Corporate debt instruments issued after 1954 and before May 28, 1969, and government debt instruments issued after 1954 and before July 2, 1982. Www freefilefillableforms com Corporate debt instruments issued after May 27, 1969, and before July 2, 1982. Www freefilefillableforms com Debt instruments issued after July 1, 1982, and before 1985. Www freefilefillableforms com Debt instruments issued after 1984 (other than debt instruments described in (5) and (6)). Www freefilefillableforms com Contingent payment debt instruments issued after August 12, 1996. Www freefilefillableforms com Inflation-indexed debt instruments (including Treasury inflation-protected securities) issued after January 5, 1997. Www freefilefillableforms com Zero coupon bonds. Www freefilefillableforms com   The rules for figuring OID on zero coupon bonds backed by U. Www freefilefillableforms com S. Www freefilefillableforms com Treasury securities are discussed under Figuring OID on Stripped Bonds and Coupons, later. Www freefilefillableforms com Corporate Debt Instruments Issued After 1954 and Before May 28, 1969, and Government Debt Instruments Issued After 1954 and Before July 2, 1982 If you hold these debt instruments as capital assets, you include OID in income only in the year the debt instrument is sold, exchanged, or redeemed, and only if you have a gain. Www freefilefillableforms com The OID, which is taxed as ordinary income, generally equals the following amount. Www freefilefillableforms com   number of full months you held the debt instrument  number of full months from date of original issue to date of maturity X original issue discount The balance of the gain is capital gain. Www freefilefillableforms com If there is a loss on the sale of the debt instrument, the entire loss is a capital loss and no OID is reported. Www freefilefillableforms com Corporate Debt Instruments Issued After May 27, 1969, and Before July 2, 1982 If you hold these debt instruments as capital assets, you must include part of the OID in income each year you own the debt instruments. Www freefilefillableforms com For information about showing the correct OID on your tax return, see the discussion under How To Report OID, earlier. Www freefilefillableforms com Your basis in the debt instrument is increased by the OID you include in income. Www freefilefillableforms com Form 1099-OID. Www freefilefillableforms com   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. Www freefilefillableforms com However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Www freefilefillableforms com See Reduction for acquisition premium, later. Www freefilefillableforms com If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-A available at www. Www freefilefillableforms com irs. Www freefilefillableforms com gov/pub1212 by clicking the link under Recent Developments. Www freefilefillableforms com Form 1099-OID not received. Www freefilefillableforms com    The OID listed is for each $1,000 of redemption price. Www freefilefillableforms com You must adjust the listed amount if your debt instrument has a different principal amount. Www freefilefillableforms com For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Www freefilefillableforms com   If you held the debt instrument the entire year, use the OID shown in Section I-A for a calendar year. Www freefilefillableforms com (If your debt instrument is not listed in Section I-A, consult the issuer for information about the issue price and the OID that accrued for that year. Www freefilefillableforms com ) If you did not hold the debt instrument the entire year, figure your OID using the following method. Www freefilefillableforms com Divide the OID shown by 12. Www freefilefillableforms com Multiply the result in (1) by the number of complete and partial months (for example, 6½ months) you held the debt instrument during a calendar year. Www freefilefillableforms com This is the OID to include in income unless you paid an acquisition premium. Www freefilefillableforms com The reduction for acquisition premium is discussed next. Www freefilefillableforms com Reduction for acquisition premium. Www freefilefillableforms com   If you bought the debt instrument at an acquisition premium, figure the OID to include in income as follows. Www freefilefillableforms com Divide the total OID on the debt instrument by the number of complete months, and any part of a month, from the date of original issue to the maturity date. Www freefilefillableforms com This is the monthly OID. Www freefilefillableforms com Subtract from your cost the issue price and the accumulated OID from the date of issue to the date of purchase. Www freefilefillableforms com (If the result is zero or less, stop here. Www freefilefillableforms com You did not pay an acquisition premium. Www freefilefillableforms com ) Divide the amount figured in (2) by the number of complete months, and any part of a month, from the date of your purchase to the maturity date. Www freefilefillableforms com Subtract the amount figured in (3) from the amount figured in (1). Www freefilefillableforms com This is the OID to include in income for each month you hold the debt instrument during the year. Www freefilefillableforms com Transfers during the month. Www freefilefillableforms com   If you buy or sell a debt instrument on any day other than the same day of the month as the date of original issue, the ratable monthly portion of OID for the month of sale is divided between the seller and the buyer according to the number of days each held the debt instrument. Www freefilefillableforms com Your holding period for this purpose begins the day you acquire the debt instrument and ends the day before you dispose of it. Www freefilefillableforms com Debt Instruments Issued After July 1, 1982, and Before 1985 If you hold these debt instruments as capital assets, you must include part of the OID in income each year you own the debt instruments and increase your basis by the amount included. Www freefilefillableforms com For information about showing the correct OID on your tax return, see How To Report OID, earlier. Www freefilefillableforms com Form 1099-OID. Www freefilefillableforms com   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. Www freefilefillableforms com However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Www freefilefillableforms com See Constant yield method and the discussions on acquisition premium that follow, later. Www freefilefillableforms com If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-A available at www. Www freefilefillableforms com irs. Www freefilefillableforms com gov/pub1212 by clicking the link under Recent Developments. Www freefilefillableforms com Form 1099-OID not received. Www freefilefillableforms com    The OID listed is for each $1,000 of redemption price. Www freefilefillableforms com You must adjust the listed amount if your debt instrument has a different principal amount. Www freefilefillableforms com For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Www freefilefillableforms com   If you held the debt instrument the entire year, use the OID shown in Section I-A. Www freefilefillableforms com (If your instrument is not listed in Section I-A, consult the issuer for information about the issue price, the yield to maturity, and the OID that accrued for that year. Www freefilefillableforms com ) If you did not hold the debt instrument the entire year, figure your OID using either of the following methods. Www freefilefillableforms com Method 1. Www freefilefillableforms com    Divide the total OID for a calendar year by 365 (366 for leap years). Www freefilefillableforms com Multiply the result in (1) by the number of days you held the debt instrument during that particular year. Www freefilefillableforms com  This computation is an approximation and may result in a slightly higher OID than Method 2. Www freefilefillableforms com Method 2. Www freefilefillableforms com    Look up the daily OID for the first accrual period you held the debt instrument during a calendar year. Www freefilefillableforms com (See Accrual period under Constant yield method, next. Www freefilefillableforms com ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. Www freefilefillableforms com If you held the debt instrument for part of both accrual periods, repeat (1) and (2) for the second accrual period. Www freefilefillableforms com Add the results of (2) and (3). Www freefilefillableforms com This is the OID to include in income, unless you paid an acquisition premium. Www freefilefillableforms com (The reduction for acquisition premium is discussed later. Www freefilefillableforms com ) Constant yield method. Www freefilefillableforms com   This discussion shows how to figure OID on debt instruments issued after July 1, 1982, and before 1985, using a constant yield method. Www freefilefillableforms com OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. Www freefilefillableforms com   Figure the OID allocable to any accrual period as follows. Www freefilefillableforms com Multiply the adjusted issue price at the beginning of the accrual period by the debt instrument's yield to maturity. Www freefilefillableforms com Subtract from the result in (1) any qualified stated interest allocable to the accrual period. Www freefilefillableforms com Accrual period. Www freefilefillableforms com   An accrual period for any OID debt instrument issued after July 1, 1982, and before 1985 is each 1-year period beginning on the date of the issue of the obligation and each anniversary thereafter, or the shorter period to maturity for the last accrual period. Www freefilefillableforms com Your tax year will usually include parts of two accrual periods. Www freefilefillableforms com Daily OID. Www freefilefillableforms com   The OID for any accrual period is allocated equally to each day in the accrual period. Www freefilefillableforms com You must include in income the sum of the OID amounts for each day you hold the debt instrument during the year. Www freefilefillableforms com If your tax year includes parts of two or more accrual periods, you must include the proper daily OID amounts for each accrual period. Www freefilefillableforms com Figuring daily OID. Www freefilefillableforms com   The daily OID for the initial accrual period is figured using the following formula. Www freefilefillableforms com   (ip × ytm) − qsi     p   ip = issue price ytm = yield to maturity qsi = qualified stated interest p = number of days in accrual period         The daily OID for subsequent accrual periods is figured the same way except the adjusted issue price at the beginning of each period is used in the formula instead of the issue price. Www freefilefillableforms com Reduction for acquisition premium on debt instruments purchased before July 19, 1984. Www freefilefillableforms com   If you bought the debt instrument at an acquisition premium before July 19, 1984, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Www freefilefillableforms com Figure the daily acquisition premium by dividing the total acquisition premium by the number of days in the period beginning on your purchase date and ending on the day before the date of maturity. Www freefilefillableforms com Reduction for acquisition premium on debt instruments purchased after July 18, 1984. Www freefilefillableforms com   If you bought the debt instrument at an acquisition premium after July 18, 1984, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Www freefilefillableforms com However, the method of figuring the daily acquisition premium is different from the method described in the preceding discussion. Www freefilefillableforms com To figure the daily acquisition premium under this method, multiply the daily OID by the following fraction. Www freefilefillableforms com The numerator is the acquisition premium. Www freefilefillableforms com The denominator is the total OID remaining for the debt instrument after your purchase date. Www freefilefillableforms com Section I-A is available at www. Www freefilefillableforms com irs. Www freefilefillableforms com gov/pub1212 and clicking the link under Recent Developments. Www freefilefillableforms com Using Section I-A to figure accumulated OID. Www freefilefillableforms com   If you bought your corporate debt instrument in a calendar year or the subsequent year, you can figure the accumulated OID to the date of purchase by adding the following amounts. Www freefilefillableforms com The amount from the “Total OID to January 1, YYYY” column for your debt instrument. Www freefilefillableforms com The OID from January 1 of a calendar year to the date of purchase, figured as follows. Www freefilefillableforms com Multiply the daily OID for the first accrual period in the calendar year by the number of days from January 1 to the date of purchase, or the end of the accrual period if the debt instrument was purchased in the second or third accrual period. Www freefilefillableforms com Multiply the daily OID for each subsequent accrual period by the number of days in the period to the date of purchase or the end of the accrual period, whichever applies. Www freefilefillableforms com Add the amounts figured in (2a) and (2b). Www freefilefillableforms com Debt Instruments Issued After 1984 If you hold debt instruments issued after 1984, you must report part of the OID in gross income each year that you own the debt instruments. Www freefilefillableforms com You must include the OID in gross income whether or not you hold the debt instrument as a capital asset. Www freefilefillableforms com Your basis in the debt instrument is increased by the OID you include in income. Www freefilefillableforms com For information about showing the correct OID on your tax return, see How To Report OID, earlier. Www freefilefillableforms com Form 1099-OID. Www freefilefillableforms com   You should receive a Form 1099-OID showing OID for the part of a calendar year you held the debt instrument. Www freefilefillableforms com However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Www freefilefillableforms com See Constant yield method and Reduction for acquisition premium, later. Www freefilefillableforms com   You may also need to refigure the OID for a contingent payment or inflation-indexed debt instrument on which the amount reported on Form 1099-OID is inaccurate. Www freefilefillableforms com See Contingent Payment Debt Instruments or Inflation-Indexed Debt Instruments, later. Www freefilefillableforms com If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-B available at www. Www freefilefillableforms com irs. Www freefilefillableforms com gov/pub1212 by clicking the link under Recent Developments. Www freefilefillableforms com Form 1099-OID not received. Www freefilefillableforms com   The OID listed is for each $1,000 of redemption price. Www freefilefillableforms com You must adjust the listed amount if your debt instrument has a different principal amount. Www freefilefillableforms com For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Www freefilefillableforms com   Use the OID shown in Section I-B for a calendar year if you held the debt instrument the entire year. Www freefilefillableforms com (If your debt instrument is not listed in Section I-B, consult the issuer for information about the issue price, the yield to maturity, and the OID that accrued for that year. Www freefilefillableforms com ) If you did not hold the debt instrument the entire year, figure your OID as follows. Www freefilefillableforms com Look up the daily OID for the first accrual period in which you held the debt instrument during a calendar year. Www freefilefillableforms com (See Accrual period under Constant yield method, later. Www freefilefillableforms com ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. Www freefilefillableforms com Repeat (1) and (2) for any remaining accrual periods in which you held the debt instrument. Www freefilefillableforms com Add the results of (2) and (3). Www freefilefillableforms com This is the OID to include in income for that year, unless you paid an acquisition premium. Www freefilefillableforms com (The reduction for acquisition premium is discussed later. Www freefilefillableforms com ) Tax-exempt bond. Www freefilefillableforms com   If you own a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. Www freefilefillableforms com You need to make this adjustment to determine if you have a gain or loss on a later disposition of the bond. Www freefilefillableforms com In general, use the rules that follow to determine your OID. Www freefilefillableforms com Constant yield method. Www freefilefillableforms com   This discussion shows how to figure OID on debt instruments issued after 1984 using a constant yield method. Www freefilefillableforms com (The special rules that apply to contingent payment debt instruments and inflation-indexed debt instruments are explained later. Www freefilefillableforms com ) OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. Www freefilefillableforms com   Figure the OID allocable to any accrual period as follows. Www freefilefillableforms com Multiply the adjusted issue price at the beginning of the accrual period by a fraction. Www freefilefillableforms com The numerator of the fraction is the debt instrument's yield to maturity and the denominator is the number of accrual periods per year. Www freefilefillableforms com The yield must be stated appropriately taking into account the length of the particular accrual period. Www freefilefillableforms com Subtract from the result in (1) any qualified stated interest allocable to the accrual period. Www freefilefillableforms com Accrual period. Www freefilefillableforms com   For debt instruments issued after 1984 and before April 4, 1994, an accrual period is each 6-month period that ends on the day that corresponds to the stated maturity date of the debt instrument or the date 6 months before that date. Www freefilefillableforms com For example, a debt instrument maturing on March 31 has accrual periods that end on September 30 and March 31 of each calendar year. Www freefilefillableforms com Any short period is included as the first accrual period. Www freefilefillableforms com   For debt instruments issued after April 3, 1994, accrual periods may be of any length and may vary in length over the term of the debt instrument, as long as each accrual period is no longer than 1 year and all payments are made on the first or last day of an accrual period. Www freefilefillableforms com However, the OID listed for these debt instruments in Section I-B has been figured using 6-month accrual periods. Www freefilefillableforms com Daily OID. Www freefilefillableforms com   The OID for any accrual period is allocated equally to each day in the accrual period. Www freefilefillableforms com Figure the amount to include in income by adding the OID for each day you hold the debt instrument during the year. Www freefilefillableforms com Since your tax year will usually include parts of two or more accrual periods, you must include the proper daily OID for each accrual period. Www freefilefillableforms com If your debt instrument has 6-month accrual periods, your tax year will usually include one full 6-month accrual period and parts of two other 6-month periods. Www freefilefillableforms com Figuring daily OID. Www freefilefillableforms com   The daily OID for the initial accrual period is figured using the following formula. Www freefilefillableforms com   (ip × ytm/n) − qsi     p   ip = issue price ytm = yield to maturity n = number of accrual periods in 1 year qsi = qualified stated interest p = number of days in accrual period       The daily OID for subsequent accrual periods is figured the same way except the adjusted issue price at the beginning of each period is used in the formula instead of the issue price. Www freefilefillableforms com Example 5. Www freefilefillableforms com On January 1 of Year 1, you bought a 15-year, 10% debt instrument of A Corporation at original issue for $86,235. Www freefilefillableforms com 17. Www freefilefillableforms com According to the prospectus, the debt instrument matures on December 31 of Year 15 at a stated redemption price of $100,000. Www freefilefillableforms com The yield to maturity is 12%, compounded semiannually. Www freefilefillableforms com The debt instrument provides for qualified stated interest payments of $5,000 on June 30 and December 31 of each calendar year. Www freefilefillableforms com The accrual periods are the 6-month periods ending on each of these dates. Www freefilefillableforms com The number of days for the first accrual period (January 1 through June 30) is 181 days (182 for leap years). Www freefilefillableforms com The daily OID for the first accrual period is figured as follows. Www freefilefillableforms com   ($86,235. Www freefilefillableforms com 17 x . Www freefilefillableforms com 12/2) – $5,000     181 days     = $174. Www freefilefillableforms com 11020 = $. Www freefilefillableforms com 96193   181           The adjusted issue price at the beginning of the second accrual period is the issue price plus the OID previously includible in income ($86,235. Www freefilefillableforms com 17 + $174. Www freefilefillableforms com 11), or $86,409. Www freefilefillableforms com 28. Www freefilefillableforms com The number of days for the second accrual period (July 1 through December 31) is 184 days. Www freefilefillableforms com The daily OID for the second accrual period is figured as follows. Www freefilefillableforms com   ($86,409. Www freefilefillableforms com 28 x . Www freefilefillableforms com 12/2) – $5,000     184 days     = $184. Www freefilefillableforms com 55681 = $1. Www freefilefillableforms com 00303   184 Since the first and second accrual periods coincide exactly with your tax year, you include in income for Year 1 the OID allocable to the first two accrual periods, $174. Www freefilefillableforms com 11 ($. Www freefilefillableforms com 95665 × 182 days) plus $184. Www freefilefillableforms com 56 ($1. Www freefilefillableforms com 00303 × 184 days), or $358. Www freefilefillableforms com 67. Www freefilefillableforms com Add the OID to the $10,000 interest you report on your income tax return for Year 1. Www freefilefillableforms com Example 6. Www freefilefillableforms com Assume the same facts as in Example 5, except that you bought the debt instrument at original issue on May 1 of Year 1, with a maturity date of April 30, Year 16. Www freefilefillableforms com Also, the interest payment dates are October 31 and April 30 of each calendar year. Www freefilefillableforms com The accrual periods are the 6-month periods ending on each of these dates. Www freefilefillableforms com The number of days for the first accrual period (May 1 through October 31) is 184 days. Www freefilefillableforms com The daily OID for the first accrual period is figured as follows. Www freefilefillableforms com   ($86,235. Www freefilefillableforms com 17 x . Www freefilefillableforms com 12/2) – $5,000     184 days     = $174. Www freefilefillableforms com 11020 = $. Www freefilefillableforms com 94625   184           The number of days for the second accrual period (November 1 through April 30) is 181 days (182 for leap years). Www freefilefillableforms com The daily OID for the second accrual period is figured as follows. Www freefilefillableforms com   ($86,409. Www freefilefillableforms com 28 x . Www freefilefillableforms com 12/2) – $5,000     181 days     = $184. Www freefilefillableforms com 55681 = $1. Www freefilefillableforms com 01965   181 If you hold the debt instrument through the end of Year 1, you must include $236. Www freefilefillableforms com 31 of OID in income. Www freefilefillableforms com This is $174. Www freefilefillableforms com 11 ($. Www freefilefillableforms com 94625 × 184 days) for the period May 1 through October 31 plus $62. Www freefilefillableforms com 20 ($1. Www freefilefillableforms com 01965 × 61 days) for the period November 1 through December 31. Www freefilefillableforms com The OID is added to the $5,000 interest income paid on October 31 of Year 1. Www freefilefillableforms com Your basis in the debt instrument is increased by the OID you include in income. Www freefilefillableforms com On January 1 of Year 2, your basis in the A Corporation debt instrument is $86,471. Www freefilefillableforms com 48 ($86,235. Www freefilefillableforms com 17 + $236. Www freefilefillableforms com 31). Www freefilefillableforms com Short first accrual period. Www freefilefillableforms com   You may have to make adjustments if a debt instrument has a short first accrual period. Www freefilefillableforms com For example, a debt instrument with 6-month accrual periods that is issued on February 15 and matures on October 31 has a short first accrual period that ends April 30. Www freefilefillableforms com (The remaining accrual periods begin on May 1 and November 1. Www freefilefillableforms com ) For this short period, figure the daily OID as described earlier, but adjust the yield for the length of the short accrual period. Www freefilefillableforms com You may use any reasonable compounding method in determining OID for a short period. Www freefilefillableforms com Examples of reasonable compounding methods include continuous compounding and monthly compounding (that is, simple interest within a month). Www freefilefillableforms com Consult your tax advisor for more information about making this computation. Www freefilefillableforms com   The OID for the final accrual period is the difference between the amount payable at maturity (other than a payment of qualified stated interest) and the adjusted issue price at the beginning of the final accrual period. Www freefilefillableforms com Reduction for acquisition premium. Www freefilefillableforms com   If you bought the debt instrument at an acquisition premium, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Www freefilefillableforms com To figure the daily acquisition premium, multiply the daily OID by the following fraction. Www freefilefillableforms com The numerator is the acquisition premium. Www freefilefillableforms com The denominator is the total OID remaining for the debt instrument after your purchase date. Www freefilefillableforms com Example 7. Www freefilefillableforms com Assume the same facts as in Example 6, except that you bought the debt instrument on November 1 of Year 1 for $87,000, after its original issue on May 1 of Year 1. Www freefilefillableforms com The adjusted issue price on November 1 of Year 1 is $86,409. Www freefilefillableforms com 28 ($86,235. Www freefilefillableforms com 17 + $174. Www freefilefillableforms com 11). Www freefilefillableforms com In this case, you paid an acquisition premium of $590. Www freefilefillableforms com 72 ($87,000 − $86,409. Www freefilefillableforms com 28). Www freefilefillableforms com The daily OID for the accrual period November 1 through April 30, reduced for the acquisition premium, is figured as follows. Www freefilefillableforms com 1) Daily OID on date of purchase (2nd accrual period) $1. Www freefilefillableforms com 01965*  2)  Acquisition premium $590. Www freefilefillableforms com 72    3)  Total OID remaining after purchase date ($13,764. Www freefilefillableforms com 83 − $174. Www freefilefillableforms com 11) 13,590. Www freefilefillableforms com 72   4) Line 2 ÷ line 3 . Www freefilefillableforms com 04346  5)  Line 1 × line 4 . Www freefilefillableforms com 04432  6)  Daily OID reduced for the acquisition premium. Www freefilefillableforms com Line 1 − line 5 $0. Www freefilefillableforms com 97533  * As shown in Example 6. Www freefilefillableforms com The total OID to include in income for Year 1 is $59. Www freefilefillableforms com 50 ($. Www freefilefillableforms com 97533 × 61 days). Www freefilefillableforms com Contingent Payment Debt Instruments This discussion shows how to figure OID on a contingent payment debt instrument issued after August 12, 1996, that was issued for cash or publicly traded property. Www freefilefillableforms com In general, a contingent payment debt instrument provides for one or more payments that are contingent as to timing or amount. Www freefilefillableforms com If you hold a contingent payment bond, you must report OID as it accrues each year. Www freefilefillableforms com Because the actual payments on a contingent payment debt instrument cannot be known in advance, issuers and holders cannot use the constant yield method (discussed earlier under Debt Instruments Issued After 1984) without making certain assumptions about the payments on the debt instrument. Www freefilefillableforms com To figure OID accruals on contingent payment debt instruments, holders and issuers must use the noncontingent bond method. Www freefilefillableforms com Noncontingent bond method. Www freefilefillableforms com    Under this method, the issuer must compute a comparable yield for the debt instrument and, based on this yield, construct a projected payment schedule for the instrument, which includes a projected fixed amount for each contingent payment. Www freefilefillableforms com In general, holders and issuers accrue OID on this projected payment schedule using the constant yield method that applies to fixed payment debt instruments. Www freefilefillableforms com When a contingent payment differs from the projected fixed amount, the holders and issuers make adjustments to their OID accruals. Www freefilefillableforms com If the actual contingent payment is larger than expected, both the issuer and the holder increase their OID accruals. Www freefilefillableforms com If the actual contingent payment is smaller than expected, holders and issuers generally decrease their OID accruals. Www freefilefillableforms com Form 1099-OID. Www freefilefillableforms com   The amount shown on Form 1099-OID in box 1 you receive for a contingent payment debt instrument may not be the correct amount to include in income. Www freefilefillableforms com For example, the amount may not be correct if the contingent payment was different from the projected amount. Www freefilefillableforms com If the amount in box 1 is not correct, you must figure the OID to report on your return under the following rules. Www freefilefillableforms com For information on showing an OID adjustment on your tax return, see How To Report OID, earlier. Www freefilefillableforms com Figuring OID. Www freefilefillableforms com   To figure OID on a contingent payment debt instrument, you need to know the “comparable yield” and “projected payment schedule” of the debt instrument. Www freefilefillableforms com The issuer must make these available to you. Www freefilefillableforms com Comparable yield. Www freefilefillableforms com   The comparable yield generally is the yield at which the issuer would issue a fixed rate debt instrument with terms and conditions similar to those of the contingent payment debt instrument. Www freefilefillableforms com The comparable yield is determined as of the debt instrument's issue date. Www freefilefillableforms com Projected payment schedule. Www freefilefillableforms com   The projected payment schedule for a contingent payment debt instrument includes all fixed payments due under the instrument and a projected fixed amount for each contingent payment. Www freefilefillableforms com The projected payment schedule is created by the issuer as of the debt instrument's issue date. Www freefilefillableforms com It is used to determine the issuer's and holder's interest accruals and adjustments. Www freefilefillableforms com Steps for figuring OID. Www freefilefillableforms com   Figure the OID on a contingent payment debt instrument in two steps. Www freefilefillableforms com Figure the OID using the constant yield method (discussed earlier under Debt Instruments Issued After 1984 ) that applies to fixed payment debt instruments. Www freefilefillableforms com Use the comparable yield as the yield to maturity. Www freefilefillableforms com In general, use the projected payment schedule to determine the instrument's adjusted issue price at the beginning of each accrual period (other than the initial period). Www freefilefillableforms com Do not treat any amount payable as qualified stated interest. Www freefilefillableforms com Adjust the OID in (1) to account for actual contingent payments. Www freefilefillableforms com If the contingent payment is greater than the projected fixed amount, you have a positive adjustment. Www freefilefillableforms com If the contingent payment is less than the projected fixed amount, you have a negative adjustment. Www freefilefillableforms com Net positive adjustment. Www freefilefillableforms com   A net positive adjustment exists for a tax year when the total of any positive adjustments described in (2) above for the tax year is more than the total of any negative adjustments for the tax year. Www freefilefillableforms com Treat a net positive adjustment as additional OID for the tax year. Www freefilefillableforms com Net negative adjustment. Www freefilefillableforms com   A net negative adjustment exists for a tax year when the total of any negative adjustments described in (2) above for the tax year is more than the total of any positive adjustments for the tax year. Www freefilefillableforms com Use a net negative adjustment to offset OID on the debt instrument for the tax year. Www freefilefillableforms com If the net negative adjustment is more than the OID on the debt instrument for the tax year, you can claim the difference as an ordinary loss. Www freefilefillableforms com However, the amount you can claim as an ordinary loss is limited to the OID on the debt instrument you included in income in prior tax years. Www freefilefillableforms com You must carry forward any net negative adjustment that is more than the total OID for the tax year and prior tax years and treat it as a negative adjustment in the next tax year. Www freefilefillableforms com Basis adjustments. Www freefilefillableforms com   In general, increase your basis in a contingent payment debt instrument by the OID included in income. Www freefilefillableforms com Your basis, however, is not affected by any negative or positive adjustments. Www freefilefillableforms com Decrease your basis by any noncontingent payment received and the projected contingent payment scheduled to be received. Www freefilefillableforms com Treatment of gain or loss on sale or exchange. Www freefilefillableforms com   If you sell a contingent payment debt instrument at a gain, your gain is ordinary income (interest income), even if you hold the debt instrument as a capital asset. Www freefilefillableforms com If you sell a contingent payment debt instrument at a loss, your loss is an ordinary loss to the extent of your prior OID accruals on the debt instrument. Www freefilefillableforms com If the debt instrument is a capital asset, treat any loss that is more than your prior OID accruals as a capital loss. Www freefilefillableforms com See Regulations section 1. Www freefilefillableforms com 1275-4 for exceptions to these rules. Www freefilefillableforms com Premium, acquisition premium, and market discount. Www freefilefillableforms com   The rules for accruing premium, acquisition premium, and market discount do not apply to a contingent payment debt instrument. Www freefilefillableforms com See Regulations section 1. Www freefilefillableforms com 1275-4 to determine how to account for these items. Www freefilefillableforms com Inflation-Indexed Debt Instruments This discussion shows how you figure OID on certain inflation-indexed debt instruments issued after January 5, 1997. Www freefilefillableforms com An inflation-indexed debt instrument is generally a debt instrument on which the payments are adjusted for inflation and d