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Guide To Original Issue Discount (OID) Instruments: Publication 1212
Guide To Original Issue Discount (OID) Instruments: Publication 1212
Guide to
of the What’s New .................. 1
Treasury
Internal Introduction . . . . . . . . . . . . . . . . . . 2
Revenue
Service Original Definitions . . . . . . . . . . . . . . . . . . . 2
Issue
Debt Instruments on the OID List . . . . . 3
Instruments Middlemen . . . . . . . . . . . .
Short-Term Obligations
Redeemed at Maturity . . . .
.... 3
. . . . 3
Long-Term Debt Instruments . . . . . . 4
Certificates of Deposit . . . . . . . . . . 4
Bearer Bonds and Coupons . . . . . . . 4
Backup Withholding . . . . . . . . . . . 5
Index . . . . . . . . . . . . . . . . . . . . . 17
Future Developments
For the latest information about developments
related to Pub. 1212, such as legislation
enacted after it was published, go to IRS.gov/
Pub1212.
What’s New
Backup withholding rate change. P.L.
115-97 lowered the backup withholding rate
from 28% to 24%. For more information, see
Backup Withholding, later.
Form 1040 filing requirement. If you are re-
quired to report OID, you must file Form 1040.
As the IRS isn’t developing Forms 1040A or
1040EZ for 2018, you can’t use those forms to
report OID. See How To Report OID, later.
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938 Real Estate Mortgage Investment eral principles of federal income tax law (includ-
ing, for example, a bond, debenture, note,
938
Exchange Transactions
substantial amount of these instruments was
strument and such registration occurs on or af- 1099-INT Interest Income sold.
ter January 1, 2014. See the form instructions
1099-INT
Capital Assets
omissions from the list in writing at the demption price at maturity is greater than its ba-
following address: Schedule B (Form 1040) Interest and Schedule B (Form 1040)
on the OID List redemption price. In general, you must file a Form 1099 for the
debt instrument if the interest or OID to be inclu-
Section III. This section contains short-term ded in the owner's income for a calendar year
The OID list on the IRS website can be used by discount obligations.
brokers and other middlemen to prepare infor- totals $10 or more. You also must file a Form
• Section III-A: Short-Term U.S. Treasury 1099 if you were required to deduct and with-
mation returns. Bills. hold tax, even if the interest or OID is less than
If you own a listed debt instrument, you • Section III-B: Federal Home Loan Banks. $10. See Backup Withholding, later.
generally should not rely on the infor- • Section III-C: Federal National Mortgage
!
CAUTION mation in the OID list to determine (or
Association. If you must file a Form 1099, furnish a copy
compare) the OID to be reported on your tax re- • Section III-D: Federal Farm Credit Banks. to the owner of the debt instrument by January
turn. The OID amounts listed are figured without • Section III-E: Federal Home Loan Mort- 31 in the year it is due. File all your Forms 1099
reference to the price or date at which you ac- gage Corporation. with the IRS, accompanied by Form 1096, by
quired the debt instrument. For information • Section III-F: Federal Agricultural Mortgage February 28 in the year it is due (March 31 if
about determining the OID to be reported on Corporation. you file electronically).
your tax return, see the instructions for figuring Information that supplements Sec-
OID under Information for Owners of OID Debt Electronic payee statements. You can issue
tion III-A is available on the Internet at
Instruments, later. Form 1099-OID electronically with the consent
TreasuryDirect.gov/tdhome.htm.
of the recipient.
The following discussions explain what in- The short-term obligations listed in this sec-
formation is contained in each section of the list. tion are arranged by maturity date. For each ob- More information. For more information, in-
ligation, the list contains the CUSIP number, cluding penalties for failure to file (or furnish) re-
Section I. This section contains publicly of- maturity date, issue date, issue price (ex- quired information returns or statements, see
fered, long-term debt instruments. pressed as a percent of principal), and discount the current General Instructions for Certain In-
• Section I-A: Corporate Debt Instruments to be reported as interest for a calendar year formation Returns.
Issued Before 1985. per $1,000 of redemption price. Brokers and
• Section I-B: Corporate Debt Instruments other middlemen should rely on the issue price
information in Section III only if they are unable
Short-Term Obligations
Issued After 1984.
• Section I-C: Inflation-Indexed Debt Instru- to determine the price actually paid by the Redeemed at Maturity
ments. owner.
If you redeem a short-term discount obligation
For each publicly offered debt instrument in for the owner at maturity, you must report the
Section I, the list contains the following informa- Debt Instruments discount as interest on Form 1099-INT.
tion.
• The name of the issuer. Not on the OID List To figure the discount, use the purchase
• The Committee on Uniform Security Identi- price shown on the owner's copy of the pur-
fication Procedures (CUSIP) number. The list of debt instruments discussed earlier chase confirmation receipt or similar record, or
• The issue date. does not contain the following items. the price shown in your transaction records.
• The maturity date. • U.S. savings bonds. If the owner's purchase price cannot be de-
• The issue price expressed as a percent of • Certificates of deposit and other termined, figure the discount as if the owner
principal or of stated redemption price at face-amount certificates issued at a dis-
had purchased the obligation at its original is-
maturity. count, including syndicated certificates of
sue price. A special rule is used to determine
deposit.
the original issue price for information reporting
qsi = qualified stated interest If you hold debt instruments issued after 1984,
Method 1. you must report part of the OID in gross income
p = number of days in accrual period
1. Divide the total OID for a calendar year by each year that you own the debt instruments.
365 (366 for leap years). You must include the OID in gross income
The daily OID for subsequent accrual peri- whether or not you hold the debt instrument as
2. Multiply the result in (1) by the number of a capital asset. Your basis in the debt instru-
days you held the debt instrument during ods is figured the same way except the adjus-
ted issue price at the beginning of each period ment is increased by the OID you include in in-
that particular year. come. For information about showing the cor-
is used in the formula instead of the issue price.
This computation is an approximation and may rect OID on your tax return, see How To Report
result in a slightly higher OID than Method 2. Reduction for acquisition premium on debt OID, earlier.
instruments purchased before July 19,
Method 2. 1984. If you bought the debt instrument at an Form 1099-OID. You should receive a Form
acquisition premium before July 19, 1984, fig- 1099-OID showing OID for the part of a calen-
1. Look up the daily OID for the first accrual
ure the OID includible in income by reducing the dar year you held the debt instrument. How-
period you held the debt instrument during
daily OID by the daily acquisition premium. Fig- ever, if you paid an acquisition premium, you
a calendar year. (See Accrual period un-
ure the daily acquisition premium by dividing may need to refigure the OID to report on your
der Constant yield method next.)
the total acquisition premium by the number of tax return. See Constant yield method and Re-
2. Multiply the daily OID by the number of days in the period beginning on your purchase duction for acquisition premium., later.
days you held the debt instrument during date and ending on the day before the date of If your taxable debt instrument is a covered
that accrual period. maturity. security, your broker will figure the amortization
3. If you held the debt instrument for part of of acquisition premium for you. Your broker may
both accrual periods, repeat (1) and (2) for Reduction for acquisition premium on debt report either a gross amount of OID in box 1 or
the second accrual period. instruments purchased after July 18, 1984. box 8, as applicable, and the acquisition pre-
If you bought the debt instrument at an acquisi- mium amortization in box 6, or may report a net
4. Add the results of (2) and (3). This is the tion premium after July 18, 1984, figure the OID amount of OID that reflects the offset of OID by
OID to include in income, unless you paid includible in income by reducing the daily OID the amount of acquisition premium amortization
an acquisition premium. (The reduction for by the daily acquisition premium. However, the for the year in box 1 or box 8, as applicable. In
acquisition premium is discussed later.) method of figuring the daily acquisition premium general, your broker will use the rules in Regu-
is different from the method described in the lations section 1.1272-2(b)(4) to determine the
Constant yield method. This discussion preceding discussion. To figure the daily ac- amortization of acquisition premium. However,
shows how to figure OID on debt instruments is- quisition premium under this method, multiply you may use a constant yield method to amor-
sued after July 1, 1982, and before 1985, using the daily OID by the following fraction. tize acquisition premium if you make an election
a constant yield method. OID is allocated over • The numerator is the acquisition premium. under Regulations section 1.1272-3.
the life of the debt instrument through adjust- • The denominator is the total OID remaining You may also need to refigure the OID for a
ments to the issue price for each accrual pe- for the debt instrument after your purchase contingent payment or inflation-indexed debt in-
riod. date. strument on which the amount reported on
Figure the OID allocable to any accrual pe- Form 1099-OID is inaccurate. See Contingent
riod as follows. Payment Debt Instruments or Inflation-Indexed
Debt Instruments, later.
1. Look up the daily OID for the first accrual Daily OID. The OID for any accrual period Since the first and second accrual periods
period in which you held the debt instru- is allocated equally to each day in the accrual coincide exactly with your tax year, you include
ment during a calendar year. (See Accrual period. Figure the amount to include in income in income for Year 1 the OID allocable to the
period under Constant yield method, by adding the OID for each day you hold the first two accrual periods, $174.11 ($0.95665 ×
later.) debt instrument during the year. Since your tax 182 days) plus $184.56 ($1.00303 × 184 days),
2. Multiply the daily OID by the number of year will usually include parts of two or more ac- or $358.67. Add the OID to the $10,000 interest
days you held the debt instrument during crual periods, you must include the proper daily you report on your income tax return for Year 1.
that accrual period. OID for each accrual period. If your debt instru-
ment has 6-month accrual periods, your tax Example 6. Assume the same facts as in
3. Repeat (1) and (2) for any remaining ac- year will usually include one full 6-month ac- Example 5, except that you bought the debt in-
crual periods in which you held the debt crual period and parts of two other 6-month pe- strument at original issue on May 1 of Year 1,
instrument. riods. with a maturity date of April 30, Year 16. Also,
4. Add the results of (2) and (3). This is the the interest payment dates are October 31 and
Figuring daily OID. The daily OID for the April 30 of each calendar year. The accrual pe-
OID to include in income for that year, un- initial accrual period is figured using the follow-
less you paid an acquisition premium. riods are the 6-month periods ending on each
ing formula. of these dates.
(The reduction for acquisition premium is
discussed later.) The number of days for the first accrual pe-
(ip × ytm/n) − qsi riod (May 1 through October 31) is 184 days.
Tax-exempt bond. If you own a tax-exempt p The daily OID for the first accrual period is fig-
bond, figure your basis in the bond by adding to ured as follows.
your cost the OID you would have included in
ip = issue price
income if the bond had been taxable. You need ($86,235.17 x 0.12/2) – $5,000
to make this adjustment to determine if you ytm = yield to maturity 184 days
have a gain or loss on a later disposition of the n = number of accrual periods in 1 year
bond. In general, use the rules that follow to de- $174.11020
qsi = qualified stated interest = = $0.94625
termine your OID. If your tax-exempt bond is a 184
covered security under Regulations section p = number of days in accrual period
1.6045-1(a)(15), your broker will make this ad-
justment to your basis and will report the adjus- The number of days for the second accrual
ted basis on Form 1099-B. period (November 1 through April 30) is 181
The daily OID for subsequent accrual peri-
days (182 for leap years). The daily OID for the
ods is figured the same way except the adjus-
Constant yield method. This discussion second accrual period is figured as follows.
ted issue price at the beginning of each period
shows how to figure OID on debt instruments is- is used in the formula instead of the issue price.
sued after 1984 using a constant yield method. ($86,409.28 x 0.12/2) – $5,000
(The special rules that apply to contingent pay- Example 5. On January 1 of Year 1, you 181 days
ment debt instruments and inflation-indexed bought a 15-year, 10% debt instrument of A
debt instruments are explained later.) OID is al- Corporation at original issue for $86,235.17. Ac- $184.55681
located over the life of the debt instrument cording to the prospectus, the debt instrument = = $1.01965
181
through adjustments to the issue price for each matures on December 31 of Year 15 at a stated
accrual period. redemption price of $100,000. The yield to ma-
Figure the OID allocable to any accrual pe- turity is 12%, compounded semiannually. The If you hold the debt instrument through the
riod as follows. debt instrument provides for qualified stated in- end of Year 1, you must include $236.31 of OID
terest payments of $5,000 on June 30 and De- in income. This is $174.11 ($0.94625 × 184
1. Multiply the adjusted issue price at the be- days) for the period May 1 through October 31
cember 31 of each calendar year. The accrual
ginning of the accrual period by a fraction. plus $62.20 ($1.01965 × 61 days) for the period
periods are the 6-month periods ending on
The numerator of the fraction is the debt November 1 through December 31. The OID is
each of these dates. The number of days for the
instrument's yield to maturity, and the de- added to the $5,000 interest income paid on
first accrual period (January 1 through June 30)
nominator is the number of accrual peri- October 31 of Year 1. Your basis in the debt in-
is 181 days (182 for leap years). The daily OID
ods per year. The yield must be stated ap- strument is increased by the OID you include in
for the first accrual period is figured as follows.
propriately taking into account the length income. On January 1 of Year 2, your basis in
of the particular accrual period.
ap = acquisition price
− $60,000
• Free File. Go to IRS.gov/FreeFile to see if
you qualify to use brand-name software to
(
2 × ($100,000 / $60,000) -1 ) 74 prepare and e-file your federal tax return
= 2 × (1.04203 -1) = 0.08406 = 8.406% for free.
$1,018.48 • VITA. Go to IRS.gov/VITA, download the
Use 8.406% YTM to figure the OID for each = 74 = $13.76327 free IRS2Go app, or call 800-906-9887 to
accrual period or partial accrual period for find the nearest VITA location for free tax
which you must report OID. The OID for this period is $1,018.48 return preparation.
($13.76327 × 74 days). • TCE. Go to IRS.gov/TCE, download the
Daily OID. The OID for any accrual period is For the second accrual period from August free IRS2Go app, or call 888-227-7669 to
allocated equally to each day in the accrual pe- 12 of Year 1 through February 11 of Year 2, the find the nearest TCE location for free tax
riod. You must include in income the sum of the adjusted acquisition price is $61,018.48. This is return preparation.
daily OID amounts for each day you hold the the original $60,000 acquisition price plus Getting answers to your tax ques-
debt instrument during the year. Since your tax $1,018.48 OID for the short initial accrual pe- tions. On IRS.gov, get answers to your
year will usually include parts of two or more ac- riod. The daily OID is figured using Formula 1, tax questions anytime, anywhere.
crual periods, you must include the proper daily as follows.
OID amounts for each accrual period. • Go to IRS.gov/Help for a variety of tools
that will help you get answers to some of
Figuring daily OID. For the initial accrual $61,018.48 × (0.08406/2)
the most common tax questions.
period of a stripped bond or coupon acquired 184
• Go to IRS.gov/ITA for the Interactive Tax
after 1984, figure the daily OID using Formula 1 Assistant, a tool that will ask you questions
next if there are equal accrual periods. Use For- $2,564.60671
= 184 = $13.93808 on a number of tax law topics and provide
mula 2 if there is a short initial accrual period. answers. You can print the entire interview
For subsequent accrual periods, figure the and the final response for your records.
daily OID using Formula 1 (whether or not there The OID for the part of this period included
in Year 1 (August 12 – December 31) is • Go to IRS.gov/Pub17 to get Pub. 17, Your
was a short initial accrual period), but use the Federal Income Tax for Individuals, which
adjusted acquisition price in the formula instead $1,979.21 ($13.93808 × 142 days).
The OID to be reported on your income tax features details on tax-saving opportuni-
of the acquisition price. ties, 2018 tax changes, and thousands of
return for Year 1 is $2,997.69 ($1,018.48 +
Formula 1. $1,979.21). interactive links to help you find answers to
your questions. View it online in HTML, as
Final accrual period. The OID for the final a PDF, or download it to your mobile de-
ap × ytm / n accrual period for a stripped bond or coupon is vice as an eBook.
p the amount payable at maturity of the stripped • You may also be able to access tax law in-
bond (or interest payable on the stripped cou- formation in your electronic filing software.
Formula 2. pon) minus the adjusted acquisition price at the
beginning of the final accrual period. The daily
r OID for the final accrual period is figured by di- Getting tax forms and publications. Go to
s viding the OID for the period by the number of IRS.gov/Forms to view, download, or print all of
days in the period. the forms and publications you may need. You
ap x (1 + ytm /n) − ap can also download and view popular tax publi-
r cations and instructions (including the 1040 in-
How To Get Tax Help structions) on mobile devices as an eBook at no
charge. Or you can go to IRS.gov/OrderForms
If you have questions about a tax issue, need to place an order and have forms mailed to you
help preparing your tax return, or want to down- within 10 business days.
load free publications, forms, or instructions, go
to IRS.gov and find resources that can help you
right away.
Debt instruments issued after Information for brokers and other Publications (See Tax help)
A July 1, 1982 7 middlemen 3
Accrual period 2 Debt instruments not on the OID Information for owners of OID
Acquisition premium 2 list 3 debt instruments 5 Q
Adjusted issue price 2 Debt Instruments on the OID Issue price 2 Qualified stated interest 3
Assistance (See Tax help) list 3 Issuers of OID debt instruments,
Definitions 2 Instructions for 2
Accrual period 2 R
B Acquisition premium 2 REMIC and CDO information
Backup withholding 5 Adjusted issue price 2 L reporting requirements 2
Bearer bonds and coupons 4 Debt instrument 2 Long-term debt instruments 4
Brokers (See Information for Issue price 2
brokers and other middlemen) Market discount 2 S
Original issue discount (OID) 2 M Section I 3
Premium 2 Market discount 2 Section II 3
Qualified stated interest 3 Section III 3
C
Stated redemption price at Short-term obligations redeemed
Certificates of deposit 4
Comments and suggestions 2 maturity 3 O at maturity 3
Yield to maturity 3 OID, figuring 4 Stated redemption price at
Contingent payment debt
instruments 10 Using section I 4 maturity 3
Using the income tax Stripped bonds and coupons,
E regulations 4 figuring OID 12
Electronic payee statements 3 OID list, Debt Instruments on 3 Suggestions, Comments and 2
D
Debt instrument 2 OID on long-term debt
Debt instruments: instruments, figuring 7
Long-term 4 F OID on stripped bonds and T
Short-term 3 Form 4 coupons, figuring 12 Tax help 14
Debt instruments and coupons Original issue discount (OID) 2
purchased after 1984 13 Owners of OID debt instruments,
Debt instruments and coupons I information for 5 Y
purchased after July 1, 1982, Identity theft 15 Yield to maturity 3, 13
and before 1985 13 Inflation-indexed debt
Debt instruments issued after instruments 11 P
1984 8 Premium 2