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File taxes for free 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. File taxes for free Adjustment for premium. File taxes for free Adjustment for acquisition premium. File taxes for free Adjustment for market discount. File taxes for free 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. File taxes for free “Original issue discount” is defined first. File taxes for free The other terms are listed alphabetically. File taxes for free Original issue discount (OID). File taxes for free   OID is a form of interest. File taxes for free 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). File taxes for free Zero coupon bonds and debt instruments that pay no stated interest until maturity are examples of debt instruments that have OID. File taxes for free Accrual period. File taxes for free   An accrual period is an interval of time used to measure OID. File taxes for free The length of an accrual period can be 6 months, a year, or some other period, depending on when the debt instrument was issued. File taxes for free Acquisition premium. File taxes for free   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. File taxes for free A debt instrument does not have acquisition premium, however, if the debt instrument was purchased at a premium. File taxes for free See Premium, later. File taxes for free Adjusted issue price. File taxes for free   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. File taxes for free In general, the adjusted issue price at the beginning of the debt instrument's first accrual period is its issue price. File taxes for free 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. File taxes for free Debt instrument. File taxes for free   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). File taxes for free It generally does not include an annuity contract. File taxes for free Issue price. File taxes for free   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. File taxes for free Market discount. File taxes for free   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. File taxes for free 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. File taxes for free The market discount is the difference between the issue price plus accrued OID and your adjusted basis. File taxes for free Premium. File taxes for free   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. File taxes for free The premium is the excess of the adjusted basis over the payable amounts. File taxes for free See Publication 550 for information on the tax treatment of bond premium. File taxes for free Qualified stated interest. File taxes for free   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. File taxes for free Stated redemption price at maturity. File taxes for free   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. File taxes for free Yield to maturity (YTM). File taxes for free   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. File taxes for free The YTM is generally shown on the face of the debt instrument or in the literature you receive from your broker. File taxes for free If you do not have this information, consult your broker, tax advisor, or the issuer. File taxes for free 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. File taxes for free 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. File taxes for free The OID amounts listed are figured without reference to the price or date at which you acquired the debt instrument. File taxes for free 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. File taxes for free The following discussions explain what information is contained in each section of the list. File taxes for free Section I. File taxes for free   This section contains publicly offered, long-term debt instruments. File taxes for free Section I-A: Corporate Debt Instruments Issued Before 1985. File taxes for free Section I-B: Corporate Debt Instruments Issued After 1984. File taxes for free Section I-C: Inflation-Indexed Debt Instruments. File taxes for free For each publicly offered debt instrument in Section I, the list contains the following information. File taxes for free The name of the issuer. File taxes for free The Committee on Uniform Security Identification Procedures (CUSIP) number. File taxes for free The issue date. File taxes for free The maturity date. File taxes for free The issue price expressed as a percent of principal or of stated redemption price at maturity. File taxes for free The annual stated or coupon interest rate. File taxes for free (This rate is shown as 0. File taxes for free 00 if no annual interest payments are provided. File taxes for free ) The yield to maturity will be added to Section I-B for bonds issued after December 31, 2006. File taxes for free The total OID accrued up to January 1 of a calendar year. File taxes for free (This information is not available for every instrument. File taxes for free ) 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. File taxes for free The total OID per $1,000 of principal or maturity value for a calendar year and a subsequent year. File taxes for free Section II. File taxes for free   This section contains stripped coupons and principal components of U. File taxes for free S. File taxes for free Treasury and Government-Sponsored Enterprise debt instruments. File taxes for free 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. File taxes for free This section also includes debt instruments backed by U. File taxes for free S. File taxes for free Treasury securities that represent ownership interests in those securities. File taxes for free   The obligations listed in Section II are arranged by maturity date. File taxes for free The amounts listed are the total OID for a calendar year per $1,000 of redemption price. File taxes for free Section III. File taxes for free   This section contains short-term discount obligations. File taxes for free Section III-A: Short-Term U. File taxes for free S. File taxes for free Treasury Bills. File taxes for free Section III-B: Federal Home Loan Banks. File taxes for free Section III-C: Federal National Mortgage Association. File taxes for free Section III-D: Federal Farm Credit Banks. File taxes for free Section III-E: Federal Home Loan Mortgage Corporation. File taxes for free Section III-F: Federal Agricultural Mortgage Corporation. File taxes for free    Information that supplements Section III-A is available on the Internet at http://www. File taxes for free treasurydirect. File taxes for free gov/tdhome. File taxes for free htm. File taxes for free   The short-term obligations listed in this section are arranged by maturity date. File taxes for free 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. File taxes for free 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. File taxes for free Debt Instruments Not on the OID List The list of debt instruments discussed earlier does not contain the following items. File taxes for free U. File taxes for free S. File taxes for free savings bonds. File taxes for free Certificates of deposit and other face-amount certificates issued at a discount, including syndicated certificates of deposit. File taxes for free Obligations issued by tax-exempt organizations. File taxes for free OID debt instruments that matured or were entirely called by the issuer before the tables were posted on the IRS website. File taxes for free Mortgage-backed securities and mortgage participation certificates. File taxes for free Long-term OID debt instruments issued before May 28, 1969. File taxes for free Short-term obligations, other than the obligations listed in Section III. File taxes for free Debt instruments issued at a discount by states or their political subdivisions. File taxes for free REMIC regular interests and CDOs. File taxes for free Commercial paper and banker's acceptances issued at a discount. File taxes for free Obligations issued at a discount by individuals. File taxes for free Foreign obligations not traded in the United States and obligations not issued in the United States. File taxes for free 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. File taxes for free 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. File taxes for free 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. File taxes for free See Backup Withholding, later. File taxes for free 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. File taxes for free 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). File taxes for free Electronic payee statements. File taxes for free   You can issue Form 1099-OID electronically with the consent of the recipient. File taxes for free More information. File taxes for free   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. File taxes for free 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. File taxes for free 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. File taxes for free If you sell the obligation for the owner before maturity, you must file Form 1099-B to reflect the gross proceeds to the seller. File taxes for free Do not report the accrued discount to the date of sale on either Form 1099-INT or Form 1099-OID. File taxes for free 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. File taxes for free A special rule is used to determine the original issue price for information reporting on U. File taxes for free S. File taxes for free Treasury bills (T-bills) listed in Section III-A. File taxes for free 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. File taxes for free This noncompetitive discount price is the issue price (expressed as a percent of principal) shown in Section III-A. File taxes for free 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. File taxes for free Example 1. File taxes for free There are 13-week and 26-week T-bills maturing on the same date as the T-bill being redeemed. File taxes for free The price actually paid by the owner cannot be established by owner or middleman records. File taxes for free 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. File taxes for free The interest you report on Form 1099-INT is the OID (per $1,000 of principal) shown in Section III-A for that obligation. File taxes for free 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. File taxes for free For this purpose, you can rely on Section I of the OID list to determine the following information. File taxes for free Whether a debt instrument has OID. File taxes for free The OID to be reported on the Form 1099-OID. File taxes for free In general, you must report OID on publicly offered, long-term debt instruments listed in Section I. File taxes for free You also can report OID on other long-term debt instruments. File taxes for free Form 1099-OID. File taxes for free   On Form 1099-OID for a calendar year show the following information. File taxes for free Box 1. File taxes for free The OID for the actual dates the owner held the debt instruments during a calendar year. File taxes for free To determine this amount, see Figuring OID, next. File taxes for free Box 2. File taxes for free The qualified stated interest paid or credited during the calendar year. File taxes for free Interest reported here is not reported on Form 1099-INT. File taxes for free The qualified stated interest on Treasury inflation-protected securities may be reported on Form 1099-INT in box 3 instead. File taxes for free Box 3. File taxes for free Any interest or principal forfeited because of an early withdrawal that the owner can deduct from gross income. File taxes for free Do not reduce the amounts in boxes 1 and 2 by the forfeiture. File taxes for free Box 4. File taxes for free Any backup withholding for this debt instrument. File taxes for free Box 7. File taxes for free The CUSIP number, if any. File taxes for free 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. File taxes for free 50 2006). File taxes for free If the issuer of the debt instrument is other than the payer, show the name of the issuer in this box. File taxes for free Box 8. File taxes for free The OID on a U. File taxes for free S. File taxes for free Treasury obligation for the part of the year the owner held the debt instrument. File taxes for free Box 9. File taxes for free Investment expenses passed on to holders of a single-class REMIC. File taxes for free Boxes 10-12. File taxes for free Use to report any state income tax withheld for this debt instrument. File taxes for free Figuring OID. File taxes for free   You can determine the OID on a long-term debt instrument by using either of the following. File taxes for free Section I of the OID list. File taxes for free The income tax regulations. File taxes for free Using Section I. File taxes for free   If the owner held the debt instrument for the entire calendar year, report the OID shown in Section I for the calendar year. File taxes for free 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. File taxes for free For example, if the debt instrument's stated redemption price at maturity is $500, report one-half the listed OID. File taxes for free   If the owner held the debt instrument for less than the entire calendar year, figure the OID to report as follows. File taxes for free Look up the daily OID for the first accrual period in the calendar year during which the owner held the debt instrument. File taxes for free Multiply the daily OID by the number of days the owner held the debt instrument during that accrual period. File taxes for free Repeat steps (1) and (2) for any remaining accrual periods for the year during which the owner held the debt instrument. File taxes for free Add the results in steps (2) and (3) to determine the owner's OID per $1,000 of stated redemption price at maturity. File taxes for free If necessary, adjust the OID in (4) to reflect the debt instrument's stated redemption price at maturity. File taxes for free Report the result on Form 1099-OID in box 1. File taxes for free Using the income tax regulations. File taxes for free   Instead of using Section I to figure OID, you can use the regulations under sections 1272 through 1275 of the Internal Revenue Code. File taxes for free 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. File taxes for free (If you use Section I-B, the OID is figured using 6-month accrual periods. File taxes for free )   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. File taxes for free 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. File taxes for free You must file an information return showing the reportable interest and OID, if any, on the CD. File taxes for free These rules apply whether or not you sold the CD to the owner. File taxes for free Report OID on a CD in the same way as OID on other debt instruments. File taxes for free See Short-Term Obligations Redeemed at Maturity and Long-Term Debt Instruments, earlier. File taxes for free 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. File taxes for free However, do not report the interest if either of the following apply. File taxes for free You hold the bond as a nominee for the true owner. File taxes for free The payee is a foreign person. File taxes for free See Payments to foreign person under Backup Withholding, later. File taxes for free 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. File taxes for free The coupon may have been “stripped” (separated) from the bond and separately purchased. File taxes for free 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. File taxes for free 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%. File taxes for free The backup withholding is deducted at the time a cash payment is made. File taxes for free See Pub. File taxes for free 1281, Backup Withholding for Missing and Incorrect Name/TIN(s), for more information. File taxes for free Backup withholding generally applies in the following situations. File taxes for free The payee does not give you a taxpayer identification number (TIN). File taxes for free The IRS notifies you that the payee gave an incorrect TIN. File taxes for free The IRS notifies you that the payee is subject to backup withholding due to payee underreporting. File taxes for free 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. File taxes for free However, for short-term discount obligations (other than government obligations), bearer bonds and coupons, and U. File taxes for free S. File taxes for free 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. File taxes for free Short-term obligations. File taxes for free   Backup withholding applies to OID on a short-term obligation only when the OID is paid at maturity. File taxes for free However, backup withholding applies to any interest payable before maturity when the interest is paid or credited. File taxes for free   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. File taxes for free 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. File taxes for free If the purchase price of a listed obligation is not established or is disregarded, you must use the issue price shown in Section III. File taxes for free Long-term obligations. File taxes for free   If no cash payments are made on a long-term obligation before maturity, backup withholding applies only at maturity. File taxes for free The amount subject to backup withholding is the OID includible in the owner's gross income for the calendar year when the obligation matures. File taxes for free The amount to be withheld is limited to the cash paid. File taxes for free Registered long-term obligations with cash payments. File taxes for free   If a registered long-term obligation has cash payments before maturity, backup withholding applies when a cash payment is made. File taxes for free 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. File taxes for free 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. File taxes for free For any payment, the required withholding is limited to the cash paid. File taxes for free Payee not the original owner. File taxes for free   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). File taxes for free The amount subject to backup withholding at maturity of a listed obligation must be determined using the issue price shown in Section I. File taxes for free Bearer long-term obligations with cash payments. File taxes for free   If a bearer long-term obligation has cash payments before maturity, backup withholding applies when the cash payments are made. File taxes for free 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. File taxes for free 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. File taxes for free The required withholding at maturity is limited to the cash paid. File taxes for free Sales and redemptions. File taxes for free   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. File taxes for free Backup withholding applies in the following situations. File taxes for free The payee does not give you a TIN. File taxes for free The IRS notifies you that the payee gave an incorrect TIN. File taxes for free 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. File taxes for free Payments outside the United States to U. File taxes for free S. File taxes for free person. File taxes for free   The requirements for backup withholding and information reporting apply to payments of OID and interest made outside the United States to a U. File taxes for free S. File taxes for free 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. File taxes for free S. File taxes for free trade or business. File taxes for free Payments to foreign person. File taxes for free   The following discussions explain the rules for backup withholding and information reporting on payments to foreign persons. File taxes for free U. File taxes for free S. File taxes for free -source amount. File taxes for free   Backup withholding and information reporting are not required for payments of U. File taxes for free S. File taxes for free -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. File taxes for free A U. File taxes for free S. File taxes for free resident is not a foreign person. File taxes for free 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. File taxes for free 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. File taxes for free S. File taxes for free person. File taxes for free   For information about the 28% withholding tax that may apply to payments of U. File taxes for free S. File taxes for free -source OID or interest to foreign persons, see Publication 515. File taxes for free Foreign-source amount. File taxes for free   Backup withholding and information reporting are not required for payments of foreign-source OID and interest made outside the United States. File taxes for free 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. File taxes for free More information. File taxes for free   For more information about backup withholding and information reporting on foreign-source amounts or payments to foreign persons, see Regulations section 1. File taxes for free 6049-5. File taxes for free Information for Owners of OID Debt Instruments This section is for persons who prepare their own tax returns. File taxes for free It discusses the income tax rules for figuring and reporting OID on long-term debt instruments. File taxes for free 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. File taxes for free However, the information provided does not cover every situation. File taxes for free More information can be found in the regulations under sections 1271 through 1275 of the Internal Revenue Code. File taxes for free Including OID in income. File taxes for free   Generally, you include OID in income as it accrues each year, whether or not you receive any payments from the debt instrument issuer. File taxes for free Exceptions. File taxes for free   The rules for including OID in income as it accrues generally do not apply to the following debt instruments. File taxes for free U. File taxes for free S. File taxes for free savings bonds. File taxes for free Tax-exempt obligations. File taxes for free (However, see Tax-Exempt Bonds and Coupons, later. File taxes for free ) Obligations issued by individuals before March 2, 1984. File taxes for free Loans of $10,000 or less between individuals who are not in the business of lending money. File taxes for free (The dollar limit includes outstanding prior loans by the lender to the borrower. File taxes for free ) This exception does not apply if a principal purpose of the loan is to avoid any federal tax. File taxes for free   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. File taxes for free Publication 550 also discusses rules for holders of REMIC interests and CDOs. File taxes for free De minimis rule. File taxes for free   You can treat OID as zero if the total OID on a debt instrument is less than one-fourth of 1% (. File taxes for free 0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. File taxes for free Debt instruments with de minimis OID are not listed in this publication. File taxes for free 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. File taxes for free Also, the de minimis rules generally do not apply to tax-exempt obligations. File taxes for free Example 2. File taxes for free 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. File taxes for free 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. File taxes for free Under the de minimis rule, you can treat the OID as zero because the $20 discount is less than $25. File taxes for free Example 3. File taxes for free Assume the same facts as Example 2, except the debt instrument was issued at $950. File taxes for free You must report part of the $50 OID each year because it is more than $25. File taxes for free Choice to report all interest as OID. File taxes for free   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. File taxes for free See Constant yield method under Debt Instruments Issued After 1984, later, for more information. File taxes for free   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. File taxes for free For more information, see Regulations section 1. File taxes for free 1272-3. File taxes for free Purchase after date of original issue. File taxes for free   A debt instrument you purchased after the date of original issue may have premium, acquisition premium, or market discount. File taxes for free If so, the OID reported to you on Form 1099-OID may have to be adjusted. File taxes for free For more information, see Showing an OID adjustment under How To Report OID, later. File taxes for free The following rules generally do not apply to contingent payment debt instruments. File taxes for free Adjustment for premium. File taxes for free   If your debt instrument (other than an inflation-indexed debt instrument) has premium, do not report any OID as ordinary income. File taxes for free Your adjustment is the total OID shown on your Form 1099-OID. File taxes for free Adjustment for acquisition premium. File taxes for free   If your debt instrument has acquisition premium, reduce the OID you report. File taxes for free 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. File taxes for free Adjustment for market discount. File taxes for free   If your debt instrument has market discount that you choose to include in income currently, increase the OID you report. File taxes for free Your adjustment is the accrued market discount for the year. File taxes for free 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. File taxes for free If you choose to use the constant yield method to figure accrued market discount, also see Figuring OID on Long-Term Debt Instruments, later. File taxes for free The constant yield method of figuring accrued OID, explained in those discussions under Constant yield method, is also used to figure accrued market discount. File taxes for free For more information concerning premium or market discount on an inflation-indexed debt instrument, see Regulations section 1. File taxes for free 1275-7. File taxes for free Sale, exchange, or redemption. File taxes for free   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. File taxes for free If you sold the debt instrument through a broker, you should receive Form 1099-B or an equivalent statement from the broker. File taxes for free Use the Form 1099-B or other statement and your brokerage statements to complete Form 8949, and Schedule D (Form 1040). File taxes for free   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. File taxes for free Your basis, generally, is your cost increased by the OID you have included in income each year you held it. File taxes for free 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. File taxes for free   See chapter 4 of Publication 550 for more information about the tax treatment of the sale or redemption of discounted debt instruments. File taxes for free Example 4. File taxes for free Larry, a calendar year taxpayer, bought a corporate debt instrument at original issue for $86,235. File taxes for free 00 on November 1 of Year 1. File taxes for free The 15-year debt instrument matures on October 31 of Year 16 at a stated redemption price of $100,000. File taxes for free The debt instrument provides for semiannual payments of interest at 10%. File taxes for free Assume the debt instrument is a capital asset in Larry's hands. File taxes for free The debt instrument has $13,765. File taxes for free 00 of OID ($100,000 stated redemption price at maturity minus $86,235. File taxes for free 00 issue price). File taxes for free Larry sold the debt instrument for $90,000 on November 1 of Year 4. File taxes for free Including the OID he will report for the period he held the debt instrument in Year 4, Larry has included $4,556. File taxes for free 00 of OID in income and has increased his basis by that amount to $90,791. File taxes for free 00. File taxes for free Larry has realized a loss of $791. File taxes for free 00. File taxes for free All of Larry's loss is capital loss. File taxes for free 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. File taxes for free Form 1099-OID shows all OID income in box 1 except OID on a U. File taxes for free S. File taxes for free Treasury obligation, which is shown in box 8. File taxes for free It also shows, in box 2, any qualified stated interest you must include in income. File taxes for free (However, any qualified stated interest on Treasury inflation-protected securities can be reported on Form 1099-INT in box 3. File taxes for free ) A copy of Form 1099-OID will be sent to the IRS. File taxes for free Do not attach your copy to your tax return. File taxes for free Keep it for your records. File taxes for free 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. File taxes for free 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. File taxes for free Form 1099-OID not received. File taxes for free   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. File taxes for free Refiguring OID. File taxes for free   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. File taxes for free You bought the debt instrument at a premium or at an acquisition premium. File taxes for free The debt instrument is a stripped bond or coupon (including zero coupon bonds backed by U. File taxes for free S. File taxes for free Treasury securities). File taxes for free The debt instrument is a contingent payment or inflation-indexed debt instrument. File taxes for free See the discussions under Figuring OID on Long-Term Debt Instruments or Figuring OID on Stripped Bonds and Coupons, later, for the specific computations. File taxes for free Refiguring interest. File taxes for free   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. File taxes for free Nominee. File taxes for free   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. File taxes for free ” You must file another Form 1099-OID for each actual owner, showing the OID for the owner. File taxes for free Show the owner of the debt instrument as the “recipient” and you as the “payer. File taxes for free ”   Complete Form 1099-OID and Form 1096 and file the forms with the Internal Revenue Service Center for your area. File taxes for free You must also give a copy of the Form 1099-OID to the actual owner. File taxes for free However, you are not required to file a nominee return to show amounts belonging to your spouse. File taxes for free See the Form 1099 instructions for more information. File taxes for free   When preparing your tax return, follow the instructions under Showing an OID adjustment in the next discussion. File taxes for free 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. File taxes for free Form 1040 or Form 1040A required. File taxes for free   You must use Form 1040 or Form 1040A (you cannot use Form 1040EZ) under either of the following conditions. File taxes for free You received a Form 1099-OID as a nominee for the actual owner. File taxes for free Your total interest and OID income for the year was more than $1,500. File taxes for free Form 1040 required. File taxes for free   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. File taxes for free 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. File taxes for free Also, you must use Form 1040 if you were charged an early withdrawal penalty. File taxes for free Where to report. File taxes for free   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. File taxes for free Include all OID and periodic interest shown on any Form 1099-OID, boxes 1, 2, and 8, you received for the tax year. File taxes for free Also include any other OID and interest income for which you did not receive a Form 1099. File taxes for free Showing an OID adjustment. File taxes for free   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. File taxes for free   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. File taxes for free If the OID, as adjusted, is less than the amount shown on Form 1099-OID, show the adjustment as follows. File taxes for free Under your last entry on line 1, subtotal all interest and OID income listed on line 1. File taxes for free Below the subtotal, write “Nominee Distribution” or “OID Adjustment” and show the OID you are not required to report. File taxes for free Subtract that OID from the subtotal and enter the result on line 2. File taxes for free If the OID, as adjusted, is more than the amount shown on Form 1099-OID, show the adjustment as follows. File taxes for free Under your last entry on line 1, subtotal all interest and OID income listed on line 1. File taxes for free Below the subtotal, write “OID Adjustment” and show the additional OID. File taxes for free Add that OID to the subtotal and enter the result on line 2. File taxes for free 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. File taxes for free It also may depend on the type of the debt instrument. File taxes for free There are different rules for each of the following debt instruments. File taxes for free Corporate debt instruments issued after 1954 and before May 28, 1969, and government debt instruments issued after 1954 and before July 2, 1982. File taxes for free Corporate debt instruments issued after May 27, 1969, and before July 2, 1982. File taxes for free Debt instruments issued after July 1, 1982, and before 1985. File taxes for free Debt instruments issued after 1984 (other than debt instruments described in (5) and (6)). File taxes for free Contingent payment debt instruments issued after August 12, 1996. File taxes for free Inflation-indexed debt instruments (including Treasury inflation-protected securities) issued after January 5, 1997. File taxes for free Zero coupon bonds. File taxes for free   The rules for figuring OID on zero coupon bonds backed by U. File taxes for free S. File taxes for free Treasury securities are discussed under Figuring OID on Stripped Bonds and Coupons, later. File taxes for free 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. File taxes for free The OID, which is taxed as ordinary income, generally equals the following amount. File taxes for free   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. File taxes for free If there is a loss on the sale of the debt instrument, the entire loss is a capital loss and no OID is reported. File taxes for free 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. File taxes for free For information about showing the correct OID on your tax return, see the discussion under How To Report OID, earlier. File taxes for free Your basis in the debt instrument is increased by the OID you include in income. File taxes for free Form 1099-OID. File taxes for free   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. File taxes for free However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. File taxes for free See Reduction for acquisition premium, later. File taxes for free 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. File taxes for free irs. File taxes for free gov/pub1212 by clicking the link under Recent Developments. File taxes for free Form 1099-OID not received. File taxes for free    The OID listed is for each $1,000 of redemption price. File taxes for free You must adjust the listed amount if your debt instrument has a different principal amount. File taxes for free For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. File taxes for free   If you held the debt instrument the entire year, use the OID shown in Section I-A for a calendar year. File taxes for free (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. File taxes for free ) If you did not hold the debt instrument the entire year, figure your OID using the following method. File taxes for free Divide the OID shown by 12. File taxes for free 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. File taxes for free This is the OID to include in income unless you paid an acquisition premium. File taxes for free The reduction for acquisition premium is discussed next. File taxes for free Reduction for acquisition premium. File taxes for free   If you bought the debt instrument at an acquisition premium, figure the OID to include in income as follows. File taxes for free 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. File taxes for free This is the monthly OID. File taxes for free Subtract from your cost the issue price and the accumulated OID from the date of issue to the date of purchase. File taxes for free (If the result is zero or less, stop here. File taxes for free You did not pay an acquisition premium. File taxes for free ) 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. File taxes for free Subtract the amount figured in (3) from the amount figured in (1). File taxes for free This is the OID to include in income for each month you hold the debt instrument during the year. File taxes for free Transfers during the month. File taxes for free   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. File taxes for free Your holding period for this purpose begins the day you acquire the debt instrument and ends the day before you dispose of it. File taxes for free 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. File taxes for free For information about showing the correct OID on your tax return, see How To Report OID, earlier. File taxes for free Form 1099-OID. File taxes for free   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. File taxes for free However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. File taxes for free See Constant yield method and the discussions on acquisition premium that follow, later. File taxes for free 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. File taxes for free irs. File taxes for free gov/pub1212 by clicking the link under Recent Developments. File taxes for free Form 1099-OID not received. File taxes for free    The OID listed is for each $1,000 of redemption price. File taxes for free You must adjust the listed amount if your debt instrument has a different principal amount. File taxes for free For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. File taxes for free   If you held the debt instrument the entire year, use the OID shown in Section I-A. File taxes for free (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. File taxes for free ) If you did not hold the debt instrument the entire year, figure your OID using either of the following methods. File taxes for free Method 1. File taxes for free    Divide the total OID for a calendar year by 365 (366 for leap years). File taxes for free Multiply the result in (1) by the number of days you held the debt instrument during that particular year. File taxes for free  This computation is an approximation and may result in a slightly higher OID than Method 2. File taxes for free Method 2. File taxes for free    Look up the daily OID for the first accrual period you held the debt instrument during a calendar year. File taxes for free (See Accrual period under Constant yield method, next. File taxes for free ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. File taxes for free If you held the debt instrument for part of both accrual periods, repeat (1) and (2) for the second accrual period. File taxes for free Add the results of (2) and (3). File taxes for free This is the OID to include in income, unless you paid an acquisition premium. File taxes for free (The reduction for acquisition premium is discussed later. File taxes for free ) Constant yield method. File taxes for free   This discussion shows how to figure OID on debt instruments issued after July 1, 1982, and before 1985, using a constant yield method. File taxes for free OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. File taxes for free   Figure the OID allocable to any accrual period as follows. File taxes for free Multiply the adjusted issue price at the beginning of the accrual period by the debt instrument's yield to maturity. File taxes for free Subtract from the result in (1) any qualified stated interest allocable to the accrual period. File taxes for free Accrual period. File taxes for free   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. File taxes for free Your tax year will usually include parts of two accrual periods. File taxes for free Daily OID. File taxes for free   The OID for any accrual period is allocated equally to each day in the accrual period. File taxes for free You must include in income the sum of the OID amounts for each day you hold the debt instrument during the year. File taxes for free If your tax year includes parts of two or more accrual periods, you must include the proper daily OID amounts for each accrual period. File taxes for free Figuring daily OID. File taxes for free   The daily OID for the initial accrual period is figured using the following formula. File taxes for free   (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. File taxes for free Reduction for acquisition premium on debt instruments purchased before July 19, 1984. File taxes for free   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. File taxes for free 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. File taxes for free Reduction for acquisition premium on debt instruments purchased after July 18, 1984. File taxes for free   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. File taxes for free However, the method of figuring the daily acquisition premium is different from the method described in the preceding discussion. File taxes for free To figure the daily acquisition premium under this method, multiply the daily OID by the following fraction. File taxes for free The numerator is the acquisition premium. File taxes for free The denominator is the total OID remaining for the debt instrument after your purchase date. File taxes for free Section I-A is available at www. File taxes for free irs. File taxes for free gov/pub1212 and clicking the link under Recent Developments. File taxes for free Using Section I-A to figure accumulated OID. File taxes for free   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. File taxes for free The amount from the “Total OID to January 1, YYYY” column for your debt instrument. File taxes for free The OID from January 1 of a calendar year to the date of purchase, figured as follows. File taxes for free 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. File taxes for free 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. File taxes for free Add the amounts figured in (2a) and (2b). File taxes for free 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. File taxes for free You must include the OID in gross income whether or not you hold the debt instrument as a capital asset. File taxes for free Your basis in the debt instrument is increased by the OID you include in income. File taxes for free For information about showing the correct OID on your tax return, see How To Report OID, earlier. File taxes for free Form 1099-OID. File taxes for free   You should receive a Form 1099-OID showing OID for the part of a calendar year you held the debt instrument. File taxes for free However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. File taxes for free See Constant yield method and Reduction for acquisition premium, later. File taxes for free   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. File taxes for free See Contingent Payment Debt Instruments or Inflation-Indexed Debt Instruments, later. File taxes for free 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. File taxes for free irs. File taxes for free gov/pub1212 by clicking the link under Recent Developments. File taxes for free Form 1099-OID not received. File taxes for free   The OID listed is for each $1,000 of redemption price. File taxes for free You must adjust the listed amount if your debt instrument has a different principal amount. File taxes for free For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. File taxes for free   Use the OID shown in Section I-B for a calendar year if you held the debt instrument the entire year. File taxes for free (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. File taxes for free ) If you did not hold the debt instrument the entire year, figure your OID as follows. File taxes for free Look up the daily OID for the first accrual period in which you held the debt instrument during a calendar year. File taxes for free (See Accrual period under Constant yield method, later. File taxes for free ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. File taxes for free Repeat (1) and (2) for any remaining accrual periods in which you held the debt instrument. File taxes for free Add the results of (2) and (3). File taxes for free This is the OID to include in income for that year, unless you paid an acquisition premium. File taxes for free (The reduction for acquisition premium is discussed later. File taxes for free ) Tax-exempt bond. File taxes for free   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. File taxes for free You need to make this adjustment to determine if you have a gain or loss on a later disposition of the bond. File taxes for free In general, use the rules that follow to determine your OID. File taxes for free Constant yield method. File taxes for free   This discussion shows how to figure OID on debt instruments issued after 1984 using a constant yield method. File taxes for free (The special rules that apply to contingent payment debt instruments and inflation-indexed debt instruments are explained later. File taxes for free ) OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. File taxes for free   Figure the OID allocable to any accrual period as follows. File taxes for free Multiply the adjusted issue price at the beginning of the accrual period by a fraction. File taxes for free The numerator of the fraction is the debt instrument's yield to maturity and the denominator is the number of accrual periods per year. File taxes for free The yield must be stated appropriately taking into account the length of the particular accrual period. File taxes for free Subtract from the result in (1) any qualified stated interest allocable to the accrual period. File taxes for free Accrual period. File taxes for free   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. File taxes for free For example, a debt instrument maturing on March 31 has accrual periods that end on September 30 and March 31 of each calendar year. File taxes for free Any short period is included as the first accrual period. File taxes for free   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. File taxes for free However, the OID listed for these debt instruments in Section I-B has been figured using 6-month accrual periods. File taxes for free Daily OID. File taxes for free   The OID for any accrual period is allocated equally to each day in the accrual period. File taxes for free Figure the amount to include in income by adding the OID for each day you hold the debt instrument during the year. File taxes for free 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. File taxes for free 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. File taxes for free Figuring daily OID. File taxes for free   The daily OID for the initial accrual period is figured using the following formula. File taxes for free   (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. File taxes for free Example 5. File taxes for free On January 1 of Year 1, you bought a 15-year, 10% debt instrument of A Corporation at original issue for $86,235. File taxes for free 17. File taxes for free According to the prospectus, the debt instrument matures on December 31 of Year 15 at a stated redemption price of $100,000. File taxes for free The yield to maturity is 12%, compounded semiannually. File taxes for free The debt instrument provides for qualified stated interest payments of $5,000 on June 30 and December 31 of each calendar year. File taxes for free The accrual periods are the 6-month periods ending on each of these dates. File taxes for free The number of days for the first accrual period (January 1 through June 30) is 181 days (182 for leap years). File taxes for free The daily OID for the first accrual period is figured as follows. File taxes for free   ($86,235. File taxes for free 17 x . File taxes for free 12/2) – $5,000     181 days     = $174. File taxes for free 11020 = $. File taxes for free 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. File taxes for free 17 + $174. File taxes for free 11), or $86,409. File taxes for free 28. File taxes for free The number of days for the second accrual period (July 1 through December 31) is 184 days. File taxes for free The daily OID for the second accrual period is figured as follows. File taxes for free   ($86,409. File taxes for free 28 x . File taxes for free 12/2) – $5,000     184 days     = $184. File taxes for free 55681 = $1. File taxes for free 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, $174. File taxes for free 11 ($. File taxes for free 95665 × 182 days) plus $184. File taxes for free 56 ($1. File taxes for free 00303 × 184 days), or $358. File taxes for free 67. File taxes for free Add the OID to the $10,000 interest you report on your income tax return for Year 1. File taxes for free Example 6. File taxes for free 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. File taxes for free Also, the interest payment dates are October 31 and April 30 of each calendar year. File taxes for free The accrual periods are the 6-month periods ending on each of these dates. File taxes for free The number of days for the first accrual period (May 1 through October 31) is 184 days. File taxes for free The daily OID for the first accrual period is figured as follows. File taxes for free   ($86,235. File taxes for free 17 x . File taxes for free 12/2) – $5,000     184 days     = $174. File taxes for free 11020 = $. File taxes for free 94625   184           The number of days for the second accrual period (November 1 through April 30) is 181 days (182 for leap years). File taxes for free The daily OID for the second accrual period is figured as follows. File taxes for free   ($86,409. File taxes for free 28 x . File taxes for free 12/2) – $5,000     181 days     = $184. File taxes for free 55681 = $1. File taxes for free 01965   181 If you hold the debt instrument through the end of Year 1, you must include $236. File taxes for free 31 of OID in income. File taxes for free This is $174. File taxes for free 11 ($. File taxes for free 94625 × 184 days) for the period May 1 through October 31 plus $62. File taxes for free 20 ($1. File taxes for free 01965 × 61 days) for the period November 1 through December 31. File taxes for free The OID is added to the $5,000 interest income paid on October 31 of Year 1. File taxes for free Your basis in the debt instrument is increased by the OID you include in income. File taxes for free On January 1 of Year 2, your basis in the A Corporation debt instrument is $86,471. File taxes for free 48 ($86,235. File taxes for free 17 + $236. File taxes for free 31). File taxes for free Short first accrual period. File taxes for free   You may have to make adjustments if a debt instrument has a short first accrual period. File taxes for free 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. File taxes for free (The remaining accrual periods begin on May 1 and November 1. File taxes for free ) For this short period, figure the daily OID as described earlier, but adjust the yield for the length of the short accrual period. File taxes for free You may use any reasonable compounding method in determining OID for a short period. File taxes for free Examples of reasonable compounding methods include continuous compounding and monthly compounding (that is, simple interest within a month). File taxes for free Consult your tax advisor for more information about making this computation. File taxes for free   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. File taxes for free Reduction for acquisition premium. File taxes for free   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. File taxes for free To figure the daily acquisition premium, multiply the daily OID by the following fraction. File taxes for free The numerator is the acquisition premium. File taxes for free The denominator is the total OID remaining for the debt instrument after your purchase date. File taxes for free Example 7. File taxes for free 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. File taxes for free The adjusted issue price on November 1 of Year 1 is $86,409. File taxes for free 28 ($86,235. File taxes for free 17 + $174. File taxes for free 11). File taxes for free In this case, you paid an acquisition premium of $590. File taxes for free 72 ($87,000 − $86,409. File taxes for free 28). File taxes for free The daily OID for the accrual period November 1 through April 30, reduced for the acquisition premium, is figured as follows. File taxes for free 1) Daily OID on date of purchase (2nd accrual period) $1. File taxes for free 01965*  2)  Acquisition premium $590. File taxes for free 72    3)  Total OID remaining after purchase date ($13,764. File taxes for free 83 − $174. File taxes for free 11) 13,590. File taxes for free 72   4) Line 2 ÷ line 3 . File taxes for free 04346  5)  Line 1 × line 4 . File taxes for free 04432  6)  Daily OID reduced for the acquisition premium. File taxes for free Line 1 − line 5 $0. File taxes for free 97533  * As shown in Example 6. File taxes for free The total OID to include in income for Year 1 is $59. File taxes for free 50 ($. File taxes for free 97533 × 61 days). File taxes for free 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. File taxes for free In general, a contingent payment debt instrument provides for one or more payments that are contingent as to timing or amount. File taxes for free If you hold a contingent payment bond, you must report OID as it accrues each year. File taxes for free 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. File taxes for free To figure OID accruals on contingent payment debt instruments, holders and issuers must use the noncontingent bond method. File taxes for free Noncontingent bond method. File taxes for free    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. File taxes for free In general, holders and issuers accrue OID on this projected payment schedule using the constant yield method that applies to fixed payment debt instruments. File taxes for free When a contingent payment differs from the projected fixed amount, the holders and issuers make adjustments to their OID accruals. File taxes for free If the actual contingent payment is larger than expected, both the issuer and the holder increase their OID accruals. File taxes for free If the actual contingent payment is smaller than expected, holders and issuers generally decrease their OID accruals. File taxes for free Form 1099-OID. File taxes for free   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. File taxes for free For example, the amount may not be correct if the contingent payment was different from the projected amount. File taxes for free If the amount in box 1 is not correct, you must figure the OID to report on your return under the following rules. File taxes for free For information on showing an OID adjustment on your tax return, see How To Report OID, earlier. File taxes for free Figuring OID. File taxes for free   To figure OID on a contingent payment debt instrument, you need to know the “comparable yield” and “projected payment schedule” of the debt instrument. File taxes for free The issuer must make these available to you. File taxes for free Comparable yield. File taxes for free   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. File taxes for free The comparable yield is determined as of the debt instrument's issue date. File taxes for free Projected payment schedule. File taxes for free   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. File taxes for free The projected payment schedule is created by the issuer as of the debt instrument's issue date. File taxes for free It is used to determine the issuer's and holder's interest accruals and adjustments. File taxes for free Steps for figuring OID. File taxes for free   Figure the OID on a contingent payment debt instrument in two steps. File taxes for free Figure the OID using the constant yield method (discussed earlier under Debt Instruments Issued After 1984 ) that applies to fixed payment debt instruments. File taxes for free Use the comparable yield as the yield to maturity. File taxes for free 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). File taxes for free Do not treat any amount payable as qualified stated interest. File taxes for free Adjust the OID in (1) to account for actual contingent payments. File taxes for free If the contingent payment is greater than the projected fixed amount, you have a positive adjustment. File taxes for free If the contingent payment is less than the projected fixed amount, you have a negative adjustment. File taxes for free Net positive adjustment. File taxes for free   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. File taxes for free Treat a net positive adjustment as additional OID for the tax year. File taxes for free Net negative adjustment. File taxes for free   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. File taxes for free Use a net negative adjustment to offset OID on the debt instrument for the tax year. File taxes for free 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. File taxes for free 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. File taxes for free 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. File taxes for free Basis adjustments. File taxes for free   In general, increase your basis in a contingent payment debt instrument by the OID included in income. File taxes for free Your basis, however, is not affected by any negative or positive adjustments. File taxes for free Decrease your basis by any noncontingent payment received and the projected contingent payment scheduled to be received. File taxes for free Treatment of gain or loss on sale or exchange. File taxes for free   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. File taxes for free 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. File taxes for free If the debt instrument is a capital asset, treat any loss that is more than your prior OID accruals as a capital loss. File taxes for free See Regulations section 1. File taxes for free 1275-4 for exceptions to these rules. File taxes for free Premium, acquisition premium, and market discount. File taxes for free   The rules for accruing premium, acquisition premium, and market discount do not apply to a contingent payment debt instrument. File taxes for free See Regulations section 1. File taxes for free 1275-4 to determine how to account for these items. File taxes for free Inflation-Indexed Debt Instruments This discussion shows how you figure OID on certain inflation-indexed debt instruments issued after January 5, 1997. File taxes for free An inflation-indexed debt instrument is generally a debt instrument on which the payments are adjusted for inflation and d
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Understanding your CP23 Notice

We made changes to your return because we found a difference between the amount of estimated tax payments on your tax return and the amount we posted to your account. You have a balance due because of these changes.

Printable samples of this notice (PDF)

Tax publications you may find useful

How to get help

Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 


What you need to do

  • Read your notice carefully — it will explain how much money you owe on your taxes.
  • Check the list of payments we applied to your account to see if we applied all the payments you made.
  • Correct the copy of your tax return that you kept for your records.
  • Pay the amount you owe by the date on the notice's payment coupon if you agree with the notice.
  • If you disagree with the notice, please contact us at the toll-free number listed on its top right-hand corner (within 60 days of the notice’s date).
  • Make payment arrangements if you can't pay the full amount you owe.

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Answers to Common Questions

What should I do if I find you misapplied a payment or haven't credited a payment that I made?
Contact us with your information at the toll-free number listed on your notice. Please have your documentation (such as cancelled checks, amended return, etc.) ready when you call. Our representative will discuss the issue with you and give you further instructions.

What should I do if I disagree with the changes you made?
Contact us at the toll free number listed on the top right-hand corner of your notice.

How do I adjust my estimated tax payments?
You can adjust your estimated tax payments by completing a Form 1040-ES, Estimated Tax for Individuals. See Publication 505, Tax Withholding and Estimated Tax for more information.

What should I do if I need to make another correction to my tax return?
You'll need to file Form 1040X, Amended U.S. Individual Income Tax Return.

Do I have to pay interest on the amount I owe?
Interest will accrue on the amount you owe unless you pay it by the requested date on the notice's payment coupon.

Do I receive a penalty if I cannot pay the full amount?
Yes. You usually will receive a late payment penalty. Notice 746, Information About Your Notice, Penalty and Interest has more information about penalties and interest.

What happens if I cannot pay the full amount I owe?
You can arrange to make a payment plan with us if you can't pay the full amount you owe.

How can I set up a payment plan?
Call the toll-free number listed on the top right-hand corner of your notice to discuss payment options, or learn more about payment arrangements.

What happens if I don't pay?
We can file a Notice of Federal Tax Lien. The lien gives us a legal claim to your property for payment for your tax debt.


Tips for next year

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about e-file.

Page Last Reviewed or Updated: 03-Mar-2014

The File Taxes For Free

File taxes for free Publication 550 - Introductory Material Table of Contents Future Developments What's New Reminders IntroductionOrdering forms and publications. File taxes for free Tax questions. File taxes for free Future Developments For the latest information about developments related to Publication 550, such as legislation enacted after it was published, go to www. File taxes for free irs. File taxes for free gov/pub550. File taxes for free What's New Net investment income tax (NIIT). File taxes for free  Beginning in 2013, you may be subject to the NIIT. File taxes for free The NIIT applies at a rate of 3. File taxes for free 8% to certain net investment income of individuals, estates, and trusts that have income above statutory threshold amounts. File taxes for free See Net investment income tax (NIIT) , later. File taxes for free Maximum capital gain rates. File taxes for free  For 2013, the maximum capital gain rates are 0%, 15%, 20%, 25%, and 28%. File taxes for free See Capital Gain Tax Rates , later, for more information. File taxes for free Gift tax exclusion amount increased. File taxes for free  For calendar year 2013, the first $14,000 of gifts to any person (other than gifts of future interests in property) are not included in the total amount of taxable gifts. File taxes for free See Property Received as a Gift , later. File taxes for free Reminders Mutual fund distributions. File taxes for free  Publication 564, Mutual Fund Distributions, has been incorporated into this publication. File taxes for free Foreign source income. File taxes for free  If you are a U. File taxes for free S. File taxes for free citizen with investment income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt by U. File taxes for free S. File taxes for free law. File taxes for free This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payer. File taxes for free Employee stock options. File taxes for free  If you received an option to buy or sell stock or other property as payment for your services, see Publication 525, Taxable and Nontaxable Income, for the special tax rules that apply. File taxes for free Photographs of missing children. File taxes for free  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. File taxes for free Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. File taxes for free You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. File taxes for free Introduction This publication provides information on the tax treatment of investment income and expenses. File taxes for free It includes information on the tax treatment of investment income and expenses for individual shareholders of mutual funds or other regulated investment companies, such as money market funds. File taxes for free It explains what investment income is taxable and what investment expenses are deductible. File taxes for free It explains when and how to show these items on your tax return. File taxes for free It also explains how to determine and report gains and losses on the disposition of investment property and provides information on property trades and tax shelters. File taxes for free The glossary at the end of this publication defines many of the terms used. File taxes for free Investment income. File taxes for free   This generally includes interest, dividends, capital gains, and other types of distributions including mutual fund distributions. File taxes for free Investment expenses. File taxes for free   These include interest paid or incurred to acquire investment property and expenses to manage or collect income from investment property. File taxes for free Qualified retirement plans and IRAs. File taxes for free   The rules in this publication do not apply to mutual fund shares held in individual retirement arrangements (IRAs), section 401(k) plans, and other qualified retirement plans. File taxes for free The value of the mutual fund shares and earnings allocated to you are included in your retirement plan assets and stay tax free generally until the plan distributes them to you. File taxes for free The tax rules that apply to retirement plan distributions are explained in the following publications. File taxes for free Publication 560, Retirement Plans for Small Business. File taxes for free Publication 571, Tax-Sheltered Annuity Plans. File taxes for free Publication 575, Pension and Annuity Income. File taxes for free Publication 590, Individual Retirement Arrangements (IRAs). File taxes for free Publication 721, Tax Guide to U. File taxes for free S. File taxes for free Civil Service Retirement Benefits. File taxes for free    Comments and suggestions. File taxes for free   We welcome your comments about this publication and your suggestions for future editions. File taxes for free   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. File taxes for free NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. File taxes for free Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. File taxes for free   You can send your comments from www. File taxes for free irs. File taxes for free gov/formspubs/. File taxes for free Click on “More Information” and then on “Comment on Tax Forms and Publications. File taxes for free ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. File taxes for free Ordering forms and publications. File taxes for free   Visit www. File taxes for free irs. File taxes for free gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. File taxes for free Internal Revenue Service 1201 N. File taxes for free Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. File taxes for free   If you have a tax question, check the information available on IRS. File taxes for free gov or call 1-800-829-1040. File taxes for free We cannot answer tax questions sent to either of the above addresses. File taxes for free Prev  Up  Next   Home   More Online Publications