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Tax Forms 1040ez

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Tax Forms 1040ez

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

Tax forms 1040ez Index A Accounting methods Accrual method, Accrual Method Cash method, Cash Method Change in, Change in Accounting Method Methods you can use, Methods you can use. Tax forms 1040ez Accounting periods 52-53 week tax year, 52-53-Week Tax Year Business purpose tax year, Business Purpose Tax Year Calendar year, Calendar Year Improper tax year, Improper Tax Year Partnerships, Partnership Accrual method Expenses, Expenses Income, Income Advance payments, Advance Payment for Services Sales, Advance Payment for Sales Services, Advance Payment for Services Assistance (see Tax help) B Business purpose tax year, Business Purpose Tax Year C Calendar year, Calendar Year Cash method, Income Expenses, Expenses Income, Income Change, accounting method, Change to accrual method. Tax forms 1040ez , Change in Accounting Method Comments on publication, Comments and suggestions. Tax forms 1040ez Constructive receipt of income, Constructive receipt. Tax forms 1040ez Corporation tax periods, Corporations (Other Than S Corporations and PSCs) Cost identification, Identifying Cost D Death of individual, short period return, Death of individual. Tax forms 1040ez E Economic performance, Economic Performance Excluded entities, cash method, Excluded Entities F Fiscal year, Fiscal Year Form 1128, Improper Tax Year, Change in Tax Year 8716, Making the election. Tax forms 1040ez , Making back-up election. Tax forms 1040ez 8752, Required payment for partnership or S corporation. Tax forms 1040ez , Activating election. Tax forms 1040ez 970, Adopting LIFO method. Tax forms 1040ez Free tax services, How To Get Tax Help H Help (see Tax help) I Inventories Cost identification, Identifying Cost FIFO, FIFO Method LIFO, LIFO Method Lower of cost or market, Lower of Cost or Market Method Perpetual or book, Perpetual or Book Inventory Retail method, Retail Method Specific identification, Specific Identification Method Uniform capitalization rules, Inventories. Tax forms 1040ez Valuing, Valuing Inventory M More information (see Tax help) P Partnerships, Partnership Personal service corporation, Partnerships, S Corporations, and Personal Service Corporations (PSCs) Limit, use of cash method, Qualified PSC. Tax forms 1040ez Required tax year, Partnerships, S Corporations, and Personal Service Corporations (PSCs), Personal Service Corporation (PSC) Publications (see Tax help) R Related persons, Related Persons S S corporations, S Corporation Section 444 election, Section 444 Election Short period return, Short period return. Tax forms 1040ez Short tax year, Short Tax Year Suggestions for publication, Comments and suggestions. Tax forms 1040ez T Tax help, How To Get Tax Help Tax year Change in, Change in Tax Year Corporations, Corporations (Other Than S Corporations and PSCs) Fiscal year, Fiscal Year Personal service corporation, Personal Service Corporation (PSC) S corporations, S Corporation Section 444 election, Section 444 Election Short tax year, Short Tax Year Taxpayer Advocate, Taxpayer Advocate Service. Tax forms 1040ez TTY/TDD information, How To Get Tax Help U Uniform capitalization rules Exceptions, Exceptions. Tax forms 1040ez General rules, Uniform Capitalization Rules Prev  Up     Home   More Online Publications