Publication 1212 (Rev. January 2018) P1212

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Department
of the
Treasury
Internal
Revenue
Service

(Rev. January 2018)

Publication 1212

Contents

Cat. No. 61273T

Future Developments . . . . . . . . . . . . 1

Guide to
Original
Issue
Discount (OID)
Instruments

Photographs of Missing Children . . . . . 1
Introduction . . . . . . . . . . . . . . . . . . 1
Definitions . . . . . . . . . . . . . . . . . . . 2
Debt Instruments on the OID List . . . . . 3
Debt Instruments Not on the OID
List . . . . . . . . . . . . . . . . . . . . 3
Information for Brokers and Other
Middlemen . . . . . . . . . . . .
Short-Term Obligations
Redeemed at Maturity . . . .
Long-Term Debt Instruments . .
Certificates of Deposit . . . . . .
Bearer Bonds and Coupons . . .
Backup Withholding . . . . . . .
Information for Owners of OID Debt
Instruments . . . . . . . . . . .
Form 1099-OID . . . . . . . . . .
How To Report OID . . . . . . .
Figuring OID on Long-Term
Debt Instruments . . . . . . .
Figuring OID on Stripped Bonds
and Coupons . . . . . . . . .
Index

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Future Developments
For the latest information about developments
related to Pub. 1212, such as legislation
enacted after it was published, go to IRS.gov/
pub1212.

Photographs of Missing
Children
The Internal Revenue Service is a proud partner
with the National Center for Missing and
Exploited Children. Photographs of missing
children selected by the Center may appear in
this publication on pages that would otherwise
be blank. You can help bring these children
home by looking at the photographs and calling
800-THE-LOST
(800-843-5678)
if
you
recognize a child.

Introduction

Get forms and other information faster and easier at:
• IRS.gov (English)
• IRS.gov/Spanish (Español)
• IRS.gov/Chinese (中文)

Nov 13, 2017

• IRS.gov/Korean (한국어)
• IRS.gov/Russian (Pусский)
• IRS.gov/Vietnamese (TiếngViệt)

This publication has two purposes. Its primary
purpose is to help brokers and other middlemen
identify publicly offered original issue discount
(OID) debt instruments they may hold as nominees for the true owners, so they can file Forms
1099-OID or Forms 1099-INT as required. The
other purpose of the publication is to help owners of publicly offered OID debt instruments determine how much OID to report on their income tax returns.

The list of publicly offered OID debt instruments (OID list) is on the IRS website. The original issue discount tables, Sections I-A through
III-F, are only available on the IRS website at
IRS.gov/pub1212 by clicking the link under Recent Developments. The tables are posted to
the website in late November or early December of each year. The information on these lists
comes from the issuers of the debt instruments
and from financial publications and is updated
annually. (However, see Debt Instruments Not
on the OID List, later.)
Brokers and other middlemen can rely on
this list to determine, for information reporting
purposes, whether a debt instrument was issued at a discount and the OID to be reported
on information returns. However, because the
information in the list has generally not been
verified by the IRS as correct, the following tax
matters are subject to change upon examination by the IRS.
The OID reported by owners of a debt instrument on their income tax returns.
The issuer's classification of an instrument
as debt for federal income tax purposes.
The adjusted basis of a debt instrument.
Instructions for issuers of OID debt instruments. In general, issuers of publicly offered
OID debt instruments must, within 30 days after
the issue date, report information about the instruments to the IRS on Form 8281, Information
Return for Publicly Offered Original Issue Discount Instruments. In addition, Form 8281 must
be filed for a debt instrument that is part of an
issue the offering of which is registered with the
Securities and Exchange Commission after the
issue date of the debt instrument and such registration occurs on or after January 1, 2014.
See the form instructions for more information.
Issuers should report errors in and
omissions from the list in writing at the
following address:
IRS OID Publication Project
SE:W:CAR:MP:TFP
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224

REMIC and CDO information reporting requirements. Brokers and other middlemen
must follow special information reporting requirements for real estate mortgage investment
conduit (REMIC) regular interests, and collateralized debt obligations (CDO) interests. The
rules are explained in Publication 938, Real Estate Mortgage Investment Conduits (REMICs)
Reporting Information (And Other Collateralized
Debt Obligations (CDOs)).
Holders of interests in REMICs and CDOs
should see chapter 1 of Publication 550 for information on REMICs and CDOs.
Comments and suggestions. We welcome
your comments about this publication and your
suggestions for future editions.
You can send us comments through
IRS.gov/FormComments. Or you can write to:

Page 2

Internal Revenue Service
Tax Forms and Publications
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224
Although we cannot respond individually to
each comment received, we do appreciate your
feedback and will consider your comments as
we revise our tax forms, instructions, and publications.
Ordering forms and publications. Visit
IRS.gov/FormsPubs to download forms and
publications. Otherwise, you can go to IRS.gov/
OrderForms to order current and prior-year
forms and instructions. Your order should arrive
within 10 business days.
Tax questions. If you have a tax question
not answered by this publication, check
IRS.gov and How To Get Tax Help at the end of
this publication.

Useful Items

You may want to see:
Publication
515 Withholding of Tax on Nonresident
Aliens and Foreign Entities
550 Investment Income and Expenses
938 Real Estate Mortgage Investment
Conduits (REMICs) Reporting
Information (And Other Collateralized
Debt Obligations (CDOs)).
Form (and Instructions)
1096 Annual Summary and Transmittal of
U.S. Information Returns
1099-B Proceeds From Broker and Barter
Exchange Transactions
1099-INT Interest Income
1099-OID Original Issue Discount
8949 Sales and Other Dispositions of
Capital Assets
Schedule B (Form 1040A or 1040)
Interest and Ordinary Dividends
Schedule D (Form 1040) Capital Gains
and Losses
W-8 Instructions for the Requester of
Forms W-8BEN, W-8ECI, W-8EXP,
and W-8IMY
See How To Get Tax Help near the end of this
publication for information about getting publications and forms.

Definitions
The following terms are used throughout this
publication. “Original issue discount” is defined
first. The other terms are listed alphabetically.
Original issue discount (OID). OID is a form
of interest. 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). Zero coupon bonds and debt
instruments that pay no stated interest until ma-

turity are examples of debt instruments that
have OID.
Accrual period. An accrual period is an interval of time used to measure OID. The length of
an accrual period can be 6 months, a year, or
some other period no longer than one year, depending on when the debt instrument was issued.
Acquisition premium. 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. A debt
instrument does not have acquisition premium,
however, if the debt instrument was purchased
at a premium. See Premium, later.
Adjusted issue price. 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. In general, the adjusted issue
price at the beginning of the debt instrument's
first accrual period is its issue price. 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.
Debt instrument. 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).
It generally does not include an annuity contract.
Issue price. 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.
Market discount. A debt instrument generally
is acquired with market discount if its stated redemption price at maturity is greater than its basis immediately after its acquisition. 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. 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.
The market discount is the difference between
the issue price plus accrued OID and your adjusted basis.
Premium. 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.
The premium is the excess of the adjusted basis over the payable amounts. See Publication
550 for information on the tax treatment of bond
premium.
Publication 1212 (January 2018)

Qualified stated interest. 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.
Stated redemption price at maturity. 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.
Yield to maturity (YTM). 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. The YTM is
generally shown on the face of the debt instrument or in the literature you receive from your
broker. If you do not have this information, consult your broker, tax advisor, or the issuer.

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.
If you own a listed debt instrument, you
generally should not rely on the inforCAUTION mation in the OID list to determine (or
compare) the OID to be reported on your tax return. The OID amounts listed are figured without
reference to the price or date at which you acquired the debt instrument. 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.

!

The following discussions explain what information is contained in each section of the list.
Section I. This section contains publicly offered, long-term debt instruments.
Section I-A: Corporate Debt Instruments
Issued Before 1985.
Section I-B: Corporate Debt Instruments
Issued After 1984.
Section I-C: Inflation-Indexed Debt Instruments.
For each publicly offered debt instrument in
Section I, the list contains the following information.
The name of the issuer.
The Committee on Uniform Security Identification Procedures (CUSIP) number.
The issue date.
The maturity date.
The issue price expressed as a percent of
principal or of stated redemption price at
maturity.
The annual stated or coupon interest rate.
(This rate is shown as 0.00 if no annual interest payments are provided.)
The yield to maturity will be added to Section I-B for bonds issued after December
31, 2006.
The total OID accrued up to January 1 of a
calendar year. (This information is not
available for every instrument.)
Publication 1212 (January 2018)

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.
The total OID per $1,000 of principal or
maturity value for a calendar year and a
subsequent year.
Section II. This section contains stripped coupons and principal components of U.S. Treasury and Government-Sponsored Enterprise
debt instruments. 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.
This section also includes debt instruments
backed by U.S. Treasury securities that represent ownership interests in those securities.
The obligations listed in Section II are arranged by maturity date. The amounts listed are
the total OID for a calendar year per $1,000 of
redemption price.
Section III. This section contains short-term
discount obligations.
Section III-A: Short-Term U.S. Treasury
Bills.
Section III-B: Federal Home Loan Banks.
Section III-C: Federal National Mortgage
Association.
Section III-D: Federal Farm Credit Banks.
Section III-E: Federal Home Loan Mortgage Corporation.
Section III-F: Federal Agricultural Mortgage
Corporation.
Information that supplements Section III-A is available on the Internet at
http://www.treasurydirect.gov/
tdhome.htm.
The short-term obligations listed in this section are arranged by maturity date. 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. 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.

Debt Instruments
Not on the OID List
The list of debt instruments discussed earlier
does not contain the following items.
U.S. savings bonds.
Certificates of deposit and other
face-amount certificates issued at a discount, including syndicated certificates of
deposit.
Obligations issued by tax-exempt organizations.
OID debt instruments that matured or were
entirely called by the issuer before the tables were posted on the IRS website.
Mortgage-backed securities and mortgage
participation certificates.

Long-term OID debt instruments issued
before May 28, 1969.
Short-term obligations, other than the obligations listed in Section III.
Debt instruments issued at a discount by
states or their political subdivisions.
REMIC regular interests and CDOs.
Commercial paper and banker's acceptances issued at a discount.
Obligations issued at a discount by individuals.
Foreign obligations not traded in the United States and obligations not issued in the
United States.

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.
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. 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. See Backup Withholding, later.
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 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).
Electronic payee statements. You can issue
Form 1099-OID electronically with the consent
of the recipient.
More information. For more information, including penalties for failure to file (or furnish) required information returns or statements, see
the current General Instructions for Certain Information Returns.

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.
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.
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. A special rule is used to determine
the original issue price for information reporting
on U.S. Treasury bills (T-bills) listed in Section III-A. 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. This noncompetitive discount price is
Page 3

the issue price (expressed as a percent of principal) shown in Section III-A.
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.
Example 1. There are 13-week and
26-week T-bills maturing on the same date as
the T-bill being redeemed. The price actually
paid by the owner cannot be established by
owner or middleman records. 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. The interest you report on Form
1099-INT is the OID (per $1,000 of principal)
shown in Section III-A for that obligation.

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. For this purpose, you can
rely on Section I of the OID list to determine the
following information.
Whether a debt instrument has OID.
The OID to be reported on the Form
1099-OID.
In general, you must report OID on publicly
offered, long-term debt instruments listed in
Section I. You also can report OID on other
long-term debt instruments.
Form 1099-OID. On Form 1099-OID for a calendar year show the following information.
Box 1. The OID for the actual dates the
owner held the debt instruments during a
calendar year. To determine this amount,
see Figuring OID, next. You may report a
net amount of OID that reflects the offset of
OID by the amount of acquisition premium
amortization for the year. If you do so,
leave box 6 blank.
Box 2. The qualified stated interest paid or
credited during the calendar year. Interest
reported here is not reported on Form
1099-INT. The qualified stated interest on
Treasury inflation-protected securities may
be reported on Form 1099-INT in box 3 instead.
Box 3. Any interest or principal forfeited
because of an early withdrawal that the
owner can deduct from gross income. Do
not reduce the amounts in boxes 1 and 2
by the forfeiture.
Box 4. Any backup withholding for this
debt instrument.
Box 5. For a covered security acquired
with market discount, enter the amount of
market discount that accrued during the
period the holder owned the debt instrument provided the holder notified you of an
election made under section 1278(b) to include market discount in income as it accrued. Follow the instructions in Regulations section 1.6045-1(n) to determine the
accruals of market discount.
Box 6. For a covered security acquired
with acquisition premium, enter the amount
Page 4

of acquisition premium amortization for the
period the holder owned the debt instrument. If a net amount of OID is reported in
box 1, box 8, or box 11 as applicable,
leave this box blank. Follow the instructions in Regulations section 1.6045-1(n) to
determine the amortization of acquisition
premium.
Box 7. The CUSIP number, if any. 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 12.50
2006). If the issuer of the debt instrument
is other than the payer, show the name of
the issuer in this box.
Box 8. The OID on a U.S. Treasury obligation for the part of the year the owner held
the debt instrument. You may report a net
amount of OID that reflects the offset of
OID by the amount of acquisition premium
amortization for the year. If you do so,
leave box 6 blank.
Box 9. Investment expenses passed on to
holders of a single-class REMIC.
Box 10. For a taxable covered security acquired at a premium, enter the amount of
bond premium amortization allocable to
the interest paid during the tax year, unless
you were notified in writing that the holder
did not want to amortize bond premium under section 171. See Regulations sections
1.6045-1(n)(5) and 1.6049-9(b). If you are
required to report bond premium amortization and you reported a net amount of interest in box 2, leave this box blank.
Box 11. Use to report any Tax-exempt
OID.
Boxes 12-14. Use to report any state income tax withheld for this debt instrument.
Figuring OID. You can determine the OID on a
long-term debt instrument by using either of the
following.
Section I of the OID list.
The income tax regulations.
Using Section I. If the owner held the debt
instrument for the entire calendar year, report
the OID shown in Section I for the calendar
year. 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. For example, if the debt instrument's
stated redemption price at maturity is $500, report one-half the listed OID.
If the owner held the debt instrument for less
than the entire calendar year, figure the OID to
report as follows.
1. Look up the daily OID for the first accrual
period in the calendar year during which
the owner held the debt instrument.
2. Multiply the daily OID by the number of
days the owner held the debt instrument
during that accrual period.
3. Repeat steps (1) and (2) for any remaining
accrual periods for the year during which
the owner held the debt instrument.

4. Add the results in steps (2) and (3) to determine the owner's OID per $1,000 of stated redemption price at maturity.
5. If necessary, adjust the OID in (4) to reflect
the debt instrument's stated redemption
price at maturity.
Report the result on Form 1099-OID in box 1.
Using the income tax regulations. Instead of using Section I to figure OID, you can
use the regulations under sections 1272
through 1275 of the Internal Revenue Code. 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. (If you use Section I-B, the OID is figured using 6-month accrual periods.)
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.

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. You must file an information return
showing the reportable interest and OID, if any,
on the CD. These rules apply whether or not
you sold the CD to the owner. Report OID on a
CD in the same way as OID on other debt instruments. See Short-Term Obligations Redeemed at Maturity and Long-Term Debt Instruments earlier.

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. However, do not report the interest if
either of the following apply.
You hold the bond as a nominee for the
true owner.
The payee is a foreign person. See Payments to foreign person under Backup
Withholding, later.
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. The
coupon may have been “stripped” (separated)
from the bond and separately purchased.
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.

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%. The
backup withholding is deducted at the time a
cash payment is made. See Pub. 1281, Backup
Publication 1212 (January 2018)

Withholding for Missing and Incorrect Name/
TIN(s), for more information.

any payment, the required withholding is limited
to the cash paid.

Backup withholding generally applies to reportable interest and OID in the following situations.

Payee not the original owner. 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). The amount subject to backup withholding at maturity of a listed obligation must be
determined using the issue price shown in Section I.

1. The payee does not give you a taxpayer
identification number (TIN).
2. The IRS notifies you that the payee gave
an incorrect TIN.
3. The IRS notifies you that the payee is subject to backup withholding due to payee
underreporting.
4. For debt instruments acquired after 1983:
a. The payee does not certify, under
penalties of perjury, that he or she is
not subject to backup withholding under (3), or
b. The payee does not certify, under
penalties of perjury, that the TIN given
is correct.
However, for short-term discount obligations
(other than government obligations), bearer
bonds and coupons, and U.S. savings bonds,
backup withholding applies to reportable interest and OID only if the payee does not give you
a TIN or gives you an obviously incorrect number for a TIN.
Short-term obligations. Backup withholding
applies to the payment of OID that is includible
in the holder’s gross income, to the extent it is in
cash. However, backup withholding applies to
any interest payable before maturity when the
interest is paid or credited.
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. 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. If the
purchase price of a listed obligation is not established or is disregarded, you must use the issue price shown in Section III.
Long-term obligations. If no cash payments
are made on a long-term obligation before maturity, backup withholding applies only at maturity. The amount subject to backup withholding is
the OID includible in the owner's gross income
for the calendar year when the obligation matures. The amount to be withheld is limited to
the cash paid.
Registered long-term obligations with
cash payments. If a registered long-term obligation has cash payments before maturity,
backup withholding applies when a cash payment is made. 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. 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. For
Publication 1212 (January 2018)

Bearer long-term obligations with cash
payments. If a bearer long-term obligation has
cash payments before maturity, backup withholding applies when the cash payments are
made. 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. 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. The required withholding at maturity is limited to the cash paid.
Sales and redemptions. 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. Backup
withholding applies in the following situations.
The payee does not give you a TIN.
The IRS notifies you that the payee gave
an incorrect TIN.
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.
Payments outside the United States to U.S.
person. The requirements for backup withholding and information reporting apply to payments of OID and interest made outside the
United States to a U.S. person, 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.S. trade or business.
Payments to foreign person. The following
discussions explain the rules for backup withholding and information reporting on payments
to foreign persons.
U.S.-source amount. Backup withholding
and information reporting are not required for
payments of U.S.-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. A U.S. resident is not a foreign
person. 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. 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.S. person.

For information about the 28% withholding
tax that may apply to payments of U.S.-source
OID or interest to foreign persons, see Publication 515.
Foreign-source amount. Backup withholding and information reporting are not required for payments of foreign-source OID and
interest paid and received outside the U.S.
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.
More information. For more information
about backup withholding and information reporting on foreign-source amounts or payments
to foreign persons, see Regulations section
1.6049-5.

Information for
Owners of OID
Debt Instruments
This section is for persons who prepare their
own tax returns. It discusses the income tax
rules for figuring and reporting OID on long-term
debt instruments. 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. However, the information provided does not cover
every situation. More information can be found
in the regulations under sections 1271 through
1275 of the Internal Revenue Code.
Including OID in income. Generally, you include OID in income as it accrues each year,
whether or not you receive any payments from
the debt instrument issuer.
Exceptions. The rules for including OID in
income as it accrues generally do not apply to
the following debt instruments.
U.S. savings bonds.
Tax-exempt obligations. (However, see
Tax-Exempt Bonds and Coupons, later.)
Obligations issued by individuals before
March 2, 1984.
Loans of $10,000 or less between individuals who are not in the business of lending
money. (The dollar limit includes outstanding prior loans by the lender to the borrower.) This exception does not apply if a
principal purpose of the loan is to avoid
any federal tax.
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.
Publication 550 also discusses rules for holders
of REMIC interests and CDOs.
De minimis rule. You can treat OID as zero if
the total OID on a debt instrument is less than
one-fourth of 1% (.0025) of the stated redemption price at maturity multiplied by the number of
full years from the date of original issue to
Page 5

maturity. Debt instruments with de minimis OID
are not listed in this publication. 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. Also, the
de minimis rules generally do not apply to
tax-exempt obligations.
Example 2. 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. 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. Under the de minimis rule, you can treat the OID as zero because
the $20 discount is less than $25.
Example 3. Assume the same facts as Example 2, except the debt instrument was issued
at $950. You must report part of the $50 OID
each year because it is more than $25.
Choice to report all interest as OID. 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. See Constant yield
method under Debt Instruments Issued After
1984, later, for more information.
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. For more information, see Regulations
section 1.1272-3.
Purchase after date of original issue. A debt
instrument you purchased after the date of original issue may have premium, acquisition premium, or market discount. If your debt instrument has premium or acquisition premium, the
OID reported to you on Form 1099-OID may
have to be adjusted. For more information, see
Showing an OID adjustment under How To Report OID, later. If your debt instrument is a covered security under Regulations section
1.6045-1(a)(15), market discount, acquisition
premium, or premium is reported in box 5, 6 or
10 of Form 1099-OID, respectively. The following rules generally do not apply to contingent
payment debt instruments.
Adjustment for premium. If your debt instrument (other than an inflation-indexed debt
instrument) has premium, do not report any OID
as ordinary income. Your adjustment is the total
OID shown on your Form 1099-OID.
Adjustment for acquisition premium. If
your debt instrument has acquisition premium,
reduce the OID you report. 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. If
your debt instrument is a covered security under Regulations section 1.6045-1(a)(15), your
broker may either report the acquisition premium amortization adjustment amount in box 6
or may report a net amount of OID in box 1 or
box 8, as applicable, that reflects the adjustment of OID by the amortized acquisition premium. In general, your broker will use the rules
Page 6

in Regulations section 1.1272-2(b)(4) to determine the amortization of acquisition premium.
Market discount. If your debt instrument
has market discount that you choose to include
in income currently and if the debt instrument is
a covered security under Regulations section
1.6045-1(a)(15), the market discount includible
in income is reported in box 5 of Form 1099OID. Unless you notify your broker in writing
that you have not elected to use a constant
yield method under section 1276(b) to determine accruals of market discount, your broker
will use a constant yield method to determine
accruals of market discount rather than a ratable method.
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. If you choose to
use the constant yield method to figure accrued
market discount, also see Figuring OID on
Long-Term Debt Instruments, later. The constant yield method of figuring accrued OID, explained in those discussions under Constant
yield method, is also used to figure accrued
market discount.
For more information concerning premium
or market discount on an inflation-indexed debt
instrument, see Regulations section 1.1275-7.
Sale, exchange, or redemption. Generally,
you treat your gain or loss from the sale, exchange, or redemption of an OID debt instrument as a capital gain or loss if you held the
debt instrument as a capital asset. If you sold
the debt instrument through a broker, you
should receive Form 1099-B or an equivalent
statement from the broker. Use the Form
1099-B or other statement and your brokerage
statements to complete Form 8949, and Schedule D (Form 1040).
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. Your basis, generally, is your cost increased by the OID you have included in income each year you held it. 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. For a covered security, your broker will report the adjusted basis of the debt instrument to you on Form
1099-B.
See chapter 4 of Publication 550 for more
information about the tax treatment of the sale
or redemption of discounted debt instruments.
Example 4. Larry, a calendar year taxpayer, bought a corporate debt instrument at
original issue for $86,235.00 on November 1 of
Year 1. The 15-year debt instrument matures on
October 31 of Year 16 at a stated redemption
price of $100,000. The debt instrument provides for semiannual payments of interest at
10%. Assume the debt instrument is a capital
asset in Larry's hands. The debt instrument has
$13,765.00 of OID ($100,000 stated redemption price at maturity minus $86,235.00 issue
price).
Larry sold the debt instrument for $90,000
on November 1 of Year 4. Including the OID he

will report for the period he held the debt instrument in Year 4, Larry has included $4,556.00 of
OID in income and has increased his basis by
that amount to $90,791.00. Larry has realized a
loss of $791.00. All of Larry's loss is capital
loss.

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. Form 1099-OID shows all
OID income in box 1 except OID on a U.S.
Treasury obligation, which is shown in box 8. It
also shows, in box 2, any qualified stated interest you must include in income. (However, any
qualified stated interest on Treasury inflation-protected securities can be reported on
Form 1099-INT in box 3.) For a taxable covered
security, Form 1099-OID may show accrued
market discount in box 5, acquisition premium
in box 6, or premium in box 10. For a taxable
covered security with acquisition premium,
box 1 or box 8, as applicable, may show a net
amount of OID that reflects the offset of OID by
the amount of acquisition premium amortization
for the year. If so, box 6 will be blank. For a covered security with bond premium, box 2 may
show a net amount of qualified stated interest
that reflects the offset of interest income by the
amount of premium amortization for the year. If
so, box 10 will be blank. A copy of Form
1099-OID will be sent to the IRS. Do not attach
your copy to your tax return. Keep it for your records.
If you are required to file a tax return
and you receive Form 1099-OID showCAUTION ing taxable amounts, you must report
these amounts on your return. 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.

!

Form 1099-OID not received. 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.
Refiguring OID. You may need to 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.
You bought the debt instrument at a premium or at an acquisition premium. However, if you bought a covered security at an
acquisition premium, you may not have to
refigure the OID if your broker reported a
net adjusted amount of OID in box 1 or
box 8, as applicable, that reflects the adjustment of the OID by the amortized acquisition premium.
The debt instrument is a stripped bond or
coupon (including zero coupon bonds
backed by U.S. Treasury securities).
The debt instrument is a contingent payment or inflation-indexed debt instrument.
Publication 1212 (January 2018)

See the discussions under Figuring OID on
Long-Term Debt Instruments or Figuring OID on
Stripped Bonds and Coupons, later, for the specific computations.
Refiguring interest. 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.
Nominee. 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.” You must
file another Form 1099-OID for each actual
owner, showing the OID for the owner. Show
the owner of the debt instrument as the “recipient” and you as the “payer.”
Complete Form 1099-OID and Form 1096
and file the forms with the Internal Revenue
Service Center for your area. You must also
give a copy of the Form 1099-OID to the actual
owner. However, you are not required to file a
nominee return to show amounts belonging to
your spouse. See the Form 1099 instructions
for more information.
When preparing your tax return, follow the
instructions under Showing an OID adjustment
in the next discussion.

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.
Form 1040 or Form 1040A required. You
must use Form 1040 or Form 1040A (you cannot use Form 1040EZ) under either of the following conditions.
You received a Form 1099-OID as a nominee for the actual owner.
Your total interest and OID income for the
year was more than $1,500.
You are reporting more or less OID than
the amount shown on Form 1099-OID,
other than because you are a nominee. For
example, you paid a premium or an acquisition premium when you purchased the
debt instrument and you will report less
OID than shown on Form 1099-OID in
box 1 or box 8.
Form 1040 required. You must use Form
1040 if you were charged an early withdrawal
penalty.
Where to report. 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. Include all OID and periodic interest shown on any Form 1099-OID, boxes 1, 2,
and 8, you received for the tax year. Also include any other OID and interest income for
which you did not receive a Form 1099.
Showing an OID adjustment. If you use Form
1040 to report more or less OID than shown in
Publication 1212 (January 2018)

box 1 or box 8 on Form 1099-OID, list the full
OID on Schedule B, Part I, line 1, and follow the
instructions under 1 or 2, next.
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, or 2 next.
1. If the OID, as adjusted, is less than the
amount shown on Form 1099-OID, show
the adjustment as follows.
a. Under your last entry on line 1, subtotal all interest and OID income listed
on line 1.
b. Below the subtotal, write “Nominee
Distribution” or “OID Adjustment” and
show the OID you are not required to
report.
c. Subtract that OID from the subtotal
and enter the result on line 2.
2. If the OID, as adjusted, is more than the
amount shown on Form 1099-OID, show
the adjustment as follows.
a. Under your last entry on line 1, subtotal all interest and OID income listed
on line 1.
b. Below the subtotal, write “OID Adjustment” and show the additional OID.
c. Add that OID to the subtotal and enter
the result on line 2.

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. It
also may depend on the type of the debt instrument. There are different rules for each of the
following debt instruments.
1. Debt instruments issued after July 1,
1982, and before 1985.
2. Debt instruments issued after 1984 (other
than debt instruments described in (5) and
(6)).
3. Contingent payment debt instruments issued after August 12, 1996.
4. Inflation-indexed debt instruments (including Treasury inflation-protected securities)
issued after January 5, 1997.
Zero coupon bonds. The rules for figuring
OID on zero coupon bonds backed by U.S.
Treasury securities are discussed under Figuring OID on Stripped Bonds and Coupons, later.
Form 1099-OID. You should receive a Form
1099-OID showing OID for the part of the year
you held the debt instrument. However, if you
paid an acquisition premium, you may need to
refigure the OID to report on your tax return.
See Reduction for acquisition premium, later. If
your debt instrument is a covered security under Regulations section 1.6045-1(a)(15), you
may not have to refigure the OID if your broker
reported a net adjusted amount of OID in box 1
or box 8, as applicable, that reflects the adjustment of OID by the amortized acquisition premium.

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 IRS.gov/pub1212 by
clicking the link under Recent Developments.
Form 1099-OID not received. The OID listed
is for each $1,000 of redemption price. You
must adjust the listed amount if your debt instrument has a different principal amount. For example, if you have a debt instrument with a
$500 principal amount, use one-half the listed
amount to figure your OID.
If you held the debt instrument the entire
year, use the OID shown in Section I-A for a calendar year. (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.) If you did not hold the debt instrument the entire year, figure your OID using the
following method.
1. Divide the OID shown by 12.
2. Multiply the result in (1) by the number of
complete and partial months (for example,
61 2 months) you held the debt instrument
during a calendar year. This is the OID to
include in income unless you paid an acquisition premium. The reduction for acquisition premium is discussed next.
Reduction for acquisition premium. If you
bought the debt instrument at an acquisition
premium, figure the OID to include in income as
follows.
1. 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. This is the
monthly OID.
2. Subtract from your cost the issue price
and the accumulated OID from the date of
issue to the date of purchase. (If the result
is zero or less, stop here. You did not pay
an acquisition premium.)
3. 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.
4. Subtract the amount figured in (3) from the
amount figured in (1). This is the OID to include in income for each month you hold
the debt instrument during the year.
Transfers during the month. 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. Your holding period
for this purpose begins the day you acquire the
debt instrument and ends the day before you
dispose of it.

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
Page 7

each year you own the debt instruments and increase your basis by the amount included. For
information about showing the correct OID on
your tax return, see How To Report OID, earlier.
Form 1099-OID. You should receive a Form
1099-OID showing OID for the part of the year
you held the debt instrument. However, if you
paid an acquisition premium, you may need to
refigure the OID to report on your tax return.
See Constant yield method and the discussions
on acquisition premium that follow, later.
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 IRS.gov/pub1212 by
clicking the link under Recent Developments.
Form 1099-OID not received. The OID listed
is for each $1,000 of redemption price. You
must adjust the listed amount if your debt instrument has a different principal amount. For example, if you have a debt instrument with a
$500 principal amount, use one-half the listed
amount to figure your OID.
If you held the debt instrument the entire
year, use the OID shown in Section I-A. (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.) If you did not hold the debt instrument the entire year, figure your OID using either of the following methods.
Method 1.
1. Divide the total OID for a calendar year by
365 (366 for leap years).
2. Multiply the result in (1) by the number of
days you held the debt instrument during
that particular year.
This computation is an approximation and may
result in a slightly higher OID than Method 2.
Method 2.
1. Look up the daily OID for the first accrual
period you held the debt instrument during
a calendar year. (See Accrual period under Constant yield method, next.)
2. Multiply the daily OID by the number of
days you held the debt instrument during
that accrual period.
3. If you held the debt instrument for part of
both accrual periods, repeat (1) and (2) for
the second accrual period.
4. Add the results of (2) and (3). This is the
OID to include in income, unless you paid
an acquisition premium. (The reduction for
acquisition premium is discussed later.)
Constant yield method. This discussion
shows how to figure OID on debt instruments issued after July 1, 1982, and before 1985, using
a constant yield method. OID is allocated over
the life of the debt instrument through adjustments to the issue price for each accrual period.
Figure the OID allocable to any accrual period as follows.

Page 8

1. Multiply the adjusted issue price at the beginning of the accrual period by the debt
instrument's yield to maturity.
2. Subtract from the result in (1) any qualified
stated interest allocable to the accrual period.
Accrual period. An accrual period for any
OID debt instrument issued after July 1, 1982,
and before 1985 is each 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. Your
tax year will usually include parts of two accrual
periods.
Daily OID. The OID for any accrual period
is allocated equally to each day in the accrual
period. You must include in income the sum of
the OID amounts for each day you hold the debt
instrument during the year. If your tax year includes parts of two or more accrual periods,
you must include the proper daily OID amounts
for each accrual period.
Figuring daily OID. The daily OID for the
initial accrual period is figured using the following formula.
(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.
Reduction for acquisition premium on debt
instruments purchased before July 19,
1984. 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. 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.
Reduction for acquisition premium on debt
instruments purchased after July 18, 1984.
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. However, the
method of figuring the daily acquisition premium
is different from the method described in the
preceding discussion. To figure the daily acquisition premium under this method, multiply
the daily OID by the following fraction.
The numerator is the acquisition premium.
The denominator is the total OID remaining
for the debt instrument after your purchase
date.

Section I-A is available at IRS.gov/
pub1212 and clicking the link under
Recent Developments.
Using Section I-A to figure accumulated
OID. 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.
1. The amount from the “Total OID to January 1, YYYY” column for your debt instrument.
2. The OID from January 1 of a calendar year
to the date of purchase, figured as follows.
a. 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.
b. 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.
c. Add the amounts figured in (2a) and
(2b).

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.
You must include the OID in gross income
whether or not you hold the debt instrument as
a capital asset. Your basis in the debt instrument is increased by the OID you include in income. For information about showing the correct OID on your tax return, see How To Report
OID, earlier.
Form 1099-OID. You should receive a Form
1099-OID showing OID for the part of a calendar year you held the debt instrument. However, if you paid an acquisition premium, you
may need to refigure the OID to report on your
tax return. See Constant yield method and Reduction for acquisition premium, later.
If your taxable debt instrument is a covered
security, your broker will calculate the amortization of acquisition premium for you. Your broker
may report either a gross amount of OID in
box 1 or box 8, as applicable, and the acquisition premium amortization in box 6, or may report a net amount of OID that reflects the offset
of OID by the amount of acquisition premium
amortization for the year in box 1 or box 8, as
applicable. In general, your broker will use the
rules in Regulations section 1.1272-2(b)(4) to
determine the amortization of acquisition premium. However, you may use a constant yield
method to amortize acquisition premium if you
make an election under Regulations section
1.1272-3.
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. See Contingent
Publication 1212 (January 2018)

Payment Debt Instruments or Inflation-Indexed
Debt Instruments, later.

appropriately taking into account the
length of the particular accrual period.

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 IRS.gov/pub1212 by
clicking the link under Recent Developments.

2. Subtract from the result in (1) any qualified
stated interest allocable to the accrual period.

Form 1099-OID not received. The OID listed
is for each $1,000 of redemption price. You
must adjust the listed amount if your debt instrument has a different principal amount. For example, if you have a debt instrument with a
$500 principal amount, use one-half the listed
amount to figure your OID.
Use the OID shown in Section I-B for a calendar year if you held the debt instrument the
entire year. (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.) If you did
not hold the debt instrument the entire year, figure your OID as follows.
1. Look up the daily OID for the first accrual
period in which you held the debt instrument during a calendar year. (See Accrual
period under Constant yield method,
later.)
2. Multiply the daily OID by the number of
days you held the debt instrument during
that accrual period.
3. Repeat (1) and (2) for any remaining accrual periods in which you held the debt
instrument.
4. Add the results of (2) and (3). This is the
OID to include in income for that year, unless you paid an acquisition premium.
(The reduction for acquisition premium is
discussed later.)
Tax-exempt bond. 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. You need
to make this adjustment to determine if you
have a gain or loss on a later disposition of the
bond. In general, use the rules that follow to determine your OID. If your tax-exempt bond is a
covered security under Regulations section
1.6045-1(a)(15), your broker will make this adjustment to your basis and will report the adjusted basis on Form 1099-B.
Constant yield method. This discussion
shows how to figure OID on debt instruments issued after 1984 using a constant yield method.
(The special rules that apply to contingent payment debt instruments and inflation-indexed
debt instruments are explained later.) OID is allocated over the life of the debt instrument
through adjustments to the issue price for each
accrual period.
Figure the OID allocable to any accrual period as follows.
1. Multiply the adjusted issue price at the beginning of the accrual period by a fraction.
The numerator of the fraction is the debt
instrument's yield to maturity and the denominator is the number of accrual
periods per year. The yield must be stated
Publication 1212 (January 2018)

Accrual period. 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. For example, a debt
instrument maturing on March 31 has accrual
periods that end on September 30 and March
31 of each calendar year. Any short period is included as the first accrual period.
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.
However, the OID listed for these debt instruments in Section I-B has been figured using
6-month accrual periods.
Daily OID. The OID for any accrual period
is allocated equally to each day in the accrual
period. Figure the amount to include in income
by adding the OID for each day you hold the
debt instrument during the year. 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. 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.
Figuring daily OID. The daily OID for the
initial accrual period is figured using the following formula.
(ip × ytm/n) − qsi
p

is 181 days (182 for leap years). The daily OID
for the first accrual period is figured as follows.
($86,235.17 x .12/2) – $5,000
181 days

=

($86,409.28 x .12/2) – $5,000
184 days
=

Example 6. 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. Also,
the interest payment dates are October 31 and
April 30 of each calendar year. The accrual periods are the 6-month periods ending on each
of these dates.
The number of days for the first accrual period (May 1 through October 31) is 184 days.
The daily OID for the first accrual period is figured as follows.
($86,235.17 x .12/2) – $5,000
184 days

n = number of accrual periods in 1 year

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.
Example 5. On January 1 of Year 1, you
bought a 15-year, 10% debt instrument of A
Corporation at original issue for $86,235.17. According to the prospectus, the debt instrument
matures on December 31 of Year 15 at a stated
redemption price of $100,000. The yield to maturity is 12%, compounded semiannually. The
debt instrument provides for qualified stated interest payments of $5,000 on June 30 and December 31 of each calendar year. The accrual
periods are the 6-month periods ending on
each of these dates. The number of days for the
first accrual period (January 1 through June 30)

$184.55681
= $1.00303
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, $174.11 ($.95665 ×
182 days) plus $184.56 ($1.00303 × 184 days),
or $358.67. Add the OID to the $10,000 interest
you report on your income tax return for Year 1.

ip = issue price

p = number of days in accrual period

= $.96193

The adjusted issue price at the beginning of
the second accrual period is the issue price
plus the OID previously includible in income
($86,235.17 + $174.11), or $86,409.28. The
number of days for the second accrual period
(July 1 through December 31) is 184 days. The
daily OID for the second accrual period is figured as follows.

ytm = yield to maturity

qsi = qualified stated interest

$174.11020
181

=

$174.11020
184

=

$.94625

The number of days for the second accrual
period (November 1 through April 30) is 181
days (182 for leap years). The daily OID for the
second accrual period is figured as follows.
($86,409.28 x .12/2) – $5,000
181 days
=

$184.55681
= $1.01965
181

If you hold the debt instrument through the
end of Year 1, you must include $236.31 of OID
in income. This is $174.11 ($.94625 × 184
days) for the period May 1 through October 31
plus $62.20 ($1.01965 × 61 days) for the period
November 1 through December 31. The OID is
added to the $5,000 interest income paid on
October 31 of Year 1. Your basis in the debt
Page 9

instrument is increased by the OID you include
in income. On January 1 of Year 2, your basis in
the A Corporation debt instrument is
$86,471.48 ($86,235.17 + $236.31).
Short first accrual period. You may have
to make adjustments if a debt instrument has a
short first accrual period. 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. (The remaining accrual periods begin
on May 1 and November 1.) For this short period, figure the daily OID as described earlier,
but adjust the yield for the length of the short
accrual period. You may use any reasonable
compounding method in determining OID for a
short period. Examples of reasonable compounding methods include continuous compounding and monthly compounding (that is,
simple interest within a month). Consult your tax
advisor for more information about making this
computation.
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.
Reduction for acquisition premium. If you
bought the debt instrument at an acquisition
premium, unless you made the constant yield
election under Regulations section 1.1272-3,
figure the OID includible in income by reducing
the daily OID by the daily acquisition premium.
To figure the daily acquisition premium, multiply
the daily OID by the following fraction.
The numerator is the acquisition premium.
The denominator is the total OID remaining
for the debt instrument after your purchase
date.
Example 7. 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. The
adjusted issue price on November 1 of Year 1 is
$86,409.28 ($86,235.17 + $174.11). In this
case, you paid an acquisition premium of
$590.72 ($87,000 − $86,409.28). The daily OID
for the accrual period November 1 through April
30, reduced for the acquisition premium, is figured as follows.
1) Daily OID on date of purchase
(2nd accrual period) . . . . . . . . . . $1.01965*
2) Acquisition
premium . . . . . . . . . .
$590.72
3) Total OID remaining
after purchase date
($13,764.83
− $174.11) . . . . . . . . $13,590.72
4) Line 2 ÷ line 3 . . . . . . . . . . . . . . .
.04346
5) Line 1 × line 4

...............

6) Daily OID reduced for the
acquisition premium. Line 1
− line 5 . . . . . . . . . . . . . .

.

.04432
$0.97533

* As shown in Example 6.

The total OID to include in income for Year 1
is $59.50 ($.97533 × 61 days).

Page 10

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. In general, a contingent payment debt instrument provides for one
or more payments that are contingent as to timing or amount. If you hold a contingent payment
bond, you must report OID as it accrues each
year.
Contingent payment debt instruments acquired on or after January 1, 2016, are “covered
securities.” Dispositions of covered and noncovered securities must be reported on Form
8949, Sales and Other Dispositions of Capital
Assets. The gain or loss on these securities
subject to the noncontingent bond method will
be adjusted by any amounts shown in column
(g) with a corresponding code O in column (f).
In general, the gain from the sale of these securities will be ordinary and losses will be ordinary to the extent of prior year OID inclusions.
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. To figure OID accruals on contingent payment debt instruments,
holders and issuers must use the noncontingent
bond method.
Noncontingent bond method. 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. In
general, holders and issuers accrue OID on this
projected payment schedule using the constant
yield method that applies to fixed payment debt
instruments. When a contingent payment differs
from the projected fixed amount, the holders
and issuers make adjustments to their OID accruals. If the actual contingent payment is larger
than expected, both the issuer and the holder
increase their OID accruals. If the actual contingent payment is smaller than expected, holders
and issuers generally decrease their OID accruals.
Form 1099-OID. 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. For example, the
amount may not be correct if the contingent
payment was different from the projected
amount. If the amount in box 1 is not correct,
you must figure the OID to report on your return
under the following rules. For information on
showing an OID adjustment on your tax return,
see How To Report OID, earlier.
Figuring OID. To figure OID on a contingent
payment debt instrument, you need to know the
“comparable yield” and “projected payment
schedule” of the debt instrument. The issuer
must make these available to you.

Comparable yield. 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. The comparable yield
is determined as of the debt instrument's issue
date.
Projected payment schedule. 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. The projected payment schedule is created by the issuer as of the debt instrument's issue date. It is
used to determine the issuer's and holder's interest accruals and adjustments.
Steps for figuring OID. Figure the OID on
a contingent payment debt instrument in two
steps.
1. Figure the OID using the constant yield
method (discussed earlier under Debt Instruments Issued After 1984 ) that applies
to fixed payment debt instruments. Use
the comparable yield as the yield to maturity. 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). Do not treat any amount payable as
qualified stated interest.
2. Adjust the OID in (1) to account for actual
contingent payments. If the contingent
payment is greater than the projected
fixed amount, you have a positive adjustment. If the contingent payment is less
than the projected fixed amount, you have
a negative adjustment.
Net positive adjustment. 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. Treat
a net positive adjustment as additional OID for
the tax year.
Net negative adjustment. 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. Use a
net negative adjustment to offset OID on the
debt instrument for the tax year. 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. 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. 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.
Basis adjustments. In general, increase your
basis in a contingent payment debt instrument
by the OID included in income. Your basis,
however, is not affected by any negative or positive adjustments. Decrease your basis by any
noncontingent payment received and the projected contingent payment scheduled to be received.
Publication 1212 (January 2018)

Treatment of gain or loss on sale or exchange. 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. 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.
If the debt instrument is a capital asset, treat
any loss that is more than your prior OID accruals as a capital loss.
See Regulations section 1.1275-4 for exceptions to these rules.
Premium, acquisition premium, and market
discount. The rules for accruing premium, acquisition premium, and market discount do not
apply to a contingent payment debt instrument.
See Regulations section 1.1275-4 to determine
how to account for these items.

Inflation-Indexed Debt Instruments
This discussion shows how you figure OID on
certain inflation-indexed debt instruments issued after January 5, 1997. An inflation-indexed
debt instrument is generally a debt instrument
on which the payments are adjusted for inflation
and deflation (such as Treasury inflation-protected securities (TIPS)).
In general, if you hold an inflation-indexed
debt instrument, you must report as OID any increase in the inflation-adjusted principal amount
of the debt instrument that occurs while you
held the debt instrument during the tax year.
You must include the OID in gross income
whether or not you hold the debt instrument as
a capital asset. Your basis in the debt instrument is increased by the OID you include in income.
Inflation-indexed debt instruments acquired
on or after January 1, 2016, are “covered securities.” Dispositions of covered and noncovered
securities must be reported on Form 8949,
Sales and Other Dispositions of Capital Assets.
Inflation-adjusted principal amount. For any
date, the inflation-adjusted principal amount of
an inflation-indexed debt instrument is the debt
instrument's outstanding principal amount multiplied by the index ratio for that date. (For TIPS,
multiply the par value by the index ratio for that
date.) For this purpose, determine the outstanding principal amount as if there were no inflation
or deflation over the term of the debt instrument.
Index ratio. This is a fraction, the numerator of which is the value of the reference index
for the date and the denominator of which is the
value of the reference index for the debt instrument's issue date.
A qualified reference index measures inflation and deflation over the term of a debt instrument. Its value is reset each month to a current
value of a single qualified inflation index (for example, the nonseasonally adjusted U.S. City
Average All Items Consumer Price Index for All
Urban Consumers (CPI-U), published by the
Department of Labor). The value of the index
Publication 1212 (January 2018)

for any date between reset dates is determined
through straight-line interpolation.
The daily index ratios for Treasury inflation-protected securities are available on the Internet at http://
www.treasurydirect.gov/instit/annceresult/
tipscpi/tipscpi.htm.
Form 1099-OID. The amount shown in box 8
of the Form 1099-OID you receive for an inflation-indexed debt instrument may not be the
correct amount to include in income. For example, the amount may not be correct if you
bought the debt instrument other than at original
issue or sold it during the year. If the amount
shown in box 8 is not correct, you must figure
the OID to report on your return under the following rules. For information about showing an
OID adjustment on your tax return, see How To
Report OID, earlier.
Figuring OID. Figure the OID on an inflation-indexed debt instrument using one of the
following methods.
The coupon bond method, described in
the following discussion, applies if the debt
instrument is issued at par (as determined
under Regulations section 1.1275-7(d)(2)
(i)), all stated interest payable on the debt
instrument is qualified stated interest, and
the coupons have not been stripped from
the debt instrument. This method applies
to TIPS, including TIPS issued with more
than a de minimis amount of premium (see
Regulations section 1.1275-7).
The discount bond method applies to
any inflation-indexed debt instrument that
does not qualify for the coupon bond
method, such as a stripped debt instrument. This method is described in Regulations section 1.1275-7(e).
Under the coupon bond method, figure the
OID you must report for the tax year as follows.
Debt instrument held at the end of the
tax year. If you held the debt instrument at the
end of the tax year, figure your OID for the year
using the following steps.
1. Add the inflation-adjusted principal
amount for the day after the last day of the
tax year and any principal payments you
received during the year. (For TIPS, multiply the par value by the index ratio for the
day after the last day of the tax year, and
add any principal payments received.)
2. Subtract from (1) above the inflation-adjusted principal amount for the first day on
which you held the debt instrument during
the tax year. (For TIPS, subtract from (1)
above the product of the par value times
the index ratio for the first day held during
the tax year.)
Interest is reported separately, as discussed
later under Stated interest.
Debt instrument sold or retired during
the tax year. If you sold the debt instrument
during the tax year, or if it was retired, figure
your OID for the year using the following steps.
1. Add the inflation-adjusted principal
amount for the last day on which you held

the debt instrument during the tax year
and any principal payments you received
during the year. (For TIPS, multiply the par
value by the index ratio for the sale or retirement date, and add any principal payments received.)
2. Subtract from (1) above the inflation-adjusted principal amount for the first day on
which you held the debt instrument during
the tax year. (For TIPS, subtract from (1)
above the product of the par value times
the index ratio for the first day held during
the tax year.)
Interest is reported separately, as discussed
later under Stated interest.
Example 8. On February 6 of Year 9, you
bought an old 10-year, 3.375% inflation-indexed debt instrument (maturing January 15 of
Year 11) for $9,831. The stated principal (par
value) amount is $10,000 and the inflation-adjusted principal amount for February 6 of Year 9
is $12,047.50 ($10,000 par value times 1.20475
index ratio). You held the debt instrument until
August 29 of Year 9 when the inflation-adjusted
principal amount was $12,275.70 ($10,000 par
value times 1.22757 index ratio). Your OID for
Year 9 is $228.20 ($12,275.70 − $12,047.50).
Your basis in the debt instrument on August 29
of Year 9 was $10,059.20 ($9,831 cost +
$228.20 OID) for Year 9.
Stated interest. Under the coupon bond
method, you report any stated interest on the
debt instrument under your regular method of
accounting. For example, if you use the cash
method, you generally include in income for the
tax year any interest payments received on the
debt instrument during the year.
Deflation adjustments. If your calculation to
figure OID on an inflation-indexed debt instrument produces a negative number, you do not
have any OID. Instead, you have a deflation adjustment. A deflation adjustment generally is
used to offset interest income from the debt instrument for the tax year. Show this offset as an
adjustment on your Form 1040, Schedule B, in
the same way you would show an OID adjustment. See How To Report OID, earlier.
You decrease your basis in the debt instrument by the deflation adjustment used to offset
interest income.
Example 9. Assume the same facts as in
Example 8, except that you bought the debt instrument for $9,831 on January 6 of Year 9,
when the inflation-adjusted principal amount
was $12,050.10, and sold the debt instrument
on March 1 of Year 9, when the inflation-adjusted principal amount was $12,011.20. Because
the OID calculation for Year 9 ($12,011.20 −
$12,050.10) produces a negative number (negative $38.90), you have a deflation adjustment.
You use this deflation adjustment to offset the
stated interest reported to you on the debt instrument.
Your basis in the debt instrument on March
1 of Year 9 is $9,792.10 ($9,831 cost − $38.90
deflation adjustment) for Year 9.

Page 11

Premium on inflation-indexed debt instruments. In general, any premium on an inflation-indexed debt instrument is determined as
of the date you acquire the debt instrument by
assuming there will be no further inflation or deflation over the remaining term of the debt instrument. You allocate any premium over the
remaining term of the debt instrument by making the same assumption. In general, the premium allocable to a tax year offsets the interest
otherwise includible in income for the year. If
the premium allocable to the year is more than
that interest, the difference generally offsets the
OID on the debt instrument for the year. See
Regulations section 1.1275-7 for an example
applying the coupon bond method to a TIPS issued with more than a de minimis amount of
premium.

Figuring OID on Stripped
Bonds and Coupons
If you strip one or more coupons from a bond
and then sell or otherwise dispose of the bond
or the stripped coupons, they are treated as
separate debt instruments issued with OID. The
holder of a stripped bond has the right to receive the principal (redemption price) payment.
The holder of a stripped coupon has the right to
receive an interest payment on the bond. The
rule requiring the holder of a debt instrument issued with OID to include the OID in gross income as it accrues applies to stripped bonds
and coupons acquired after July 1, 1982. See
Debt Instruments and Coupons Purchased After July 1, 1982, and Before 1985 or Debt Instruments and Coupons Purchased After 1984,
later, for information about figuring the OID to
report.
Stripped bonds and coupons include the following instruments.
Zero coupon bonds available through the
Department of the Treasury's STRIPS program and government-sponsored enterprises such as the Resolution Funding Corporation and the Financing Corporation.
Debt instruments backed by U.S. Treasury
securities that represent ownership interests in those securities. Examples include
obligations backed by U.S. Treasury
bonds that are offered primarily by brokerage firms (variously called CATS, TIGRs,
etc.).
Seller of stripped bonds or coupons. If you
strip coupons from a bond and sell the bond or
coupons, include in income the interest that accrued while you held the bond before the date
of sale to the extent the interest was not previously included in your income. For an obligation
acquired after October 22, 1986, you must also
include the market discount that accrued before
the date of sale of the stripped bond (or coupon) to the extent the discount was not previously included in your income.
Add the interest and market discount you include in income to the basis of the bond and
coupons. This adjusted basis is then allocated
between the items you keep and the items you
sell, based on the fair market value of the items.
The difference between the sale price of the
bond (or coupon) and the allocated basis of the
Page 12

bond (or coupon) is the gain or loss from the
sale.
Treat any item you keep as an OID bond
originally issued and purchased by you on the
sale date of the other items. If you keep the
bond, treat the excess of the redemption price
of the bond over the basis of the bond as OID. If
you keep the coupons, treat the excess of the
amount payable on the coupons over the basis
of the coupons as OID.
Purchaser of stripped bonds or coupons. If
you purchase a stripped bond or coupon, treat it
as if it were originally issued on the date of purchase. If you purchase the stripped bond, treat
as OID any excess of the stated redemption
price at maturity over your purchase price. If
you purchase the stripped coupon, treat as OID
any excess of the amount payable on the due
date of the coupon over your purchase price.

Form 1099-OID
The amount shown in box 8 of the Form
1099-OID you receive for a stripped bond or
coupon may not be the proper amount to include in income. If not, you must figure the OID
to report on your return under the rules that follow. For information about showing an OID adjustment on your tax return, see How To Report
OID, earlier.

Tax-Exempt Bonds and Coupons
The OID on a stripped tax-exempt bond, or on a
stripped coupon from such a bond, is generally
not taxable. However, if you acquired the stripped bond or coupon after October 22, 1986,
you must accrue OID on it to determine its basis
when you dispose of it. How you figure accrued
OID and whether any OID is taxable depend on
the date you bought (or are treated as having
bought) the stripped bond or coupon.
Acquired before June 11, 1987. None of the
OID on bonds or coupons acquired before this
date is taxable. The accrued OID is added to
the basis of the bond or coupon. The accrued
OID is the amount that produces a yield to maturity (YTM), based on your purchase date and
purchase price, equal to the lower of the following rates.
1. The coupon rate on the bond before the
separation of coupons. (However, if you
can establish the YTM of the bond (with all
coupons attached) at the time of its original issue, you can use that YTM instead.)
2. The YTM of the stripped bond or coupon.
Increase your basis in the stripped tax-exempt bond or coupon by the interest that accrued but was neither paid nor previously reflected in your basis before the date you sold
the bond or coupon.
Acquired after June 10, 1987. Part of the
OID on bonds or coupons acquired after this
date may be taxable. Figure the taxable part in
three steps.
Step 1. Figure OID as if all taxable. First
figure the OID following the rules in this section
as if all the OID were taxable. (See Debt

Instruments and Coupons Purchased After
1984, later.) Use the yield to maturity (YTM)
based on the date you obtained the stripped
bond or coupon.
Step 2. Determine nontaxable part. Find
the issue price that would produce a YTM as of
the purchase date equal to the lower of the following rates.
1. The coupon rate on the bond from which
the coupons were separated. (However,
you can use the original YTM instead.)
2. The YTM based on the purchase price of
the stripped coupon or bond.
Subtract this issue price from the stated redemption price of the bond at maturity (or, in the
case of a coupon, the amount payable on the
due date of the coupon). The result is the part of
the OID treated as OID on a stripped tax-exempt bond or coupon.
Step 3. Determine taxable part. The taxable part of OID is the OID determined in Step 1
minus the nontaxable part determined in Step
2.
Exception. None of the OID on your stripped tax-exempt bond or coupon is taxable if
you bought it from a person who held it for sale
on June 10, 1987, in the ordinary course of that
person's trade or business.
Basis adjustment. Increase the basis of
your stripped tax-exempt bond or coupon by
the taxable and nontaxable accrued OID. If you
own a tax-exempt bond from which one or more
coupons have been stripped, increase your basis in it by the sum of the interest accrued but
not paid before you dispose of it (and not previously reflected in basis) and any accrued market discount to the extent not previously included in your income.
Example 10. Assume that a tax-exempt
bond with a face amount of $100 due January 1
of Year 4 and a coupon rate of 10% (compounded semiannually) was issued for $100 on January 1 of Year 1. On January 1 of Year 2 the
bond was stripped and you bought the right to
receive the principal amount for $79.21. The
stripped bond is treated as if it was originally issued on January 1 of Year 2 with OID of $20.79
($100.00 − $79.21). This reflects a YTM at the
time of the strip of 12% (compounded semiannually). The tax-exempt part of OID on the stripped bond is limited to $17.73. This is the difference between the redemption price ($100) and
the issue price that would produce a YTM of
10% ($82.27). This part of the OID is treated as
OID on a tax-exempt obligation.
The OID on the stripped bond that is more
than the tax-exempt part is $3.06. This is the
excess of the total OID ($20.79) over the
tax-exempt part ($17.73). This part of the OID
($3.06) is treated as OID on an obligation that is
not tax exempt.
The total OID allocable to the accrual period
ending June 30 of Year 2 is $4.75 (6% ×
$79.21). Of this, $4.11 (5% × $82.27) is treated
as OID on a tax-exempt obligation and $0.64
($4.75 − $4.11) is treated as OID on an obligation that is not tax exempt. Your basis in the

Publication 1212 (January 2018)

debt instrument as of June 30 of Year 2 is increased to $83.96 ($79.21 issue price + accrued OID of $4.75).

Debt Instruments and Coupons
Purchased After July 1, 1982, and
Before 1985
If you purchased a stripped bond or coupon after July 1, 1982, and before 1985, and you held
that debt instrument as a capital asset during
any part of a calendar year, you must figure the
OID to be included in income using a constant
yield method. Under this method, OID is allocated over the time you hold the debt instrument
by adjusting the acquisition price for each accrual period. The OID for the accrual period is
figured by multiplying the adjusted acquisition
price at the beginning of the period by the yield
to maturity.
Adjusted acquisition price. The adjusted acquisition price of a stripped bond or coupon at
the beginning of the first accrual period is its
purchase (or acquisition) price. The adjusted
acquisition price at the beginning of any subsequent accrual period is the sum of the acquisition price and all of the OID includible in income
before that accrual period.
Accrual period. An accrual period for any
stripped bond or coupon acquired before 1985
is each year period beginning on the date of the
purchase of the obligation and each anniversary thereafter, or the shorter period to maturity
for the last accrual period.
Yield to maturity (YTM). In general, the YTM
of a stripped bond or coupon is the discount
rate that, when used in figuring the present
value of all principal and interest payments, produces an amount equal to the acquisition price
of the debt instrument or coupon.
Figuring YTM. If you purchased a stripped
bond or coupon after July 1, 1982, but before
1985, and the period from your purchase date
to the day the debt instrument matures can be
divided exactly into full 1-year periods without
including a shorter period, then the YTM can be
figured by applying the following formula.
1
m
srp

( )
ap

– 1

srp = stated redemption price at maturity
ap = acquisition price
m = number of full accrual periods from
purchase to maturity

If the debt instrument is a stripped coupon,
the stated redemption price is the amount payable on the due date of the coupon.
If the period between your purchase date
and the maturity date (or due date) of the debt
instrument does not divide into an exact number of full 1-year periods, so that a period
shorter than 1 year must be included, consult
your broker or your tax advisor for information
about figuring the YTM.

Publication 1212 (January 2018)

Daily OID. The OID for any accrual period is
allocated equally to each day in the accrual period. You figure the amount to include in income
by adding the daily OID amounts for each day
you hold the debt instrument during the year. If
your tax year includes parts of more than one
accrual period (which will be the case unless
the accrual period coincides with your tax year),
you must include the proper daily OID amounts
for each of the two accrual periods.
The daily OID for the initial accrual period is
figured by applying the following formula.
(ap × ytm)
p
ap = acquisition price
ytm = yield to maturity
p = number of days in accrual period

The daily OID for subsequent accrual periods is figured in the same way except the adjusted acquisition price at the beginning of each
period is used in the formula instead of the acquisition price.
The rules for figuring OID on these debt instruments are similar to those in Debt Instruments Issued After July 1, 1982, and Before
1985, earlier.

coupon that has a payment date) of March 31
has accrual periods that end on September 30
and March 31 of each calendar year. Any short
period is included as the first accrual period.
For a stripped bond or coupon acquired 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.
Yield to maturity (YTM). In general, the YTM
of a stripped bond or coupon is the discount
rate that, when used in figuring the present
value of all principal and interest payments, produces an amount equal to the acquisition price.
Figuring YTM. How you figure the YTM for
a stripped debt instrument or coupon purchased after 1984 depends on whether you
have equal accrual periods or a short initial accrual period.
1. Equal accrual periods. If the period
from the date you purchased a stripped bond or
coupon to the maturity date can be divided
evenly into full accrual periods without including
a shorter period, you can figure the YTM by using the following formula.
n ×

Debt Instruments and Coupons
Purchased After 1984
If you purchased a stripped bond or coupon
(other than a stripped inflation-indexed debt instrument) after 1984, and you held that debt instrument during any part of a calendar year, you
must figure the OID to be included in income
using a constant yield method. Under this
method, OID is allocated over the time you hold
the debt instrument by adjusting the acquisition
price for each accrual period. The OID for the
accrual period is figured by multiplying the adjusted acquisition price at the beginning of the
period by a fraction. The numerator of the fraction is the debt instrument's yield to maturity
and the denominator is the number of accrual
periods per year.
If the stripped bond or coupon is an inflation-indexed instrument, you must figure the
OID to be included in income using the discount
bond method described in Regulations section
1.1275-7(e).
Adjusted acquisition price. The adjusted acquisition price of a stripped bond or coupon at
the beginning of the first accrual period is its
purchase (or acquisition) price. The adjusted
acquisition price at the beginning of any subsequent accrual period is the sum of the acquisition price and all of the OID includible in income
before that accrual period.
Accrual period. For a stripped bond or coupon acquired 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 stripped bond (or
payment date of a stripped coupon) or the date
6 months before that date. For example, a stripped bond that has a maturity date (or a stripped

((

srp
ap

)

1
m
– 1

)

n = number of accrual periods in 1 year
srp = stated redemption price at maturity
ap = acquisition price
m = number of full accrual periods from
purchase to maturity

If the debt instrument is a stripped coupon,
the stated redemption price is the amount payable on the due date of the coupon.
Example 11. On May 15 of Year 1, you
bought a coupon stripped from a U.S. Treasury
bond through the Department of the Treasury's
STRIPS program for $38,000. An amount of
$100,000 is payable on the coupon's due date,
November 14 of Year 13. There are exactly 25
6-month periods between the purchase date,
May 15 of Year 1, and the coupon's due date,
November 14 of Year 13. The YTM on this stripped coupon is figured as follows.
2 ×

((

$100,000
$38,000

)

1
25
– 1

)

= 2 × (1.03946 -1) = 0.07892 = 7.892%

Use 7.892% YTM to figure the OID for each
accrual period or partial accrual period for
which you must report OID.
2. Short initial accrual period. If the period from the date you purchased a stripped
bond or coupon to the date of its maturity cannot be divided evenly into full accrual periods,
so that a shorter period must be included, you
can figure the YTM by using the following formula (the exact method).

Page 13

n ×

(( )
srp

(

1
r + m
s

)
– 1

ap

ap = acquisition price
ytm = yield to maturity

)

n = number of accrual periods in 1 year
p = number of days in accrual period
r = number of days from purchase to end of
short accrual period

n = number of accrual periods in 1 year
srp = stated redemption price at maturity

s = number of days in accrual period ending on
last day of short accrual period

ap = acquisition price
r = number of days from purchase to end of
short accrual period
s = number of days in accrual period ending on
last day of short accrual period
m = number of full accrual periods from
purchase to maturity

Example 12. On May 30 of Year 1, you
bought a coupon stripped from a U.S. Treasury
bond through the Department of the Treasury's
STRIPS program for $60,000. $100,000 is payable on the coupon's due date, August 11 of
Year 7. You decide to figure OID using 6-month
accrual periods. There are 12 full 6-month accrual periods and a 74-day short initial accrual
period from the purchase date to the coupon's
due date. The YTM on this stripped coupon is
figured as follows.

(

(

1
(74/181) + 12

2 × ($100,000 / $60,000)
= 2 × (1.04203 -1) = .08406 = 8.406%

)

)

-1

Daily OID. The OID for any accrual period is
allocated equally to each day in the accrual period. You must include in income the sum of the
daily OID amounts for each day you hold the
debt instrument during the year. Since your tax
year will usually include parts of two or more accrual periods, you must include the proper daily
OID amounts for each accrual period.
Figuring daily OID. For the initial accrual
period of a stripped bond or coupon acquired
after 1984, figure the daily OID using Formula 1,
next, if there are equal accrual periods. Use
Formula 2 if there is a short initial accrual period.
For subsequent accrual periods, figure the
daily OID using Formula 1 (whether or not there
was a short initial accrual period), but use the
adjusted acquisition price in the formula instead
of the acquisition price.

ap × ytm / n
p

Formula 2.
r
s

ap x (1 + ytm /n) − ap
r

Page 14

Example 13. Assume the same facts as in
Example 12, and that you held the coupon for
the rest of Year 1.
For the short initial accrual period from May
30 through August 11, the daily OID is figured
using Formula 2, as follows.
74
181

$60,000 × (1 + .08406/2)
74
=

Use 8.406% YTM to figure the OID for each
accrual period or partial accrual period for
which you must report OID.

Formula 1.

The rules for figuring OID on these debt instruments are similar to those illustrated in Example 5 and Example 6, earlier, under Debt Instruments Issued After 1984.

$1,018.48
74

− $60,000

= $13.76327

The OID for this period is $1,018.48
($13.76327 × 74 days).
For the second accrual period from August
12 of Year 1 through February 11 of Year 2, the
adjusted acquisition price is $61,018.48. This is
the original $60,000 acquisition price plus
$1,018.48 OID for the short initial accrual period. The daily OID is figured using Formula 1,
as follows.
$61,018.48 × (.08406/2)
184
=

$2,564.60671
= $13.93808
184

The OID for the part of this period included
in Year 1 (August 12 – December 31) is
$1,979.21 ($13.93808 × 142 days).
The OID to be reported on your income tax
return for Year 1 is $2,997.69 ($1,018.48 +
$1,979.21).

Preparing and filing your tax return. Find
free options to prepare and file your return on
IRS.gov or in your local community if you qualify.
The Volunteer Income Tax Assistance
(VITA) program offers free tax help to people
who generally make $54,000 or less, persons
with disabilities, and limited-English-speaking
taxpayers who need help preparing their own
tax returns. The Tax Counseling for the Elderly
(TCE) program offers free tax help for all taxpayers, particularly those who are 60 years of
age and older. TCE volunteers specialize in answering questions about pensions and retirement-related issues unique to seniors.
You can go to IRS.gov to see your options
for preparing and filing your return which include the following.
Free File. Go to IRS.gov/FreeFile. See if
you qualify to use brand-name software to
prepare and e-file your federal tax return
for free.
VITA. Go to IRS.gov/VITA, download the
free IRS2Go app, or call 800-906-9887 to
find the nearest VITA location for free tax
preparation.
TCE. Go to IRS.gov/TCE, download the
free IRS2Go app, or call 888-227-7669 to
find the nearest TCE location for free tax
preparation.
Getting answers to your tax questions. On IRS.gov get answers to your
tax questions anytime, anywhere.
Go to IRS.gov/Help or IRS.gov/LetUsHelp
pages for a variety of tools that will help
you get answers to some of the most common tax questions.
Go to IRS.gov/ITA for the Interactive Tax
Assistant, a tool that will ask you questions
on a number of tax law topics and provide
answers. You can print the entire interview
and the final response for your records.
Go to IRS.gov/Pub17 to get Pub. 17, Your
Federal Income Tax for Individuals, which
features details on tax-saving opportunities, 2017 tax changes, and thousands of
interactive links to help you find answers to
your questions. View it online in HTML, as
a PDF, or download it to your mobile device as an eBook.
You may also be able to access tax law information in your electronic filing software.

Final accrual period. The OID for the final
accrual period for a stripped bond or coupon is
the amount payable at maturity of the stripped
bond (or interest payable on the stripped coupon) minus the adjusted acquisition price at the
beginning of the final accrual period. The daily
OID for the final accrual period is figured by dividing the OID for the period by the number of
days in the period.

Getting tax forms and publications. Go to
IRS.gov/Forms to view, download, or print all of
the forms and publications you may need. You
can also download and view popular tax publications and instructions (including the 1040 instructions) on mobile devices as an eBook at no
charge. Or, you can go to IRS.gov/OrderForms
to place an order and have forms mailed to you
within 10 business days.

How To Get Tax Help

Access your online account (Individual taxpayers only). Go to IRS.gov/Account to securely access information about your federal tax
account.
View the amount you owe, pay online or
set up an online payment agreement.
Access your tax records online.

If you have questions about a tax issue, need
help preparing your tax return, or want to download free publications, forms, or instructions, go
to IRS.gov and find resources that can help you
right away.

Publication 1212 (January 2018)

Review the past 18 months of your payment history.
Go to IRS.gov/SecureAccess to review the
required identity authentication process.
Using direct deposit. The fastest way to receive a tax refund is to combine direct deposit
and IRS e-file. Direct deposit securely and electronically transfers your refund directly into your
financial account. Eight in 10 taxpayers use direct deposit to receive their refund. IRS issues
more than 90% of refunds in less than 21 days.
Delayed refund for returns claiming certain
credits. Due to changes in the law, the IRS
can’t issue refunds before mid-February 2018,
for returns that properly claimed the earned income credit (EIC) or the additional child tax
credit (ACTC). This applies to the entire refund,
not just the portion associated with these credits.
Getting a transcript or copy of a return. The
quickest way to get a copy of your tax transcript
is to go to IRS.gov/Transcripts. Click on either
"Get Transcript Online" or "Get Transcript by
Mail" to order a copy of your transcript. If you
prefer, you can:
Order your transcript by calling
800-908-9946.
Mail Form 4506-T or Form 4506T-EZ (both
available on IRS.gov).
Using online tools to help prepare your return. Go to IRS.gov/Tools for the following.
The Earned Income Tax Credit Assistant
(IRS.gov/EIC) determines if you’re eligible
for the EIC.
The Online EIN Application (IRS.gov/EIN)
helps you get an employer identification
number.
The IRS Withholding Calculator (IRS.gov/
W4App) estimates the amount you should
have withheld from your paycheck for federal income tax purposes.
The First Time Homebuyer Credit Account
Look-up (IRS.gov/HomeBuyer) tool provides information on your repayments and
account balance.
The Sales Tax Deduction Calculator
(IRS.gov/SalesTax) figures the amount you
can claim if you itemize deductions on
Schedule A (Form 1040), choose not to
claim state and local income taxes, and
you didn’t save your receipts showing the
sales tax you paid.
Resolving tax-related identity theft issues.
The IRS doesn’t initiate contact with taxpayers by email or telephone to request
personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.
Go to IRS.gov/IDProtection for information
and videos.
If your SSN has been lost or stolen or you
suspect you’re a victim of tax-related identity theft, visit IRS.gov/ID to learn what
steps you should take.
Checking on the status of your refund.
Go to IRS.gov/Refunds.

Publication 1212 (January 2018)

Due to changes in the law, the IRS can’t issue refunds before mid-February 2018, for
returns that properly claimed the EIC or the
ACTC. This applies to the entire refund,
not just the portion associated with these
credits.
Download the official IRS2Go app to your
mobile device to check your refund status.
Call the automated refund hotline at
800-829-1954.
Making a tax payment. The IRS uses the latest encryption technology to ensure your electronic payments are safe and secure. You can
make electronic payments online, by phone,
and from a mobile device using the IRS2Go
app. Paying electronically is quick, easy, and
faster than mailing in a check or money order.
Go to IRS.gov/Payments to make a payment
using any of the following options.
IRS Direct Pay: Pay your individual tax bill
or estimated tax payment directly from
your checking or savings account at no
cost to you.
Debit or credit card: Choose an approved payment processor to pay online,
by phone, and by mobile device.
Electronic Funds Withdrawal: Offered
only when filing your federal taxes using
tax preparation software or through a tax
professional.
Electronic Federal Tax Payment System: Best option for businesses. Enrollment is required.
Check or money order: Mail your payment to the address listed on the notice or
instructions.
Cash: You may be able to pay your taxes
with cash at a participating retail store.
What if I can’t pay now? Go to IRS.gov/
Payments for more information about your options.
Apply for an online payment agreement
(IRS.gov/OPA) to meet your tax obligation
in monthly installments if you can’t pay
your taxes in full today. Once you complete
the online process, you will receive immediate notification of whether your agreement has been approved.
Use the Offer in Compromise Pre-Qualifier
(IRS.gov/OIC) to see if you can settle your
tax debt for less than the full amount you
owe.
Checking the status of an amended return.
Go to IRS.gov/WMAR to track the status of
Form 1040X amended returns. Please note that
it can take up to 3 weeks from the date you
mailed your amended return for it to show up in
our system and processing it can take up to 16
weeks.
Understanding an IRS notice or letter. Go to
IRS.gov/Notices to find additional information
about responding to an IRS notice or letter.
Contacting your local IRS office. Keep in
mind, many questions can be answered on
IRS.gov without visiting an IRS Tax Assistance
Center (TAC). Go to IRS.gov/LetUsHelp for the
topics people ask about most. If you still need
help, IRS TACs provide tax help when a tax issue can’t be handled online or by phone. All

TACs now provide service by appointment so
you’ll know in advance that you can get the
service you need without long wait times. Before you visit, go to IRS.gov/TACLocator to find
the nearest TAC, check hours, available services, and appointment options. Or, on the
IRS2Go app, under the Stay Connected tab,
choose the Contact Us option and click on “Local Offices.”
Watching IRS videos. The IRS Video portal
(IRSvideos.gov) contains video and audio presentations for individuals, small businesses,
and tax professionals.
Getting tax information in other languages.
For taxpayers whose native language isn’t English, we have the following resources available.
Taxpayers can find information on IRS.gov in
the following languages.
Spanish (IRS.gov/Spanish).
Chinese (IRS.gov/Chinese).
Vietnamese (IRS.gov/Vietnamese).
Korean (IRS.gov/Korean).
Russian (IRS.gov/Russian).
The IRS TACs provide over-the-phone interpreter service in over 170 languages, and the
service is available free to taxpayers.

The Taxpayer Advocate
Service Is Here To Help You

What is the Taxpayer Advocate
Service?

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that
helps taxpayers and protects taxpayer rights.
Our job is to ensure that every taxpayer is treated fairly and that you know and understand
your rights under the Taxpayer Bill of Rights.

What Can the Taxpayer Advocate
Service Do For You?
We can help you resolve problems that you
can’t resolve with the IRS. And our service is
free. If you qualify for our assistance, you will be
assigned to one advocate who will work with
you throughout the process and will do everything possible to resolve your issue. TAS can
help you if:
Your problem is causing financial difficulty
for you, your family, or your business,
You face (or your business is facing) an
immediate threat of adverse action, or
You’ve tried repeatedly to contact the IRS
but no one has responded, or the IRS
hasn’t responded by the date promised.

How Can You Reach Us?
We have offices in every state, the District of
Columbia, and Puerto Rico. Your local advocate’s number is in your local directory and at
TaxpayerAdvocate.IRS.gov/Contact-Us.
You
can also call us at 877-777-4778.

Page 15

How Can You Learn About Your
Taxpayer Rights?

these broad issues, please report it to us at
IRS.gov/SAMS.

The Taxpayer Bill of Rights describes 10 basic
rights that all taxpayers have when dealing with
the
IRS.
Our
Tax
Toolkit
at
TaxpayerAdvocate.IRS.gov can help you understand what these rights mean to you and
how they apply. These are your rights. Know
them. Use them.

Low Income Taxpayer
Clinics

How Else Does the Taxpayer
Advocate Service Help Taxpayers?
TAS works to resolve large-scale problems that
affect many taxpayers. If you know of one of

Page 16

English as a second language. Services are offered for free or a small fee. To find a clinic near
you, visit TaxpayerAdvocate.IRS.gov/LITCmap
or see IRS Publication 4134, Low Income
Taxpayer Clinic List.

Low Income Taxpayer Clinics (LITCs) are independent from the IRS. LITCs represent individuals whose income is below a certain level and
need to resolve tax problems with the IRS, such
as audits, appeals, and tax collection disputes.
In addition, clinics can provide information
about taxpayer rights and responsibilities in different languages for individuals who speak

Publication 1212 (January 2018)

Index

To help us develop a more useful index, please let us know if you have ideas for index entries.
See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.

A

Accrual period 2
Acquisition premium 2
Adjusted issue price 2
Assistance (See Tax help)

B

Backup withholding 4
Bearer bonds and coupons 4
Brokers (See Information for
brokers and other middlemen)

C

Certificates of deposit 4
Comments and suggestions 2
Contingent payment debt
instruments 10

D

Debt instrument 2
Debt instruments:
Long-term 4
Short-term 3
Debt instruments and coupons
purchased after 1984 13
Debt instruments and coupons
purchased after July 1, 1982,
and before 1985 13
Debt instruments issued after
1984 8

Publication 1212 (January 2018)

Debt instruments issued after
July 1, 1982 7
Debt instruments not on the OID
list 3
Debt Instruments on the OID
list 3
Definitions 2
Accrual period 2
Acquisition premium 2
Adjusted issue price 2
Debt instrument 2
Issue price 2
Market discount 2
Original issue discount (OID) 2
Premium 2
Qualified stated interest 3
Stated redemption price at
maturity 3
Yield to maturity 3

E

Electronic payee statements 3

F

Form 1099-OID 4

I

Identity theft 15
Inflation-indexed debt
instruments 11

Information for brokers and other Publications (See Tax help)
middlemen 3
Information for owners of OID
debt instruments 5
Q
Issue price 2
Qualified stated interest 3
Issuers of OID debt instruments,
Instructions for 2

R

L

Long-term debt instruments 4

M

Market discount 2

O

REMIC and CDO information
reporting requirements 2

S

Section I 3
Section II 3
Section III 3
Short-term obligations redeemed
at maturity 3
Stated redemption price at
maturity 3
Stripped bonds and coupons,
figuring OID 12
Suggestions, Comments and 2

OID, figuring 4
Using section I 4
Using the income tax
regulations 4
OID list, Debt Instruments on 3
OID on long-term debt
instruments, figuring 7
OID on stripped bonds and
T
coupons, figuring 12
Tax help 14
Original issue discount (OID) 2
Owners of OID debt instruments,
information for 5
Y
Yield to maturity 3, 13

P

Premium 2

Page 17



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