Form 1099-OID
In the United States, a Form 1099-OID is a tax form intended to be submitted to the Internal Revenue Service by the holder of debt instruments (such as bonds, notes, or certificates) which were discounted at purchase to report the taxable difference between the instruments' actual value and the discounted purchase price.[1][2] Like other 1099 forms, it is normally filled out by a payer of income—for example, the issuer or seller of a discounted bond—and sent to tax authorities and the income recipient.
History
[edit]The current statutory framework for taxing original issue discount was established by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), which subjected interest including OID to backup withholding, and by the Deficit Reduction Act of 1984, which required OID on debt instruments issued after July 1, 1982 to be included in income on the basis of a constant interest rate and treated stripped bonds and stripped coupons as OID obligations.[3]
Reporting
[edit]Original issue discount (OID) is defined by Internal Revenue Code section 1273 as the excess of a debt instrument's stated redemption price at maturity over its issue price.[4] Under section 1272, holders generally include OID in gross income over the life of the instrument using the constant yield method.[5] The IRS provides examples and tables for publicly offered OID instruments in Publication 1212.[6] Issuers and brokers generally file Form 1099-OID for OID of at least $10 during a calendar year and furnish a copy to the holder.[7] Taxpayers report OID as taxable interest income on Form 1040,[8] taxpayers whose taxable interest exceeds $1,500 must itemize payers on Schedule B.[7] OID on U.S. Treasury obligations is exempt from state and local income taxes.[7]
Fraudulent use
[edit]1099-OID fraud involves filing Form 1099-OID with false withholding information to reduce taxable income.[9] Promoters of the fraud allege that the withheld amount exists in a secret bank account, a claim that originates from the redemption movement. The IRS has taken notice of 1099-OID fraud schemes and has successfully brought legal action against them.[10]
References
[edit]- ↑ "Form 1099-OID" (PDF). IRS.gov. Internal Revenue Service. Archived (PDF) from the original on October 22, 2016. Retrieved October 21, 2016.
- ↑ "Publication 1212 - Main Content". IRS.gov. Internal Revenue Service. Retrieved October 21, 2016.
- ↑ "H.R.4170 — Deficit Reduction Act of 1984". Congress.gov. Library of Congress. Retrieved May 22, 2026.
- ↑ "26 U.S. Code § 1273 — Determination of amount of original issue discount". Legal Information Institute. Cornell Law School. Retrieved May 22, 2026.
- ↑ "26 U.S. Code § 1272 — Current inclusion in income of original issue discount". Legal Information Institute. Cornell Law School. Retrieved May 22, 2026.
- ↑ "Publication 1212: Guide to Original Issue Discount (OID) Instruments". IRS.gov. Internal Revenue Service. Retrieved May 22, 2026.
- 1 2 3 "Instructions for Forms 1099-INT and 1099-OID". IRS.gov. Internal Revenue Service. Retrieved May 22, 2026.
- ↑ "Form 1040: U.S. Individual Income Tax Return" (PDF). IRS.gov. Internal Revenue Service. "IRS Form 1040". Retrieved May 22, 2026.
- ↑ Reilly, Peter J. (August 18, 2014). "The OID Fraud And Criminal Gullibility". Forbes. Archived from the original on October 22, 2016. Retrieved March 19, 2026.
- ↑ "Taxpayers Alerted against Falsely Inflated Refunds in 'Dirty Dozen' List; Seniors, Many Others at Risk". IRS.gov. Washington: Internal Revenue Service. March 12, 2018. IR-2018-48. Archived from the original on September 3, 2018. Retrieved March 19, 2026.
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