us internal revenue service: p1212--1999

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ContentsIntroduction ........................................ 2

Information in the OID List ............... 2

Debt Instruments Not on the OIDList ................................................ 3

Information for Brokers and OtherMiddlemen .................................... 3

Short-Term Obligations Redeemed

at Maturity ................................ 3Long-Term Debt Instruments .......... 3Certificates of Deposit .................... 4Bearer Bonds and Coupons ........... 4Backup Withholding ........................ 4

Information for Owners of OID DebtInstruments .................................. 5

Form 1099OID .............................. 6How To Report OID ........................ 6Figuring OID on Long-Term Debt

Instruments .............................. 7Figuring OID on Stripped Bonds and

Coupons ................................... 12

How To Get More Information .......... 14

Explanation of Section I ColumnHeadings ...................................... 16

Section IA: Corporate DebtInstruments Issued Before 1985 17

Section IB: Corporate DebtInstruments Issued After 1984 .. 20

Section IC: Inflation-Indexed DebtInstruments .................................. 47

Section II: Stripped Components ofU.S. Treasury andGovernment-SponsoredEnterprises ................................... 48

Section IIIA: Short-Term U.S.Treasury Bills .............................. 50

Section IIIB: Student LoanMarketing Association ................ 52

Section IIIC: Federal Home LoanBanks ............................................ 57

Section IIID: Federal NationalMortgage Association ................. 63

Section IIIE: Federal Farm CreditBanks ............................................ 69

Section IIIF: Federal Home LoanMortgage Corporation ................ 75

Section IIIG: Federal AgriculturalMortgage Corporation ................ 81

Important Changesfor 1999Photographs of missing children. TheInternal Revenue Service is a proud partnerwith the National Center for Missing and Ex-ploited Children. Photographs of missingchildren selected by the Center may appearin this publication on pages that would other-wise be blank. You can help bring thesechildren home by looking at the photographs

Departmentof theTreasury

InternalRevenueService

Publica tion 1212Cat. No. 61273T

List of OriginalIssue DiscountInstruments

For use in preparing

1999 Returns


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and calling 1800THELOST (18008435678) if you recognize a child.

OID list no longer on electronicbulletin board (IRP-BBS). The ori-ginal issue discount (OID) list at the

end of this publication is no longer availableon the electronic bulletin board. You can nowdownload it with the rest of Publication 1212from our website at www.irs.gov. Go to theForms and Publications page and select

Forms and Publications by Dateor Forms andPublications by Number. Then select Publi-cation 1212 from the list. Also, be sure toselect SGML Text.

Important Reminders

Individual taxpayer identification number(ITIN). The IRS will issue an ITIN to a non-resident or a U.S. resident alien (based on

substantial presence) who does not have andis not eligible to get a social security number(SSN). To apply for an ITIN, an alien mustfile Form W7 with the IRS. It usually takesabout 30 days to get an ITIN. The ITIN isentered wherever an SSN is requested on atax return. If you are required to include an-other person's SSN on your return and thatperson does not have one and cannot getone, enter that person's ITIN.

An ITIN is for tax use only. It does notentitle the holder to social security benefitsor change the holder's employment or immi-gration status under U.S. law.

OID accrual periods. For debt instrumentsissued after April 3, 1994, accrual periods

used to figure original issue discount (OID)may be of any length and may vary in lengthover the term of the instrument as long aseach accrual period is no longer than oneyear and all payments are made on the firstor last day of an accrual period. However, theOID listed for these debt instruments in Sec-tion IBhas been figured using 6-month ac-crual periods because of space limitations.When preparing Forms 1099OID for theseinstruments, brokers and other middlemencan use the amounts listed in Section IBorrefigure the OID using the actual accrual pe-riods of the instrument. See Figuring OID inthe discussion on long-term debt instrumentsunder Information for Brokers and OtherMiddlemen, later.

REMIC and CDO information reporting re-quirements. Brokers and other middlemenmust follow special information reporting re-quirements for real estate mortgage invest-ment (REMIC) regular and collateralized debtobligations (CDO) interests. The rules areexplained in Publication 938, Real EstateMortgage Investment Conduits (REMICs)Reporting Information.

You can download Publication 938from our website at www.irs.gov.Go to the Forms and Publications

page and select Forms and Publications byDateor Forms and Publications by Number.Then select Publication 938 from the list.

Holders of interests in REMICs and CDOsshould see chapter 1 of Publication 550 forinformation on REMICs and CDOs.

IntroductionThe primary purpose of this publication is tohelp brokers and other middlemen identifypublicly offered original issue discount(OID)debt instruments, which they may holdas nominees for the true owners, so they can

file Forms 1099OID or Forms 1099INT asrequired. The other purpose is to assist own-ers of publicly offered OID debt instrumentsto determine the OID to report on their incometax returns.

This publication contains a list of OID debtinstruments. The information on this listcomes from financial publications and fromthe issuers of the debt instruments. Issuersof certain publicly offered OID debt instru-ments must report this information directly tothe IRS on Form 8281 within 30 days after theissue date. The information provided on thatform enables the IRS to update this list an-nually. (However, see Debt Instruments Noton the OID List, later.)

The information on the OID list has gen-

erally not been verified by an IRS examinationor rulings action. Issuers and their payingagents should not assume that the informa-tion has been verified by the IRS as correct.

Issuers should advise the IRS of er-rors in and omissions from the list inwriting at the following address:

OID Publication ProjectOP:FS:FP:P Room 5607Internal Revenue Service1111 Constitution Ave., N.W.Washington, D.C. 20224

Brokers and other middlemen can rely onthis published OID list to determine, for infor-

mation reporting purposes, if a debt instru-ment was issued at a discount and the OIDto be reported on information returns. How-ever, the following are subject to change uponexamination by the IRS.

The OID reported by holders on their in-come tax returns.

The issuer's classification of an instru-ment as debt for federal income tax pur-poses.

Useful ItemsYou may want to see:

Publication 515 Withholding of Tax on Nonresi-

dent Aliens and Foreign Corpo-rations

550 Investment Income and Expenses

938 Real Estate Mortgage InvestmentConduits (REMICs) Reporting In-formation

Form (and Instructions)

W8 Certificate of Foreign Status

Schedule B (Form 1040) Interest andOrdinary Dividends

Schedule D (Form 1040) Capital Gainsand Losses

1096 Annual Summary and Transmittalof U.S. Information Returns

1099B Proceeds From Broker andBarter Exchange Transactions

1099INT Interest Income

1099OID Original Issue Discount

8281 Information Return for PubliclyOffered Original Issue Discount

InstrumentsSee How To Get More Information on

page 14 for information about getting publi-cations and forms.

Informationin the OID ListThe list has the following sections.

Section I. This section contains publicly of-fered, long-term debt instruments. SectionIA lists corporate debt instruments issuedbefore 1985. Section IB lists debt instru-

ments issued after 1984. Section IC listsinflation-indexed debt instruments issued af-ter January 5, 1997.

For each publicly offered debt instrumentin Section I, the list contains the following in-formation.

The name of the issuer.

The CUSIP number.

The issue date.

The maturity date.

The issue price expressed as a percentof principal or of stated redemption priceat maturity.

The annual stated or coupon interest

rate. (This rate is shown as 0.00 if noannual interest payments are provided.)

The total OID up to January 1, 1999.(This information is not available for everyinstrument.)

For long-term instruments issued afterJuly 1, 1982, the daily OID for the accrualperiods falling in calendar years 1999 and2000.

The total OID per $1,000 of principal ormaturity value for calendar years 1999and 2000.

See Table 1 on the page preceding Sec-tion I-A for an explanation of these items.

Brokers and other middlemen may useSection I to prepare information returns for1999.

Ownersof these debt instruments shouldnot rely on Section I to determine (or com-pare) the OID to be reported on their tax re-turn. The OID amounts listed in Section Iarefigured without reference to the price or dateat which you acquired the debt instrument.For information about determining the OID tobe reported on your tax return, see FiguringOID on Long-Term Debt Instruments, later.

Section II. This section lists the OID to bereported by brokers and other middlemen forcalendar year 1999 for stripped obligations.These obligations are available through theDepartment of the Treasury's STRIPS pro-

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gram and government-sponsored enterprisessuch as the Resolution Funding Corporation.This section also includes instruments backedby U.S. Treasury securities that representownership interests in those securities.

The obligations listed in Section IIare ar-ranged by maturity date. The amounts listedare per $1,000 of redemption price.

Brokers and other middlemenmay useSection II to prepare information returns for1999. They should not rely on the informationin Section IIof previous editions of Publication1212 to prepare information returns for 1999.

Owners of these stripped obligationsshould not rely on Section IIto determine (orcompare) the OID to be reported on their taxreturn. The OID amounts listed in Section IIare figured without reference to the price ordate at which you acquired the obligation. Forinformation about determining the OID onstripped obligations to be reported on your taxreturn, see Figuring OID on Stripped Bondsand Coupons, later.

Section III. This section contains short-termdiscount obligations. Section IIIA lists short-term discount obligations issued by the U.S.Treasury Department. These generally arereferred to as Treasury bills or T-bills.Sections IIIB through IIIG contain short-

term discount obligations issued by the Stu-dent Loan Marketing Association, FederalHome Loan Banks, the Federal NationalMortgage Association, Federal Farm CreditBanks, Federal Home Loan Mortgage Cor-poration, and the Federal Agricultural Mort-gage Corporation.

The short-term obligations listed in thissection are arranged by maturity date. Sec-tion IIIlists the CUSIP number, maturity date,issue date, issue price (as a percent of prin-cipal), and discount to be reported as interestfor calendar year 1999 per $1,000 of re-demption price. Brokers and other middlemenshould rely on the issue price information inSection IIIonly if they are unable to determinethe price actually paid by the owner.

Debt InstrumentsNot on the OID ListThe list of debt instruments does not containthe following.

U.S. savings bonds.

Certificates of deposit and other face-amount certificates issued at a discount,including syndicated certificates of de-posit.

Obligations issued by tax-exempt organ-izations.

OID debt instruments that matured orwere entirely called by the issuer before1999.

Mortgage-backed securities and mort-gage participation certificates.

Long-term OID debt instruments issuedbefore May 28, 1969.

Short-term obligations, other than theobligations listed in Section III.

Original issue U.S. Treasury notes andbonds that are not Treasury Inflation-Indexed Securities. (These debt instru-ments are direct obligations of the U.S.Government. Generally, they contain ei-

ther de minimis or no discount at originalissue. See U.S. Treasury Bills, Notes,and Bondsin chapter 1 of Publication 550for more information.)

Debt instruments issued at a discount bystates or their political subdivisions.(These debt instruments are not subjectto the OID information reporting rules.)

REMIC regular interests and CDOs.

Commercial paper and banker's accept-ances that may have been originally is-

sued at a discount. Obligations issued at a discount by indi-

viduals.

Foreign obligations not traded in theUnited States and obligations not issuedin the United States.

OID debt instruments for which no infor-mation was currently available or thatwere issued in late 1999 after publicationof this list. These will be included in thenext revision of the publication.

Information for

Brokers andOther MiddlemenThe following discussions contain specific in-structions for brokers and middlemen whohold or redeem a debt instrument for theowner.

In general, you must file a Form 1099 forthe debt instrument if the interest or OID tobe included in the owner's income for 1999totals $10 or more. You also must file a Form1099 if you were required to deduct andwithhold tax, even if the interest or OID is lessthan $10. See Backup Withholding, later.

If you must file a Form 1099, furnish acopy to the owner of the debt instrument byJanuary 31, 2000. By February 28, 2000, fileall your Forms 1099 with the IRS (March 31,2000, if you file electronically), accompaniedby Form 1096.

For more information, including penaltiesfor failure to file (or furnish) required informa-tion returns or statements, see the In-structions for Form 1099, 1098, 5498, andW-2G.

Short-Term ObligationsRedeemed at MaturityIf a short-term discount obligation is re-deemed at maturity through a broker or othermiddleman for the owner, the broker or mid-dleman must report the discount as intereston Form 1099INT. (If the obligation is soldbefore maturity, the broker effecting thetransaction must file Form 1099B to reflectthe gross proceeds to the seller. The accrueddiscount to the date of sale is not reportedon either Form 1099INT or Form 1099OID.)

When the obligation is redeemed at ma-turity, the purchase price shown on the own-er's copy of the purchase confirmation receiptor similar record, or the price shown in thetransaction records of the middleman, shouldbe used to determine the discount to be re-ported on Form 1099INT.

If the owner's purchase price cannot bedetermined, the broker or other middlemanreports the discount as if the owner had pur-chased the obligation at its original issue

price. A special rule is used to determine theoriginal issue price for information reportingon U.S. Treasury bills listed in Section IIIA.Under this rule, the middleman preparesForm 1099INT by using the noncompetitive(weighted average of accepted auction bids)discount price for the longest-maturity Treas-ury bill maturing on that date. This price isshown in Section IIIA.

A similar rule applies to the short-termdiscount obligations issued by the organiza-tions listed in Section IIIB through SectionIIIG.

Information that supplements SectionIIIA is available on the Internet atwww.publicdebt.treas.gov.

Example 1. There are 13-week, 26-week,and 52-week T-bills maturing on the samedate as the T-bill being redeemed. The priceactually paid by the owner cannot be estab-lished by owner or middleman records. In thiscase, the broker or middleman prepares Form1099INT using the noncompetitive discountprice (expressed as a percent of principal) inSection IIIA for a 52week bill maturing onthe same date as the T-bill redeemed. Theinterest reported is the discount (per $1,000

of principal) shown for that obligation.

Long-Term DebtInstrumentsA broker or other middleman who holds along-term OID debt instrument as a nomineefor the true owner generally must file Form1099OID.

Brokers and other middlemen can rely onSection Iof the OID list to determine the fol-lowing for information reporting purposes.

Whether an instrument has OID.

The amount of OID to be reported on theForm 1099OID.

In general, brokers and other middlemenmust report OID on publicly offered, long-termdebt instruments that are listed in Section I.They also may report OID on other long-termdebt instruments.

Form 1099OID. Form 1099OID for 1999must show the following information.

Box 1. The OID for the actual dates ofownership of the owner during 1999. Todetermine the amount of OID to report,see Figuring OID, next.

Box 2. The qualified stated interest paidor credited during the calendar year. In-terest reported here is not reported onForm 1099INT. The qualified stated in-

terest on Treasury Inflation-Indexed Se-curities may be reported in box 3 of Form1099INT instead.

Box 3. Any interest or principal forfeitedbecause of an early withdrawal that therecipient can deduct from gross income.Do notreduce the amounts in boxes 1and 2 by the forfeiture.

Box 4. Any backup withholding for thisinstrument.

Box 5. The CUSIP number, if any. If thereis no CUSIP number, give a descriptionof the instrument, including the abbrevi-ation for the stock exchange, the abbre-viation used by the stock exchange for

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the issuer, the coupon rate, and the yearof maturity (e.g., NYSE XYZ 121/2 2000).If the issuer of the instrument is otherthan the payer, show the name of theissuer in this box.

Box 6. OID on a U.S. Treasury obligationfor the part of the year the owner ownedthe instrument.

Figuring OID. You can determine the OIDon a long-term debt instrument by using either

of the following.

Section Iof the OID list

The Income Tax Regulations

Using Section I. If the owner held thedebt instrument for the entire calendar year,report the OID shown in Section Ifor the cal-endar year. Because OID is listed for each$1,000 of stated redemption price at maturity,you must adjust the listed amount to reflectthe instrument's actual stated redemptionprice at maturity. For example, if the instru-ment's stated redemption price at maturity is$500, report one-half of the listed OID.

If the owner held the debt instrument forless than the entire calendar year, figure theOID to report as follows.

1) Look up the daily OID amount for the first1999 accrual period during which theowner held the instrument.

2) Multiply the daily OID amount by thenumber of days in 1999 that the ownerheld the instrument during that accrualperiod.

3) Repeat steps (1) and (2) for any re-maining 1999 accrual periods duringwhich the owner held the instrument.

4) Add the results in steps (2) and (3) todetermine the owner's OID per $1,000

of stated redemption price at maturity.

5) If necessary, adjust the amount of OIDto reflect the instrument's stated re-demption price at maturity.

Report the result in box 1 of Form 1099OID.Using the Income Tax Regulations. In-

stead of using Section Ito figure OID, you canuse the regulations under sections 1272through 1275 of the Internal Revenue Code.For example, under the regulations, you canuse monthly accrual periods in figuring OIDfor a debt instrument issued after April 3,1994, that provides for monthly payments. (Ifyou use Section IB, the OID is figured using6month accrual periods.)

For a general explanation of the rules forfiguring OID under the regulations, see Fig-uring OID on Long-Term Debt Instrumentsunder Information for Owners of OID DebtInstruments, later.

Inflation-indexed debt instruments. Ifyou use Section IC instead of the IncomeTax Regulations to figure the OID on aninflation-indexed debt instrument, you mustattach the following statement to the Form1099OID you send to the payee.

If you (the owner) purchased or sold aninflation-indexed debt instrument during thecalendar year (other than a purchase at ori-ginal issue), the OID reported to you may beincorrect. To determine the correct amountof OID, see Publication 1212.

Certificates of DepositAny broker or other middleman who holds abank certificate of deposit (CD) as a nomineemust determine whether the CD has OID andthe amount of OID includible in the incomeof the owner. The broker or middleman mustfile an information return showing the report-able interest and OID, if any, on the CD.These rules apply whether or not the brokeror middleman sold the CD to the owner. Re-port OID on a CD in the same way as OIDon other debt instruments. See Short-TermObligations Redeemed at Maturityand Long-Term Debt Instruments, earlier.

Bearer Bonds and CouponsA broker, financial institution, or other servic-ing agency should report the interest paid ona coupon from a bearer bond on a Form1099INT identifying the payee (unless thepayee is a foreign person) if both of the fol-lowing apply.

The coupon is presented to the servicingagency for collection before the bondmatures.

The servicing agency does not hold thebond as a nominee for the true owner.

Because the servicing agency cannot assumethe presenter of the coupon also owns thebond, the servicing agency should notreportOID on the bond on Form 1099OID. Thecoupon may have been stripped (separated)from the bond and separately purchased.

However, if a long-term bearer bond onthe OID list in this publication is presented tothe servicing agency for redemption upon callor maturity, the servicing agency should pre-pare a Form 1099OID showing the OID forthat calendar year, as well as any coupon in-terest payments collected at the time of re-

demption.

Payments outside the United States.Backup withholding and information reportingare not required if the payment or collectionof portfolio interest or OID on a bearer bondor coupon is made outside the United Statesby a broker, financial institution, or servicingagency that is the issuer or the issuer's agent,unless the payer actually knows that thepayee is a U.S. person. See Publication 515for more information on portfolio interest.

Backup withholding and information re-porting also are not required for payment orcollection of interest or OID on a bearer bondor coupon outside the United States by acustodian, nominee, or other agent of thepayee if the agent has documentary evidencethat the payee is a foreign person. The agentshould disregard the documentary evidenceif the agent actually knows the payee is nota foreign person.

However, the requirement for backupwithholding and information reporting apply ifthe custodian, nominee, or other agent is aU.S. person, controlled foreign corporation,or a foreign person at least 50 percent ofwhose income for the preceding 3-year periodis effectively connected with the conduct of aU.S. trade or business.

Backup WithholdingA broker or other middleman who reports OIDon Form 1099OID or interest on Form1099INT may be required to apply backupwithholding to the reportable payment at a31% rate. The backup withholding tax is de-ducted at the time a cash payment is made.

Backup withholding generally applies inthe following situations.

1) The payee fails to furnish his or her tax-payer identification number (TIN) to the

middleman.2) The IRS notifies the middleman that the

payee furnished an incorrect TIN.

3) The IRS notifies the middleman that thepayee is subject to backup withholding.

4) For debt instruments acquired after1983:

a) The payee fails to certify to themiddleman, under penalties of per-

jury, that he or she is not subject tobackup withholding under (3)above.

b) The payee fails to certify, underpenalties of perjury, that his or herTIN is correct.

However, for short-term discount obli-gations (other than government obligations),bearer bond coupons, and U.S. savingsbonds, backup withholding applies only if thepayee does not give the middleman a TIN.

Short-term obligations. Backup withholdingapplies to OID on a short-term obligation onlywhen the OID is paid at maturity. However,backup withholding applies to any interestpayable before maturity when the interest ispaid or credited.

If the owner of a short-term obligation atmaturity is not the original owner and canestablish the purchase price of the obligation,the amount subject to backup withholding

must be determined by treating the purchaseprice as the issue price. However, the brokercan choose to disregard that price if it wouldrequire significant manual intervention in thecomputer or recordkeeping system used forthe obligation. If the purchase price of a listedobligation is not established or is disregarded,the broker must use the issue price shown inSection III.

Long-term obligations. If no cash paymentsare made on a long-term obligation beforematurity, backup withholding applies only atmaturity. The amount subject to backup with-holding is the OID includible in the owner'sgross income for the calendar year when theobligation matures. The amount to be with-held is limited to the cash paid.

Registered obligations with cash pay-ments. If a long-term registered obligationhas cash payments before maturity, backupwithholding applies when a cash payment ismade. The amount subject to backup with-holding is the total of the qualified stated in-terest and OID includible in the owner's grossincome for the calendar year when the pay-ment is made. If more than one cash paymentis made during the year, the OID subject towithholding for the year must be allocatedamong the expected cash payments in theratio that each bears to the total of the ex-pected cash payments. For any payment, theamount of required withholding is limited tothe cash paid.

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If the payee is not the original owner of theobligation, the amount of OID subject tobackup withholding is the OID includible in thegross income of all owners during the calen-dar year (without regard to any amount paidby the new owner at the time of transfer). Theamount subject to backup withholding at ma-turity of a listed obligation must be determinedusing the issue price shown in Section I.

Bearer obligations with cash payments.If a long-term bearer obligation has cashpayments before maturity, backup withholdingapplies when the cash payments are made.For payments before maturity, the amountsubject to withholding is the qualified statedinterest (but not any OID) includible in theowner's gross income for the calendar year.For a payment at maturity, the amount subjectto withholding is the total of any qualifiedstated interest paid at maturity and the OIDincludible in the owner's gross income for thecalendar year when the obligation matures.The amount of required withholding at matu-rity is limited to the cash paid.

Sales and redemptions. A broker who re-ports the gross proceeds from a sale, ex-change, or redemption of a debt instrumenton Form 1099B may be required to withhold

31% of the amount reported. Backup with-holding applies in the following situations.

The payee does not give a TIN to thebroker.

The IRS notifies the broker that the payeegave an incorrect TIN.

For debt instruments held in an accountopened after 1983, the payee does notcertify, under penalties of perjury, that theTIN given is correct.

Foreign person. Backup withholding andinformation reporting are not required forpayments of U.S.-source OID, interest, or

proceeds from sale or redemption of an OIDinstrument if the payee has given the brokeror other middleman proof (generally a FormW8 or an acceptable substitute) that thepayee is a foreign person. A U.S. resident isnot a foreign person. Under these regulations,for proof of the payee's foreign status, a bro-ker or other middleman can rely on Form W8or on documentary evidence for paymentsmade outside the United States to an offshoreaccount or, in case of broker proceeds, a saleeffected outside the United States. Form W8does not relieve a broker from informationreporting and backup withholding if the brokeractually knows the payee is a U.S. person.

For information about the 30% withholdingtax that may apply to payments ofU.S.-source OID or interest to foreign per-sons, see Publication 515.

Backup withholding and information re-porting are not required for payments offoreign-source OID and interest made outsidethe United States. However, if the paymentsare made inside the United States, the re-quirements for backup withholding and infor-mation reporting will apply unless the payeehas given the broker or other middleman aForm W8 or acceptable substitute as proofthat the payee is a foreign person.

See sections 35a.99993,3A,4, and 5of the regulations for more information aboutbackup withholding and information reportingon foreign-source amounts or payments toforeign persons.

CAUTION

!The above regulations have been re-moved and the regulations undersections 3406, 6045, and 6049 of the

Internal Revenue Code, relating to backupwithholding and information reporting, havebeen amended, effective for payments madeafter 2000. See Treasury Decision 8734 (inCumulative Bulletin 19972), as modified byTreasury Decision 8804 (in Internal RevenueBulletin 199912), and Notice 9925 (inInternal Revenue Bulletin 199920).

Information forOwners of OIDDebt InstrumentsThis section is for persons who prepare theirown tax returns. It discusses the income taxrules for computing and reporting OID onlong-term debt instruments. It also includes asimilar discussion for stripped bonds andcoupons, such as zero coupon instrumentsavailable through the Department of theTreasury's STRIPS program andgovernment-sponsored enterprises such as

the Resolution Funding Corporation. How-ever, the information provided does not coverevery situation. More information can befound in the regulations under sections 1271through 1275 of the Internal Revenue Code.

Reporting OID. Generally, you report OIDas it accrues each year, whether or not youreceive any payments from the bond issuer.

Exceptions. The rules for reporting OIDon long-term instruments do not apply to thefollowing debt instruments.

U.S. savings bonds.

Tax-exempt obligations. (However, seeTax-Exempt Bonds and Coupons, later.)

Obligations issued by individuals beforeMarch 2, 1984.

Loans of $10,000 or less between indi-viduals who are not in the business oflending money. (The dollar limit includesoutstanding prior loans by the lender tothe borrower.) This exception does notapply if a principal purpose of the loan isto avoid any federal tax.

See chapter 1 of Publication 550 for in-formation about the rules for these and othertypes of discounted instruments such asshort-term and market discount obligations.Publication 550 also discusses rules forholders of REMIC interests and CDOs.

Definition of OID. A debt instrument, suchas a bond or note, generally has OID whenthe instrument is issued for a price less thanits stated redemption price at maturity. OID isa form of interest. The amount of OID is thedifference between the stated redemptionprice at maturity and the issue price of theinstrument. An instrument's stated redemp-tion price at maturity is the sum of all amounts(principal and interest) payable on the instru-ment other than qualified stated interest. Ingeneral, stated interest is qualified stated in-terest if it is unconditionally payable in cashor property (other than debt instruments of theissuer) at least annually over the term of theinstrument at a single fixed rate. All debt in-struments that pay no interest before maturity

(for example, zero coupon bonds) are pre-sumed to be issued at a discount.

Issue price. For instruments listed in thispublication, the issue price is the initial offer-ing price to the public (excluding bond housesand brokers) at which a substantial amountof these instruments was sold.

De minimis rule. You can treat the amountof OID as zero if the total OID on a debt in-strument is less than one-fourth of 1% (.0025)of the stated redemption price at maturitymultiplied by the number of full years from thedate of original issue to maturity. Long-terminstruments with de minimis OID are not listedin this publication.

Example 2. You bought at issuance a10-year bond with a stated redemption priceat maturity of $1,000, issued at $980 with OIDof $20. One-fourth of 1% of $1,000 (the statedredemption price) times 10 (the number of fullyears from the date of original issue to matu-rity) equals $25. Under the de minimis rule,you can treat the OID as zero since the $20discount is less than $25.

Example 3. Assume the same facts asExample 2, except the bond was issued at$950. You must report part of the $50 OID

each year because the discount is more than$25.

Election to report all interest as OID.Generally, you can elect to treat all intereston a debt instrument acquired after April 3,1994, as OID and include it in gross incomeby using the constant yield method. See Fig-uring OID using the constant yield methodunder Debt Instruments Issued After 1984,later, for information about this method.

For purposes of this election, interest in-cludes stated interest, acquisition discount,OID, de minimis OID, market discount, deminimis market discount, and unstated inter-est, as adjusted by any amortizable bondpremium or acquisition premium. See section1.12723 of the regulations for more infor-mation.

Purchase after date of original issue. Adebt instrument you purchased after the dateof original issue may have premium, acquisi-tion premium, or market discount. If so, theOID reported to you on Form 1099OID mayhave to be adjusted. For more information,see Showing an OID adjustment under HowTo Report OID, later.

Premium. A debt instrument is purchasedat a premium if its adjusted basis immediatelyafter purchase is greater than the total of allamounts payable on the instrument after thepurchase date, other than qualified stated in-terest. If you buy a debt instrument (otherthan a contingent payment debt instrument

or an inflation-indexed debt instrument) at apremium, you do not report any OID as ordi-nary income.

Acquisition premium. A debt instrumentis purchased at an acquisition premium if bothof the following apply.

It is not purchased at a premium.

Its adjusted basis immediately after pur-chase, including purchase at original is-sue, is greater than its adjusted issueprice.

Acquisition premium will reduce the OIDyou report. For information about how to de-termine the OID to report for instruments on

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which you paid an acquisition premium, seethe later discussions, definitions, and exam-ples under Figuring OID on Long-Term DebtInstruments. Also see Figuring OID on Long-Term Debt Instruments for definitions ofqualified stated interest and adjusted issueprice.

Market discount. Market discount ariseswhen a debt instrument purchased in thesecondary market has decreased in valuesince its issue date, generally because of anincrease in interest rates. An OID bond hasmarket discount if your adjusted basis in thebond immediately after you acquired it (usu-ally its purchase price) was less than thebond's issue price (defined earlier) plus thetotal OID that accrued before you acquired it.

When you dispose of the bond, you mustreport the gain due to accrued market dis-count as taxable interest, unless you chooseto report it as it accrues. See Market DiscountBonds in chapter 1 of Publication 550 for in-formation on how to figure accrued marketdiscount and for other information aboutmarket discount bonds. If you elect to use theconstant yield method to figure accrued mar-ket discount, also see Figuring OID on Long-Term Debt Instruments later in this publica-tion. The constant yield method of figuringaccrued OID, explained in those discussions

under Figuring OID using the constant yieldmethod, is also used to figure accrued marketdiscount.

Sale, exchange, or redemption. Generally,you treat your gain or loss from the sale, ex-change, or redemption of a discounted bondor other debt instrument as a capital gain orloss if you held the bond as a capital asset.If you sold the bond through a broker, youshould receive Form 1099B or an equivalentstatement from the broker. Use the Form1099B or other statement and your broker-age statements to complete Schedule D(Form 1040).

Your gain or loss is the difference between

the amount you realized on the sale, ex-change, or redemption and your basis in thedebt instrument. Your basis, generally, is yourcost increased by the OID you have includedin income each year you held it. To determineyour gain or loss on a tax-exempt bond, figureyour basis in the bond by adding to your costthe OID you would have included in incomeif the bond had been taxable.

See chapter 4 of Publication 550 for moreinformation about the tax treatment of the saleor redemption of discounted debt instruments.

Example 4. On November 1, 1996, Larry,a calendar year taxpayer, bought a corporatebond at original issue for $86,235.17. The15-year bond matures on October 31, 2011,

at a stated redemption price of $100,000. Thebond provides for semiannual payments ofinterest at 10%. Assume the bond is a capitalasset in Larry's hands. The bond has$13,764.83 of OID ($100,000 stated redemp-tion price at maturity less $86,235.17 issueprice).

On November 1, 1999, Larry sold thebond for $90,000. Including the OID he willreport for the period he held the bond in 1999,Larry has included $1,214.48 of OID in in-come and has increased his basis by thatamount to $87,449.65. Larry has realized again of $2,550.35. All of Larry's gain is capitalgain.

Form 1099OIDThe issuer of the debt instrument (or yourbroker, if you purchased or held the instru-ment through a broker) should give you acopy of Form 1099OID, or a similar state-ment, if the accrued OID for the calendar yearis $10 or more and the term of the instrumentis more than one year. Form 1099OIDshows the OID income in box 1. It also shows,in box 2, any qualified stated interest (that isnot OID) you must include in income. A copyof Form 1099OID will be sent to the IRS.

Do not attach your copy to your tax return.Keep it for your records.

CAUTION

!If you are required to file a tax returnand you receive Form 1099OIDshowing taxable amounts, you must

report these amounts on your return. A 20%accuracy-related penalty may be charged forunderpayment of tax due to either of the fol-lowing reasons.

Negligence or disregard of rules andregulations.

Substantial understatement of tax.

Form 1099OID not received. If you heldan OID instrument for 1999 but did not re-

ceive a Form 1099OID, refer to the laterdiscussions under Figuring OID on Long-Term Debt Instrumentsfor information on theOID you must report.

Refiguring OID. You must refigure the OIDshown in box 1 of Form 1099OID to deter-mine the proper amount to include in incomeif one of the following applies.

You bought the debt instrument at a pre-mium or at an acquisition premium.

The debt instrument is a stripped bondor coupon (including zero coupon instru-ments backed by U.S. Treasury securi-ties).

The debt instrument is a contingent pay-ment or inflation-indexed debt instrument.

See the discussions under Figuring OIDon Long-Term Debt Instruments or FiguringOID on Stripped Bonds and Coupons, later,for the specific computations.

Refiguring interest. If you disposed of adebt instrument or acquired it from anotherholder between interest dates, see the dis-cussion under Bonds Sold Between InterestDates in chapter 1 of Publication 550 for in-formation about refiguring the interest shownin box 2 of Form 1099OID.

Nominee. If you are the holder of an OIDinstrument and you receive a Form 1099OIDthat shows your taxpayer identification num-ber and includes amounts belonging to an-other person, you are considered anominee recipient. You must file anotherForm 1099OID for each actual owner,showing the OID for the owner. Show theowner of the instrument as the recipient andyou as the payer.

Complete Form 1099OID and Form 1096and file the forms with the Internal RevenueService Center for your area. You must alsogive a copy of the Form 1099OID to the ac-tual owner. However, you are not required tofile a nominee return to show amounts be-longing to your spouse. See the Form 1099instructions for more information.

When preparing your tax return, follow theinstructions in the later discussion underShowing an OID adjustment.

How To Report OIDGenerally, you report your taxable interestand OID income on line 2, Form 1040EZ; line8a, Form 1040A; or line 8a, Form 1040.

Form 1040 or Form 1040A required. Un-less you are a nominee for the actual owner

of the debt instrument, you must use Form1040 if you are reporting more or less OIDthan the amount shown on Form 1099OID.For example, if you paid a premium or anacquisition premium when you purchased thedebt instrument, you would report less OIDthan shown on Form 1099OID. Also, youmust use Form 1040 if you were charged anearly withdrawal penalty.

You must use Form 1040 or Form 1040A(you cannot use Form 1040EZ) under eitherof the following conditions.

You received a Form 1099OID as anominee for the actual owner.

Your total interest and OID income for theyear was more than $400.

Where to report. List each payer's name (ifa brokerage firm gave you a Form 1099, listthe brokerage firm as the payer) and theamount received from each payer on line 1of Schedule 1 (Form 1040A) or line 1 ofSchedule B (Form 1040). Include all OID andperiodic interest shown in boxes 1 and 2 ofany Form 1099OID you received for the taxyear. Also include any other OID and interestincome for which you did not receive a Form1099.

Showing an OID adjustment. If you useForm 1040 to report more or less OID thanshown on Form 1099OID, list the full OIDon line 1, Part I of Schedule B and follow theinstructions under (1) or (2), next.

If you use Form 1040A to report the OIDshown on a Form 1099OID you received asa nominee for the actual owner, list the fullOID on line 1, Part I of Schedule 1 and followthe instructions under (1).

1) If the OID, as adjusted, is less than theamount shown on Form 1099OID,show the adjustment as follows.

a) Under your last entry on line 1,subtotal all interest and OID incomelisted on line 1.

b) Below the subtotal write NomineeDistribution or OID Adjustmentand show the OID you are not re-quired to report.

c) Subtract that OID from the subtotaland enter the result on line 20.

2) If the OID, as adjusted, is more than theamount shown on Form 1099OID,show the adjustment as follows.

a) Under your last entry on line 1,subtotal all interest and OID incomelisted on line 1.

b) Below the subtotal write OID Ad-justment, and show the additionalOID.

c) Add that OID to the subtotal.

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Figuring OIDon Long-Term DebtInstrumentsThe rules for figuring OID depend on the datethe long-term debt instrument was issued.There are different rules for the following.

1) Corporate debt instruments issued after1954 and before May 28, 1969, andgovernment instruments issued after1954 and before July 2, 1982.

2) Corporate debt instruments issued afterMay 27, 1969, and before July 2, 1982.

3) Debt instruments issued after July 1,1982, and before 1985.

4) Debt instruments issued after 1984(other than debt instruments describedin (5) and (6)).

5) Contingent payment debt instrumentsissued after August 12, 1996.

6) Inflation-indexed debt instruments (in-cluding Treasury inflation-indexed secu-rities) issued after January 5, 1997.

Note. The rules for figuring OID on zerocoupon instruments backed by U.S. Treasury

securities are discussed later under FiguringOID on Stripped Bonds and Coupons.

Corporate Debt InstrumentsIssued After 1954 andBefore May 28, 1969,and Government InstrumentsIssued After 1954 andBefore July 2, 1982For these instruments, you do not include OIDin income until the year the instrument is sold,exchanged, or redeemed. If a gain resultsand the instrument is a capital asset, the OIDis taxed as ordinary income. The balance ofthe gain is capital gain. If there is a loss onthe sale of the instrument, the entire loss isa capital loss and no OID is reported.

The gain taxed as ordinary income whenthe instrument is sold, exchanged, or re-deemed generally equals the followingamount:

number of full months youheld the instrument

number of full months fromdate of original issue todate of maturity

original issuediscount

X

Corporate Debt InstrumentsIssued After May 27, 1969, andBefore July 2, 1982If you hold these debt instruments as capitalassets, you must include part of the discountin income each year you own the instruments.For information about showing the correctOID on your tax return, see the discussionunder How To Report OID, earlier. Your ba-sis in the instrument is increased by the OIDyou include in income.

Form 1099OID not received. If you held anOID instrument in 1999 but did not receive aForm 1099OID, refer to Section IA later inthis publication. The OID listed is for each$1,000 of redemption price. You must adjustthe listed amount if your debt instrument hasa different principal amount. For example, ifyou have an instrument with a $500 principal

amount, use one-half of the listed amount tofigure your OID.

If you held the instrument the entire year,use the OID shown in Section IA for calen-dar year 1999. If you did not hold the instru-ment the entire year, figure your OID usingthe following method.

1) Divide the OID shown for 1999 by 12.

2) Multiply the result in (1) by the numberof complete and partial months (for ex-ample, 61/2 months) you held the debt

instrument in 1999. This is the OID toinclude in income unless you paid anacquisition premium. The reduction foracquisition premium is discussed later.

If your instrument is not listed in SectionIA, consult the issuer for information aboutthe issue price, yield to maturity, and the OIDthat accrued for 1999.

Acquisition premium. If you bought the in-strument for more than the original issue priceplus the accumulated OID from the date ofissue (but not more than the stated redemp-tion price at maturity), that excess (or acqui-sition premium) reduces the OID includible inincome. In this case, figure the amount to in-clude in income as follows.

1) Divide the total OID on the instrumentby the number of complete months, andany part of a month, from the date oforiginal issue to the maturity date. Thisis the ratable monthly portion.

2) Subtract from your cost the issue priceand the accumulated OID from the dateof issue to the date of purchase. (If theresult is zero or less, stop here. You didnot pay an acquisition premium.)

3) Divide the amount figured in (2) by thenumber of complete months, and anypart of a month, from the date of yourpurchase to the maturity date.

4) Subtract the amount figured in (3) from

the amount figured in (1). This is theamount of OID to include in income foreach month you hold the instrumentduring the year.

Example 5. On June 1, 1982, AcmeCorporation issued 20-year bonds at 90% ofthe principal amount. On February 1, 1999,you bought Acme bonds with a $10,000 prin-cipal amount on the open market for $9,900.The amount you must include in income isfigured as follows:

You must include $27.72 ($2.52 11months) in income for 1999 because the ac-quisition premium reduces the ratablemonthly portion of OID.

Example 6. Assume the same facts asExample 5, except that you bought the bondsfor $9,834.00. In this case, your cost equals

the original issue price plus accumulated OID.Therefore, you did not pay an acquisitionpremium. For 1999, include $45.87 ($4.17 11 months) of OID in income.

Example 7. Assume the same facts asExample 5, except that you bought the bondsfor $9,400. In this case, you must include$45.87 of OID in your 1999 income. You didnot pay an acquisition premium because youbought the bonds for less than the sum of theoriginal issue price plus accumulated OID.You do have market discount, which must be

reported under the rules explained in chapter1 of Publication 550.

Transfers during the month. If you buy orsell a debt instrument on any day other thanthe same day of the month as the date oforiginal issue, the ratable monthly portion ofOID for the month of sale is divided betweenthe seller and the buyer according to thenumber of days each held the instrument.Your holding periodfor this purpose beginsthe day you obtain the instrument and endsthe day before you dispose of it.

Example 8. Assume the same facts asin Example 5, except that you bought thebonds on September 14, 1998, for $9,814.96($9,000 issue price plus $814.96 accumu-lated OID) and sold them on March 14, 1999.You figure the OID to include in your 1998income as follows:

You figure the OID to include in your 1999income as follows:

You increase your basis in the bonds bythe OID you include in income. Your basis inthe bonds when you sold them is $9,839.92($9,814.96 cost plus $14.87 OID for 1998 and$10.09 OID for 1999).

Debt Instruments IssuedAfter July 1, 1982, andBefore 1985If you hold these debt instruments as capitalassets, you must include part of the OID inincome each year you own the instrumentsand increase your basis by the amount in-cluded. For information about showing thecorrect OID on your tax return, see How ToReport OID, earlier.

Form 1099. You should receive a Form1099OID showing OID for the part of theyear you held the bond. However, if you paidan acquisition premium, you may need to re-figure the OID to report on your tax return.See Figuring OID using the constant yieldmethod and the discussions on acquisitionpremium that follow, later.

Form 1099OID not received. If youheld an OID instrument during the year butdid not receive a Form 1099OID, refer toSection IA later in this publication. The OIDlisted is for each $1,000 of redemption price.You must adjust the listed amount if your debtinstrument has a different principal amount.For example, if you have an instrument with

Amount for September ($4.17 17 days 30 days) ........................................................ $ 2.36Amount for complete months Octoberthrough December ($4.17 3 months) ........ 12.51Total to include in 1998 income ................ $14.87

Amount for complete months Januarythrough February ($4.17 2 months) .......... $8.34Amount for March ($4.17 13 days 31 days) ........................................................ 1.75Total to include in 1999 income ................ $10.09

1) Ratable monthly portion($1,000.00 total OID 240months) ... ... ... ... ... ... ... ... ... ... ... ... $4.17

2) Your cost ................................. $9,900.00Minus: Issue price ................... 9,000.00

$ 900.00Minus: Accumulated OID($4.17 200 months) .............. 834.00Acquisition premium ................ $ 66.00

3) Acquisition premium divided bynumber of complete and partialmonths from date of purchaseto maturity date ($66.00 40months) . ................................... 1.65

4) Line 1 minus line 3 ................ $2.52

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a $500 principal amount, use one-half of thelisted amount to figure your OID.

If you held the debt instrument the entireyear, use the OID shown for calendar year1999. If you did not hold the debt instrumentthe entire year, figure your OID using eitherof the following methods.

Method 1.

1) Divide the total OID for 1999 by 365.

2) Multiply the result in (1) by the numberof days you held the debt instrument in

1999.This computation is an approximation andmay result in a slightly higher amount of OIDthan Method 2.

Method 2.

1) Look up the daily OID amount for the first1999 accrual period you held the instru-ment. (See Accrual periodunder Figur-ing OID using the constant yield method,next.)

2) Multiply the daily OID amount by thenumber of days in 1999 you held the in-strument during that accrual period.

3) If you held the instrument for part of both1999 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 for 1999, un-less you paid an acquisition premium.(The reduction for acquisition premiumis discussed later.)

If your instrument is not listed in SectionIA, consult the issuer for information aboutthe issue price, yield to maturity, and the OIDthat accrued for 1999.

Figuring OID using the constant yieldmethod. This discussion shows how to figureOID on debt instruments issued after July 1,1982, and before 1985, using a constant yieldmethod. OID is allocated over the life of the

instrument through adjustments to the issueprice for each accrual period.Figure the OID allocable to any accrual

period as follows.

1) Multiply the adjusted issue price at thebeginning of the accrual period by theinstrument's yield to maturity.

2) Subtract from the result in (1) any qual-ified stated interest allocable to the ac-crual period.

Adjusted issue price. The adjusted is-sue price of a debt instrument at the begin-ning of the first accrual period is its issueprice. The adjusted issue price at the begin-ning of any subsequent accrual period is thesum of the issue price and all of the OIDincludible in income before that accrual periodminus any payment previously made on theinstrument, other than a payment of qualifiedstated interest.

Yield to maturity (YTM). In general, theYTM is the discount rate that, when used infiguring the present value of all principal andinterest payments, produces an amount equalto the issue price of the bond. The YTM isgenerally shown on the face of the bond or inthe literature you receive from your broker.If you do not have this information, consultyour broker or tax advisor.

Qualified stated interest (QSI). In gen-eral, qualified stated interest is stated interestthat is unconditionally payable in cash or

property (other than debt instruments of theissuer) over the term of the instrument at asingle fixed rate.

Accrual period. An accrual period forany OID instrument issued after July 1, 1982,and before 1985 is each one-year period be-ginning on the date of the issue of the obli-gation and each anniversary thereafter, or theshorter period to maturity for the last accrualperiod. Your tax year will usually overlapmore than one accrual period.

Daily OID. The OID for any accrual periodis allocated ratably to each day in the accrualperiod. You must include in income the sumof the OID amounts for each day that you holdthe instrument during the year. If your tax yearoverlaps more than one accrual period, youmust include the proper daily OID amounts foreach of the two accrual periods.

Figuring daily OID. The daily OID for theinitial accrual period is figured using thefollowing formula:

(ip ytm) qsi

p

The daily OID for subsequent accrualperiods is figured the same way except theadjusted issue price at the beginning of eachperiod is used in the formula instead of theissue price.

Example 9. On January 1, 1984, youbought a 20-year, 13% bond for $90,000 atoriginal issue. The redemption price of thebond is $100,000. The qualified stated inter-est is $13,000 (13% $100,000), which isunconditionally payable each year. The bondhas a yield to maturity of 14.5587%. The dailyOID for the first accrual period is figured asfollows:

($90,000.00 14.5587%)$13,000

366 (leap year)

=$102.83

366= $.28096

You would have included in income$.28096 for each day you held the bond dur-ing 1984. If you held the bond for all of 1984,you would have included OID of $102.83($.28096 366).

The following table shows the adjustedissue price, daily OID, and OID per accrualperiod through 1999.

The daily OID for the 17th accrual periodis figured as follows:

($95,508.80 14.5587%)$13,000

366

=$904.84

366= $2.47224

If you hold the bond for all of 2000, youwould include $904.84 in income ($2.47224 366).

Example 10. Assume the same facts asExample 9, except that you bought the bondat original issue on May 1, 1983. The dailyOID for the first accrual period (May 1, 1983

April 30, 1984) was $.28096, as figured inExample 9. If you held the bond until the endof 1983, you would have included $68.84 inincome for 1983 ($.28096 245 days). If youcontinued to hold the bond, you would haveincluded in income, for 1984 through 1998,the following amounts of OID.

If you sold the bond on August 30, 1999,you would figure the amount to include in your1999 income as follows:

However, if you held the bond the entireyear of 1999, the total OID to report is$865.38 [$259.68 + $605.70 ($2.47224 245days)].

Acquisition premium on debt instrumentspurchased before July 19, 1984. If youbought a debt instrument for more than itsadjusted issue price but not more than itsstated redemption price at maturity, the dif-ference between your basis in the instrumentand the adjusted issue price is acquisitionpremium. The acquisition premium reduces

Year

FirstAccrualPeriod

SecondAccrualPeriod Total

ip = issue price 1984 .......... $.28096 $.32274 121 days 245 days $113.07ytm = yield to maturity

1985 .......... $.32274 $.36973 qsi = qualified stated interest

120 days 245 days $129.31p = number of days in accrual period1986 .......... $.36973 $.42356

120 days 245 days $148.14

1987 .......... $.42356 $.48391 120 days 245 days $169.39

1988 .......... $.48391 $.55586 121 days 245 days $194.74

1989 .......... $.55586 $.63679 120 days 245 days $222.71

1990 .......... $.63679 $.72951 120 days 245 days $255.14

1991 .......... $.72951 $.83342 120 days 245 days $291.73

1992 .......... $.83342 $.95737 121 days 245 days $335.40

1993 .......... $.95737 $1.09677

120 days 245 days $383.591994 .......... $1.09677 $1.25644

120 days 245 days $439.44

1995 .......... $1.25644 $1.43541 120 days 245 days $502.45

1996 .......... $1.43541 $1.64890 121 days 245 days $577.66

1997 .......... $1.64890 $1.88896 120 days 245 days $660.67

1998 .......... $1.88896 $2.16397 120 days 245 days $756.85

Ac-

crualPeriod Year

Adjusted

IssuePrice Daily OID

OID perAc-

crualPeriod

First accrual period: $2.16397 120 days(Jan 1 Apr 30) ........................................ $259.68

Second accrual period: $2.47224 121days (May 1 Aug 29) .............................. 299.14Total to include in 1999 income ............. $558.821 1984 $90,000.00 $.28096 $102.83

2 1985 90,102.83 .32274 117.803 1986 90,220.63 .36973 134.954 1987 90,355.58 .42356 154.605 1988 90,510.18 .48391 177.116 1989 90,687.29 .55586 202.897 1990 90,890.18 .63679 232.438 1991 91,122.61 .72951 266.279 1992 91,388.88 .83342 305.0310 1993 91,693.91 .95737 349.4411 1994 92,043.35 1.09677 400.3212 1995 92,443.67 1.25644 458.6013 1996 92,902.27 1.43541 525.3614 1997 93,427.63 1.64890 601.8515 1998 94,029.48 1.88896 689.4716 1999 94,718.95 2.16397 789.85

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the OID to include in income over the periodyou hold the bond.

You reduce the daily OID by the daily ac-quisition premium. Figure this by dividing theacquisition premium by the number of daysin the period beginning on your purchase dateand ending on the day before the date ofmaturity.

Example 11. Assume the same facts asExample 10, except that you bought the bondfor $92,000 on May 1, 1984, after its originalissue on May 1, 1983. In this case, you paid

more for the bond than its $90,102.83 ad-justed issue price ($90,000 + $102.83). Youpaid $1,897.17 ($92,000 $90,102.83) ac-quisition premium. The daily OID as reducedfor the acquisition premium for the accrualperiod May 1, 1984, to April 30, 1985, is fig-ured as follows:

The OID you would have included in in-come for 1984 is $12.09 ($.04933 245days).

Assuming you still owned the bond in1999, you would have reduced the total OIDfor each year (as determined in Example 10)by the allocable portion of the acquisitionpremium for that year. You would have in-cluded the following amounts of OID in in-come:

If you held the bond all of 1999, reduce thetotal OID for that year, $865.38 (as deter-mined in Example 10), by the allocable partof the acquisition premium for 1999, $99.79($.27341 365 days). The difference,$765.59, is the total OID to include in incomefor 1999.

Example 12. Assume the same facts asExample 11, except that you bought the bondfor $90,102.83. In this case, you bought thebond for an amount equal to the original issueprice plus accumulated OID. Therefore, youdid not pay an acquisition premium. Youwould have included $79.07 ($.32274 245days) in income for 1984. For the remainingyears, you would have included the amountsfigured in Example 10.

Example 13. Assume the same facts asExample 11, except that you bought the bondfor $89,500. You did not pay an acquisitionpremium because your cost was less than theadjusted issue price. You must include in in-come each year the amounts figured in Ex-

ample 12. You do have market discount be-cause your cost was less than the issue priceplus the total OID that accrued before youacquired the bond. See Market discount un-der Purchase after date of original issueat thebeginning of this section of the publication.

Acquisition premium on debt instrumentspurchased after July 18, 1984. If you pur-chased an OID instrument for more than itsadjusted issue price but not more than itsstated redemption price at maturity, the dif-ference between your basis in the instrumentand the adjusted issue price is acquisitionpremium. If you bought the debt instrumentafter July 18, 1984, the method of figuring thereduction of OID includible in income is dif-ferent from the method described earlier inExample 11. To figure the amount that re-duces the daily OID under this method, youmultiply the daily OID by the following frac-tion.

The numerator is the acquisition premiumimmediately after acquisition.

The denominator is the total OID re-maining for the instrument after yourpurchase date.

Example 14. Assume the same facts as

Example 9, except that you bought the bondfor $96,000 on August 1, 1999, after its ori-ginal issue on August 1, 1983. In this case,you paid more for the bond than its$95,508.80 adjusted issue price ($90,000 +$5,508.80 accrued OID). You paid $491.20($96,000 $95,508.80) acquisition premium.The daily OID as reduced for the acquisitionpremium for the accrual period August 1,1999, to July 31, 2000, is figured as follows:

The total OID to include in income for1999 (August 1 December 31) is $336.88($2.20185 153 days).

If you hold the bond for all of 2000, multi-ply the total OID for the year by 0.27039 andsubtract the result from the total OID. Thereduced amount is the total OID to be in-cluded in income for 2000.

Note. If you bought your corporate debtinstrument in 1999 or 2000 and it is listed inSection IA, you can figure the accumulatedOID to the date of purchase by adding thefollowing amounts.

1) The amount from the Total OID to Jan-uary 1, 1999 column for your debt in-strument.

2) The OID from January 1, 1999, to thedate of purchase, figured as follows.

a) Multiply the daily OID for the firstaccrual period in 1999 by the num-ber of days from January 1 to thedate of purchase, or the end of theaccrual period if the instrument waspurchased in the second or thirdaccrual period.

b) Multiply the daily OID for eachsubsequent accrual period by the

number of days in the period to thedate of purchase or the end of theaccrual period, whichever applies.

c) Add the amounts figured in (2a) and(2b).

Debt Instruments IssuedAfter 1984If you hold debt instruments issued after1984, you must report part of the discount ingross income each year that you own the in-

struments. You must include the OID in grossincome whether or not you hold the instru-ment as a capital asset. Your basis in the in-strument is increased by the OID you includein income. For information about showing thecorrect OID on your tax return, see How ToReport OID, earlier.

You should receive a Form 1099OIDshowing OID for the part of 1999 you held thebond. However, if you paid an acquisitionpremium, you may need to refigure the OIDto report on your tax return. See Figuring OIDusing the constant yield methodand Acquisi-tion premium, later.

You may also need to refigure the OID fora contingent payment or inflation-indexeddebt instrument on which the amount reported

on Form 1099OID is inaccurate. See Con-tingent Payment Debt Instruments orInflation-Indexed Debt Instruments, later.

Form 1099OID not received. If you hadOID for 1999 but did not receive a Form1099OID, refer to Section IB later in thispublication. The OID listed is for each $1,000of redemption price. You must adjust thelisted amount if your debt instrument has adifferent principal amount. For example, if youhave an instrument with a $500 principalamount, use one-half of the listed amount tofigure your OID.

Use the OID shown for the calendar yearif you held the instrument the entire year. Ifyou did not hold the debt instrument the entire

year, figure your OID as follows.

1) Look up the daily OID amount for the first1999 accrual period in which you heldthe instrument. (See Accrual periodun-der Figuring OID using the constant yieldmethod, next.)

2) Multiply the daily OID amount by thenumber of days in 1999 you held the in-strument during that accrual period.

3) Repeat (1) and (2) for any remaining1999 accrual periods in which you heldthe instrument.

4) Add the results of (2) and (3). This is theOID to include in income for 1999 unlessyou paid an acquisition premium. (The

reduction for acquisition premium is dis-cussed later.)

If your instrument is not listed in SectionIB, consult the issuer for information aboutthe issue price, yield to maturity, and the OIDthat accrued for 1999.

Tax-exempt bond. If you own a tax-exemptbond, figure your basis in the bond by addingto your cost the OID you would have includedin income if the bond had been taxable. Youneed to make this adjustment to determine ifyou have a gain or loss on a later dispositionof the bond. Use the rules that follow to de-termine your OID.

1) Daily OID on date of purchase(2nd accrual period) .............................. $.32274

2) Acquisition premium .......... $1,897.17

3) Total days from purchasedate to maturity date [(365 19 years) + 4 days forleap years] ......................... 6,939

4) Line 2 line 3 ....................................... $.273415) Daily OID reduced for the acquisition

premium. Line 1 line 4 ..................... $.04933

1) Daily OID on date of purchase (17thaccrual period) ................................... $2.47224*

2) Acquisition premium ......... $ 491.20Year OID3) Total OID remaining after

purchase date ($10,000 $5,508.80) ........................ 4,491.20

1985 ........................................................... $ 29.521986 ........................................................... $ 48.351987 ........................................................... $ 69.60 4) Line 2 line 3 .................. 0.109371988 ........................................................... $ 94.67 5) Line 1 line 4 .................................... 0.270391989 ........................................................... $122.92 6) Daily OID reduced for the acquisi-

tion premium. Line 1 line 5 ......... $2.201851990 ........................................................... $155.351991 ........................................................... $191.94

(* As shown in Example 9.)1992 ........................................................... $235.331993 ........................................................... $283.801994 ........................................................... $339.651995 ........................................................... $402.661996 ........................................................... $477.591997 ........................................................... $560.881998 ........................................................... $657.06

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Figuring OID using the constant yieldmethod. This discussion shows how to figureOID on debt instruments issued after 1984using a constant yield method. (The specialrules that apply to contingent payment debtinstruments and inflation-indexed debt instru-ments are explained later.) OID is allocatedover the life of the instrument through adjust-ments to the issue price for each accrual pe-riod.

Figure the OID allocable to any accrualperiod as follows.

1) Multiply the adjusted issue price at thebeginning of the accrual period by afraction. The numerator of the fraction isthe instrument's yield to maturity andthe denominator is the number of accrualperiods per year. The yield must bestated appropriately taking into accountthe length of the particular accrual pe-riod.

2) Subtract from the result in (1) any qual-ified stated interest allocable to the ac-crual period.

Adjusted issue price. The adjusted is-sue price of a debt instrument at the begin-ning of the first accrual period is its issue

price. The adjusted issue price at the begin-ning of any subsequent accrual period is thesum of the issue price and all of the OIDincludible in income before that accrual periodminus any payment previously made on theinstrument, other than a payment of qualifiedstated interest.

Yield to maturity (YTM). In general, theYTM is the discount rate that, when used incomputing the present value of all principaland interest payments, produces an amountequal to the issue price of the bond.

The YTM is generally shown on the faceof the bond or in the literature you receivefrom your broker. If you do not have this in-formation, consult your broker or tax advisor.

Qualified stated interest (QSI). In gen-

eral, qualified stated interest is stated interestthat is unconditionally payable in cash orproperty (other than debt instruments of theissuer) over the term of the instrument at asingle fixed rate.

Accrual period. For debt instruments is-sued after 1984 and before April 4, 1994, anaccrual period is each 6-month period thatends on the day that corresponds to thestated maturity date of the debt instrumentor the date 6 months before that date. Forexample, a debt instrument maturing onMarch 31 has accrual periods that end onSeptember 30 and March 31 of each calendaryear. Any short period is included as the firstaccrual period.

For debt instruments issued after April 3,1994, accrual periods may be of any lengthand may vary in length over the term of theinstrument, as long as each accrual period isno longer than one year and all payments aremade on the first or last day of an accrualperiod. However, the OID listed for these debtinstruments in Section IB has been figuredusing 6-month accrual periods.

Daily OID. The OID for any accrual periodis allocated ratably to each day in the accrualperiod. Figure the amount to include in in-come by adding the daily OID amounts foreach day that you hold the debt instrumentduring the year. Since your tax year will usu-ally overlap more than one accrual period,you must include the proper daily OIDamounts for each accrual period that falls

within or overlaps your tax year. If your debtinstrument has 6-month accrual periods, yourtax year will usually include one full 6-monthaccrual period and parts of two other 6-monthperiods.

Figuring daily OID. The daily OID is fig-ured by dividing the OID for the accrual periodby the number of days in the period.

Expressed as a formula, the daily OID forthe initial accrual period is figured as fol-lows:

(ip ytm/n)qsi

p

The daily OID for subsequent accrualperiods is figured the same way except thatthe adjusted issue price at the beginning ofeach period is used in the formula instead ofthe issue price.

Example 15. On January 1, 1999, youbought a 15-year, 10% bond of A Corporationat original issue for $86,235.17. According to

the prospectus, the bond matures on De-cember 31, 2013, at a stated redemptionprice of $100,000. The yield to maturity is12%, compounded semiannually. The bondprovides for qualified stated interest pay-ments of $5,000 on June 30 and December31 of each calendar year. The accrual periodsare the 6-month periods ending on each ofthese dates. The daily OID for the first accrualperiod is figured as follows:

($86,235.17 .12/2)$5,000

181 days

=$174.11

181= $.96193

The adjusted issue price at the beginning

of the second accrual period is the issue priceplus the OID previously includible in income($86,235.17 + $174.11), or $86,409.28. Thedaily OID for the second accrual period is:

($86,409.28 .12/2)$5,000

184 days

=$184.56

184= $1.00303

Since the first and second accrual periodscoincide exactly with your tax year, you in-clude in income for 1999 the OID allocable tothe first two accrual periods, $174.11($.96193 181 days) plus $184.56 ($1.00303 184 days), or $358.67. Add the OID to the$10,000 interest you report in 1999.

Example 16. Assume the same facts asExample 15, except that you bought the bondat original issue on May 1, 1999. Also, theinterest payment dates are October 31 andApril 30 of each calendar year. The accrualperiods are the 6-month periods ending oneach of these dates.

The daily OID for the first accrual period(May 1, 1999 October 31, 1999) is figuredas follows:

($86,235.17 .12/2)$5,000

184 days

=$174.11

184= $.94625

The daily OID for the second accrual pe-riod (November 1, 1999 April 30, 2000) is:

($86,409.28 .12/2)$5,000

182 days

=$184.56

182= $1.01407

If you hold the bond through the end of1999, you must include $235.97 of OID in in-come. This is $174.11 ($.94625 184 days)

for the period May 1 through October 31 plus$61.86 ($1.01407 61 days) for the periodNovember 1 through December 31. The OIDis added to the $5,000 interest income paidon October 31, 1999. Your basis in the bondis increased by the OID you include in in-come. On January 1, 2000, your basis in theA Corporation bond is $86,471.148($86,235.17 + $235.97).

Short first accrual period. You mayhave to make adjustments if a debt instru-ment has a short first accrual period. For ex-ample, a debt instrument with 6-month ac-crual periods that is issued on February 15and matures on October 31 has a short firstaccrual period that ends April 30. (The re-maining accrual periods begin on May 1 orNovember 1.) For this short period, figure thedaily OID as described earlier, but adjust theyield for the length of the short accrual period.You may use any reasonable compoundingassumption in determining OID for a shortperiod. Examples of reasonable compound-ing methods include continuous compoundingand monthly compounding (that is, simple in-terest within a month). Consult your tax advi-sor for more information about making thiscomputation.

The OID for the final accrual period isthe excess of the amount payable at maturity(other than a payment of qualified stated in-terest) over the adjusted issue price at thebeginning of the final accrual period.

Acquisition premium. If you bought a debtinstrument for more than its adjusted issueprice but not more than its stated redemptionprice at maturity, the difference between yourbasis in the instrument and the adjusted issueprice is acquisition premium. The acquisitionpremium reduces the OID you include in in-come over the period you hold the bond.Multiply the daily OID by the following fractionto figure the amount that reduces the dailyOID.

The numerator is the acquisition pre-mium.

The denominator is the total OID re-maining for the instrument after yourpurchase date.

Example 17. Assume the same facts asExample 16, except that you bought the bondon November 1, 1999, for $87,000, after itsoriginal issue on May 1, 1999. The adjustedissue price on November 1, 1999, is$86,409.28 ($86,235.17 + $174.11). Underthese assumptions, you purchased the bondat an acquisition premium of $590.72 (yourcost, $87,000, less the adjusted issue price,$86,409.28) and you must reduce the dailyOID for any day you hold the bond.

The daily OID for the accrual period No-vember 1, 1999, through April 30, 2000, asreduced for the acquisition premium, is fig-ured as follows:

ip = issue price

ytm = yield to maturity

n = number of accrual periods in one year

qsi = qualified stated interest

p = number of days in accrual period

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The total OID to include in income for1999 is $59.17 ($.97000 61 days).

Contingent Payment DebtInstrumentsThis discussion shows how to figure OID ona contingent payment debt instrument issuedafter August 12, 1996, that was issued forcash or publicly traded property. In general,a contingent payment debt instrument is adebt instrument that provides for one or morepayments that are contingent as to timing oramount. If you hold a contingent paymentdebt instrument, you must report OID as itaccrues each year.

Because the actual payments on a con-tingent payment debt instrument cannot beknown in advance, issuers and holders can-not use the constant yield method (discussed

earlier under Debt Instruments Issued After1984) without making certain assumptionsabout the payments on the debt instrument.To figure OID accruals on contingent paymentdebt instruments, holders and issuers mustuse the noncontingent bond method.

Noncontingent bond method. Under thismethod, the issuer must construct a hy-pothetical noncontingent bond that has termsand conditions similar to the contingent pay-ment debt instrument. The issuer constructsthe payment schedule of the hypotheticalnoncontigent bond by projecting a fixedamount for each contingent payment. Hold-ers and issuers accrue OID on this hypothet-ical noncontingent bond using the constant

yield method that applies to fixed paymentdebt instruments. When the amount of acontingent payment differs from the projectedfixed amount, the holders and issuers makeadjustments to their OID accruals. If the ac-tual contingent payment is larger than ex-pected, both the issuer and the holder in-crease their OID accruals. If the actualcontingent payment is smaller than expected,holders and issuers generally decrease theirOID accruals.

Form 1099OID. The amount shown in box1 of the Form 1099OID you receive for acontingent payment debt instrument may notbe the correct amount to include in income.For example, the amount may not be correctif the amount of a contingent payment wasdifferent from the projected amount. If theamount in box 1 is not correct, you must fig-ure the OID to report on your return under thefollowing rules. For information on showingan OID adjustment on your tax return, seeHow To Report OID, earlier.

Figuring OID. To figure OID on a contingentpayment debt instrument, you need to knowthe comparable yield and projected pay-ment schedule of the debt instrument. Theissuer must make these available to you.

Comparable yield. The comparable yieldis the yield on the hypothetical noncontingentbond that the issuer determines and con-structs at the time of issuance.

1) Daily OID on date of purchase (2ndaccrual period) .................................... $1.01407*

Projected payment schedule. Theprojected payment schedule is the paymentschedule of the hypothetical noncontingentbond. The schedule includes all fixed pay-ments due under the contingent payment debtinstrument and a projected fixed amount foreach contingent payment. The projectedpayment schedule is created by the issuer. Itis used to determine the holder's interest ac-cruals and adjustments.

Steps for figuring OID. Figure the OIDon a contingent payment debt instrument intwo steps.

1) Figure the OID on the hypothetical non-contingent bond using the constant yieldmethod (discussed earlier under DebtInstruments Issued After 1984) that ap-plies to fixed payment debt instruments.Use the comparable yield as the yield tomaturity. Use the projected paymentschedule to determine the hypotheticalbond's adjusted issue price at the be-ginning of the accrual period. Do nottreat any amount payable as qualifiedstated interest.

2) Adjust the OID in (1) to account for ac-tual contingent payments. If the amountof a contingent payment is greater thanthe projected fixed amount, you have apositive adjustment. If the amount of thecontingent payment is less than theprojected fixed amount, you have anegative adjustment.

Net positive adjustment. A net positiveadjustment exists when the total of any posi-tive adjustments described in (2) above ex-ceeds the total of any negative adjustments.Treat a net positive adjustment as additionalOID for the tax year.

Net negative adjustment. A net negativeadjustment exists when the total of any neg-ative adjustments described in (2) above ex-ceeds the total of any positive adjustments.Use a net negative adjustment to offset OIDon the debt instrument for the tax year. If the

amount of the net negative adjustment ex-ceeds the OID on the debt instrument for thetax year, you can claim the excess as an or-dinary loss. However, the amount you canclaim as an ordinary loss is limited to theamount of OID on the debt instrument youincluded in income in prior tax years. Youmust carry forward any excess net negativeadjustment and treat it as a negative adjust-ment in the next tax year.

Basis adjustments. In general, increaseyour basis in a contingent payment debt in-strument by the amount of OID included inincome. Your basis, however, is not affectedby any negative or positive adjustments. De-crease your basis by the amount of anynoncontigent payment received and theprojected amount of any contingent paymentscheduled to be received.

Treatment of gain or loss on sale or ex-change. If you sell a contingent paymentdebt instrument at a gain, your gain is ordi-nary income (interest income), even if youhold the instrument as a capital asset. If yousell a contingent payment debt instrument ata loss, your loss is an ordinary loss to theextent of your prior OID accruals on the in-strument. If your loss exceeds your prior OIDaccruals and the instrument is a capital asset,treat the excess loss as a capital loss.

See section 1.12754 of the regulationsfor exceptions to these rules.

Premium, acquisition, and market dis-count. The rules for accruing premium, ac-quisition premium, and market discount donot apply to a contingent payment debt in-strument. See section 1.12754 of the regu-lations to determine how to account for theseitems.

Inflation-Indexed DebtInstrumentsThis discussion shows how you figure OIDon certain inflation-indexed debt instrumentsissued after January 5, 1997. An inflation-indexed debt instrument is generally a debtinstrument on which the payments are ad-

justed for inflation and deflation (such asTreasury Inflation-Indexed Securities).

In general, if you hold an inflation-indexeddebt instrument, you must report as OID anyincrease in the inflation-adjusted principalamount of the instrument that occurs whileyou held the instrument during the tax year.You must include the OID in gross incomewhether or not you hold the instrument as acapital asset. Your basis in the instrument isincreased by the OID you include in income.

Inflation-adjusted principal amount. Forany date, the inflation-adjusted principalamount of an inflation-indexed debt instru-ment is the product of the following.

The instrument's outstanding principalamount (determined as if there were noinflation or deflation over the term of theinstrument), multiplied by

The index ratio for that date.

Index ratio. This is a fraction, the nu-merator of which is the value of the referenceindex for the date and the denominator ofwhich is the value of the reference index forthe instrument's issue date.

A qualified reference index measures in-flation and deflation over the term of a debt

instrument. Its value is reset each month toa current value of a single qualified inflationindex (for example, the nonseasonally ad-

justed U.S. City Average All Items ConsumerPrice Index for All Urban Consumers (CPI-U),published by the Bureau of Labor Statisticsof the Department of Labor). The value of theindex for any date between reset dates isdetermined through straight-line interpolation.

The daily index ratios for TreasuryInflation-Indexed Securities are avail-able on the Internet at:

www.publicdebt.treas.gov.

Form 1099OID. The amount shown in box1 of the Form 1099OID you receive for aninflation-indexed debt instrument may not be

the correct amount to include in income. Forexample, the amount may not be correct ifyou bought the debt instrument (other thanat original issue) or sold it during the year. Ifthe amount shown in box 1 is not correct, youmust figure the OID to report on your returnunder the following rules. For informationabout showing an OID adjustment on your taxreturn, see How to Report OID, earlier.

Figuring OID. Figure the OID on aninflation-indexed debt instrument using oneof the following methods.

The coupon bond method, described inthe following discussion, applies if the

2) Acquisition premium ............. $590.723) Total OID remaining after

purchase date ($13,764.83 $174.11) ................................ 13,590.72

4) Line 2 line 3 ....................... .043465) Line 1 line 4 ....................... .044076) Daily OID reduced for the acquisi-

tion premium. Line 1 line 5 ........... $0.97000

(* As shown in Example 16.)

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instrument is issued at par and all statedinterest payable on the instrument isqualified stated interest. This methodapplies, for example, to any TreasuryInflation-Indexed Security.

The discount bond methodapplies toany inflation-indexed debt instrument thatdoes not qualify for the coupon bondmethod. This method is described insection 1.12757(e) of the regulations.

Under the coupon bond method, figure the

amount of OID you must report for the taxyear as follows.Debt instrument held at the end of the

tax year. If you held the debt instrument atthe end of the tax year, your OID for the yearis:

1) The inflation-adjusted principal amountfor the first day on which you held theinstrument during the tax year, minus

2) The total of the following amounts.

a) The inflation-adjusted principalamount for the day after the last dayof the tax year.

b) Any principal payments you re-ceived during the year.

Debt instrument sold or retired duringthe tax year. If you sold the debt instrumentduring the tax year, or if it was retired, yourOID for the year is:

1) The inflation-adjusted principal amountfor the first day on which you held theinstrument during the tax year, minus

2) The total of the following amounts.

a) The inflation-adj

us internal revenue service: p1212--1999

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