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Military Tax Credits

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Military Tax Credits

Military tax credits Publication 1212 - Main Content Table of Contents Definitions Debt Instruments on the OID List Debt Instruments Not on the OID List Information for Brokers and Other MiddlemenShort-Term Obligations Redeemed at Maturity Long-Term Debt Instruments Certificates of Deposit Bearer Bonds and Coupons Backup Withholding Information for Owners of OID Debt InstrumentsExceptions. Military tax credits Adjustment for premium. Military tax credits Adjustment for acquisition premium. Military tax credits Adjustment for market discount. Military tax credits Form 1099-OID How To Report OID Figuring OID on Long-Term Debt Instruments Figuring OID on Stripped Bonds and Coupons How To Get Tax HelpLow Income Taxpayer Clinics Definitions The following terms are used throughout this publication. Military tax credits “Original issue discount” is defined first. Military tax credits The other terms are listed alphabetically. Military tax credits Original issue discount (OID). Military tax credits   OID is a form of interest. Military tax credits 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). Military tax credits Zero coupon bonds and debt instruments that pay no stated interest until maturity are examples of debt instruments that have OID. Military tax credits Accrual period. Military tax credits   An accrual period is an interval of time used to measure OID. Military tax credits The length of an accrual period can be 6 months, a year, or some other period, depending on when the debt instrument was issued. Military tax credits Acquisition premium. Military tax credits   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. Military tax credits A debt instrument does not have acquisition premium, however, if the debt instrument was purchased at a premium. Military tax credits See Premium, later. Military tax credits Adjusted issue price. Military tax credits   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. Military tax credits In general, the adjusted issue price at the beginning of the debt instrument's first accrual period is its issue price. Military tax credits 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. Military tax credits Debt instrument. Military tax credits   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). Military tax credits It generally does not include an annuity contract. Military tax credits Issue price. Military tax credits   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. Military tax credits Market discount. Military tax credits   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. Military tax credits 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. Military tax credits The market discount is the difference between the issue price plus accrued OID and your adjusted basis. Military tax credits Premium. Military tax credits   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. Military tax credits The premium is the excess of the adjusted basis over the payable amounts. Military tax credits See Publication 550 for information on the tax treatment of bond premium. Military tax credits Qualified stated interest. Military tax credits   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. Military tax credits Stated redemption price at maturity. Military tax credits   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. Military tax credits Yield to maturity (YTM). Military tax credits   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. Military tax credits The YTM is generally shown on the face of the debt instrument or in the literature you receive from your broker. Military tax credits If you do not have this information, consult your broker, tax advisor, or the issuer. Military tax credits 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. Military tax credits If you own a listed debt instrument, you generally should not rely on the information in the OID list to determine (or compare) the OID to be reported on your tax return. Military tax credits The OID amounts listed are figured without reference to the price or date at which you acquired the debt instrument. Military tax credits 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. Military tax credits The following discussions explain what information is contained in each section of the list. Military tax credits Section I. Military tax credits   This section contains publicly offered, long-term debt instruments. Military tax credits Section I-A: Corporate Debt Instruments Issued Before 1985. Military tax credits Section I-B: Corporate Debt Instruments Issued After 1984. Military tax credits Section I-C: Inflation-Indexed Debt Instruments. Military tax credits For each publicly offered debt instrument in Section I, the list contains the following information. Military tax credits The name of the issuer. Military tax credits The Committee on Uniform Security Identification Procedures (CUSIP) number. Military tax credits The issue date. Military tax credits The maturity date. Military tax credits The issue price expressed as a percent of principal or of stated redemption price at maturity. Military tax credits The annual stated or coupon interest rate. Military tax credits (This rate is shown as 0. Military tax credits 00 if no annual interest payments are provided. Military tax credits ) The yield to maturity will be added to Section I-B for bonds issued after December 31, 2006. Military tax credits The total OID accrued up to January 1 of a calendar year. Military tax credits (This information is not available for every instrument. Military tax credits ) 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. Military tax credits The total OID per $1,000 of principal or maturity value for a calendar year and a subsequent year. Military tax credits Section II. Military tax credits   This section contains stripped coupons and principal components of U. Military tax credits S. Military tax credits Treasury and Government-Sponsored Enterprise debt instruments. Military tax credits 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. Military tax credits This section also includes debt instruments backed by U. Military tax credits S. Military tax credits Treasury securities that represent ownership interests in those securities. Military tax credits   The obligations listed in Section II are arranged by maturity date. Military tax credits The amounts listed are the total OID for a calendar year per $1,000 of redemption price. Military tax credits Section III. Military tax credits   This section contains short-term discount obligations. Military tax credits Section III-A: Short-Term U. Military tax credits S. Military tax credits Treasury Bills. Military tax credits Section III-B: Federal Home Loan Banks. Military tax credits Section III-C: Federal National Mortgage Association. Military tax credits Section III-D: Federal Farm Credit Banks. Military tax credits Section III-E: Federal Home Loan Mortgage Corporation. Military tax credits Section III-F: Federal Agricultural Mortgage Corporation. Military tax credits    Information that supplements Section III-A is available on the Internet at http://www. Military tax credits treasurydirect. Military tax credits gov/tdhome. Military tax credits htm. Military tax credits   The short-term obligations listed in this section are arranged by maturity date. Military tax credits 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. Military tax credits 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. Military tax credits Debt Instruments Not on the OID List The list of debt instruments discussed earlier does not contain the following items. Military tax credits U. Military tax credits S. Military tax credits savings bonds. Military tax credits Certificates of deposit and other face-amount certificates issued at a discount, including syndicated certificates of deposit. Military tax credits Obligations issued by tax-exempt organizations. Military tax credits OID debt instruments that matured or were entirely called by the issuer before the tables were posted on the IRS website. Military tax credits Mortgage-backed securities and mortgage participation certificates. Military tax credits Long-term OID debt instruments issued before May 28, 1969. Military tax credits Short-term obligations, other than the obligations listed in Section III. Military tax credits Debt instruments issued at a discount by states or their political subdivisions. Military tax credits REMIC regular interests and CDOs. Military tax credits Commercial paper and banker's acceptances issued at a discount. Military tax credits Obligations issued at a discount by individuals. Military tax credits Foreign obligations not traded in the United States and obligations not issued in the United States. Military tax credits 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. Military tax credits 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. Military tax credits 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. Military tax credits See Backup Withholding, later. Military tax credits 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. Military tax credits 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). Military tax credits Electronic payee statements. Military tax credits   You can issue Form 1099-OID electronically with the consent of the recipient. Military tax credits More information. Military tax credits   For more information, including penalties for failure to file (or furnish) required information returns or statements, see the General Instructions for Certain Information Returns (Forms 1098, 1099, 3921, 3922, 5498, and W-2G) for the appropriate calendar year. Military tax credits 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. Military tax credits 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. Military tax credits If you sell the obligation for the owner before maturity, you must file Form 1099-B to reflect the gross proceeds to the seller. Military tax credits Do not report the accrued discount to the date of sale on either Form 1099-INT or Form 1099-OID. Military tax credits 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. Military tax credits A special rule is used to determine the original issue price for information reporting on U. Military tax credits S. Military tax credits Treasury bills (T-bills) listed in Section III-A. Military tax credits 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. Military tax credits This noncompetitive discount price is the issue price (expressed as a percent of principal) shown in Section III-A. Military tax credits 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. Military tax credits Example 1. Military tax credits There are 13-week and 26-week T-bills maturing on the same date as the T-bill being redeemed. Military tax credits The price actually paid by the owner cannot be established by owner or middleman records. Military tax credits 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. Military tax credits The interest you report on Form 1099-INT is the OID (per $1,000 of principal) shown in Section III-A for that obligation. Military tax credits 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. Military tax credits For this purpose, you can rely on Section I of the OID list to determine the following information. Military tax credits Whether a debt instrument has OID. Military tax credits The OID to be reported on the Form 1099-OID. Military tax credits In general, you must report OID on publicly offered, long-term debt instruments listed in Section I. Military tax credits You also can report OID on other long-term debt instruments. Military tax credits Form 1099-OID. Military tax credits   On Form 1099-OID for a calendar year show the following information. Military tax credits Box 1. Military tax credits The OID for the actual dates the owner held the debt instruments during a calendar year. Military tax credits To determine this amount, see Figuring OID, next. Military tax credits Box 2. Military tax credits The qualified stated interest paid or credited during the calendar year. Military tax credits Interest reported here is not reported on Form 1099-INT. Military tax credits The qualified stated interest on Treasury inflation-protected securities may be reported on Form 1099-INT in box 3 instead. Military tax credits Box 3. Military tax credits Any interest or principal forfeited because of an early withdrawal that the owner can deduct from gross income. Military tax credits Do not reduce the amounts in boxes 1 and 2 by the forfeiture. Military tax credits Box 4. Military tax credits Any backup withholding for this debt instrument. Military tax credits Box 7. Military tax credits The CUSIP number, if any. Military tax credits 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. Military tax credits 50 2006). Military tax credits If the issuer of the debt instrument is other than the payer, show the name of the issuer in this box. Military tax credits Box 8. Military tax credits The OID on a U. Military tax credits S. Military tax credits Treasury obligation for the part of the year the owner held the debt instrument. Military tax credits Box 9. Military tax credits Investment expenses passed on to holders of a single-class REMIC. Military tax credits Boxes 10-12. Military tax credits Use to report any state income tax withheld for this debt instrument. Military tax credits Figuring OID. Military tax credits   You can determine the OID on a long-term debt instrument by using either of the following. Military tax credits Section I of the OID list. Military tax credits The income tax regulations. Military tax credits Using Section I. Military tax credits   If the owner held the debt instrument for the entire calendar year, report the OID shown in Section I for the calendar year. Military tax credits 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. Military tax credits For example, if the debt instrument's stated redemption price at maturity is $500, report one-half the listed OID. Military tax credits   If the owner held the debt instrument for less than the entire calendar year, figure the OID to report as follows. Military tax credits Look up the daily OID for the first accrual period in the calendar year during which the owner held the debt instrument. Military tax credits Multiply the daily OID by the number of days the owner held the debt instrument during that accrual period. Military tax credits Repeat steps (1) and (2) for any remaining accrual periods for the year during which the owner held the debt instrument. Military tax credits Add the results in steps (2) and (3) to determine the owner's OID per $1,000 of stated redemption price at maturity. Military tax credits If necessary, adjust the OID in (4) to reflect the debt instrument's stated redemption price at maturity. Military tax credits Report the result on Form 1099-OID in box 1. Military tax credits Using the income tax regulations. Military tax credits   Instead of using Section I to figure OID, you can use the regulations under sections 1272 through 1275 of the Internal Revenue Code. Military tax credits 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. Military tax credits (If you use Section I-B, the OID is figured using 6-month accrual periods. Military tax credits )   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. Military tax credits 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. Military tax credits You must file an information return showing the reportable interest and OID, if any, on the CD. Military tax credits These rules apply whether or not you sold the CD to the owner. Military tax credits Report OID on a CD in the same way as OID on other debt instruments. Military tax credits See Short-Term Obligations Redeemed at Maturity and Long-Term Debt Instruments, earlier. Military tax credits 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. Military tax credits However, do not report the interest if either of the following apply. Military tax credits You hold the bond as a nominee for the true owner. Military tax credits The payee is a foreign person. Military tax credits See Payments to foreign person under Backup Withholding, later. Military tax credits 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. Military tax credits The coupon may have been “stripped” (separated) from the bond and separately purchased. Military tax credits 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. Military tax credits 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%. Military tax credits The backup withholding is deducted at the time a cash payment is made. Military tax credits See Pub. Military tax credits 1281, Backup Withholding for Missing and Incorrect Name/TIN(s), for more information. Military tax credits Backup withholding generally applies in the following situations. Military tax credits The payee does not give you a taxpayer identification number (TIN). Military tax credits The IRS notifies you that the payee gave an incorrect TIN. Military tax credits The IRS notifies you that the payee is subject to backup withholding due to payee underreporting. Military tax credits For debt instruments acquired after 1983: The payee does not certify, under penalties of perjury, that he or she is not subject to backup withholding under (3), or The payee does not certify, under penalties of perjury, that the TIN given is correct. Military tax credits However, for short-term discount obligations (other than government obligations), bearer bonds and coupons, and U. Military tax credits S. Military tax credits savings bonds, backup withholding applies only if the payee does not give you a TIN or gives you an obviously incorrect number for a TIN. Military tax credits Short-term obligations. Military tax credits   Backup withholding applies to OID on a short-term obligation only when the OID is paid at maturity. Military tax credits However, backup withholding applies to any interest payable before maturity when the interest is paid or credited. Military tax credits   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. Military tax credits 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. Military tax credits If the purchase price of a listed obligation is not established or is disregarded, you must use the issue price shown in Section III. Military tax credits Long-term obligations. Military tax credits   If no cash payments are made on a long-term obligation before maturity, backup withholding applies only at maturity. Military tax credits The amount subject to backup withholding is the OID includible in the owner's gross income for the calendar year when the obligation matures. Military tax credits The amount to be withheld is limited to the cash paid. Military tax credits Registered long-term obligations with cash payments. Military tax credits   If a registered long-term obligation has cash payments before maturity, backup withholding applies when a cash payment is made. Military tax credits 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. Military tax credits 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. Military tax credits For any payment, the required withholding is limited to the cash paid. Military tax credits Payee not the original owner. Military tax credits   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). Military tax credits The amount subject to backup withholding at maturity of a listed obligation must be determined using the issue price shown in Section I. Military tax credits Bearer long-term obligations with cash payments. Military tax credits   If a bearer long-term obligation has cash payments before maturity, backup withholding applies when the cash payments are made. Military tax credits 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. Military tax credits 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. Military tax credits The required withholding at maturity is limited to the cash paid. Military tax credits Sales and redemptions. Military tax credits   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. Military tax credits Backup withholding applies in the following situations. Military tax credits The payee does not give you a TIN. Military tax credits The IRS notifies you that the payee gave an incorrect TIN. Military tax credits 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. Military tax credits Payments outside the United States to U. Military tax credits S. Military tax credits person. Military tax credits   The requirements for backup withholding and information reporting apply to payments of OID and interest made outside the United States to a U. Military tax credits S. Military tax credits person, a controlled foreign corporation, or a foreign person at least 50% of whose income for the preceding 3-year period is effectively connected with the conduct of a U. Military tax credits S. Military tax credits trade or business. Military tax credits Payments to foreign person. Military tax credits   The following discussions explain the rules for backup withholding and information reporting on payments to foreign persons. Military tax credits U. Military tax credits S. Military tax credits -source amount. Military tax credits   Backup withholding and information reporting are not required for payments of U. Military tax credits S. Military tax credits -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. Military tax credits A U. Military tax credits S. Military tax credits resident is not a foreign person. Military tax credits 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. Military tax credits 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. Military tax credits S. Military tax credits person. Military tax credits   For information about the 28% withholding tax that may apply to payments of U. Military tax credits S. Military tax credits -source OID or interest to foreign persons, see Publication 515. Military tax credits Foreign-source amount. Military tax credits   Backup withholding and information reporting are not required for payments of foreign-source OID and interest made outside the United States. Military tax credits 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. Military tax credits More information. Military tax credits   For more information about backup withholding and information reporting on foreign-source amounts or payments to foreign persons, see Regulations section 1. Military tax credits 6049-5. Military tax credits Information for Owners of OID Debt Instruments This section is for persons who prepare their own tax returns. Military tax credits It discusses the income tax rules for figuring and reporting OID on long-term debt instruments. Military tax credits 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. Military tax credits However, the information provided does not cover every situation. Military tax credits More information can be found in the regulations under sections 1271 through 1275 of the Internal Revenue Code. Military tax credits Including OID in income. Military tax credits   Generally, you include OID in income as it accrues each year, whether or not you receive any payments from the debt instrument issuer. Military tax credits Exceptions. Military tax credits   The rules for including OID in income as it accrues generally do not apply to the following debt instruments. Military tax credits U. Military tax credits S. Military tax credits savings bonds. Military tax credits Tax-exempt obligations. Military tax credits (However, see Tax-Exempt Bonds and Coupons, later. Military tax credits ) Obligations issued by individuals before March 2, 1984. Military tax credits Loans of $10,000 or less between individuals who are not in the business of lending money. Military tax credits (The dollar limit includes outstanding prior loans by the lender to the borrower. Military tax credits ) This exception does not apply if a principal purpose of the loan is to avoid any federal tax. Military tax credits   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. Military tax credits Publication 550 also discusses rules for holders of REMIC interests and CDOs. Military tax credits De minimis rule. Military tax credits   You can treat OID as zero if the total OID on a debt instrument is less than one-fourth of 1% (. Military tax credits 0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. Military tax credits Debt instruments with de minimis OID are not listed in this publication. Military tax credits 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. Military tax credits Also, the de minimis rules generally do not apply to tax-exempt obligations. Military tax credits Example 2. Military tax credits 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. Military tax credits 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. Military tax credits Under the de minimis rule, you can treat the OID as zero because the $20 discount is less than $25. Military tax credits Example 3. Military tax credits Assume the same facts as Example 2, except the debt instrument was issued at $950. Military tax credits You must report part of the $50 OID each year because it is more than $25. Military tax credits Choice to report all interest as OID. Military tax credits   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. Military tax credits See Constant yield method under Debt Instruments Issued After 1984, later, for more information. Military tax credits   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. Military tax credits For more information, see Regulations section 1. Military tax credits 1272-3. Military tax credits Purchase after date of original issue. Military tax credits   A debt instrument you purchased after the date of original issue may have premium, acquisition premium, or market discount. Military tax credits If so, the OID reported to you on Form 1099-OID may have to be adjusted. Military tax credits For more information, see Showing an OID adjustment under How To Report OID, later. Military tax credits The following rules generally do not apply to contingent payment debt instruments. Military tax credits Adjustment for premium. Military tax credits   If your debt instrument (other than an inflation-indexed debt instrument) has premium, do not report any OID as ordinary income. Military tax credits Your adjustment is the total OID shown on your Form 1099-OID. Military tax credits Adjustment for acquisition premium. Military tax credits   If your debt instrument has acquisition premium, reduce the OID you report. Military tax credits 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. Military tax credits Adjustment for market discount. Military tax credits   If your debt instrument has market discount that you choose to include in income currently, increase the OID you report. Military tax credits Your adjustment is the accrued market discount for the year. Military tax credits 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. Military tax credits If you choose to use the constant yield method to figure accrued market discount, also see Figuring OID on Long-Term Debt Instruments, later. Military tax credits The constant yield method of figuring accrued OID, explained in those discussions under Constant yield method, is also used to figure accrued market discount. Military tax credits For more information concerning premium or market discount on an inflation-indexed debt instrument, see Regulations section 1. Military tax credits 1275-7. Military tax credits Sale, exchange, or redemption. Military tax credits   Generally, you treat your gain or loss from the sale, exchange, or redemption of a discounted debt instrument as a capital gain or loss if you held the debt instrument as a capital asset. Military tax credits If you sold the debt instrument through a broker, you should receive Form 1099-B or an equivalent statement from the broker. Military tax credits Use the Form 1099-B or other statement and your brokerage statements to complete Form 8949, and Schedule D (Form 1040). Military tax credits   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. Military tax credits Your basis, generally, is your cost increased by the OID you have included in income each year you held it. Military tax credits 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. Military tax credits   See chapter 4 of Publication 550 for more information about the tax treatment of the sale or redemption of discounted debt instruments. Military tax credits Example 4. Military tax credits Larry, a calendar year taxpayer, bought a corporate debt instrument at original issue for $86,235. Military tax credits 00 on November 1 of Year 1. Military tax credits The 15-year debt instrument matures on October 31 of Year 16 at a stated redemption price of $100,000. Military tax credits The debt instrument provides for semiannual payments of interest at 10%. Military tax credits Assume the debt instrument is a capital asset in Larry's hands. Military tax credits The debt instrument has $13,765. Military tax credits 00 of OID ($100,000 stated redemption price at maturity minus $86,235. Military tax credits 00 issue price). Military tax credits Larry sold the debt instrument for $90,000 on November 1 of Year 4. Military tax credits Including the OID he will report for the period he held the debt instrument in Year 4, Larry has included $4,556. Military tax credits 00 of OID in income and has increased his basis by that amount to $90,791. Military tax credits 00. Military tax credits Larry has realized a loss of $791. Military tax credits 00. Military tax credits All of Larry's loss is capital loss. Military tax credits 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. Military tax credits Form 1099-OID shows all OID income in box 1 except OID on a U. Military tax credits S. Military tax credits Treasury obligation, which is shown in box 8. Military tax credits It also shows, in box 2, any qualified stated interest you must include in income. Military tax credits (However, any qualified stated interest on Treasury inflation-protected securities can be reported on Form 1099-INT in box 3. Military tax credits ) A copy of Form 1099-OID will be sent to the IRS. Military tax credits Do not attach your copy to your tax return. Military tax credits Keep it for your records. Military tax credits If you are required to file a tax return and you receive Form 1099-OID showing taxable amounts, you must report these amounts on your return. Military tax credits 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. Military tax credits Form 1099-OID not received. Military tax credits   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. Military tax credits Refiguring OID. Military tax credits   You must refigure the OID shown on Form 1099-OID, in box 1 or box 8, to determine the proper amount to include in income if one of the following applies. Military tax credits You bought the debt instrument at a premium or at an acquisition premium. Military tax credits The debt instrument is a stripped bond or coupon (including zero coupon bonds backed by U. Military tax credits S. Military tax credits Treasury securities). Military tax credits The debt instrument is a contingent payment or inflation-indexed debt instrument. Military tax credits See the discussions under Figuring OID on Long-Term Debt Instruments or Figuring OID on Stripped Bonds and Coupons, later, for the specific computations. Military tax credits Refiguring interest. Military tax credits   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. Military tax credits Nominee. Military tax credits   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. Military tax credits ” You must file another Form 1099-OID for each actual owner, showing the OID for the owner. Military tax credits Show the owner of the debt instrument as the “recipient” and you as the “payer. Military tax credits ”   Complete Form 1099-OID and Form 1096 and file the forms with the Internal Revenue Service Center for your area. Military tax credits You must also give a copy of the Form 1099-OID to the actual owner. Military tax credits However, you are not required to file a nominee return to show amounts belonging to your spouse. Military tax credits See the Form 1099 instructions for more information. Military tax credits   When preparing your tax return, follow the instructions under Showing an OID adjustment in the next discussion. Military tax credits 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. Military tax credits Form 1040 or Form 1040A required. Military tax credits   You must use Form 1040 or Form 1040A (you cannot use Form 1040EZ) under either of the following conditions. Military tax credits You received a Form 1099-OID as a nominee for the actual owner. Military tax credits Your total interest and OID income for the year was more than $1,500. Military tax credits Form 1040 required. Military tax credits   You must use Form 1040 (you cannot use Form 1040A or Form 1040EZ) if you are reporting more or less OID than the amount shown on Form 1099-OID, other than because you are a nominee. Military tax credits For example, if you paid a premium or an acquisition premium when you purchased the debt instrument, you must use Form 1040 because you will report less OID than shown on Form 1099-OID. Military tax credits Also, you must use Form 1040 if you were charged an early withdrawal penalty. Military tax credits Where to report. Military tax credits   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. Military tax credits Include all OID and periodic interest shown on any Form 1099-OID, boxes 1, 2, and 8, you received for the tax year. Military tax credits Also include any other OID and interest income for which you did not receive a Form 1099. Military tax credits Showing an OID adjustment. Military tax credits   If you use Form 1040 to report more or less OID than shown on Form 1099-OID, list the full OID on Schedule B, Part I, line 1, and follow the instructions under 1 or 2, next. Military tax credits   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. Military tax credits If the OID, as adjusted, is less than the amount shown on Form 1099-OID, show the adjustment as follows. Military tax credits Under your last entry on line 1, subtotal all interest and OID income listed on line 1. Military tax credits Below the subtotal, write “Nominee Distribution” or “OID Adjustment” and show the OID you are not required to report. Military tax credits Subtract that OID from the subtotal and enter the result on line 2. Military tax credits If the OID, as adjusted, is more than the amount shown on Form 1099-OID, show the adjustment as follows. Military tax credits Under your last entry on line 1, subtotal all interest and OID income listed on line 1. Military tax credits Below the subtotal, write “OID Adjustment” and show the additional OID. Military tax credits Add that OID to the subtotal and enter the result on line 2. Military tax credits 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. Military tax credits It also may depend on the type of the debt instrument. Military tax credits There are different rules for each of the following debt instruments. Military tax credits Corporate debt instruments issued after 1954 and before May 28, 1969, and government debt instruments issued after 1954 and before July 2, 1982. Military tax credits Corporate debt instruments issued after May 27, 1969, and before July 2, 1982. Military tax credits Debt instruments issued after July 1, 1982, and before 1985. Military tax credits Debt instruments issued after 1984 (other than debt instruments described in (5) and (6)). Military tax credits Contingent payment debt instruments issued after August 12, 1996. Military tax credits Inflation-indexed debt instruments (including Treasury inflation-protected securities) issued after January 5, 1997. Military tax credits Zero coupon bonds. Military tax credits   The rules for figuring OID on zero coupon bonds backed by U. Military tax credits S. Military tax credits Treasury securities are discussed under Figuring OID on Stripped Bonds and Coupons, later. Military tax credits Corporate Debt Instruments Issued After 1954 and Before May 28, 1969, and Government Debt Instruments Issued After 1954 and Before July 2, 1982 If you hold these debt instruments as capital assets, you include OID in income only in the year the debt instrument is sold, exchanged, or redeemed, and only if you have a gain. Military tax credits The OID, which is taxed as ordinary income, generally equals the following amount. Military tax credits   number of full months you held the debt instrument  number of full months from date of original issue to date of maturity X original issue discount The balance of the gain is capital gain. Military tax credits If there is a loss on the sale of the debt instrument, the entire loss is a capital loss and no OID is reported. Military tax credits Corporate Debt Instruments Issued After May 27, 1969, and Before July 2, 1982 If you hold these debt instruments as capital assets, you must include part of the OID in income each year you own the debt instruments. Military tax credits For information about showing the correct OID on your tax return, see the discussion under How To Report OID, earlier. Military tax credits Your basis in the debt instrument is increased by the OID you include in income. Military tax credits Form 1099-OID. Military tax credits   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. Military tax credits However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Military tax credits See Reduction for acquisition premium, later. Military tax credits If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-A available at www. Military tax credits irs. Military tax credits gov/pub1212 by clicking the link under Recent Developments. Military tax credits Form 1099-OID not received. Military tax credits    The OID listed is for each $1,000 of redemption price. Military tax credits You must adjust the listed amount if your debt instrument has a different principal amount. Military tax credits For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Military tax credits   If you held the debt instrument the entire year, use the OID shown in Section I-A for a calendar year. Military tax credits (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. Military tax credits ) If you did not hold the debt instrument the entire year, figure your OID using the following method. Military tax credits Divide the OID shown by 12. Military tax credits Multiply the result in (1) by the number of complete and partial months (for example, 6½ months) you held the debt instrument during a calendar year. Military tax credits This is the OID to include in income unless you paid an acquisition premium. Military tax credits The reduction for acquisition premium is discussed next. Military tax credits Reduction for acquisition premium. Military tax credits   If you bought the debt instrument at an acquisition premium, figure the OID to include in income as follows. Military tax credits 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. Military tax credits This is the monthly OID. Military tax credits Subtract from your cost the issue price and the accumulated OID from the date of issue to the date of purchase. Military tax credits (If the result is zero or less, stop here. Military tax credits You did not pay an acquisition premium. Military tax credits ) 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. Military tax credits Subtract the amount figured in (3) from the amount figured in (1). Military tax credits This is the OID to include in income for each month you hold the debt instrument during the year. Military tax credits Transfers during the month. Military tax credits   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. Military tax credits Your holding period for this purpose begins the day you acquire the debt instrument and ends the day before you dispose of it. Military tax credits Debt Instruments Issued After July 1, 1982, and Before 1985 If you hold these debt instruments as capital assets, you must include part of the OID in income each year you own the debt instruments and increase your basis by the amount included. Military tax credits For information about showing the correct OID on your tax return, see How To Report OID, earlier. Military tax credits Form 1099-OID. Military tax credits   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. Military tax credits However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Military tax credits See Constant yield method and the discussions on acquisition premium that follow, later. Military tax credits If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-A available at www. Military tax credits irs. Military tax credits gov/pub1212 by clicking the link under Recent Developments. Military tax credits Form 1099-OID not received. Military tax credits    The OID listed is for each $1,000 of redemption price. Military tax credits You must adjust the listed amount if your debt instrument has a different principal amount. Military tax credits For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Military tax credits   If you held the debt instrument the entire year, use the OID shown in Section I-A. Military tax credits (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. Military tax credits ) If you did not hold the debt instrument the entire year, figure your OID using either of the following methods. Military tax credits Method 1. Military tax credits    Divide the total OID for a calendar year by 365 (366 for leap years). Military tax credits Multiply the result in (1) by the number of days you held the debt instrument during that particular year. Military tax credits  This computation is an approximation and may result in a slightly higher OID than Method 2. Military tax credits Method 2. Military tax credits    Look up the daily OID for the first accrual period you held the debt instrument during a calendar year. Military tax credits (See Accrual period under Constant yield method, next. Military tax credits ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. Military tax credits If you held the debt instrument for part of both accrual periods, repeat (1) and (2) for the second accrual period. Military tax credits Add the results of (2) and (3). Military tax credits This is the OID to include in income, unless you paid an acquisition premium. Military tax credits (The reduction for acquisition premium is discussed later. Military tax credits ) Constant yield method. Military tax credits   This discussion shows how to figure OID on debt instruments issued after July 1, 1982, and before 1985, using a constant yield method. Military tax credits OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. Military tax credits   Figure the OID allocable to any accrual period as follows. Military tax credits Multiply the adjusted issue price at the beginning of the accrual period by the debt instrument's yield to maturity. Military tax credits Subtract from the result in (1) any qualified stated interest allocable to the accrual period. Military tax credits Accrual period. Military tax credits   An accrual period for any OID debt instrument issued after July 1, 1982, and before 1985 is each 1-year period beginning on the date of the issue of the obligation and each anniversary thereafter, or the shorter period to maturity for the last accrual period. Military tax credits Your tax year will usually include parts of two accrual periods. Military tax credits Daily OID. Military tax credits   The OID for any accrual period is allocated equally to each day in the accrual period. Military tax credits You must include in income the sum of the OID amounts for each day you hold the debt instrument during the year. Military tax credits If your tax year includes parts of two or more accrual periods, you must include the proper daily OID amounts for each accrual period. Military tax credits Figuring daily OID. Military tax credits   The daily OID for the initial accrual period is figured using the following formula. Military tax credits   (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. Military tax credits Reduction for acquisition premium on debt instruments purchased before July 19, 1984. Military tax credits   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. Military tax credits 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. Military tax credits Reduction for acquisition premium on debt instruments purchased after July 18, 1984. Military tax credits   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. Military tax credits However, the method of figuring the daily acquisition premium is different from the method described in the preceding discussion. Military tax credits To figure the daily acquisition premium under this method, multiply the daily OID by the following fraction. Military tax credits The numerator is the acquisition premium. Military tax credits The denominator is the total OID remaining for the debt instrument after your purchase date. Military tax credits Section I-A is available at www. Military tax credits irs. Military tax credits gov/pub1212 and clicking the link under Recent Developments. Military tax credits Using Section I-A to figure accumulated OID. Military tax credits   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. Military tax credits The amount from the “Total OID to January 1, YYYY” column for your debt instrument. Military tax credits The OID from January 1 of a calendar year to the date of purchase, figured as follows. Military tax credits 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. Military tax credits 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. Military tax credits Add the amounts figured in (2a) and (2b). Military tax credits 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. Military tax credits You must include the OID in gross income whether or not you hold the debt instrument as a capital asset. Military tax credits Your basis in the debt instrument is increased by the OID you include in income. Military tax credits For information about showing the correct OID on your tax return, see How To Report OID, earlier. Military tax credits Form 1099-OID. Military tax credits   You should receive a Form 1099-OID showing OID for the part of a calendar year you held the debt instrument. Military tax credits However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Military tax credits See Constant yield method and Reduction for acquisition premium, later. Military tax credits   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. Military tax credits See Contingent Payment Debt Instruments or Inflation-Indexed Debt Instruments, later. Military tax credits If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-B available at www. Military tax credits irs. Military tax credits gov/pub1212 by clicking the link under Recent Developments. Military tax credits Form 1099-OID not received. Military tax credits   The OID listed is for each $1,000 of redemption price. Military tax credits You must adjust the listed amount if your debt instrument has a different principal amount. Military tax credits For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Military tax credits   Use the OID shown in Section I-B for a calendar year if you held the debt instrument the entire year. Military tax credits (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. Military tax credits ) If you did not hold the debt instrument the entire year, figure your OID as follows. Military tax credits Look up the daily OID for the first accrual period in which you held the debt instrument during a calendar year. Military tax credits (See Accrual period under Constant yield method, later. Military tax credits ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. Military tax credits Repeat (1) and (2) for any remaining accrual periods in which you held the debt instrument. Military tax credits Add the results of (2) and (3). Military tax credits This is the OID to include in income for that year, unless you paid an acquisition premium. Military tax credits (The reduction for acquisition premium is discussed later. Military tax credits ) Tax-exempt bond. Military tax credits   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. Military tax credits You need to make this adjustment to determine if you have a gain or loss on a later disposition of the bond. Military tax credits In general, use the rules that follow to determine your OID. Military tax credits Constant yield method. Military tax credits   This discussion shows how to figure OID on debt instruments issued after 1984 using a constant yield method. Military tax credits (The special rules that apply to contingent payment debt instruments and inflation-indexed debt instruments are explained later. Military tax credits ) OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. Military tax credits   Figure the OID allocable to any accrual period as follows. Military tax credits Multiply the adjusted issue price at the beginning of the accrual period by a fraction. Military tax credits The numerator of the fraction is the debt instrument's yield to maturity and the denominator is the number of accrual periods per year. Military tax credits The yield must be stated appropriately taking into account the length of the particular accrual period. Military tax credits Subtract from the result in (1) any qualified stated interest allocable to the accrual period. Military tax credits Accrual period. Military tax credits   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. Military tax credits For example, a debt instrument maturing on March 31 has accrual periods that end on September 30 and March 31 of each calendar year. Military tax credits Any short period is included as the first accrual period. Military tax credits   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. Military tax credits However, the OID listed for these debt instruments in Section I-B has been figured using 6-month accrual periods. Military tax credits Daily OID. Military tax credits   The OID for any accrual period is allocated equally to each day in the accrual period. Military tax credits Figure the amount to include in income by adding the OID for each day you hold the debt instrument during the year. Military tax credits 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. Military tax credits 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. Military tax credits Figuring daily OID. Military tax credits   The daily OID for the initial accrual period is figured using the following formula. Military tax credits   (ip × ytm/n) − qsi     p   ip = issue price ytm = yield to maturity n = number of accrual periods in 1 year qsi = qualified stated interest p = number of days in accrual period       The daily OID for subsequent accrual periods is figured the same way except the adjusted issue price at the beginning of each period is used in the formula instead of the issue price. Military tax credits Example 5. Military tax credits On January 1 of Year 1, you bought a 15-year, 10% debt instrument of A Corporation at original issue for $86,235. Military tax credits 17. Military tax credits According to the prospectus, the debt instrument matures on December 31 of Year 15 at a stated redemption price of $100,000. Military tax credits The yield to maturity is 12%, compounded semiannually. Military tax credits The debt instrument provides for qualified stated interest payments of $5,000 on June 30 and December 31 of each calendar year. Military tax credits The accrual periods are the 6-month periods ending on each of these dates. Military tax credits The number of days for the first accrual period (January 1 through June 30) is 181 days (182 for leap years). Military tax credits The daily OID for the first accrual period is figured as follows. Military tax credits   ($86,235. Military tax credits 17 x . Military tax credits 12/2) – $5,000     181 days     = $174. Military tax credits 11020 = $. Military tax credits 96193   181           The adjusted issue price at the beginning of the second accrual period is the issue price plus the OID previously includible in income ($86,235. Military tax credits 17 + $174. Military tax credits 11), or $86,409. Military tax credits 28. Military tax credits The number of days for the second accrual period (July 1 through December 31) is 184 days. Military tax credits The daily OID for the second accrual period is figured as follows. Military tax credits   ($86,409. Military tax credits 28 x . Military tax credits 12/2) – $5,000     184 days     = $184. Military tax credits 55681 = $1. Military tax credits 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, $174. Military tax credits 11 ($. Military tax credits 95665 × 182 days) plus $184. Military tax credits 56 ($1. Military tax credits 00303 × 184 days), or $358. Military tax credits 67. Military tax credits Add the OID to the $10,000 interest you report on your income tax return for Year 1. Military tax credits Example 6. Military tax credits 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. Military tax credits Also, the interest payment dates are October 31 and April 30 of each calendar year. Military tax credits The accrual periods are the 6-month periods ending on each of these dates. Military tax credits The number of days for the first accrual period (May 1 through October 31) is 184 days. Military tax credits The daily OID for the first accrual period is figured as follows. Military tax credits   ($86,235. Military tax credits 17 x . Military tax credits 12/2) – $5,000     184 days     = $174. Military tax credits 11020 = $. Military tax credits 94625   184           The number of days for the second accrual period (November 1 through April 30) is 181 days (182 for leap years). Military tax credits The daily OID for the second accrual period is figured as follows. Military tax credits   ($86,409. Military tax credits 28 x . Military tax credits 12/2) – $5,000     181 days     = $184. Military tax credits 55681 = $1. Military tax credits 01965   181 If you hold the debt instrument through the end of Year 1, you must include $236. Military tax credits 31 of OID in income. Military tax credits This is $174. Military tax credits 11 ($. Military tax credits 94625 × 184 days) for the period May 1 through October 31 plus $62. Military tax credits 20 ($1. Military tax credits 01965 × 61 days) for the period November 1 through December 31. Military tax credits The OID is added to the $5,000 interest income paid on October 31 of Year 1. Military tax credits Your basis in the debt instrument is increased by the OID you include in income. Military tax credits On January 1 of Year 2, your basis in the A Corporation debt instrument is $86,471. Military tax credits 48 ($86,235. Military tax credits 17 + $236. Military tax credits 31). Military tax credits Short first accrual period. Military tax credits   You may have to make adjustments if a debt instrument has a short first accrual period. Military tax credits 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. Military tax credits (The remaining accrual periods begin on May 1 and November 1. Military tax credits ) For this short period, figure the daily OID as described earlier, but adjust the yield for the length of the short accrual period. Military tax credits You may use any reasonable compounding method in determining OID for a short period. Military tax credits Examples of reasonable compounding methods include continuous compounding and monthly compounding (that is, simple interest within a month). Military tax credits Consult your tax advisor for more information about making this computation. Military tax credits   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. Military tax credits Reduction for acquisition premium. Military tax credits   If you bought the debt instrument at an acquisition premium, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Military tax credits To figure the daily acquisition premium, multiply the daily OID by the following fraction. Military tax credits The numerator is the acquisition premium. Military tax credits The denominator is the total OID remaining for the debt instrument after your purchase date. Military tax credits Example 7. Military tax credits 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. Military tax credits The adjusted issue price on November 1 of Year 1 is $86,409. Military tax credits 28 ($86,235. Military tax credits 17 + $174. Military tax credits 11). Military tax credits In this case, you paid an acquisition premium of $590. Military tax credits 72 ($87,000 − $86,409. Military tax credits 28). Military tax credits The daily OID for the accrual period November 1 through April 30, reduced for the acquisition premium, is figured as follows. Military tax credits 1) Daily OID on date of purchase (2nd accrual period) $1. Military tax credits 01965*  2)  Acquisition premium $590. Military tax credits 72    3)  Total OID remaining after purchase date ($13,764. Military tax credits 83 − $174. Military tax credits 11) 13,590. Military tax credits 72   4) Line 2 ÷ line 3 . Military tax credits 04346  5)  Line 1 × line 4 . Military tax credits 04432  6)  Daily OID reduced for the acquisition premium. Military tax credits Line 1 − line 5 $0. Military tax credits 97533  * As shown in Example 6. Military tax credits The total OID to include in income for Year 1 is $59. Military tax credits 50 ($. Military tax credits 97533 × 61 days). Military tax credits 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. Military tax credits In general, a contingent payment debt instrument provides for one or more payments that are contingent as to timing or amount. Military tax credits If you hold a contingent payment bond, you must report OID as it accrues each year. Military tax credits 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. Military tax credits To figure OID accruals on contingent payment debt instruments, holders and issuers must use the noncontingent bond method. Military tax credits Noncontingent bond method. Military tax credits    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. Military tax credits In general, holders and issuers accrue OID on this projected payment schedule using the constant yield method that applies to fixed payment debt instruments. Military tax credits When a contingent payment differs from the projected fixed amount, the holders and issuers make adjustments to their OID accruals. Military tax credits If the actual contingent payment is larger than expected, both the issuer and the holder increase their OID accruals. Military tax credits If the actual contingent payment is smaller than expected, holders and issuers generally decrease their OID accruals. Military tax credits Form 1099-OID. Military tax credits   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. Military tax credits For example, the amount may not be correct if the contingent payment was different from the projected amount. Military tax credits If the amount in box 1 is not correct, you must figure the OID to report on your return under the following rules. Military tax credits For information on showing an OID adjustment on your tax return, see How To Report OID, earlier. Military tax credits Figuring OID. Military tax credits   To figure OID on a contingent payment debt instrument, you need to know the “comparable yield” and “projected payment schedule” of the debt instrument. Military tax credits The issuer must make these available to you. Military tax credits Comparable yield. Military tax credits   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. Military tax credits The comparable yield is determined as of the debt instrument's issue date. Military tax credits Projected payment schedule. Military tax credits   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. Military tax credits The projected payment schedule is created by the issuer as of the debt instrument's issue date. Military tax credits It is used to determine the issuer's and holder's interest accruals and adjustments. Military tax credits Steps for figuring OID. Military tax credits   Figure the OID on a contingent payment debt instrument in two steps. Military tax credits Figure the OID using the constant yield method (discussed earlier under Debt Instruments Issued After 1984 ) that applies to fixed payment debt instruments. Military tax credits Use the comparable yield as the yield to maturity. Military tax credits 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). Military tax credits Do not treat any amount payable as qualified stated interest. Military tax credits Adjust the OID in (1) to account for actual contingent payments. Military tax credits If the contingent payment is greater than the projected fixed amount, you have a positive adjustment. Military tax credits If the contingent payment is less than the projected fixed amount, you have a negative adjustment. Military tax credits Net positive adjustment. Military tax credits   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. Military tax credits Treat a net positive adjustment as additional OID for the tax year. Military tax credits Net negative adjustment. Military tax credits   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. Military tax credits Use a net negative adjustment to offset OID on the debt instrument for the tax year. Military tax credits 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. Military tax credits 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. Military tax credits 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. Military tax credits Basis adjustments. Military tax credits   In general, increase your basis in a contingent payment debt instrument by the OID included in income. Military tax credits Your basis, however, is not affected by any negative or positive adjustments. Military tax credits Decrease your basis by any noncontingent payment received and the projected contingent payment scheduled to be received. Military tax credits Treatment of gain or loss on sale or exchange. Military tax credits   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. Military tax credits 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. Military tax credits If the debt instrument is a capital asset, treat any loss that is more than your prior OID accruals as a capital loss. Military tax credits See Regulations section 1. Military tax credits 1275-4 for exceptions to these rules. Military tax credits Premium, acquisition premium, and market discount. Military tax credits   The rules for accruing premium, acquisition premium, and market discount do not apply to a contingent payment debt instrument. Military tax credits See Regulations section 1. Military tax credits 1275-4 to determine how to account for these items. Military tax credits Inflation-Indexed Debt Instruments This discussion shows how you figure OID on certain inflation-indexed debt instruments issued after January 5, 1997. Military tax credits An inflation-indexed debt instrument is generally a debt instrument on which the payments are adjusted for inflation and d
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Understanding Your CP563 Notice

We reviewed your Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions, and we need additional information in order to process it.


What you need to do

  • Complete the CP563 response card and provide the requested information as described in your notice.

You may want to

  • Call the IRS at 1-512-460-7898 or 1-267-941-1000 (for international calls), if you have additional questions.

 

Page Last Reviewed or Updated: 27-Jan-2014

Printable samples of this notice (PDF)

 

 

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Military Tax Credits

Military tax credits Publication 926 - Introductory Material Table of Contents Future Developments What's New Reminder IntroductionTax questions. Military tax credits Future Developments For the latest information about developments related to Publication 926, such as legislation enacted after it was published, go to www. Military tax credits irs. Military tax credits gov/pub926. Military tax credits What's New Social security and Medicare tax for 2014. Military tax credits  The social security tax rate is 6. Military tax credits 2% each for the employee and employer, unchanged from 2013. Military tax credits The social security wage base limit is $117,000. Military tax credits The Medicare tax rate is 1. Military tax credits 45% each for the employee and employer, unchanged from 2013. Military tax credits There is no wage base limit for Medicare tax. Military tax credits Social security and Medicare taxes apply to the wages of household employees you pay $1,900 or more in cash or an equivalent form of compensation. Military tax credits Qualified parking exclusion and commuter transportation benefit. Military tax credits  For 2014, the monthly exclusion for qualified parking is $250 and the monthly exclusion for commuter highway vehicle transportation and transit passes is $130. Military tax credits Reminder Additional Medicare Tax withholding. Military tax credits  In addition to withholding Medicare tax at 1. Military tax credits 45%, you must withhold a 0. Military tax credits 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Military tax credits You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. Military tax credits Additional Medicare Tax is only imposed on the employee. Military tax credits There is no employer share of Additional Medicare Tax. Military tax credits All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. Military tax credits For more information on Additional Medicare Tax, visit IRS. Military tax credits gov and enter “Additional Medicare Tax” in the search box. Military tax credits Credit reduction states. Military tax credits  A state that has not repaid money it borrowed from the federal government to pay unemployment benefits is a “credit reduction state. Military tax credits ” The Department of Labor (DOL) determines these states. Military tax credits If you paid any wages that are subject to the unemployment compensation laws in any credit reduction state, your federal unemployment (FUTA) tax credit is reduced. Military tax credits See the Instructions for Schedule H (Form 1040) for more information. Military tax credits Outsourcing payroll duties. Military tax credits  Employers are responsible to ensure that tax returns are filed and deposits and payments are made, even if the employer contracts with a third party to perform these acts. Military tax credits The employer remains responsible if the third party fails to perform any required action. Military tax credits If you choose to outsource any of your payroll and related tax duties (that is, withholding, reporting, and paying over social security, Medicare, FUTA, and income taxes) to a third-party payer such as a payroll service provider or reporting agent, visit IRS. Military tax credits gov and enter “outsourcing payroll duties” in the search box for helpful information on this topic. Military tax credits Photographs of missing children. Military tax credits  The IRS is a proud partner with the National Center for Missing and Exploited Children. Military tax credits Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Military tax credits You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Military tax credits Introduction The information in this publication applies to you only if you have a household employee. Military tax credits If you have a household employee in 2014, you may need to pay state and federal employment taxes for 2014. Military tax credits You generally must add your federal employment taxes to the income tax that you will report on your 2014 federal income tax return. Military tax credits This publication will help you decide whether you have a household employee and, if you do, whether you need to pay federal employment taxes (social security tax, Medicare tax, FUTA, and federal income tax withholding). Military tax credits It explains how to figure, pay, and report these taxes for your household employee. Military tax credits It also explains what records you need to keep. Military tax credits This publication also tells you where to find out whether you need to pay state unemployment tax for your household employee. Military tax credits Comments and suggestions. Military tax credits   We welcome your comments about this publication and your suggestions for future editions. Military tax credits   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Military tax credits NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Military tax credits Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Military tax credits   You can also send us comments from www. Military tax credits irs. Military tax credits gov/formspubs. Military tax credits Click on More Information and then click on Comment on Tax Forms and Publications. Military tax credits   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Military tax credits Tax questions. Military tax credits   If you have a tax question, check the information available on IRS. Military tax credits gov or call 1-800-829-1040 or 1-800-829-4933 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability at 1-800-829-4059) Monday–Friday from 7:00 a. Military tax credits m. Military tax credits –7:00 p. Military tax credits m. Military tax credits local time (Alaska and Hawaii follow Pacific time). Military tax credits We cannot answer tax questions sent to the above address. Military tax credits Prev  Up  Next   Home   More Online Publications