GAO provided information on the Internal Revenue Service's (IRS) efforts to ensure that taxpayers report investment income earned from bonds sold at original issue discount (OID), focusing on the completeness and use of IRS Publication 1212.

GAO found that: (1) IRS asserts that OID bond issuers can rely on Publication 1212 to identify all publicly offered OID bonds and compute OID income, but Publication 1212 did not list at least 37 bonds worth billions of dollars; (2) although IRS primarily relies on its sizable penalty to ensure that OID bond issuers file IRS Form 8281 to report OID bond issues, no IRS organization has primary responsibility for monitoring such compliance and there is no evidence that IRS has ever assessed the penalty; (3) IRS has not assessed penalties for late filings of Forms 8281; (4) IRS does not use other information it receives, such as corporate tax returns, to help ensure compliance with Form 8281 reporting requirements; (5) because Publication 1212 is not complete, those relying on the publication to determine their information reporting requirements may not be reporting on all OID bonds; and (6) although some banks and middlemen consider Publication 1212 to be incomplete, they indicated that the publication does serve as a starting point, authority, and reference source.

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