Important Change

Electronic payee statements.   You can now issue Form 1099-OID electronically with the consent of the recipient. For more information, see Part H in the 2002 General Instructions for Forms 1099, 1098, 5498, and W-2G.

Important Reminder

Photographs of missing children.   The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843- 5678) if you recognize a child.

Introduction

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

This publication contains a list of publicly offered OID debt instruments. The information on this list comes from the issuers of the debt instruments and from financial publications and is updated annually. (However, see Debt Instruments Not on the OID List, later.)

Brokers and other middlemen can rely on this list to determine, for information reporting purposes, whether a debt instrument was issued at a discount and the OID to be reported on information returns. However, because the information in the list has generally not been verified by the IRS as correct, the following tax matters are subject to change upon examination by the IRS.

• The OID reported by owners of a debt instrument on their income tax returns.
• The issuer's classification of an instrument as debt for federal income tax purposes.

Instructions for issuers of OID debt instruments.   In general, issuers of publicly offered OID debt instruments must, within 30 days after the issue date, report information about the instruments to the IRS on Form 8281, Information Return for Publicly Offered Original Issue Discount Instruments. See the form instructions for more information.

Issuers should report errors in and omissions from the list in writing at the following address:

Internal Revenue Service
OID Publication Project
W:CAR:MP:FP
1111 Constitution Ave. NW
Washington, D.C. 20224

REMIC and CDO information reporting requirements.   Brokers and other middlemen must follow special information reporting requirements for real estate mortgage investment (REMIC) regular and collateralized debt obligations (CDO) interests. The rules are explained in Publication 938, Real Estate Mortgage Investment Conduits (REMICs) Reporting Information.

Holders of interests in REMICs and CDOs should see chapter 1 of Publication 550 for information on REMICs and CDOs.

Comments and suggestions.   We welcome your comments about this publication and your suggestions for future editions.

You can e-mail us while visiting our web site at www.irs.gov.

You can write to us at the following address:

Internal Revenue Service
Tax Forms and Publications
W:CAR:MP:FP
1111 Constitution Ave. NW
Washington, DC 20224

We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.

Useful Items You may want to see:

Publication

• 515   Withholding of Tax on Nonresident Aliens and Foreign Entities
• 550   Investment Income and Expenses
• 938   Real Estate Mortgage Investment Conduits (REMICs) Reporting Information

Form (and Instructions)

• 1096   Annual Summary and Transmittal of U.S. Information Returns
• 1099-B   Proceeds From Broker and Barter Exchange Transactions
• 1099-INT   Interest Income
• 1099-OID   Original Issue Discount
• Schedule B (Form 1040)   Interest and Ordinary Dividends
• Schedule D (Form 1040)   Capital Gains and Losses
• W-8   Certificate of Foreign Status

See How To Get Tax Help near the end of the text for information about getting publications and forms.

Definitions

The following terms are used throughout this publication. Original issue discount is defined first. The other terms are listed alphabetically.

Original issue discount (OID).   OID is a form of interest. It is the excess of a debt instrument's stated redemption price at maturity over its issue price (acquisition price for a stripped bond or coupon). Zero coupon bonds and debt instruments that pay no stated interest until maturity are examples of debt instruments that have OID.

Accrual period.   An accrual period is an interval of time used to measure OID. The length of an accrual period can be 6 months, a year, or some other period, depending on when the debt instrument was issued.

Acquisition premium.   Acquisition premium is the excess of a bond's adjusted basis immediately after purchase, including purchase at original issue, over the bond's adjusted issue price at that time. A bond does not have acquisition premium, however, if the bond was purchased at a premium. See Premium, later.

Adjusted issue price.   The adjusted issue price of a debt instrument at the beginning of an accrual period is used to figure the OID allocable to that period. In general, the adjusted issue price at the beginning of the instrument's first accrual period is its issue price. The adjusted issue price at the beginning of any subsequent accrual period is the sum of the issue price and all the OID includible in income before that accrual period minus any payment previously made on the instrument, other than a payment of qualified stated interest.

Debt instrument.   The term debt instrument means a bond, debenture, note, certificate, or other evidence of indebtedness. It generally does not include an annuity contract.

Issue price.   For instruments listed in Section I-A and Section I-B, the issue price is the initial offering price to the public (excluding bond houses and brokers) at which a substantial amount of these instruments was sold.

Market discount.   Market discount arises when a debt instrument purchased in the secondary market has decreased in value since its issue date, generally because of an increase in interest rates. An OID bond has market discount if your adjusted basis in the bond immediately after you acquired it (usually its purchase price) was less than the bond's issue price plus the total OID that accrued before you acquired it. The market discount is the difference between the issue price plus accrued OID and your adjusted basis.

Premium.   A debt instrument is purchased at a premium if its adjusted basis immediately after purchase is greater than the total of all amounts payable on the instrument after the purchase date, other than qualified stated interest. The premium is the excess of the adjusted basis over the payable amounts. See Publication 550 for information on the tax treatment of bond premium.

Qualified stated interest.   In general, qualified stated interest is stated interest that is unconditionally payable in cash or property (other than debt instruments of the issuer) at least annually over the term of the instrument at a single fixed rate.

Stated redemption price at maturity.   An instrument's stated redemption price at maturity is the sum of all amounts (principal and interest) payable on the instrument other than qualified stated interest.

Yield to maturity (YTM).   In general, the YTM is the discount rate that, when used in figuring the present value of all principal and interest payments, produces an amount equal to the issue price of the bond. The YTM is generally shown on the face of the bond or in the literature you receive from your broker. If you do not have this information, consult your broker, tax advisor, or the issuer.

Information in the OID List

The information in the OID list can be used by brokers and other middlemen to prepare information returns for 2002.

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. The OID amounts listed are figured without reference to the price or date at which you acquired the debt instrument. For information about determining the OID to be reported on your tax return, see the instructions for figuring OID under Information for Owners of OID Debt Instruments, later.

The following discussions explain what information is contained in each section of the list.

Section I.   This section contains publicly offered, long-term debt instruments. Section I-A lists corporate debt instruments issued before 1985. Section I-B lists debt instruments issued after 1984. Section I-C lists inflation-indexed debt instruments issued after January 5, 1997.

For each publicly offered debt instrument in Section I, the list contains the following information.

• The name of the issuer.
• The Committee on Uniform Security Identification Procedures (CUSIP) number.
• The issue date.
• The maturity date.
• The issue price expressed as a percent of principal or of stated redemption price at maturity.
• The annual stated or coupon interest rate. (This rate is shown as 0.00 if no annual interest payments are provided.)
• The total OID up to January 1, 2002.
  (This information is not available for every instrument.)
• For long-term instruments issued after July 1, 1982, the daily OID for the accrual periods falling in calendar years 2002 and 2003.
• The total OID per $1,000 of principal or maturity value for calendar years 2002 and 2003.

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

Section II.   This section contains stripped obligations available through the Department of the Treasury's Separate Trading of Registered Interest and Principal of Securities (STRIPS) program and government-sponsored enterprises such as the Resolution Funding Corporation. This section also includes instruments backed by U.S. Treasury securities that represent ownership interests in those securities.

The obligations listed in Section II are arranged by maturity date. The amounts listed are the total OID for calendar year 2002 per $1,000 of redemption price.

Section III.   This section contains short-term discount obligations. Section III-A lists Treasury bills (T-bills), which are short-term discount obligations issued by the U.S. Treasury Department. Sections III-B through III-G contain short-term discount obligations issued by the Student Loan Marketing Association, Federal Home Loan Banks, the Federal National Mortgage Association, Federal Farm Credit Banks, the Federal Home Loan Mortgage Corporation, and the Federal Agricultural Mortgage Corporation.

Information that supplements Section III-A is available on the Internet at www.publicdebt.treas.gov.

The short-term obligations listed in this section are arranged by maturity date. For each obligation, the list contains the CUSIP number, maturity date, issue date, issue price (expressed as a percent of principal), and discount to be reported as interest for calendar year 2002 per $1,000 of redemption price. Brokers and other middlemen should rely on the issue price information in Section III only if they are unable to determine the price actually paid by the owner.

Debt Instruments Not on the OID List

The list of debt instruments in this publication does not contain the following items.

• U.S. savings bonds.
• Certificates of deposit and other face-amount certificates issued at a discount, including syndicated certificates of deposit.
• Obligations issued by tax-exempt organizations.
• OID debt instruments that matured or were entirely called by the issuer before 2002.
• Mortgage-backed securities and mortgage participation certificates.
• Long-term OID debt instruments issued before May 28, 1969.
• Short-term obligations, other than the obligations listed in Section III.
• Original issue U.S. Treasury notes and bonds. These debt instruments are direct obligations of the U.S. Government. Generally, they contain either de minimis or no discount at original issue. See U.S. Treasury Bills, Notes, and Bonds in chapter 1 of Publication 550 for more information.
• Debt instruments issued at a discount by states or their political subdivisions.
• REMIC regular interests and CDOs.
• Commercial paper and banker's acceptances issued at a discount.
• Obligations issued at a discount by individuals.
• Foreign obligations not traded in the United States and obligations not issued in the United States.
• OID debt instruments for which no information was available or that were issued in late 2002 after publication of this list. These will be included in the next revision of the publication.

Information for Brokers and Other Middlemen

The following discussions contain specific instructions for brokers and middlemen who hold or redeem a debt instrument for the owner.

In general, you must file a Form 1099 for the debt instrument if the interest or OID to be included in the owner's income for 2002 totals $10 or more. You also must file a Form 1099 if you were required to deduct and withhold tax, even if the interest or OID is less than $10. See Backup Withholding, later.

If you must file a Form 1099, furnish a copy to the owner of the debt instrument by January 31, 2003. By February 28, 2003, (March 31, 2003, if you file electronically), file all your Forms 1099 with the IRS, accompanied by Form 1096.

Electronic payee statements.   You can issue Form 1099-OID electronically with the consent of the recipient.

More information.   For more information, including penalties for failure to file (or furnish) required information returns or statements, see the 2002 General Instructions for Form 1099, 1098, 5498, and W-2G.

Short-Term Obligations Redeemed at Maturity

If you redeem a short-term discount obligation for the owner at maturity, you must report the discount as interest on Form 1099-INT.

To figure the discount, use the purchase price shown on the owner's copy of the purchase confirmation receipt or similar record, or the price shown in your transaction records.

If you sell the obligation for the owner before maturity, you must file Form 1099-B to reflect the gross proceeds to the seller. Do not report the accrued discount to the date of sale on either Form 1099-INT or Form 1099-OID.

If the owner's purchase price cannot be determined, figure the discount as if the owner had purchased the obligation at its original issue price. A special rule is used to determine the original issue price for information reporting on U.S. Treasury bills (T-bills) listed in Section III-A. Under this rule, you treat as the original issue price of the T-bill the noncompetitive (weighted average of accepted auction bids) discount price for the longest-maturity T-bill maturing on the same date as the T-bill being redeemed. This noncompetitive discount price is the issue price (expressed as a percent of principal) shown in Section III-A.

A similar rule is used to figure the discount on short-term discount obligations issued by the organizations listed in Section III-B through Section III-G.

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

Long-Term Debt Instruments

If you hold a long-term OID debt instrument as a nominee for the true owner, you generally must file Form 1099-OID. For this purpose, you can rely on Section I of the OID list to determine the following information.

• Whether an instrument has OID.
• The OID to be reported on the Form 1099-OID.

In general, you must report OID on publicly offered, long-term debt instruments listed in Section I. You also may report OID on other long-term debt instruments.

Form 1099-OID.   On Form 1099-OID for 2002, show the following information.

• Box 1. The OID for the actual dates the owner held the instruments during 2002. To determine this amount, see Figuring OID, next.
• Box 2. The qualified stated interest paid or credited during the calendar year. Interest reported here is not reported on Form 1099-INT. The qualified stated interest on Treasury inflation-indexed securities may be reported in box 3 of Form 1099-INT instead.
• Box 3. Any interest or principal forfeited because of an early withdrawal that the owner can deduct from gross income. Do not reduce the amounts in boxes 1 and 2 by the forfeiture.
• Box 4. Any backup withholding for this instrument.
• Box 5. The CUSIP number, if any. If there is no CUSIP number, give a description of the instrument, including the abbreviation for the stock exchange, the abbreviation used by the stock exchange for the issuer, the coupon rate, and the year of maturity (for example, NYSE XYZ 12.50 2003). If the issuer of the instrument is other than the payer, show the name of the issuer in this box.
• Box 6. The OID on a U.S. Treasury obligation for the part of the year the owner held the instrument.

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

• Section I of the OID list.
• The income tax regulations.

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

If the owner held the debt instrument for less than the entire calendar year, figure the OID to report as follows.

1. Look up the daily OID for the first 2002 accrual period during which the owner held the instrument.
2. Multiply the daily OID by the number of days in 2002 the owner held the instrument during that accrual period.
3. Repeat steps (1) and (2) for any remaining 2002 accrual periods during which the owner held the instrument.
4. Add the results in steps (2) and (3) to determine the owner's OID per $1,000 of stated redemption price at maturity.
5. If necessary, adjust the OID in (4) to reflect the instrument's stated redemption price at maturity.

Report the result in box 1 of Form 1099-OID.

Using the income tax regulations.   Instead of using Section I to figure OID, you can use the regulations under sections 1272 through 1275 of the Internal Revenue Code. For example, under the regulations, you can use monthly accrual periods in figuring OID for a debt instrument issued after April 3, 1994, that provides for monthly payments. (If you use Section I-B, the OID is figured using 6-month accrual periods.)

For a general explanation of the rules for figuring OID under the regulations, see Figuring OID on Long-Term Debt Instruments under Information for Owners of OID Debt Instruments, later.

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