IRS Publication 550 — Investment Income and Expenses
This is the passage the answer relied on, shown in the document's own words. The highlighted text is the exact excerpt quoted — extracted verbatim by the citation system, so it cannot be fabricated.
Open official source at page 40 ↗
“The IRS issued final Reg- ulations section 1. 6011-9 to identify certain syndicated conservation easement transactions and substantially similar transactions as listed transactions. These transac- tions require additional disclosures by advisors and cer- tain participants as a reportable transaction.”
For information about the sale of a debt instrument with OID, see Original issue discount (OID) on debt instruments, later. De minimis OID. You can treat the discount as zero if it is less than one-fourth of 1% (0.0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. This small discount is known as “de minimis” OID. In the case of a debt instrument providing for more than one stated principal payment (an installment obligation), the “de minimis” formula described above is modified. See Regulations section 1.1273-1(d)(3). Example 1. You bought a 10-year bond with a stated redemption price at maturity of $1,000, issued at $980 with OID of $20. One -fourth of 1% of $1,000 (stated redemption price) times 10 (the number of full years from the date of original issue to maturity) equals $25. Because the $20 discount is less than $25, the OID is treated as zero. (If you hold the bond at maturity, you will recognize $20 ($1,000 − $980) of capital gain.)
Example 2. The facts are the same as in Example 1, except that the bond was issued at $950. The OID is $50. Because the $50 discount is more than the $25 figured in Example 1, you must include the OID in income as it accrues over the term of the bond. Debt instrument bought after original issue. If you buy a debt instrument with de minimis OID at a premium, the discount is not includible in income. If you buy a debt instrument with de minimis OID at a discount, the discount is reported under the market discount rules. See Market Discount Bonds, later in this chapter.
Exceptions to reporting OID as current income. The OID rules discussed here do not apply to the following debt instruments.
1. Tax-exempt obligations. (However, see Stripped tax-exempt obligations, later.)
2. U.S. savings bonds.
3. Short-term debt instruments (those with a fixed maturity date of not more than 1 year from the date of issue).
4. Loans between individuals, if all the following are true. a. The loan is not made in the course of a trade or business of the lender. b. The amount of the loan, plus the amount of any outstanding prior loans between the same individuals, is $10,000 or less. c. Avoiding any federal tax isn’t one of the principal purposes of the loan.
5. A debt instrument purchased at a premium. Form 1099-OID You may receive a Form 1099-OID for a debt instrument you own. If you receive a Form 1099 -OID (Rev. 1 -2024), box 1 will show any “Original issue discount for the year”; box 2 will show any “Other periodic interest”; and box 8 will show any “Original issue discount on U.S. Treasury obligations.” In most cases, you must report the entire amount in Form 1099-OID, boxes 1, 2, and 8 as interest income. But see Refiguring OID shown on Form 1099-OID, later in this discussion, and also Original issue discount (OID) adjustment, later in this chapter, for more information.
Excerpt shown from a longer document — use the official source button above to read the complete publication.