Original Issue Discount Security

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Original Issue Discount Security

A bond or other debt instrument that is issued at a price below its face value. For example, a bond with par of $10,000 might be issued to an investor for $7,000. All zero-coupon bonds are original issue discount debt.
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References in periodicals archive ?
A stripped taxable bond or coupon is considered, for tax purposes, as an original issue discount bond issued at the time of purchase.
For tax purposes, they are considered original issue discount bonds, and the original issue discount is included in ordinary income depending on when issued, as explained in Q 7724 and Q 7737 to Q 7740.
(4) The taxation of original issue discount bonds varies according to the issue date and can be complicated.
A taxpayer determines the amount of original issue discount allocable to an accrual period using steps similar to those for original issue discount bonds that are not inflation-indexed (see Q 7737).
Prior to the 1982 tax code changes, original issue discount bonds provided lower interest costs to the issuer as a result of alternative methods of taxing issuer and holder.
Example 1: Original issue discount bonds purchased at an acquisition premium.
For many investors, the major disadvantage of owning corporate zero-coupon bonds and original issue discount bonds stems from a negative cash flow.
For tax purposes, they are considered original issue discount bonds, and the original issue discount is included in ordinary income depending on when issued, as explained in Q 1103 and Q 1116 to Q 1119.4 In the case of a tax-exempt zero-coupon bond, the original issue discount is apportioned among holders as explained in Q 1117, but not included in income.

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