This means that cost basis for trades in physical certificates, foreign currency debt, foreign debt, convertible bonds, stripped bonds
, payment-in-kind bonds, bonds with more than one rate and some private issues will now be reported to the IRS.
Complex debt instruments include debt instruments that provide for more than one rate of stated interest (such as those with stepped interest rates); convertible debt instruments; stripped bonds
or coupons; debt instruments that require payment of either interest or principal in a non-U.S.-dollar currency; certain tax credit bonds; debt instruments that provide for a payment-in-kind feature; debt instruments issued by a non-U.S.
A taxpayer who stripped bonds
and then sold the bonds and retained the detached coupon properly allocated his entire basis to the stripped bonds
and was not required, for purposes of determining loss, to allocate basis between the coupons he detached and retained and the stripped bonds
he sold (as is required for transactions occurring after July 1, 1982).
are artificially "manufactured" zero-coupon bonds (see Chapter 7).
Some types of discounted debt instruments include corporate bonds, municipal bonds, certificates of deposit, stripped bonds
, and collateralized debt obligations.
91-46 holds that where mortgage servicing is retained at an amount that is deemed to be in excess of reasonable compensation for the services to be performed (i.e., excess servicing), the mortgages are "stripped bonds
" within the meaning of Code Section 1286(e) (2), the bond coupon stripping rule.
Complex bonds mainly include physical certificates, foreign debt, stripped bonds
, convertible bonds and bonds with more than one interest rate.
If so, the owner simply totals the appropriate daily portions for the parts of each period that fall in his tax year.) Taxpayers who use the cash receipts and disbursement method of accounting and maintain a brokerage account that includes original issue discount debt instruments and stripped bonds
must include in gross income for the taxable year the amount of accrued discount allocable to the portion of the taxable year in which they held the debt instrument.
91-46 indicated that amounts received under a mortgage-servicing contract were interest payments for stripped bonds
if (1) the amounts exceeded reasonable compensation for services and (2) the mortgages were sold at the time the mortgage-servicing contract was entered into.
Under regulations effective after August 7, 1991, the discount is disregarded if it is less than Vi of 1% (.0025) of the amount so payable multiplied by the full number of years from the date the stripped bond
or coupon was purchased to final maturity.
(If it fails the coupon requirement, it must meet certain "specified portion" requirements that generally relate to stripped bonds
.) The high-yield regular interest rules allow a FASIT to issue interest-only (IO) strips, etc.; however, special restrictions apply to high-yield regular interests.
Under this program, the interest and principal components of a TIPS may be transferred as separate instruments (stripped bonds