Form 1099-OID 2010 Tax Year Checklist
Purpose and Overview
Form 1099-OID reports original issue discount and related interest earned on debt obligations during the 2010 tax year. Original issue discount represents the excess of an obligation’s stated redemption price at maturity over its issue price. For 2010, Treasury Inflation-Protected Securities (TIPS) are explicitly included in OID reporting requirements.
Recipients must distinguish OID exempt from state and local tax, which appears in box 6, from regular OID reported in box 1. When acquisition premiums or stripped instruments apply, recipients should consult Publication 1212 for necessary adjustments.
Filing Requirements and Obligations
Who Must File
File Form 1099-OID if you are an issuer with any bond outstanding or other evidence of indebtedness in registered or bearer form issued with original issue discount. Financial institutions must file for certificates of deposit made, purchased, or renewed after 1970 if the CD has OID and a term exceeding one year. Brokers or middlemen holding OID obligations as nominees for actual owners must also file.
Trustees and middlemen of widely held fixed investment trusts, REMICs, and FASITs in existence on October 22, 2004, and issuers of collateralized debt obligations must file when reporting OID of $10 or more.
Filing Thresholds
File Form 1099-OID if the original issue discount, includible in gross income, is at least $10. You must also file for any person for whom you withheld and paid foreign tax on OID, or from whom you withheld and did not refund federal income tax under backup withholding rules, even if the OID amount is less than ten dollars.
Step-by-Step Filing Instructions
Step 1: Verify Recipient Identification
Verify the recipient’s identification number, which may be a social security number, individual taxpayer identification number, or adoption taxpayer identification number. Confirm that only the last four digits appear on Copy B furnished to the recipient for their protection. Report the complete taxpayer identification number to the IRS on Copy A filed with Form 1096. This truncation provision applies to paper payee statements for tax years 2009 and 2010, as stated in Notice 2009-93.
Step 2: Calculate Original Issue Discount
Calculate OID as the excess of the stated redemption price at maturity over the issue price for obligations held during 2010. A discount of less than one-quarter of one percent of the stated redemption price at maturity, multiplied by the number of full years from issue date to maturity, is considered zero. Exclude obligations with a term of one year or less from OID reporting. For these short-term obligations, report any discount as interest on Form 1099-INT instead.
Step 3: Report Box 1 Amount
Enter the recipient’s allocable OID for the 2010 tax year in box 1r. Report the OID for the portion of the year during which the record holder owned the obligation. Do not include the amount reported in box 6 in this calculation. If the recipient did not hold the obligation for the entire year, consult Publication 550 for partial-year calculation methods. For information about computing OID, refer to Internal Revenue Code sections 1271 through 1275 and their regulations.
Step 4: Report Other Periodic Interest
In box two, report any other periodic interest that is separate from OID. Enter any stated interest that is not OID paid or credited on the obligation during the year. However, you may report stated interest on Treasury Inflation-Indexed Securities in box 3 of Form 1099-INT rather than in box 2 of Form 1099-OID. Report interest in box two only, not on Form 1099-INT. If the obligation is a U.S. Treasury obligation, note that the Box 2 amount is exempt from state and local income taxes, as per the 2010 instructions.
Step 5: Report Early Withdrawal Penalties
Enter in box three any interest or principal forfeited due to early withdrawal, such as penalties from early withdrawal of a certificate of deposit. This amount is deducted from the recipient's gross income. Do not reduce the amounts reported in boxes 1 and 2 by the forfeiture amount. Recipients may deduct this amount above the line on Form 1040. For detailed instructions on determining the deductible forfeiture amount, see Revenue Rulings 75-20 and 75-21.
Step 6: Report Backup Withholding
Record in box four backup withholding amounts withheld at the 28 percent rate if the recipient failed to furnish a taxpayer identification number or furnished an incorrect TIN per Form W-9. The 28 percent rate applies to amounts required to be reported in boxes 1, 2, and 6, but limited to the cash paid on these obligations. Before applying the 28 percent rate, you may reduce the amounts reported in boxes 1 and 2 by the amount reported in box 3.
Step 7: Provide Obligation Description
Identify the obligation in box 5 using the CUSIP number if available. If there is no CUSIP number, type in the stock exchange's abbreviation, the issuer's abbreviation used by the stock exchange, the coupon rate, and the year the bond matures. If the issuer of the obligation differs from the payer, show the name of the issuer. Ensure the description is complete and accurate, particularly for stripped bonds or coupons.
Step 8: Report Treasury OID Separately
Enter in box 6 OID on U.S. Treasury obligations only for the part of the year the record holder owned it. Do not include this amount in box 1. Recipients report this amount as interest income on their federal return and apply Publication 1212 adjustments as needed. The amount in box six is excluded from box one and is exempt from state and local income taxes. If you make a payment on a U.S. Treasury obligation on which OID is reportable, enter your name, address, and federal identification number on Forms 1099-OID and 1096, not those of the U.S. Treasury Department or Bureau of Public Debt.
Step 9: Report REMIC Investment Expenses
Report in box seven the recipient’s share of single-class REMIC investment expenses. These are the regular interest holders’ pro rata share of investment expenses deductible by a single-class REMIC as defined in Temporary Regulations section 1.67-3T. Recipients may deduct these expenses on Schedule A, Form 1040, on the “Other expenses” line, subject to the 2 percent limit of adjusted gross income applicable in 2010. This amount is included in box 2 for single-class REMICs.
Step 10: Include Account Numbers
Include the account number assigned by the payer, if available, to distinguish the recipient’s account. The account number is required if you have multiple accounts for a recipient for whom you are filing more than one Form 1099-OID. The IRS encourages you to designate an account number for all Forms 1099-OID that you file.
Step 11: Meet Furnishing and Filing Deadlines
Furnish Copy B to the recipient by January 31, 2011. File Copy A with Form 1096 by February 28, 2011, if filing on paper, or by March 31, 2011, if filing electronically. You must furnish a statement to each recipient for whom you are required to file Form 1099-OID. The statement must contain the information shown on Form 1099-OID, including the legend shown on Copy B of the official form, and an indication that these items are being furnished to the IRS.
Step 12: Handle Nonresident Aliens Properly
If the recipient is a nonresident alien, do not file Form 1099-OID. Instead, you may have to withhold federal income tax and file Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding. This interest is not subject to backup withholding. See the Instructions for Form 1042-S and Publication 515 for requirements applicable to 2010.
Year-Specific 2010 Updates and Changes
Box 6 Introduction
Box 6 was introduced in the 2010 instructions to separately report OID on U.S. Treasury obligations exempt from state and local income taxes. This separate reporting ensures recipients can properly distinguish between OID subject to all income taxes and OID exempt from state and local taxation. Recipients must cross-reference Publication 1212 for adjustments to the reportable OID amount when calculating their tax liability.
Backup Withholding Rate
The backup withholding rate remains 28 percent for 2010. Box 4 entries reflect this statutory rate if TIN validation fails or if the recipient has underreported income in prior years. This rate applies to amounts required to be reported in boxes 1, 2, and 6, limited to cash paid on these obligations.
Nominee Reporting Clarification
Nominee reporting rules were clarified in the 2010 instructions. Spouses are not required to file a nominee Form 1099-OID for amounts owned by each other. However, non-spouse nominees must file separate forms listing themselves as the payer.
If you receive Form 1099-OID as a record holder showing amounts belonging to another person, you are considered a nominee recipient. You must complete a Form 1099-OID for each of the other owners, showing the amounts allocable to each. File Copy A with the IRS and furnish Copy B to each owner.
Treasury Inflation-Protected Securities
Treasury inflation-protected securities are explicitly included in the OID definition in the 2010 instructions. Payers must calculate and report the inflation adjustment component as OID in Box 1 or Box 6, as applicable. The OID rules apply to these securities, and the inflation component must be properly allocated between taxable OID and tax-exempt OID depending on whether the securities are U.S. Treasury obligations.
Special Reporting Situations
Multiple Obligation Holdings
Ordinarily, you will file only one Form 1099-OID for the depositor or holder of a particular obligation for the calendar year. If a person holds more than one discount obligation, issue a separate Form 1099-OID for each obligation.
However, if a person holds more than one certificate of the same issue for the same period of time during the calendar year, and if Form 1099-OID amounts are proportional, you may treat all such certificates as one discount obligation and file a single Form 1099-OID.
Combined Interest and OID Reporting
If you are reporting both interest and OID on an obligation, you may report both the taxable interest and the OID on Form 1099-OID. It is not necessary to file both Forms 1099-INT and 1099-OID. On Form 1099-OID, report the interest in box two and the OID in box 1 or 6.
You may choose to report the interest on Form 1099-INT and the OID on Form 1099-OID, but you cannot report tax-exempt interest on Form 1099-OID.
REMIC and CDO Reporting
REMICs, holders of ownership interests in FASITs, issuers of CDOs, and any broker or middleman who holds as a nominee a REMIC or FASIT regular interest or CDO must file Form 1099-OID. Report in box one the aggregate amount of OID includible in the gross income of each REMIC or FASIT regular interest or CDO holder for the period during the year. The statement must be furnished to holders by March 15.
Exempt Recipients
You are not required to file Form 1099-OID for payments made to certain exempt recipients. These include corporations, tax-exempt organizations, any IRA or Archer MSA, U.S. agencies, states, the District of Columbia, U.S. possessions, registered securities or commodities dealers, brokers, middlemen or nominees, and financial institutions. For additional exempt recipients, refer to Section 1.6049-7 of the Regulations.
Additional Resources
Publication 1212, Guide to Original Issue Discount Instruments, contains information on certain outstanding publicly offered discount obligations. Issuers of certain publicly offered debt instruments having OID must file Form 8281, Information Return for Publicly Offered Original Issue Discount Instruments, within 30 days after the date of issuance. This information enables the IRS to update Publication 1212 for use by payers and recipients.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
