Form 1099-OID 2011 Tax Year Checklist
Purpose and Reporting Requirements
Form 1099-OID reports original issue discount, accrued interest, and penalty forfeitures on debt obligations held during 2011. For 2011, stripped bonds and Treasury Inflation-Protected Securities (TIPS) are explicitly subject to OID rules. Recipients must use Publication 1212 to verify correct OID amounts, as simplified calculation methods do not apply to all instrument types issued or acquired in 2011. The form ensures the accurate reporting of taxable income from debt instruments issued at a discount from their stated redemption price at maturity.
Preparation and Verification Steps
Step 1: Verify Taxpayer Identification Information
Verify the recipient’s correct taxpayer identification number before entry. If the TIN was not furnished or is incorrect, you must designate backup withholding in Box 4, as per the 2011 backup withholding rules. The pilot program for truncating individual identifying numbers on paper payee statements has ended; therefore, filers must display the recipient’s complete identifying number on all copies of the form. This requirement applies to Social Security numbers, Individual Taxpayer Identification Numbers, Adoption Taxpayer Identification Numbers, and Employer Identification Numbers.
Step 2: Calculate Box 1 Original Issue Discount
Calculate Box 1 using the constant-yield method or other applicable method from Publication 1212 specific to the obligation’s issue date, acquisition date, and redemption price. Different calculation rules apply depending on whether the obligation was issued before, on, or after April 4, 1993. Original issue discount is the excess of an obligation’s stated redemption price at maturity over its issue price.
For stripped bonds or coupons, use the acquisition price as the starting point for the calculation. 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 the date of issue to maturity, is considered zero.
Step 3: Report Other Periodic Interest
Report Box 2 separately from Box 1. Enter any stated interest that is not OID paid or credited on the obligation during the year. If the obligation is a U.S. Treasury instrument, note that this interest is exempt from state and local income taxes per the 2011 instructions. You may report any stated interest that is not OID on Treasury Inflation-Indexed Securities in Box 3 of Form 1099-INT rather than in Box 2 of Form 1099-OID. Interest reported in Box 2 must not be reported on Form 1099-INT to avoid duplicate reporting.
Step 4: Enter Early Withdrawal Penalties
Enter Box 3 only if the recipient withdrew funds before maturity and forfeited interest or principal in 2011. This amount is deductible on the recipient’s Form 1040. Do not reduce the amounts in Boxes 1 and 2 by the amount of the forfeiture. For detailed instructions for determining the amount of forfeiture deductible by the holder, see Revenue Rulings 75-20 and 75-21. The early withdrawal penalty provides an above-the-line deduction that reduces the recipient’s adjusted gross income.
Step 5: Complete Box 5 Description
Complete Box 5 with the obligation’s identifying information. Enter the CUSIP number if available. If there is no CUSIP number, enter the abbreviation for the stock exchange, the abbreviation for the issuer used by the stock exchange, the coupon rate, and the year of maturity. For stripped bonds or coupons issued or acquired in 2011, use the complete CUSIP number if available. If the issuer of the obligation is other than the payer, show the name of the issuer in this box.
Step 6: Report REMIC Investment Expenses
If the obligation is a single-class REMIC, calculate and enter the recipient’s share of investment expenses in Box 7. These expenses are subject to the 2 percent floor limitation under Schedule A for individuals filing Form 1040. A single-class REMIC, as defined in Temporary Regulations section 1.67-3T, must include in the statement the investment expenses paid or accrued during each calendar quarter by the REMIC for which the REMIC is allowed a deduction under section 212 and the proportionate share of those investment expenses allocated to the regular interest holder.
Step 7: Designate Corrected Forms Properly
Designate the CORRECTED checkbox only if you are reissuing a form for the same recipient and account for the same 2011 tax year. Do not use this box for amended reporting in subsequent years. When correcting, complete all information on the corrected form.
Submit corrected returns as soon as you discover an error on a previously filed return. Furnish corrected statements to recipients showing the correction, along with the corrected Copy A and Form 1096, to your Internal Revenue Service Center.
Filing and Submission Requirements
Step 8: File with IRS by Deadline
File Copy A with the IRS by February 28, 2012, for non-electronic filers. If filing electronically via Publication 1220-compliant software through the FIRE System, the deadline is April 2, 2012. No fill-in forms generated from the IRS website are accepted for submission. The IRS does not provide a fill-in form option for information return reporting. The FIRE System operates 24 hours a day, 7 days a week, and may be accessed via the Internet. Refer to Publication 1220 for details on electronic filing.
Step 9: Furnish Copy B to Recipients
Furnish Copy B to the recipient by January 31, 2012, along with a statement that this is important tax information being reported to the IRS. The statement should note that if the recipient is required to file a return, a negligence penalty or other sanction may be imposed if this income is taxable and the IRS determines that it has not been reported. For more information about the requirement to furnish an official form or acceptable substitute statement to recipients, see part M in the 2011 General Instructions for Certain Information Returns.
Step 10: Handle Nominee Recipients
If you are a record holder but not the beneficial owner, you are considered a nominee recipient. Issue separate Forms 1099-OID to each beneficial owner, showing only amounts allocable to that owner. List yourself as the payer and the other owner as the recipient. File the new Form 1099-OID with Form 1096 with the Internal Revenue Service Center for your area. Do not issue a nominee form for a spouse. A husband or wife is not required to file a nominee return to show amounts owned by the other.
Step 11: Determine Nonresident Alien Requirements
For nonresident alien recipients, determine whether backup withholding or Form 1042-S filing applies per the 2011 instructions and Publication 515. Form 1042-S reports Foreign Person’s U.S. Source Income Subject to Withholding. You are not required to file Form 1099-OID for payments made to specific exempt recipients, including corporations, tax-exempt organizations, any IRA, Archer MSA, Medicare Advantage MSA, health savings account, U.S. agencies, states, the District of Columbia, U.S. possessions, or registered securities or commodities dealers.
Step 12: Use Proper Instructional Resources
Use the 2011 General Instructions for Certain Information Returns and the 2011 Instructions for Forms 1099-INT and 1099-OID together. The general instructions contain a chart that directs which form to file based on the payment type. These instructions provide comprehensive information about backup withholding, electronic reporting requirements, penalties, filing requirements for nominees and intermediaries, when and where to file, taxpayer identification numbers, statements to recipients, corrected and void returns, and other general topics.
Year-Specific 2011 Updates and Guidance
Publication 1212 Reference Requirements
Form 1099-OID for 2011 requires explicit reference to Publication 1212 for recipients and payers to determine correct OID reporting. The constant-yield method or other prescribed methods may yield amounts that differ from the stated interest. Publication 1212, Guide to Original Issue Discount Instruments, contains information on certain outstanding publicly offered discount obligations and is available on the IRS website. 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.
Backup Withholding Implementation
Backup withholding rules for 2011 require payer withholding if the TIN is missing or incorrect. The withholding rate is 28 percent and 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. The withholding amount is reported in Box 4 and credited as tax withheld on the recipient’s income tax return. No adjustment for subsequent-year verification occurs on this form.
Treasury Inflation-Protected Securities Coverage
Treasury inflation-protected securities held in 2011 are explicitly covered under OID rules. The inflation adjustment component of these instruments must be included in Box 1 or Box 6 calculations, as per the 2011 instructions, and not reported separately. These securities are subject to the same OID reporting requirements as other debt instruments issued with original issue discount. The inflation component represents taxable income that accrues over the life of the security, even though no cash payment is made until maturity or sale.
Stripped Bonds and Coupons Requirements
Stripped bonds and stripped coupons acquired or held in 2011 require detailed identification in Box 5. The 2011 instructions emphasize that both the acquisition date and issue date affect which OID calculation method applies and whether prior-year adjustments are required. For stripped bonds or coupons, OID is the excess of the stated redemption price at maturity over the acquisition price. The holder must include OID in income each year based on the constant-yield method or other applicable calculation method.
Form 1096 Transmittal Requirements
Form 1096 must be transmitted with all Copy A filings. For 2011, the IRS specifies that the filer identify themselves on Form 1096, distinct from payer identification on individual Forms 1099-OID. If you must file any Form 1099-OID with the IRS and you are filing paper forms, you must send a Form 1096 as the transmittal document. You must group the forms by form number and submit each group with a separate Form 1096. Specific instructions for completing Form 1096 are provided on the form itself.
Electronic Filing Requirements and Thresholds
Mandatory Electronic Filing
If you are required to file 250 or more information returns, you must file electronically. The 250-or-more requirement applies separately to each type of form. The electronic filing requirement applies separately to original returns and corrected returns. Originals and corrections are not aggregated to determine whether you are required to file electronically. The IRS encourages you to file electronically even though you are filing fewer than 250 returns.
Hardship Waiver Process
To receive a waiver from the required filing of information returns electronically, submit Form 8508, Request for Waiver From Filing Information Returns Electronically, at least 45 days before the due date of the returns. You cannot apply for a waiver for more than one tax year at a time. If you need a waiver for more than one tax year, you must reapply at the appropriate time each year. If a waiver for original returns is approved, any corrections for the same types of returns will be covered under the waiver.
Special Reporting Situations
REMIC and CDO Holder Reporting
REMICs, holders of ownership interests in FASITs in existence on October 22, 2004, 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 1 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, 2012.
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.
This checklist provides comprehensive guidance for accurate Form 1099-OID reporting for the 2011 tax year, ensuring compliance with all applicable IRS requirements and procedures.
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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.
