Form 1099-OID 2012 Tax Year Checklist
Purpose and Overview
Form 1099-OID reports original issue discount for tax year 2012. Original issue discount represents the difference between the stated redemption price at maturity and the issue price of a debt instrument. Issuers must file this form when OID is includible in gross income totals of at least $10 for the calendar year.
OID accrues over the life of the debt instrument and is taxable as interest income to the holder. Recipients use the information reported on Form 1099-OID to determine the amount of OID to include in their gross income and to adjust the basis of their debt instruments.
Who Must File
You must file Form 1099-OID if you are an issuer of a debt instrument with OID, a broker who holds the instrument as a nominee, or a middleman in certain transactions. Specific entities required to file include:
Issuers of bonds, debentures, notes, certificates, and other debt instruments with a maturity exceeding one year from the date of issue. Banks and other financial institutions that issued certificates of deposit with a term exceeding one year. Brokers holding OID instruments on behalf of another person. Trustees of real estate mortgage investment conduits, financial asset securitization investment trusts, and collateralized debt obligations when any holder has OID of at least $10.
Filing Thresholds and Exemptions
File Form 1099-OID when the original issue discount is included in gross income and at least $10 for the calendar year. This threshold applies regardless of whether you withheld backup withholding or foreign tax. You must file even if the amount is below $10 if you withheld any federal income tax under the backup withholding rules.
Certain recipients are exempt from Form 1099-OID reporting requirements. These include corporations, tax-exempt organizations under section 501(a), individual retirement arrangements, the United States or any of its agencies, a state or the District of Columbia, registered securities or commodities dealers, real estate investment trusts, common trust funds, exempt farmers’ cooperatives, foreign governments and international organizations, and brokers or nominees.
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.
Preparation and Verification Steps
Step 1: Gather Recipient Information
Collect complete information for each payment recipient, including full legal name, mailing address, and taxpayer identification number. For individuals, the TIN is typically a Social Security number or individual taxpayer identification number. For entities, use the Employer Identification Number (EIN).
Step 2: Calculate Original Issue Discount
Determine the OID for each debt instrument using the constant yield method described in Publication 1212. The OID for any accrual period equals the product of the adjusted issue price at the beginning of the period and the yield to maturity, minus any qualified stated interest allocable to the period.
Step 3: Complete Box 1 - Original Issue Discount
Enter the amount of OID that is included in the recipient’s gross income for the calendar year. This represents the OID that accrued during the period the recipient held the debt instrument. For daily OID calculations and specific computational rules, refer to Publication 1212.
Step 4: Report Other Interest in Box 2
Report any qualified stated interest paid on the obligation during the calendar year. This box is optional for Form 1099-OID purposes. If you report this amount, you do not need to file a separate Form 1099-INT. Qualified stated interest is interest that is unconditionally payable at least annually at a single fixed rate.
Step 5: Complete Box 3 - Early Withdrawal Penalty
If the recipient withdraws funds before maturity and incurs an interest penalty, please report the forfeited amount in Box 3. Recipients may deduct this penalty as an adjustment to income on Form 1040, reducing their adjusted gross income. This deduction is claimed above the line and does not require itemizing deductions.
Step 6: Report Backup Withholding in Box 4
If you withheld federal income tax under the backup withholding rules, enter the amount in Box 4. The backup withholding rate for 2012 is 28 percent. Backup withholding applies when the recipient failed to provide a correct TIN or the IRS notified you to impose backup withholding.
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.
Step 7: Identify the Obligation in Box 5
Provide a brief description of the debt instrument in Box 5. Include enough detail to enable the recipient to identify the specific obligation. Examples include the type of instrument, issue date, maturity date, and CUSIP number if applicable.
Additional Box Instructions
Box 6: OID on U.S. Treasury Obligations
Report OID on United States Treasury obligations in Box 6. This amount is already included in the total for Box 1. Reporting this separately helps recipients because OID on Treasury obligations is generally exempt from state and local income taxes. Treasury obligations include Treasury bills, notes, bonds, and Treasury Inflation-Protected Securities (TIPS).
Box 7: Investment Expenses
For holders of interests in real estate mortgage investment conduits, report the investment expenses allocable to the holder’s interest. Recipients who file Form 1040 may deduct these expenses on Schedule A as a miscellaneous itemized deduction subject to the 2 percent of adjusted gross income floor.
Account Number Box
The account number box is optional. Use this box if you have multiple accounts for a recipient and the IRS requests that you designate the specific account involved. The account number helps both you and the recipient identify the particular transaction if questions arise later.
TIN Truncation Rules
You may truncate the recipient’s taxpayer identification number on the copy furnished to the recipient. Show only the last four digits of the Social Security number, individual taxpayer identification number, or employer identification number, replacing the first five digits with asterisks or Xs.
Do not truncate the TIN on Copy A filed with the IRS. The IRS requires the complete TIN for processing and matching purposes. Similarly, do not truncate the payer’s TIN on any copy of the form.
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.
Nominee Reporting Requirements
If you receive OID as a nominee for the actual owner, you must file Form 1099-OID showing yourself as the payer and the actual owner as the recipient. This requirement applies when you are the holder of record but are not the actual owner of the debt instrument.
Nominees include brokers, banks holding instruments in street name, and other intermediaries. You must furnish the actual owner with their copy of Form 1099-OID by the recipient deadline. When filing as a nominee, show your name and TIN in the payer section and the actual owner’s information in the recipient section.
Spouses who own debt instruments jointly are not required to file nominee returns for each other. However, if the instrument is held in one spouse’s name but actually owned by both, the named spouse must file a nominee return to properly report each spouse’s share.
Special Reporting Situations
Multiple Debt Instruments
When a recipient holds multiple debt instruments with OID, file a separate Form 1099-OID for each type of obligation that generates reportable OID. You may combine multiple units of identical obligations on a single form, provided they have the same CUSIP number and terms.
Combined Interest and OID Reporting
If you report a qualified stated interest in Box 2 of Form 1099-OID, you do not need to file Form 1099-INT for the same interest. This consolidated reporting simplifies compliance when a single debt instrument generates both OID and stated interest payments.
REMIC, FASIT, and CDO Holders
Trustees and issuers of real estate mortgage investment conduits, financial asset securitization investment trusts, and collateralized debt obligations must report OID and investment expenses to holders quarterly. Furnish statements to holders by the last day of the month following the close of each calendar quarter.
Treasury Inflation-Protected Securities
Treasury inflation-protected securities generate OID equal to the inflation adjustment to principal. Report this inflation adjustment in Box 1 as OID and in Box 6 as OID on U.S. Treasury obligations. The inflation adjustment increases the security’s basis and is exempt from state and local taxes.
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.
Stripped Bonds and Coupons
For stripped bonds and stripped coupons, calculate OID using the constant yield method based on the purchase price and the amount payable at maturity or on the payment date. Report the accrued OID for the period the recipient held the instrument.
Filing Methods and Submission
Paper Filing Requirements
File paper forms with Form 1096 as the transmittal document. Copy A of Form 1099-OID must be the official scannable version printed in red ink. Do not print Copy A from the IRS website and file it with the IRS, as online versions are not scannable and will cause processing delays.
Send paper returns to the IRS campus nearest your location. If your legal residence, principal place of business, or office is located in states served by the Ogden or Austin campuses, follow the filing address specified in the instructions for Form 1096.
Electronic Filing
Electronic filing is required if you file 250 or more Form 1099-OID returns during the calendar year. Count all information returns of the same type together to determine if you meet the 250 threshold. For example, combine all Forms 1099-OID filed during the year, but do not combine Forms 1099-OID with Forms 1099-INT.
File electronically through the IRS Filing Information Returns Electronically system. Electronic filing uses specifications published in Publication 1220. The electronic filing system accepts files formatted according to these specifications and confirms receipt of the files.
If the 250-return threshold requires electronic filing but this creates a hardship, you may request a waiver by filing Form 8508 at least 45 days before the due date. The IRS grants waivers only in limited circumstances where electronic filing is truly impractical.
Important Deadlines
Furnish Copy B to recipients by January 31, 2013. Recipients need this information to prepare their income tax returns accurately. File Copy A with the IRS by February 28, 2013, if filing on paper with Form 1096. The electronic filing deadline is April 1, 2013.
For real estate mortgage investment conduits, financial asset securitization investment trusts, and collateralized debt obligations, furnish quarterly statements to holders by the last day of the month following the close of each calendar quarter. The annual Form 1099-OID is filed according to the standard deadline schedule.
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.
Extensions and Corrections
To request an automatic 30-day extension to file, submit Form 8809 by the original due date. The extension applies to filing with the IRS only and does not extend the deadline for furnishing statements to recipients. You may request only one 30-day extension per filing deadline.
If you discover errors after filing, prepare corrected forms. Check the CORRECTED box at the top of the form and complete all information fields, not just the corrected items. File corrected forms with the IRS and furnish corrected copies to recipients as soon as you discover the error.
Recordkeeping Requirements
Maintain copies of all filed Forms 1099-OID and supporting documentation for at least four years from the due date or the date filed, whichever is later. Keep records showing how you calculated OID amounts, especially for complex instruments requiring daily OID computations.
Retain documentation of recipient TINs, addresses, and the basis for any backup withholding imposed. If you file as a nominee, keep records that identify the actual owners and show the allocation of OID among multiple owners.
Year-Specific 2012 Updates
The 2012 tax year maintains the 28 percent backup withholding rate established in prior years. Continue truncating recipient TINs on copies furnished to recipients, showing only the last four digits. The electronic filing threshold remains at 250 or more returns of the same type.
Publication 1212 provides comprehensive guidance for calculating OID using the constant yield method and making basis adjustments. Recipients should consult Publication 550 for detailed information about reporting OID on their income tax returns. Publication 1220 contains specifications for electronically filing information returns.
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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.
