Form 1099-OID 2013 Tax Year Checklist
Purpose and Overview
Form 1099-OID reports original issue discount accrued during the 2013 calendar year on debt obligations with terms exceeding one year. Payers must report total OID in Box 1 and separately identify any U.S. Treasury OID in Box 6 to help recipients claim state and local tax exemptions. Recipients must include the reported OID as interest income on their 2013 federal tax return, making adjustments as necessary, according to Publication 1212, based on the acquisition date, bond premium, and stripped instrument status.
Original issue discount represents the difference between the stated redemption price at maturity and the issue price of a debt instrument. The discount accrues over the life of the obligation and is taxable as interest income even though the holder does not receive cash payments until maturity or sale.
Who Must File
Payers must file Form 1099-OID if they are issuers of debt instruments with OID, brokers holding obligations as nominees, or middlemen in certain transactions. Specific entities required to file include issuers of bonds, debentures, notes, certificates, and other debt instruments with maturity exceeding one year from the date of issue.
Banks and financial institutions that issue certificates of deposit or time deposits with terms exceeding one year must file when the OID is at least $10. Brokers holding OID instruments on behalf of another person must report the accrued discount. Trustees of real estate mortgage investment conduits and collateralized debt obligations must file when any holder has OID of at least ten dollars.
Completion Steps for 2013
Step 1: Verify Obligation Eligibility
Confirm the debt obligation had a maturity term exceeding one year as of the 2013 tax year. Only obligations meeting this threshold are required to report on Form 1099-OID. Eligible instruments include bonds, debentures, certificates of deposit, time deposits, Treasury inflation-protected securities, and other debt instruments held during calendar year 2013.
Short-term obligations with maturity of one year or less from the date of issue do not generate reportable OID under the Form 1099-OID requirements. These shorter instruments may have different reporting requirements or may be exempt from information reporting altogether.
Step 2: Calculate and Report Total OID in Box 1
Calculate the total original issue discount accrued during 2013 on all debt obligations held by the recipient. Report this amount in Box 1 of Form 1099-OID. This box includes OID from all sources, including U.S. Treasury obligations, corporate bonds, certificates of deposit, and other qualifying debt instruments.
Use the constant yield method to calculate OID as 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: Separately Identify Treasury OID in Box 6
Calculate the portion of Box 1 OID that is attributable to U.S. Treasury obligations and report this amount in Box 6. The Box 6 amount is already included in the Box 1 total and should not be added again. This separate reporting helps recipients because OID on U.S. Treasury obligations is exempt from state and local income taxes.
Treasury obligations include Treasury bills, Treasury notes, Treasury bonds, and Treasury Inflation-Protected Securities (TIPS). The Box 6 amount enables recipients to properly exclude this income from their state and local tax returns where such exemptions apply.
Step 4: Account for Partial-Year Ownership
If the recipient acquired or disposed of the obligation during 2013, allocate OID only for the portion of the year the recipient owned the instrument. Calculate the daily OID amount and multiply by the number of days the recipient held the obligation during the calendar year.
Do not issue Form 1099-OID for obligations bought or sold mid-year unless you are the holder of record acting as a nominee. In nominee situations, file the form showing yourself as the payer and the beneficial owner as the recipient, reporting only the OID allocable to the period of actual ownership.
Step 5: Report Qualified Stated Interest in Box 2
Report any qualified stated interest paid on the obligation during 2013 in Box 2. This box is optional for Form 1099-OID purposes. If you report qualified stated interest here, you do not need to file a separate Form 1099-INT for the same interest payments.
Qualified stated interest is interest that is unconditionally payable at least annually at a single fixed rate. Report the actual interest payments made during the calendar year, not accrued but unpaid interest.
Step 6: Complete Box 3 for Early Withdrawal Penalties
Report any interest or principal forfeited due to early withdrawal in Box 3 for 2013. This applies when a recipient redeems a certificate of deposit or similar instrument before maturity, and the financial institution assesses a penalty by forfeiting accrued interest or principal.
The amount reported in Box 3 is deductible by the recipient as an adjustment to income on Form 1040. Recipients claim this deduction when calculating their adjusted gross income, without needing to itemize deductions.
Step 7: Report Backup Withholding in Box 4
If the recipient failed to furnish a correct taxpayer identification number or the IRS notified you to impose backup withholding, report the amount withheld in Box 4. Backup withholding applies when certification requirements are not met or when the IRS issues a notice requiring backup withholding.
The recipient includes the Box 4 amount as federal income tax withheld on their 2013 tax return. This withholding counts as a payment of tax and may result in a refund if it exceeds the recipient’s tax liability.
Step 8: Report Market Discount in Box 5
If applicable, report any market discount that accrued during 2013 in Box 5. Market discount occurs when a debt instrument is purchased for less than its adjusted issue price in the secondary market. The accrued market discount may be taxable as ordinary income when the bond is sold or redeemed.
Most payers leave Box 5 blank because market discount calculations typically fall on the recipient rather than the payer. However, certain trustees and middlemen may need to report this information when they have the necessary data.
Step 9: Document Investment Expenses in Box 7
For holders of real estate mortgage investment conduit regular interests or collateralized debt obligations, report the recipient’s share of investment expenses in Box 7. These expenses represent costs associated with managing the investment that may be passed through to holders.
Recipients who itemize deductions on Schedule A may deduct these investment expenses as miscellaneous itemized deductions subject to the two percent of adjusted gross income floor. The expenses are reported separately and are not included in the amounts in Box 1 or Box 2.
Step 10: Include Account Number When Applicable
The account number box is optional but recommended when you maintain multiple accounts for a single recipient. Use this box to designate the specific account involved in the transaction. Including account numbers helps both you and the recipient identify particular transactions if questions arise later.
Account numbers are especially helpful when correcting previously filed forms or responding to IRS inquiries. Consistent use of account numbers improves recordkeeping accuracy and facilitates easier reconciliation.
Nominee Reporting Requirements
If you are the holder of record but not the beneficial owner of the obligation, you must file separate Forms 1099-OID for each true owner. List yourself as the payer and show the beneficial owner as the recipient. Report only the amounts allocable to each beneficial owner for the 2013 tax year.
Nominees include brokers holding instruments in street name, banks holding obligations on behalf of customers, and other intermediaries. File all nominee copies with Form 1096 as the transmittal document. Furnish each beneficial owner with their Copy B by January 31, 2014.
Spouses who jointly own debt instruments do not need to file nominee returns for each other when the instrument is held in both names. However, if the instrument is registered in one spouse’s name but is beneficially owned by both, the registered owner must file a nominee return to properly allocate each spouse’s share.
Furnishing Statements to Recipients
Deliver Copy B to all 2013 obligation holders no later than January 31, 2014. This deadline applies whether you furnish the statement by mail, electronic delivery, or in person. If January 31 falls on a weekend or a legal holiday, the deadline is extended to the next business day.
Include the cautionary statement that the amount shown may require adjustment according to Publication 1212. Recipients need this information to properly report OID on their federal income tax returns. Some recipients may need to adjust the reported OID based on their specific circumstances, such as the acquisition premium or bond premium.
You may furnish statements electronically if the recipient consents to electronic delivery. The consent must be made electronically in a manner that demonstrates the recipient can access the statement in the required format. Maintain records showing recipient consent for electronic delivery.
Filing with the IRS
Submit Copy A to the IRS with Form 1096 as the transmittal document. Paper filers must submit returns by February 28, 2014. The destination depends on your location, with returns sent to either the Austin or Ogden IRS campus based on your principal place of business.
Electronic filers must submit returns by March 31, 2014, using IRS-approved software that meets the specifications in Publication 1220. Electronic filing is required if you file 250 or more information returns of any single type during the calendar year. The 250-return threshold applies separately to each form type.
Use the official scannable Copy A when filing paper returns. Do not print Copy A from the IRS website, as these versions are not scannable and will cause processing delays. Order official forms through the IRS or use IRS-approved substitute forms that meet specifications in Publication 1179.
Extension and Waiver Requests
To request an automatic 30-day extension of time to file, submit Form 8809 by the original due date. The extension applies only to filing Copy A with the IRS and does not extend the deadline for furnishing statements to recipients. You may request only one 30-day extension per filing deadline.
If the 250-return threshold requires electronic filing but the extra time creates undue hardship, you may request a waiver by filing Form 8508 at least 45 days before the due date. The IRS grants waivers only when electronic filing is truly impractical due to economic hardship or other compelling reasons.
Corrections and Amended Returns
If you discover errors after filing, prepare corrected forms as soon as possible. Mark the CORRECTED checkbox at the top of the form and ensure all information boxes are completed, not just the items being corrected. File corrected Copy A with the IRS and furnish corrected statements to recipients.
Common reasons for corrections include incorrect recipient identification numbers, wrong OID amounts, misreported backup withholding, and transposed account numbers. Address errors promptly to assist recipients in filing accurate tax returns and avoiding IRS matching notices.
Year-Specific 2013 Updates
The 2013 instructions maintain the Box 6 designation for U.S. Treasury OID exemption. This box separately identifies the portion of total OID in Box 1 that relates to Treasury obligations and is exempt from state and local income taxes. Recipients use this information to properly complete their state and local tax returns.
Publication 1212 remains the primary reference for recipients who need to calculate the correct reportable OID for 2013. The publication provides detailed guidance for adjusting OID based on acquisition premium, bond premium, market discount, and stripped instrument rules unique to each recipient’s purchase circumstances.
The paper filing deadline for 2013 is February 28, 2014, with the electronic filing deadline extended to March 31, 2014, for filers using IRS-approved software that meets the requirements of Publication 1220. The 250-return electronic filing threshold continues to apply on a per-form-type basis.
For nonresident alien recipients in 2013, payers may be required to withhold federal income tax under chapter three of the Internal Revenue Code and file Form 1042-S rather than Form 1099-OID. Consult Publication 515 for complete guidance on withholding and reporting requirements for payments to foreign persons.
Backup withholding rules for 2013 require payers to withhold when recipients fail to provide correct taxpayer identification numbers on Form W-9 or when the IRS issues a backup withholding notice. Report all backup withholding in Box 4 for the tax year in which withholding occurred.
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 taxpayer identification numbers for recipients, addresses, and the basis for any backup withholding imposed. Records should demonstrate compliance with Form W-9 solicitation requirements and show your response to any IRS backup withholding notices received during the year.
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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.
