1099-OID for dummies

[George]

I received a 1099-OID for some preferred shares (LUTHP) that I bought on
the secondary market last year. The box 1 OID is about 10% less than
the actual payments I received for the year. Box 2 is empty. A note on
Box 1 says "You may need to make certain adjustments to this
information."

- Am I _required_ to adjust the OID, or can I just list the reported
amount on Sch B?

- If I am required to adjust, I would appreciate a link to guidance
on how this is done.

Thanks,
George

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[Salmon Egg]

In article <q254i8pqc3mccjjel...@4ax.com>,

George <gbec...@verizon.net> wrote:

> I received a 1099-OID for some preferred shares (LUTHP) that I bought on
> the secondary market last year. The box 1 OID is about 10% less than
> the actual payments I received for the year. Box 2 is empty. A note on
> Box 1 says "You may need to make certain adjustments to this
> information."
>
> - Am I _required_ to adjust the OID, or can I just list the reported
> amount on Sch B?
>
> - If I am required to adjust, I would appreciate a link to guidance
> on how this is done.

After more than 20 years after getting my one and only OID notice, it
still rankles me to think about it. If it still is the same kind of
animal, OID is a method used by the IRS get a little bit of money a bit
earlier by making you (taxpayer) keep records for years. I believe it
came out of the IRS getting fancy computers to keep track.

Before such computers, if you bought a $1000 bond (shows how old I am)
at 98, it meant you paid $980. When the bond matured you would get
$1000. You would pay capital gain tax on the $20 difference. Relatively
easy.

Now, with even fancier computers, that $20 is considered to be interest.
You have to pay tax on that interest every year and keep pertinent
records as well. Bah Humbug.

If that isn't bad enough, I will tell you about some insurance I did not
know I had paid for my employer when I retired. I had to pay tax on
imputed income. Not much but bah double humbug.

By the way, the IRS is doing all this at the behest of Congress. Bah
triple humbug.

--

Sam

Conservatives are against Darwinism but for natural selection.
Liberals are for Darwinism but totally against any selection.

[Alan]

On 2/18/13 10:07 AM, George wrote:
> I received a 1099-OID for some preferred shares (LUTHP) that I bought on
> the secondary market last year. The box 1 OID is about 10% less than
> the actual payments I received for the year. Box 2 is empty. A note on
> Box 1 says "You may need to make certain adjustments to this
> information."
>
> - Am I _required_ to adjust the OID, or can I just list the reported
> amount on Sch B?
>
> - If I am required to adjust, I would appreciate a link to guidance
> on how this is done.
>
> Thanks,
> George
>

Typically, preferred stock is issued at par and there is no OID. In your
case, LUTHP was a originally a private placement issued at a discount to
par (Par being $1000). As it was issued at a discount, there is OID.
There is also interest at 7.75% paid during the year. It is this
interest that you received in cash. It is highly unlikely that you need
to adjust the OID. Just report the amount in Box 1 as interest income.

For more info on how one treats OID, see IRS Pub 550.

--
Alan
http://taxtopics.net

[Alan]

OID is Original Issue Discount. This means that at the time the debt was
first offered, it was priced below its redemption value. This has
nothing to do with buying $1000 bonds at $980 due to market conditions.
So.. in your example, unless the buyer purchased a $1000 bond for $980
when originally issued, there is no OID and at maturity, there would be
a $20 capital gain.

--
Alan
http://taxtopics.net

[Salmon Egg]

In article <kg10nc$nlq$1...@dont-email.me>,
Alan <temp...@vacationmail.com> wrote

<snip>

> On 2/19/13 8:20 AM, Salmon Egg wrote:

<snip>

> Before such computers, if you bought a $1000 bond (shows how old I am)
> > at 98, it meant you paid $980. When the bond matured you would get
> > $1000. You would pay capital gain tax on the $20 difference. Relatively
> > easy.
> >
> > Now, with even fancier computers, that $20 is considered to be interest.
> > You have to pay tax on that interest every year and keep pertinent
> > records as well. Bah Humbug.
> >
> > If that isn't bad enough, I will tell you about some insurance I did not
> > know I had paid for my employer when I retired. I had to pay tax on
> > imputed income. Not much but bah double humbug.
> >
> > By the way, the IRS is doing all this at the behest of Congress. Bah
> > triple humbug.
> >
> OID is Original Issue Discount. This means that at the time the debt was
> first offered, it was priced below its redemption value. This has
> nothing to do with buying $1000 bonds at $980 due to market conditions.
> So.. in your example, unless the buyer purchased a $1000 bond for $980
> when originally issued, there is no OID and at maturity, there would be
> a $20 capital gain.

I understand this. At the time OID was introduced, very few people, if
any, had computers. It was probably even difficult for 1099 issuers to
set up.

--

Sam

Conservatives are against Darwinism but for natural selection.
Liberals are for Darwinism but totally against any selection.