§1273 Determination of amount of original issue discount

Summary

Explains how to figure the original issue discount (OID) on a debt instrument and how to pick its issue price. Original issue discount is the extra amount, if any, between the amount due at the instrument’s final payment (the stated redemption price at maturity) and the price at which it was issued. The stated redemption price is the amount fixed by the last change to the purchase deal and includes interest and other sums due then, except interest that is at a fixed rate and paid regularly at intervals of one year or less. The law also sets a small-amount rule when the OID is less than 1/4 of 1 percent of the stated redemption price times the number of full years to maturity. Sets who counts as the issuer and how to find the issue price. If debt is publicly offered and not given for property, use the initial offering price. If not publicly offered and not given for property, use the price the first buyer paid. Special market rules apply when the debt or the property exchanged for it is traded on an established securities market or is regularly traded. “Property” includes services and the right to use things, but not money. “Initial offering price” and “first buyer” include all payments under the purchase deal, including later changes. If a debt instrument is sold together with options, securities, or other property as one investment unit, treat the whole unit like the debt to set the issue price, then split that price among the parts based on their fair market values.