§1273 Determination of Amount of Original Issue Discount

Summary

Explains how to figure original issue discount (OID) and how to pick the issue price for debt instruments. OID is the amount by which the final redemption amount at maturity is bigger than the issue price. The "stated redemption price at maturity" is the amount fixed by the last purchase agreement change and includes interest and other amounts due then, except routine fixed-rate interest paid on periods of 1 year or less. The law also compares the OID to a small test: 1/4 of 1 percent of the maturity price times the number of full years to maturity. Says how to set the issue price in different cases. If the debt is publicly offered and not issued for property, use the initial offering price. If not publicly offered and not for property, use the price paid by the first buyer. There are special rules when debt is issued for property or when parts are traded on an established securities market. "Property" includes services and the right to use things, but not money. "Initial offering price" and "price paid by the first buyer" count all payments under the purchase deal, including later changes. If a debt instrument and other items are sold together as one unit, treat the whole unit as a debt instrument, split its issue price among the parts by their fair market values, and assign the debt's issue price to its share.