[Individual]Original Issue Discount --OID (Mar-03-2011, 47 days left)

OID is a form of interest.

You include OID in your income as it accrues over the term of the debt instrument, whether or not your receive any payments from the issuer.

OID is the difference between the issue price and face value.

Certificates of Deposit (CDs)

You should this rule to CDs, if it has more than 1 year maturity. You must include in income each year a part of the total interest due and report it in the same manner as other OID.

Besides CDs, the following are also fit for OID rule:

• Time deposits,

• Bonus plans,
• Savings certificates,
• Deferred income certificates,
• Bonus savings certificates, and
• Growth savings certificates

Exceptions to reporting OID:

The OID rules do not apply to the following debt instruments:

• Tax-exempt obligation.

• U.S. savings bonds

• Short-term debt instrument.

• Obligation issued by an individual before Mar-2-1984

• Loans between individuals, if all of the following are true:

--the lender is not in the business of lending money

--the amount of the loan + outstanding prior loans <= 10,000

--Avoiding federal tax is not one of the principal purposes of the loan

PSQ

Source: http://www.irs.gov