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#1
05-20-2004, 04:18 AM
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 Re: OID on defaulted bonds?? jpw wrote: - quote - > does a taxpayer have to pay income tax on original issue
I have one document in my files on this subject. It is a> discount on a bond that is in default and bankruptcy? 1995 TAM (9538007) that states the IRS position is that there is no doubtful collectibility exception to the OID rules. Excerpt is below: In short, there is no "doubtful collectibility" exception to OID accrual under section 1272. The "doubtful collectibility" exception of Rev. Rul. 80-361 applies only to the accrual of non-OID interest by taxpayers on the accrual method. Extending the holding in that revenue ruling to allow holders of debt instruments to cease accruing OID in doubtful collectibility situations would contravene the Congressional intent underpinning the OID rules by: (1) failing to respect the principle that OID is "deemed" paid as accrued; (2) creating a mismatch of issuer deductions and holder inclusions; and (3) elevating general accrual principles over specific statutory provisions. -- Alan http://taxtopics.net << -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << -------------------------------------------------> |
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05-19-2004, 07:25 AM
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| Re: OID on defaulted bonds?? jpw <jpwnospamplease[at]Starband.net> wrote: - quote - > does a taxpayer have to pay income tax on original issue
My guess is that you would have to continue reporting the> discount on a bond that is in default and bankruptcy? OID until you either sell the bond or it is proven to be TOTALLY worthless. Merely being in default or bankruptcy does not, in itself, prove worthlessness. Note that as you report the OID, your "basis" in the bond increases. So, if it eventually does become worthless, you will have a capital loss equal to the income reported (although the tax characteristics of the "capital loss" will be different than the "ordinary income" currently reported). MTW << -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << -------------------------------------------------> |
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#-1
05-14-2004, 07:07 AM
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| OID on defaulted bonds?? does a taxpayer have to pay income tax on original issue discount on a bond that is in default and bankruptcy? J << -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << -------------------------------------------------> |
| Tags |
| bonds, defaulted, oid |
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