Treasury Regulations · 26 CFR
§ 1.1273-1. Definition of OID.
Regulation text, no changes From the eCFR, current as of October 15, 2026. The eCFR is an authoritative but unofficial editorial compilation of the Code of Federal Regulations; the official text is the annual CFR on govinfo. Compare it with this section on ecfr.gov (external site) or the official annual CFR on govinfo (external site).
Regulation under 26 U.S.C. § 1273
Cite as 26 CFR § 1.1273-1
At a glance
Read from the text and its source citation. Not part of the regulation.
- Status
- In the current eCFR
- Issued
- February 2, 1994 by T.D. 8517
- Last amended
- September 13, 2012 by T.D. 9599
- Issued under
- 26 U.S.C. § 1273
- Length
- 3,092 words · about 13 min to read
- Cross-references
- cites 4 Code sections and 5 regulations; cited by 33
(i) Facts. On January 1, 1995, A purchases at original issue, for $100,000, a debt instrument that matures on January 1, 1999, and has a stated principal amount of $100,000, payable at maturity. The debt instrument provides for interest payments of $8,000 on January 1, 1996, and January 1, 1997, and quarterly interest payments of $1,942.65, beginning on April 1, 1997.
(ii) Amount of qualified stated interest. The annual payments of $8,000 and the quarterly payments of $1,942.65 are payable at a single fixed rate because 8 percent, compounded annually, is equivalent to 7.77 percent, compounded quarterly. Consequently, all stated interest payments under the debt instrument are qualified stated interest payments.
On October 1, 1994, A purchases at original issue, for $100,000, a debt instrument that matures on January 1, 1998, and has a stated principal amount of $100,000, payable at maturity. The debt instrument provides for an interest payment of $2,000 on January 1, 1995, and interest payments of $8,000 on January 1, 1996, January 1, 1997, and January 1, 1998. Under paragraph (c)(1)(iii)(B) of this section, all stated interest payments on the debt instrument are computed at a single fixed rate and are qualified stated interest payments.
(i) Facts. On January 1, 1995, B purchases at original issue, for $100,000, C corporation's 5-year debt instrument. The debt instrument provides for a principal payment of $100,000, payable at maturity, and calls for annual interest payments of $10,000 for the first 3 years and annual interest payments of $10,600 for the last 2 years.
(ii) Payments in excess of qualified stated interest. All of the first three interest payments and $10,000 of each of the last two interest payments are qualified stated interest payments within the meaning of paragraph (c)(1) of this section. Under paragraph (c)(4) of this section, the remaining $600 of each of the last two interest payments is included in the stated redemption price at maturity, so that the stated redemption price at maturity is $101,200. Pursuant to paragraph (e)(3) of this section, the weighted average maturity of the debt instrument is 4.994 years [(4 years × $600/$101,200) + (5 years × $100,600/$101,200)]. The de minimis amount, or one-fourth of 1 percent of the stated redemption price at maturity multiplied by the weighted average maturity, is $1,263.50. Because the actual amount of discount, $1,200, is less than the de minimis amount, the instrument is treated as having no OID, and, under paragraph (d)(1) of this section, all of the interest payments are treated as qualified stated interest payments.
(i) Facts. On January 1, 1997, A issues, for $100,000, a 10-year debt instrument that provides for a $100,000 principal payment at maturity and for annual interest payments of $10,000. Under the terms of the debt instrument, A has the option, exercisable on January 1, 2002, to lower the annual interest payments to $8,000. In addition, the debt instrument gives the holder an unconditional right to put the debt instrument back to A, exercisable on January 1, 2002, in return for $100,000.
(ii) Amount of qualified stated interest. Under paragraph (c)(2) of this section, the debt instrument provides for qualified stated interest to the extent of the lowest fixed rate at which qualified stated interest would be payable under any payment schedule. If the payment schedule determined by assuming that the issuer's option will be exercised and the put option will not be exercised were treated as the debt instrument's sole payment schedule, only $8,000 of each annual interest payment would be qualified stated interest. Under any other payment schedule, the debt instrument would provide for annual qualified stated interest payments of $10,000. Accordingly, only $8,000 of each annual interest payment is qualified stated interest. Any excess of each annual interest payment over $8,000 is included in the debt instrument's stated redemption price at maturity.
(i) Facts. On January 1, 1995, C purchases at original issue, for $97,561, a debt instrument that matures on January 1, 2007, and has a stated principal amount of $100,000, payable at maturity. The debt instrument provides for an initial interest holiday of 1 quarter and quarterly interest payments of $2,500 thereafter (beginning on July 1, 1995). The issue price of the debt instrument is $97,561. C chooses to accrue OID based on quarterly accrual periods.
(ii) De minimis amount of OID. But for the interest holiday, all stated interest on the debt instrument would be qualified stated interest. Under paragraph (d)(4) of this section, for purposes of determining whether the debt instrument has de minimis OID, the stated redemption price at maturity of the instrument is $100,061 ($97,561 (issue price) plus $2,500 (the greater of the amount of foregone interest ($2,500) and the amount equal to the excess of the instrument's stated principal amount over its issue price ($2,439)). Thus, the debt instrument is treated as having OID of $2,500 ($100,061 minus $97,561). Because this amount is less than the de minimis amount of $3,001.83 (0.0025 multiplied by $100,061 multiplied by 12 complete years to maturity), the debt instrument is treated as having no OID, and all stated interest is treated as qualified stated interest.
(i) Facts. The facts are the same as in Example 5 of this paragraph (f) except that C uses an initial semiannual accrual period rather than an initial quarterly accrual period.
(ii) De minimis amount of OID. The debt instrument provides for an initial teaser rate because the interest rate for the semiannual accrual period is less than the interest rate applicable to the subsequent quarterly accrual periods. But for the initial teaser rate, all stated interest on the debt instrument would be qualified stated interest. Under paragraph (d)(4) of this section, for purposes of determining whether the debt instrument has de minimis OID, the stated redemption price at maturity of the instrument is $100,123.50 ($97,561 (issue price) plus $2,562.50 (the greater of the amount of foregone interest ($2,562.50) and the amount equal to the excess of the instrument's stated principal amount over its issue price ($2,439)). Thus, the debt instrument is treated as having OID of $2,562.50 ($100,123.50 minus $97,561). Because this amount is less than the de minimis amount of $3,003.71 (0.0025 multiplied by $100,123.50 multiplied by 12 complete years to maturity), the debt instrument is treated as having no OID, and all stated interest is treated as qualified stated interest.
[T.D. 8517, 59 FR 4815, Feb. 2, 1994, as amended by T.D. 8674, 61 FR 30141, June 14, 1996; T.D. 9599, 77 FR 56536, Sept. 13, 2012]
Cross-references
Computed from the citations in the text of 26 CFR.
Code sections it cites
- § 1273 Determination of amount of original issue discount
- § 451 General rule for taxable year of inclusion
- § 1271 Treatment of amounts received on retirement or sale or exchange of debt instruments
- § 1276 Disposition gain representing accrued market discount treated as ordinary income
Regulations it cites
- § 1.1272-1 Current inclusion of OID in income.
- § 1.1275-2 Special rules relating to debt instruments.
- § 1.1275-5 Variable rate debt instruments.
- § 1.1272-2 Treatment of debt instruments purchased at a premium.
- § 1.1272-3 Election by a holder to treat all interest on a debt instrument as OID.
Cited by 33 other regulations
- § 1.108(i)-0 Definitions and effective/applicability dates.
- § 1.150-3 Retirement standards for state and local bonds.
- § 1.163-7 Deduction for OID on certain debt instruments.
- § 1.221-1 Deduction for interest paid on qualified education loans after December 31, 2001.
- § 1.221-2 Deduction for interest due and paid on qualified education loans before January 1, 2002.
- § 1.385-3 Certain distributions of debt instruments and similar transactions.
- § 1.446-2 Method of accounting for interest.
- § 1.446-5 Debt issuance costs.
- § 1.451-3 Timing of income inclusion for taxpayers with an applicable financial statement using an accrual method of accounting.
- § 1.453-11 Installment obligations received from a liquidating corporation.
- § 1.467-1 Treatment of lessors and lessees generally.
- § 1.467-2 Rent accrual for section 467 rental agreements without adequate interest.
- § 1.679-3 Transfers.
- § 1.679-4 Exceptions to general rule.
- § 1.704-1 Partner's distributive share.
- § 1.988-6 Nonfunctional currency contingent payment debt instruments.
- § 1.1271-0 Original issue discount; effective date; table of contents.
- § 1.1272-1 Current inclusion of OID in income.
- § 1.1272-2 Treatment of debt instruments purchased at a premium.
- § 1.1273-2 Determination of issue price and issue date.
- § 1.1274-4 Test rate.
- § 1.1275-1 Definitions.
- § 1.1275-4 Contingent payment debt instruments.
- § 1.1275-5 Variable rate debt instruments.
Show 9 more
- § 1.1275-6 Integration of qualifying debt instruments.
- § 1.1275-7 Inflation-indexed debt instruments.
- § 1.1397E-1 Qualified zone academy bonds.
- § 1.1502-13 Intercompany transactions.
- § 1.6045-1 Returns of information of brokers and barter exchanges.
- § 1.6049-10 Reporting of original issue discount on a tax-exempt obligation.
- § 1.7701(l)-3 Recharacterizing financing arrangements involving fast-pay stock.
- § 1.7872-15 Split-dollar loans.
- § 31.3406(b)(2)-2 Original issue discount.
Amendment history
From the source citation at the end of the section, newest first. T.D. is a Treasury decision; FR is the Federal Register.
- Amended by T.D. 9599 (77 FR 56536)
- Amended by T.D. 8674 (61 FR 30141)
- Issued by T.D. 8517 (59 FR 4815)
Where it sits in 26 CFR
- Subchapter A Income tax
- Part 1 Income taxes
- Special Rules for Determining Capital Gains and Losses
Nearby sections
- § 1.1271-1 Special rules applicable to amounts received on retirement, sale, or exchange of debt instruments.
- § 1.1272-1 Current inclusion of OID in income.
- § 1.1272-2 Treatment of debt instruments purchased at a premium.
- § 1.1272-3 Election by a holder to treat all interest on a debt instrument as OID.
- § 1.1273-1 Definition of OID.
- § 1.1273-2 Determination of issue price and issue date.
- § 1.1274-1 Debt instruments to which section 1274 applies.
- § 1.1274-2 Issue price of debt instruments to which section 1274 applies.
- § 1.1274-3 Potentially abusive situations defined.