R-1999-26 - Laserfiche WebLink

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e e Federal Income Tax Accountine: Treatment of Orie:inal Issue Discount The initial public offering price of certain stated maturities of the Bonds may be less than the stated redemption price at maturity (as defined in section 1272 of the Code and Income Tax Regulations thereunder) on the Bonds (the "Original Issue Discount Bonds"). Assuming that all of the Original Issue Discount Bonds have been initially offered and a substantial amount of each maturity thereof has been sold, to the general public in ann's length transactions for a price (with no other consideration being included) for not more than the initial offering prices stated. in this Official Statement, an amount equal to the difference between the initial public offering price of an Original Issue DiscOlmt Bond and the stated. redemption price at maturity constitutes "original issue discount" to the initial purchaser of such Original Issue Discount Bond Such original issue discount may result from the payment of accrued interest by the initial purchaser, Bonds having an interest payment period longer than six months, or the p\U'Chase by the initial purchaser at a discount from the face amount of the Bonds. Under existing law, such initial p\U'Chaser is entitled to exclude from gross income an amount of income with respect to such Original Issue Discount Bond equal to that portion of the amount of such original issue discount allocable to the period that such Original Issue Discount Bond continues to be owned by such purchaser. For a discussion of certain collateral federal ta:r. consequences, see discussion set forth below. In the event of the redemption, sale, or other taxable disposition of such Original Issue Discount Bond prior to stated maturity, the amount realized by such purchaser in excess of the basis of such Original Issue Discount Bond in the hands of such purchaser (adjusted upward by the portion of the original issue discount allocable to the period for which such Original Issue Discount Bond was held by such initial p\U'Chaser) is includable in gross income. Original issue discount is considered to be accrued actuarially in accordance with the constant interest method over the life of the Original Issue Discount Bond, taking into account the semiannual compounding of accrued interest. at the yield to maturity on such Original Issue Discount Bond. The allocation of such original issue discount will generally result in an amount treated as interest that is different than the amount of the payment denominated as interest actually received by the owner thereof during the taxable year. The federal income tax consequences of the acquisition, ownership, redemption, sale, or other disposition of Original Issue Discount Bonds which are not p\U'Chased in the initial offering at the initial offering price may be detennined according to rules which differ from those described above. All purchasers of Original Issue Discount Bonds should consult their own tax advisors with respect to the determination for federal, state, and local income tax purposes of the treatment of interest accrued upon redemption, sale, or other disposition of, such Original Issue Discount Bonds and with respect to the federal, state, local, and foreign tax consequences of the acquisition, ownership, redemption, sale, or other disposition of, such Original Issue Discount Bonds. Collateral Federal Income Tax Conseauences The following discussion is a summary of certain collateral federal income tax consequences resulting from the receipt or accrual of interest on or the acquisition, ownership, or disposition of the Bonds. This discussion is based on existing statutes, regulations, published rulings, and court decisions, all of which are subject to change or modification retroactively. The following discussion is applicable to investors, other than those who are subject to special provisions of the Code, such as fmancial institutions, property and casualty insurance companies, life insurance companies, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualiftying for the earned income tax credit, owners of an interest in a fmancial assest securitization investment trust, certain S corporations with Subchapter C earnings and profits, and taxpayers who may be deemed to have inCWTed or continued indebtedness to p\U'Chase or carry, or who have paid or incurred expenses allocable to, tax-exempt obligations. INVESTORS, INCLUDING rnOSE WHO ARE SUBJECT TO SPECIAL PROVISIONS OF TIiE CODE, SHOULD CONSULT TIIEIR OWN TAX ADVISORS wrrn RESPECT TO THE TAX TREATMENT WHICH MAYBE ANTICIPATED TO RESULT FROM TIiE RECEIPT OR ACCRUAL OF INTEREST ON OR THE ACQmsmoN, OWNERSHIP, AND DISPOSmON OF TAX-EXEMPT OBUGATlONS BEFORE DETERMINING WHETHER TO PURCHASE lHE BONDS. Interest on the Bonds will be included in the "adjusted current earnings" of certain corporations for purposes of computing its alternative minimwn tax imposed by section SS of the Code. Interest on the Bonds may be subject to the "branch profits tax" imposed by section 884 of the Code on the effectively-connected earnings and profits of a foreign corporation doing business in the United States. Under section 6012 of the Code, owners of tax-exempt obligations, such as the Bonds, may be required to disclose interest received or accrued ~uring each taxable year on their returns with respect to federal income taxes. Section 1276 of the Code provides for ordinary income tax treatment of gain recognized upon the disposition of a tax-exempt obligation, such as the Bonds, if such obligation was acquired at a "market discount" and if the fixed maturity of such obligation is equal to, or exceeds, one year from the date of issue. Such treatment applies to "market discount bonds" to the extent such gain does not exceed the 3 dLf