A term defined in the Code and generally meaning, depending on the context, the dollar price at which a maturity of a bond issue or all of the bond issue was offered to the public by the underwriter.
Original Issue Discount (“OID”)
The amount by which the Par Value of a Bond exceeds its Issue Price. The OID is amortized over the life of the Security. In other words, the holder of a Bond sold with OID treats a portion of the OID as income received in each year that the Bond is outstanding (even though the holder does not receive any corresponding funds). On a Tax-Exempt Bond, that income is generally treated as excludable Interest for federal income tax purposes under the Code. If the bondholder sells the Bond before its Maturity Date, the bondholder’s gain on the sale is the difference between the sales price and the bondholder’s adjusted cost basis, which changes each “computation period” that the Bond is outstanding by adding the accreting, or accumulating, OID to the Issue Price.