I've posted on this in early March but still am having trouble understanding how to amortize the ABP amount on a Municipal bond. However, OID bonds purchased in a. Commissioner of Revenue. that are exempt from income tax providing these amounts are included in your Illinois base income. What should I enter in the Type Code field in the interest and dividends statements? How do I enter income from a private activity bond?However, if you acquired a tax-exempt bond at a premium, only report the net amount of tax-exempt interest on line 2a of your Form 1040 or 1040-SR (that is, the excess of the tax-exempt interest received during the year over the amortized bond premium for the year). Box 12 Bond Premium on U. Muni bond interest can also impact how your Social Security is taxed. F. Specified Private Activity Bond Interest — Shows tax-exempt interest subject to the alternative minimum tax. It has four check boxes. 25% of permissible premium). 1 Solution. (iii) Bond premium allocable to the first accrual period. Bond Premium on Tax-Exempt Bond, later. Till recently the taxable account and Roths had all stocks and the tax deferred had almost all bonds and a small amount of stock index funds. Therefore, the OID on tax-exempt bonds is tax free, while the OID on taxable securities is subject to taxation as interest income. While municipal bonds are available in both taxable and tax-exempt formats, the tax-exempt bonds tend to get the most attention because the income they generate is, for. A portion of your income. You choose to use annual accrual periods ending on February 1 of each year. Interest Income. At least 75% of the securities held by the fund are municipal bonds in the top three credit-rating categories as determined by a nationally. VTES may be suitable for tax-sensitive investors with a short-term time horizon and low interest rate risk tolerance. A separate clarification, I net purchased accrued interest (purchased interest) and box 13 on 1099 INT (Bond Premium on TEB) against total Tax Exempt Interest (Box 8 on 1099 INT). The reissuance rules apply to all tax-exempt bonds from a large bond issue to a small. • Qualified 501(c)(3) bonds. 50 with respect to bonds G and H. (b)(1)(B). However, if you acquired a tax-exempt bond at a premium, only report the net amount of tax-exempt interest on line 2a of your Form 1040 or 1040-SR (that is, the excess of the tax-exempt interest received during the year over the amortized bond premium for the year). In fine print is says "original cost basis $10,368". The payer may, but is not required to, report the OID for a tax-exempt obligation that is a covered security acquired before. You can delete Schedule B using these steps: Select Tax Tools from the menu on the left. The tax-exempt portion of the original issue discount bond with respect to a stripped coupon or stripped bond is the excess of the stated redemption price at maturity (or in the case of a coupon, the amount payable on the due date of the coupon), over an issue price that would produce a yield to maturity as of the purchase date equal to the. Treasury Obligations shows the bond premium for the year for covered U. Under your last entry on line 1, put a subtotal of all interest listed on line 1. read more03-06-2023, 09:01 PM. The $25,000 of interest income on state and local bonds, other than the New York City bonds, is to be added to Federal adjusted gross income (see subdivision [a] of this section). (However, see Tax-Exempt Bonds and Coupons, later. amount of bond premium amortization for the tax year. Information about tax-advantaged bonds, including tax-exempt, tax credit and direct pay bonds. The financing is. Box 12 Bond Premium on U. In the next page, - enter the NON-covered premium amount as a positive number, and. In Box 88 - State, enter XX. 1099-INT. In Box 88 - State, enter XX. However, in conduit financings, the bond documents usually delegate most responsibilities to maintain the tax-exempt status of the bonds to the Borrower. C. Do not file. 1 Series A Group 1 Tax-exempt 6 2. Interest derived from bonds issued by California or its political subdivisions, the federal government, the District of Columbia (issued before December 24, 1973), or territories of the United States. (C) Carryforward in holder's final accrual period —( 1) If there is a bond premium carryforward determined under § 1. Actually, there is not a deduction for the premium you paid for your tax-exempt bonds on your federal return. If adjustments for bond premiums are not reflected on your 1099-INT, you can manually enter the bond premium adjustment in the 1099-INT section of TurboTax. § 171 (b) (1) (C) —. 1099-OID. 1, Schedule M-1) and should be sourced to the appropriate State. Therefore, the OID on tax-exempt bonds is tax free, while the OID on taxable securities is subject to taxation as interest income. Fields highlighted in yellow import into the UltraTax CS Source Data Entry application. What should I enter in the Type Code field in the interest and dividends statements? How do I enter income from a private activity bond? However, if you acquired a tax-exempt bond at a premium, only report the net amount of tax-exempt interest on line 2a of your Form 1040 or 1040-SR (that is, the excess of the tax-exempt interest received during the year over the amortized bond premium for the year). 07 percent, compounded annually. Where do I report this and also the acquisition premium amortization? TurboTax Deluxe. For a taxable covered security acquired at a premium, unless you notified the payer in writing in accordance with Regulations section 1. The discount is also amortized and increases the amount of t/e. (ii) Amount of bond issuance premium. Vanguard Short-Term Tax-Exempt Bond ETF (VTES) is built to help you earn consistent, tax-exempt income. Go to Interest and Dividend Income. Deduct the Acquisition Premium ($790) from the Tax Exempt OID to get the taxable amount ($3700 - $790 = $2910). (iii) Bond premium allocable to the first accrual period. For a covered security acquired with bond premium, you must report the amount of bond premium amortization for the tax year. For more information,. bonds, T-bills, etc. To enter the bond premium in Turbo Tax, Go to Income. Instead the amortization amount is just showing in the 1099 in the. Nov 18, 2020. Box 12 lists the tax exempt bonds that paid interest income by CUSIP number. When governments issue bonds, specific considerations are likely to apply to bond proceeds. It should show 6,000 = 10,000 - 2,000 - 2,000. PHONE: 800-955-2444 CONNECT: Tax Analysts is a tax publisher and does not provide tax advice or preparation services. However, some bonds, such as municipal bonds, may be exempt from federal and state taxes. Below this subtotal, print “ABP Adjustment,” and the total interest you received. Capital Group veteran municipal manager Chad Rach will transition out of American Funds Tax-Exempt Bond on Oct. municipal bonds from federal income tax. Under your last entry on line 1, put a subtotal of all interest listed on line 1. In the case of a tax-exempt obligation, if the bond premium allocable to an accrual period exceeds the qualified stated interest al-locable to the accrual period, the ex-cess is a nondeductible loss. See Publication 550. Understanding the tax implications of your bond investments is crucial for effective. You are required to amortize the premium each year and this will reduce your basis (what you paid). You remove all of the box 3 $$ (and box 12, if any) and put box 3 (plus 12) on it's own 1099-INT before indicating it's accrued interest. Accrued Market Discount: The gain in the value of a discount bond expected from holding it for any duration until its maturity. Status Open. 22:. Box 14: Tax-exempt and tax credit bond CUSIP. Changes to guidance, law and procedures that affect Tax-Exempt Bonds. Instead the amortization amount is just showing in the 1099 in the "Adjustments" section, under "Bond premium - Tax-exempt obligations (noncovered. The amount is used to reduce the amount of tax-exempt interest reported on line 8b, Form 1040, and also reduces the taxpayer's basis in the bond. Municipal bonds ETFs are generally free from federal and state taxes if they hold only tax-exempt bonds. Despite being shown as (ii) Amount of bond premium. 00 11- Specified private activity bond interest dividends (AMT) 0. IF you don't, the accrued interest will be divided up proportionately (and improperly) among boxes 1, 3. K. Municipal bonds have a face value. - "Continue". In box 11, Bond Premium, put the amount. Then, figure out how many months are left before the bond matures and divide the bond premium by the number of months remaining. One section of the tax rules pertaining to hedge bonds provides that to avoid a bond becoming a hedge bond, an issuer must. In the left-hand navigation, click. Intermediate-Term Core Bond Funds ;The payer may, but is not required to, report the premium amortization for a tax-exempt obligation that is a covered security acquired before January 1, 2017, and issued with OID. For several years, TurboTax users have noted that TurboTax claims that Charles Schwab 1099-OID’s for tax-exempt bonds with a positive bond premium in Box 10 must have Box 10 manually reduced to 0 because Schwab provides no Box 2 value and it is treated as being null (0). The last three. Market discount $ 11 . , prepayment date without penalty) approximately 10-years from the date of issuance. There is also an adjustment to tax-exempt interest that does not factor into the income distribution deduction. 4- Federal income tax withheld 0. It is a municipal bond that matured and the premium was more than tax exempt amount. According to IRS regulations, any amount reported in Box 12 of Form 1099-DIV is to be treated as "Tax-Exempt Interest Income. For a covered security acquired with bond premium, you must report the amount of bond premium amortization for the tax year. 00. (iii) Bond issuance. The issue price of the debt instrument is $110,000. Customer reply replied 3 years ago. To. In Box 111 - State of origin, enter the 2-digit state code. 00 Tax-exempt obligations (covered lots) 0. What if I have income from obligationsAn individual who received $421 in interest from bonds issued by another state and purchased after December 31, 2011, will have to “add back” $421 to the amount of income used to calculate the tax obligation for Indiana. How to enter an election to amortize bond premium. com. Accrued OID at Purchase = 2 /10 × $200 = $40. If there's an amount in box 8. Minnesota Bond Premium Adjustment. Under applicable tax rules, the Issuer is legally responsible for the tax-exempt status of the bonds. CT modifies federal AGI by adding tax exempt interest to federal AGI. Subtract the bond premium amortization from your interest income from these bonds. 03-06-2023, 09:01 PM. Investor class expense ratios include 0. I have a form 1099-INT that lists tax exempt interest on line 8 and bond premium on tax exempt bonds on line 13. Include in box 8 any accrued qualified stated interest on these bonds sold between interest dates (or on a payment date). For a specified private activity bond with OID, report the tax-exempt OID in box 11 on Form 1099-OID, and the tax-exempt stated interest in boxes 8 and 9 on Form 1099-INT. To enter exempt interest dividend and specified private activity in Turbo. In line 18 - (13) Bond premium on tax-exempt bond, enter the amount (if applicable). I. Complete this screen as if your Tax-Exempt Dividend Income was reported in Box 8 of a 1099-INT. The above tells us to reduce tax-exempt income by the Box 10 amount. 09%. (B) generally. Initial Investment 3,000. To report the amortized bond premium by: Login to Turbo Tax; Jump to Income and Expenses. Two provisions of the code eliminate this windfall. Schedule B, line 1. Does the bond premium get reported as tax exempt. S. State identification no. whether the bond premium is de minimis (17 years times . Client has 1099-Int and within the paperwork there is an amount for "Noncovered Bond Premium on Tax-Exempt Bond" and an amount for Welcome back! Ask questions, get answers, and join our large community of tax professionals. 15 . 00 8- Cash liquidation distributions 0. However, if you acquired a tax-exempt bond at a premium, only report the net amount of tax-exempt interest on line 2a of your Form 1040 or 1040-SR (that is, the excess of the tax-exempt interest received during the year over the amortized bond premium for the year). When sold for more of the face value, they are sold with a premium; when less than face value, a discount. This is all very confusing in light of 1. There are three entries block 7 the description (name), box 11 Tax exempt OID ($3700) and block 6 acquisition premium ($790). Taxable OID, tax-exempt OID and bond premium are reported on Form 1099-OID like yours. Nov 18,. 744 & 745) E E Production Credit Associations E E Puerto Rico E E Puerto Rico Water Resources — 4. You can leave that field blank if Box 14 is empty on your form. Calculation. The banks, however, continued to compute their net income for purposes of the Massachusetts bank excise tax without this adjustment, using original cost basis to yield a loss on redemption. (March 27, 2023) As part of ongoing efforts to improve service for the tax-advantaged bond community, the IRS accepts electronic filing of Form 8038-CP, Return for Credit Payments to Issuers of Qualified Bonds. 171–1, the amount of bond premium is $10,000 ($110,000−$100,000). There are 3 NYS bonds. Let us consider an investor that purchased a bond for $20,500. See § 6. 2014—Subsec. • Although there is a box for. IRC § 103 does not mention governmental bonds, but it does refer to. Box 13 refers to the bond premium on tax-exempt bonds. • Line 8: Tax Exempt Interest – Shows the total amount of tax-exempt interest paid to you during the calendar year by the payer. State. Marietta, GA 30060. A tax term, the amortizable bond premium refers to the excess price (the premium) paid for a bond, over and above its face value. Follow these steps to make a manual adjustment for the bond premium you paid on your tax-exempt and taxable bonds: Select Federal Taxes Under Wages &. If there's an amount in box 11. S. 10) ($82. Visit the Marietta Development Authority's webpage to learn more about MDA bond financing or contact The Economic Development Division for assistance. Under § 1. For a specified private activity bond with OID, report the tax-exempt OID in box 11 on Form 1099-OID and the tax-exempt stated interest in boxes 8 and 9 on Form 1099-INT. 25% equals 4. Enter on 1099-INT worksheet, Box 1 - Interest income. Municipal bonds have a face value. withholding. 52 in 2009. Unlike Tax-exempt interest dividends (Box 12 in 1099-DIV) which TT has a additional adjustment section for that I assume applies for Federal as well as the states we. While still exempt from Federal Income Tax, such amounts will be reported to the Internal Revenue Service. For the purpose of this example, assume an investor had a tax-exempt interest dividend distribution of $1,000. Tax Exempt Bonds. Edward Jones does keep track of. 15 State 16 State identification number 17 State tax withheld FATCA filing requirement . For a specified private activity bond with OID, report the tax-exempt OID in box 11 on Form 1099-OID and the tax-exempt stated interest in boxes 8 and 9 on Form 1099-INT. See the instructions above for a tax-exempt covered security acquired at a premium. Once information is completed, Lacerte generates an election statement with the election language and bond information. Is the tax-exempt OID on the federal level reported on the tax. We've launched a new fund to expand our tax-exempt bond ETF (exchange-traded fund) lineup. X Box 15 State B&D Interest Income State Box 16 State identification no. In no case shall the amount of bond premium on a convertible bond include any amount. State identification no. The New Jersey return asks what portion is tax exempt (due to federal or New Jersey obligations). A bond bought at a premium leads to a loss at maturity. Where is the Definition of Governmental Bonds? Treas. Form 1040 Line 2a = Tax Exempt Interest + Exempt-Interest Dividends - Bond Premium for Tax Exempt Bond. Click on the box My form has info in more than just these boxes (this is uncommon). Specified private activity bond interest $ 10 . H&R Block. R. 11. Hello again. Subtract the bond premium amortization from your interest income from these bonds. This amount is included in line 8. Amortization Methods for Premium Bonds. See the instructions above for a tax-exempt covered security acquired at a premium. The U. 00. 1272-2(a):To report this on your tax return, you can follow these steps: Enter the Tax Exempt OID ($3700) on Form 1040, Line 2a as tax-exempt interest. The difference is $7k and is the amount of Bond Premium for Tax Exempt Bond. The new municipal bond index ETF is designed for tax-sensitive investors with a. Specified Private Activity Bond Interest — Shows tax-exempt interest subject to the alternative minimum tax. Under § 1. Interest on the bond may also be exempt from local and state income taxes, which can further lower interest rates (so that they are below comparable taxable debt). Subtract the bond premium amortization from your interest income from these bonds. California does not tax: Interest on governmental obligations. Reg. In no case shall the amount of bond premium on a convertible bond include any amount. Level 3. When I enter them on page#11 on the same 1099 input form they net against each other on the 1040 line 2a and do not show up on schedule B or in any detail. State tax withheld $ $ Form . So if you did report it, it would be on Schedule B (which the Sch B totals carry over to the front page of the 1040). – Issuer may have an option to issue tax exempt bonds or not. (b) Amortizable bond premium (1) Amount of bond. U. *Panama Canal Bonds Specifically Exempt from Tax by U. Under § 1. linduca1216. 00 interest you collected on 3/31/09 and the $83. It offers a 5% coupon rate that is paid semi-annually and with a yield to maturity of 3. The tax reporting requirements outlined are not appli-cable if bonds are owned inside an IRA or other retirement plans. Box 4 - Federal income tax withheld. If you bought a TAX-EXEMPT bond at a PREMIUM and sold it PRIOR to maturity. Lesson 4 also discusses the rules for depreciation of tax-exempt bond financed property set forth § 168 and the rule under § 57(a)(5) that requires individuals and corporations to include tax-exempt interest from “specified private activity bonds” in income for purposes of figuring the alternative minimum tax. But, Turbo Tax is only adding the excess of tax exempt interest over bond premium on tax exempt bonds (similar to the calculation on line 2a of. So if you paid $50 of accrued interest when you bought Bond 1, and $100 when you bought Bond 2, and you collected $130 on Bond 1 and nothing on Bond 2, you get to deduct the $50 paid (because 50<130) and carry the rest forward (because 100>0). For young or lower income tax payers it is probably fine to. Tax-exempt interest $ 9 . (2) In lieu of any deduction under Section 24360, the amount of any premium so allocated to any interest. (yield to worst for callable bonds. 64 years. If the bond yields tax-exempt interest, you must amortize the premium. 6045-1(a)(15)(i)(C) to determine if a debt instrument is a covered security. Under § 1. For an overview of an issuer’s responsibilities in a conduit financing arrangement, see IRS Publication 5005,Your Responsibilities as a Conduit Issuer of Tax-Exempt Bonds. From the left of the screen, select Income and choose Interest Income (1099-INT, 1099-OID) . Bonds and bond funds are taxed in 2 ways—based on the income that's distributed and on any gains if the investment is sold at a profit. Premium Bond: A premium bond is a bond trading above its par value ; a bond trades at a premium when it offers a coupon rate higher than prevailing interest rates. Bond premium on Treasury obligations $ 13 . Form . Since the coupon rate is paid semi-annually, it means that every six months, a coupon of $25 ($1,000 x 5/2) will. S. Amortization of bond premium attributable to current tax year on any bond whose interest income is subject to New York income tax, but exempt from federal income tax, if this amortization was not deducted on your federal return or shown as a New York subtraction. It doesn't matter how you split up the interest in. Tax-exempt income. (ii) Tax-exempt obligations. S. See § 1. (iii) Bond premium allocable to the first accrual period. 00 10- Exempt-interest dividends (includes line 11) 0. Any exempt-interest dividends from a mutual fund or other RIC are reported on Form 1099-DIV. Tax software shows 6,400 on form 1040 line 2a (Exempt interest). Box 11. Box 13: Bond premium on tax-exempt bond Go to the Input Return tab. Select I need to adjust the taxable amount, select Continue. In addition, the rules vary depending on the issuer of the bond (taxable bonds vs. How do you record bond premium on tax-exempt bonds? If the bond is a tax-exempt municipal, you report the loss of premium value and subtract the loss from. The premium paid for a bond represents part of the cost basis of the bond, and so can be tax-deductible, at a rate spread out (amortized) over the bond’s lifespan. If a regu-lated investment company (RIC) within the meaning of section 851 has excess bond premium for an accrual periodThis amortized amount is not deductible in determining taxable income [*]. The bond pays out interest, but loses $368 of value during the holding period. bond that is treated as tax-exempt interest to the discount that produces a yield to maturity equal to the coupon rate of interest on (or, at the purchaser’s election, the original yield to maturity of) the whole tax-exempt bond. Specified private activity bond interest $ 10 . I think you meant Box 13 on 1099-INT. 8 billion Vanguard Tax-Exempt Bond ETF (Ticker: VTEB). If there is an amount in both boxes 2 and 8, the amount in box 2 is interest on a U. In 2015, less than 1% of corporate bonds, 17% of taxable municipal bonds, and 1% of US. See Regulations section 1. 1. HOME Form 8949. Municipal Income Fund would calculate that portion of the tax-exempt interest dividends they received from the fund that may be exempt from Massachusetts income tax. Is the line 8 amount already "adjusted" for the line 13 amount, or is the interest I sh. *. § 171 (b) (1) (C) —. Private Activity Bond - PAB: Tax-exempt bonds issued by or on behalf of local or state government for the purpose of providing special financing benefits for qualified projects. I can't do a manual adjustment as I'm doing a standard deduction, not itemized deduction. For single bonds or accounts containing a single bond, enter the CUSIP number of the tax-exempt bond for which tax-exempt interest is reported in box 8 or tax credit bond (including build. tax-exempt bonds and, if a tax-exempt OID bond purchased at the issue price in the initial offering is held to maturity, any OID associated with the bond would be treated as tax-exempt interest. Premium Bonds are a type of lottery bond/savings account that offer a chance to win tax-free prizes every month, instead of paying interest—meaning that they have no guaranteed return. Is the line 8 amount already "adjusted" for the line 13 amount, or is the interest I sh. See line 4. 00 7- Foreign country or US possession: 6- Foreign tax paid: 0. 05%. Tax Implications of Amortizable Bond Premiums Taxation of Bond Income. Page 3 of 8 * This is important tax information and is being furnished to the Internal Revenue Service. (or it was called): Your cost basis at the date of sale is determined by the yield to maturity method. Yes, you can enter Tax-exempt interest and Specified private activity bond in form 1099- Div. I don't see any place on the Additional Information Worksheet that indicates a place to put "Noncovered Bond Premium on Tax-Exempt Bonds" nor for "Muni. Where and how do I record this. Here's what you need to know about this type of interest and tax form. Vanguard today launched the Vanguard Short-Term Tax-Exempt Bond ETF (NYSE Arca: VTES). General Explanation of Tax-Exempt Bonds 1. Tax Reform Act of 1986 The TRA 1986 greatly reduced private activities that may be financed with tax-exempt bond proceeds. Here are seven of the best tax-free municipal bond funds to buy in 2023: Fund. Seeks current income exempt from federal tax. The city of Marietta offers tax-exempt bond financing through the Marietta Development Authority (MDA) to assist with the. Is the line 8 amount already "adjusted" for the line 13 amount, or is the interest I sh. Petitioner was required to reduce the basis in the bonds by the. See the instructions above for a tax-exempt covered security acquired at a premium. retirement account. The amount of OID tax paid includes that of all previous holders of the bond. In Box 85 - Bond premium on tax-exempt bond, enter the amount of bond premium related to the federal tax-exempt interest. 03 The Players 13 1. 30% (0% in CA, CT, NY) The income earned in these funds is fully taxable at the federal level. to you on Form 1099 each year since you bought the bond. In 2015, 94% of all noncallable tax-exempt bonds were issued at a premium. What are non – taxable bonds? Nontaxable bonds, or municipal bonds, are issued by state and local governments. The amounts from box 6 and 7 are used to generate a Foreign Tax Credit. Bond premium on tax-exempt bond $ 14 . Bond premiums on tax exempt are not adjusted at the federal level. The tax-exempt part of OID on the stripped bond is limited to $17. Bond premium Bond premium on Treasury obligations Bond premium on tax-exempt bond Tax-exempt and tax credit bond CUSIP no. 00 9- Noncash liquidation distributions 0. The IRS says: "For bonds issued after September 27, 1985, you must amortize bond premium using a constant yield method on the basis of the bond's yield to maturity, determined by using the bond's basis and compounding at the close of each accrual period. State identification no. 9. For a covered security acquired with bond premium, you must report the amount of bond premium amortization for the tax year. 6045-1(n)(5) that you did not want to amortize the premium under section 171, or for a tax-exempt covered security acquired at a premium, your payer may The adjustment will reduce your amount of reportable tax-exempt interest on Form 1040, line 8b. 42%. 800%/$107. However, the state will only save $25. “Vanguard Short-Term Tax-Exempt Bond ETF is built to optimize tax efficiency for investors seeking to. 171–2(a)(4)(i)(B) as of the end of the holder's accrual period in which the bond is sold, retired, or otherwise disposed of, the holder. Under § 1. Click on the box My form has info in more than just these boxes (this is uncommon). UltraTax CS TL 32075 Form Field Name Not Shared . 07 percent, compounded annually. To determine the bond premium amortization we multiply the acquisition cost times the purchase yield ($107,485)* (. tax-exempt bonds). Calculate the return. 1. B&D Interest Income State W/H. Inside addition, New Sweatshirt Problems about New IRS Bond Premium Amortization Rules ' s instructions intimate such amortizable premiums are excluded for that state ' sec mandatory add-back by statement, “When you total your interest income on Lines 15a and 15b, the amount must correspond the total of taxable and tax-exempt. The total amount or a portion of tax-exempt income (reported as Specified Private Activity Bond Interest) must be taken into account in computing the federal alternative minimum tax applicable to individuals, and may be subject to state and local taxes. Market discount $ 11 . My interest income is $0. Several TurboTax users have noted that TurboTax claims that Charles Schwab 1099-OID’s for tax-exempt bonds with a positive bond premium in Box 10 must have Box 10 manually reduced to 0 because Schwab provides no Box 2 value and it is treated as being null (0). read more Gagan, CPAVTES is a passive fund that seeks to track the performance of the S&P 0-7 Year National AMT-Free Municipal Bond Index. 00 per bond1 (also known as par). To properly enter this and resolve the diagnostic, net the amount of Municipal Bond interest by subtracting $100 from the $500 total and entering $400 in the applicable Municipal bond input field. Box 1 - Original issue discount. The IRS is interested in preventing issuers from “hedging” against the risk that interest rates will rise, and therefore issuing more bonds than necessary (overburdening the tax-exempt bond market). 6%.