Document Number
86-239
Tax Type
Individual Income Tax
Description
Interest on Zero Coupon Bonds
Topic
Taxable Income
Date Issued
11-28-1986
November 28, 1986


Re: Request for ruling; Individual & Corporate Income Tax
Interest on obligations of other states
Original Issue Discount (Zero coupon bonds)


Dear ********************


This is in response to your letter of November 5, 1986, in which you request confirmation that interest income on out of state zero coupon bonds is recognized each year by Virginia.

Federal law requires that bondholders treat original issue discount as interest received ratably over the term of the bond. I.R.S. Rev. Rul. 73-112, 1973 C.B. 47. Thus, such interest is recognized for federal income tax purposes even though it is not subject to federal income tax. Accordingly, Virginia recognizes such interest to the extent that it is recognized for federal purposes.

Section 1525 of the Tax Reform Act of 1986 amends I.R.C. §6012 to require that every taxpayer show on the return the amount of tax exempt interest paid or accrued during the taxable year. The portion of such reported interest which is on obligations of other states will be subject to tax by Virginia.

Sincerely,




W. H. Forst
Tax Commissioner

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46