While significant OID is one of the cornerstones of the AHYDO rules, it is important to note that many loan documents contain catch-up provisions that require payments in advance of the general structure of the note's terms in order to avoid the AHYDO rules.
163(e)(5)(F)(i), the AHYDO rules are suspended where a note that is not an AHYDO is exchanged for a note that would be an AHYDO if not for the temporary suspension.
47% by more than five percentage points, the note would be an AHYDO, with interest recharacterized as nondeductible dividend equivalent, if not for the temporary suspension under Sec.
Under this set of facts, the increased deemed issue price of $50 million is used to determine whether the note is an AHYDO under the revised terms.
The new guidance provides more certainty with respect to certain potential AHYDO tax issues that may be affected by the issuance of specific debt obligations.
163(e)(5), in the case of an AHYDO, a company is not allowed a deduction for the disqualified portion of the OID on the obligation, and the company's deduction for the remaining portion of the OID is deferred until the OID is paid in cash or in property.
If the following conditions are satisfied, the IRS will not treat the debt obligation as an AHYDO for purposes of Secs.
The debt obligation would not be an AHYDO within the meaning of Sec.
The DI would meet the first three AHYDO tests, in that the issuer is a corporation, the term exceeds five years and the YTM exceeds the allowable amount.
The choice of monthly accrual periods for the DI's final year causes it to have significant OID and trigger the AHYDO provisions.
Unfortunately for Y, the sole reason the DI triggers the AHYDO provisions is its selection of a less-than-optimal accrual period.
The DI would not have significant OID and would not trigger the AHYDO provisions; see Exhibit 2 for the "annual" significant OID calculation.