If these detailed conditions are met, an instrument that normally would fall squarely within the Section 163(i) definition of an AHYDO, will not be so treated. This revenue procedure is effective on August 8, 2008.
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1If a substantial amount of the debt instruments is issued for money, the issue price of each debt instrument is the first price at which a substantial amount of the debt instruments is sold. However, for this purpose, sales to bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents, or wholesalers is ignored. Accordingly, in these cases, it is easy to see why the issue price of the debt (following a deterioration in market conditions) may be markedly less than the amount of money advanced to the corporation. See Reg. Sec. 1.1273-2(a) and (e).)
2 See Regulation Section 1.1273-2(b); if a substantial amount of the debt instruments in an issue is traded on an established market and the debt instrument is not issued for money, the issue price of each debt instrument in the issue is the fair market value of the debt instrument determined as of the issue date.
3 The AHYDO will be classified as a super AHYDO if the yield to maturity exceeds the AFR (in effect for the month in which the debenture is issued) plus 600 basis points. In these cases, the disqualified portion of the OID is an amount equal to the total yield for the taxable year multiplied by a fraction whose numerator is the “disqualified yield” (the excess of the yield over the AFR plus 600 basis points) and whose denominator is the instrument’s total yield.