Personal Finance (Not Investing) • NY State tax treatment of Accrued Market Discount for US Treasury Note

North Carolina law is not sufficiently similar to New York law. As stated in the ruling by the North Carolina Supreme Court, North Carolina income tax law selectively incorporates definitions from federal income tax law but did not incorporate those definitions on a wholesale basis, that is as a default.

A previous post to this topic by Bogle Learner contains the following from New York law.

Any term used in this article shall have the same meaning as when used in a comparable context in the laws of the United States relating to federal income taxes, unless a different meaning is clearly required but such meaning shall be subject to the exceptions or modifications prescribed in this article or by statute.

The terms are not being used in a "comparable context." The federal government is taxing interest on Treasuries, and New York is exempting it.

A "comparable context" would be if the federal government defines a deduction, and New York is offering the same deduction. Taxpayers can use the federal calculation of the deduction.

There is nothing in the STRIPS page at Treasury Direct web site about STRIPS having a sponsor. STRIPS do not have a sponsor just like Treasury Notes and Bonds do not have a sponsor.

Each stripped interest payment and principal payment is a separated security in the commercial book-entry system of the Treasury. The Treasury makes the payments on STRIPS to the broker or dealer listed in the commercial book-entry system as the owner, similar to how the Treasury makes payment for Bills, Notes, and Bonds in the commercial book-entry system. Each broker or dealer uses its account records to determine how much to credit to each account at that broker or dealer.

The sponsor is the company that registers the STRIPS with the Treasury. Because STRIPS convert the coupon to an OID, the sponsor doesn't have to do anything after that. It's not like a bond fund, which has to receive the interest and then pay it out to shareholders.

In STRIPS, the OID is commingled. In a bond fund, the coupon is commingled. The entire OID comes from the federal government, just like the coupon comes from the federal government.

A market discount is different because the money comes from the previous owner of the bond. None of the market discount comes from the federal government.

Statistics: Posted by talzara — Thu Feb 29, 2024 3:20 pm — Replies 49 — Views 2321

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