Question

An investor purchases an original issue discount general obligation municipal bond (OID) on the offering and holds it to maturity. The IRS treats the accretion of the discount as

Answer 1

not taxed

Step-by-step explanation:

original issue discount which are new issue municipal bonds do not have their interest income taxed at the federal level by the IRS. An investor that purchases the municipal bond from the secondary market however would be accreted and have his income from the bond treated as ordinary income and would be taxed. But interest from original issue discount bonds are not taxed and are also not taxed when held to maturity