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The effect of accrual periods on an AHYDO.(applicable high-yield debt obligations)
Tax Adviser, The, September, 2006 by Weck, L. Casey
In response to the widespread use of high-yield original issue discount (OID) and paid-in-kind (PIK) debt in acquisitions, Congress added Sec. 163(e)(5) and (i) in 1989. These rules are designed to scale back the issuer's interest deductions on certain debt instruments (DI); Congress felt that a portion of the return on high-yield OID obligations was more akin to nondeductible distributions of corporate earnings with respect to stock than interest; see H Rep't No. 101-386, 101st Cong., 1st Sess. (1989), p. 553. Thus, if a DI triggers the Sec. 163(e)(5) applicable high-yield debt obligations (AHYDO) provisions, a portion of the debtor's OID expense may be disallowed and a portion of the creditor's OID income may be reclassified as a distribution from a corporation...
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