What about the 1099 OID, then? Is there any
basis in law for the claim that a 1099 OID form can be
used as a form of payment or offset for a debt?
Let me take you on a lawyer's investigation, the way we
research any question to determine whether there is any
basis for a proposition.
Let's start out by remembering that the federal
system is a civil law system. If Congress didn't
enact it then it isn't law. So, let's search the
U.S.C. and the Statutes at Large for " 1099 OID ".
Our result? Zip. Nada. Nichts.
Not one single reference to 1099 OID, much less legal
authorization to use it to offset or pay a debt with.
What, then, about regulations? The Treasurer
has the authority to promulgate regulations and
designate forms and maybe some other cabinet department
can dovetail off the Treasury regs, so let's search the
CFR, all of it, for " 1099 OID ".
We get two hits and two hits only: 26 CFR
1.6049-1 and 26 CFR 1.6049-3. (see attached)
These regulations designate the 1099 OID form as
the proper form for a corporation to use in reporting
discounted interest on an " original issue discount
" debenture, bond, etc.
Its use is limited to corporations and corporations
only. I'm not a corporation, I'm a corpus, a
living, breathing and real human being, a body, not an
embodiment by charter of the state. So 1099 OIDs
have nothing to do with me unless a corporation issues
one to me because I am the holder of an " original issue
discount " bond as specified in the two regulations.
Once you read the two regulations you can see
exactly what a 1099 OID really is. It is a way for
corporations to tattle on bond holders for interest they
never received as they don't receive it.
Confusing? The 1099 OID applies to corporate
issues of bonds, debentures, notes or other evidences of
indebtedness that are issued at a discount instead of
issued for face value.
When a company borrows money by issuing bonds it
can do it a number of different ways. One, it can
sell a bond at face value and pay interest on a monthly,
quarterly or annual basis until the bond is redeemed for
face value plus any additional interest accrued since
the last payment.
Another way, though, is to issue the bond for less
than its face value, discounting the interest from the
sale price instead of paying it out during the life of
the bond. The bond starts out at the sale price
and " grows up " to its face value during its term.
A good example that most of us are familiar with is
a U.S. Savings Bond. When you purchase a $100
savings bond you don't pay $100 for it. You pay a
good bit less. Those bonds are sold for an amount
which, when interest is added over the ten year period,
would have a future value of $100 at ten years (or
whatever the life of the bond is).
Although interest on U.S. Savings Bonds is
exempt, interest from corporate bonds is not
exempt. So, when that unpaid interest, which was,
instead, discounted from the face value at time of
issue, accrues, increasing the redemption value of the
bond by some increment each year, the government wants
it's cut now, not at maturity. So it requires
corporations who have any " original issue discount "
method of interest " payment " to report that accrued
value or interest as earnings even though it was never
actually paid or received. The form to use for
that is a 1099 OID (original issue discount). If
the bond were sold at face value and interest actually
paid out each year, then they would have to report that,
too, but on a different version of 1099.
But what isn't in those two sections is any way
anyone other than a corporation can issue a 1099
OID and what else isn't in there is any way to use a
1099 OID as a form of payment or offset of a debt.
It's tedious reading and you'll probably drop off to
sleep a few times before you get to the end, but it
So now we know there is no basis for using a 1099
OID for payment or offset in the statutory law and we
know there is no basis in federal regulations,
either. So far there is no basis found, making the
notion . . . well . . . baseless.
What, then, about case law? Where the law is
silent, where there is a hiatus in the law, the courts
can resort to " equity ". So at least
theoretically the courts could recognize a 1099 OID as a
form of payment. What do the courts have to say?
Well, let's do a search of all federal courts for "
1099 OID " and see what we get, and lo and behold and
harken all ye within hail!!! We get four whole
hits. Four cases dealing with the 1099 OID.
Let's roll our sleeves up and dig in.
The first one is a bankruptcy court ruling,
Harrison. I don't subscribe to bankruptcy cases
because I don't do those, so we don't have the full text
of the case. But the summary let's us know that
the 1099 OID, along with the $3 million "
Registered-Discharging and Indemnity Bond " drawn
on Harrison's " account " with the " Department of
Treasury " was not " accepted for value " and that Mr.
Harrison has been moved from the waiting for a discharge
in bankruptcy line to the waiting for his cell
assignment line. Nope, no help there.
The second case, Neal, is really
entertaining. Mr. and Mrs. Neal and their
conglomeration of trusts and foundations were defendants
in a federal foreclosure action. The Neals sent
notice of a " bonded promissory note " purporting to
evidence a loan to the court, the attorney for the
government and the clerk of court in the amount of
$50,000,000 (I thought it was $25,000,000--wait, Mr. AND
Mrs., so it's $25,000,000 each!) accompanied by a
2008 1099 OID showing $50,000,000 withheld from the loan
proceeds for " taxes ". We loaned you
$50,000,000 but we've withheld 100% of the proceeds of
the loan, which isn't taxable, for taxes. (I
wonder if they paid in the withheld funds, and if they
didn't . . . whooee! They're in some Dutch, now!)
But wait, it gets better. The court also
received by mail a notice from a notary (who was stupid
enough to put her name on the document) notifying the
court of its " non-performance " on the " bonded
promissory note ".
This is definitely some " alternative law " if I've
ever seen it. Remember, a 1099 OID is issued by
the BORROWER, the corporation issuing the bond, etc., to
the LENDER, but in this case two people, not
corporations, are claiming to be the LENDER and issuing
the 1099 OID to the purported BORROWER.
But the court didn't order payment of the
note. Instead it referred the matter to the DOJ
for prosecution for mail fraud, tax fraud and
obstruction. The Neals (and their notary) don't
need to worry about the foreclosure because they
probably won't need that house for some time,
I think we can count this case as not providing any
legal basis for similar use of the 1099 OID.
Now, the third, Mr. Martineau, was already in jail,
so at least he didn't have to pack. He filed a
civil rights action, pro se, and attempted to pay the
filing fee with a 1099 OID. Didn't work there,
Still no basis.
How about the fourth case, Microdot? Well,
that one deals with a corporation that issued debentures
in exchange for stock but at an " original issue
discount ". This case doesn't deal with the
"alternative" application of the form, so no basis here,
Now, we've exhausted all law. The Code, the
Statutes at Large, all regulations and case
law. There is no basis for the use of a
form 1099 OID by anyone other than a corporation
issuing bonds and such at " original issue discount
". And there is no legal basis for anyone, not
even a corporation, using a 1099 OID as a form of
payment. If there were any legal basis we would
have found it.
These folks have the inane idea that they can
invent law (which is convenient, since they want to
claim some proprietary interest in their " discovery
"). Law isn't invented, it's enacted, and none of
us can merely issue proclamations, making new law,
although if that were true it would allow for some
pretty interesting arguments.
This reminds me of the series M.A.S.H. where
Hawkeye and his buddy played a game called " Triple
Cranko ". It was played with a chess board, chess
pieces, checkers and a deck of cards and there were no
rules. Someone with some comic talent could
probably build a pretty funny skit involving a couple of
lawyers arguing before a judge, all three just
making up laws as they go.
As for the other component, the " $25,000,000
bonded promissory note ", stop and think about that for
a minute. In the current myth the note is issued
by the debtor but purports to evidence a debt owed by
the creditor, who never signed it. " Well, you
want me to pay my car note? Check this out,
sucker!! I'm writing a note for twice that amount
from the bank to me! Now give me my change and
make it snappy or I'll write another note for triple
what I owe the bank. " Double Cranko at the very
I can't write and issue a note that makes anyone
liable but me. And who is bonding it? If
this note is bonded there is an insurance company or
bank that is certifying that it has the money to pay the
note off and if the note is dishonored it will turn that
money over to the creditor. Who bonds these
A bond, a promise to pay the debt or meet the
obligation of another must be in writing. Where is
the writing? Where is the bond? Who signed
it? Where is the money backing it up?
All of this is as bogus as it gets. The
saddest part, though, is that people are eating it up
and it's getting them in trouble.
Hope this sheds at least some light.