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,
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
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
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
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 isn't there.
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
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
within hail!!! We get four whole hits. Four cases dealing
with the 1099 OID. (see attached)
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
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,
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. Alternative,
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, anyway.
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, either.
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
doesn't deal with the "alternative" application of the form, so no
basis here, either.
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
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. "
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 least.
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.