Times have certainly changed. I remember seeing pictures of bonds with "clip out" coupons. While I am glad we don't have to deal with those, it does not mean that the new system is not without its own problems. What I like about free markets is that entities either adapt or fail, replaced with more efficient entities. Monopolies, whether private or public, seem to collapse under their own weight. And that is not a bad thing. But I am wandering off topic.I am not sure if this is why, but here is my speculation: When the 1099 reporting rules for bonds were originally written, bearer bonds were much more common. Now, they are effectively outlawed in the US, but they used to be commonplace. Form 1099 has existed since 1918.It just seems to be more complicated than necessary, but it is the government, so...
The origin of the term "coupon" is that bonds were historically issued in the form of bearer certificates. Physical possession of the certificate was proof of ownership. Several coupons, one for each scheduled interest payment, were printed on the certificate. At the date the coupon was due, the owner would detach the coupon and present it for payment.
The payor could only provide a 1099 for the entire coupon payment to the payee, as they would have no way of knowing the date on which the payee acquired the bond or the amount of accrued interest during his holding period. It would be up to the payee to subtract out the amount of accrued interest that he had paid when he purchased the bond from the previous owner.
Statistics: Posted by Richard1580 — Tue Jun 04, 2024 8:59 pm — Replies 3529 — Views 858330