Chairman of the Senate Finance Committee, Charles Grassley, is proposing to limit deductions for a form of convertible debt known in Wall Street financing circles as ‘cocos’, by making changes to the way yields are calculated.
The new measure would affect the calculation of original issue discount (OID) on contingent payment convertible debt. The OID represents the difference between the face value of a bond and the original issue price, and is reported annually for tax purposes.
The changes would mean the process used to calculate the OID will be less prone to taxpayer abuse.
Grassley’s proposal would be in the form of an amendment to the JOBS (Jumpstart Our Business Strength) tax bill currently pending in the Senate, and would raise around $292 million in tax revenues over a period of ten years.
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