AHYDO

AHYDO refers to the “applicable high yield discount obligation.” The AHYDO tax rules limit the deductibility of interest expense on certain instruments that do not provide for current-pay interest. If the AHYDO rules apply, then these rules have the effect of disallowing interest deductions attributable to yield on the instrument in excess of the “applicable federal rate” plus six percentage points and, second, deferring deductions for the balance of the interest accruals on the applicable instrument until actually paid. The AHYDO rules apply to an instrument that: (1) is issued by a corporation, (2) has a term to maturity of more than five years, (3) has a yield to maturity that is five percentage points or more in excess of the relevant applicable federal rate in effect on the issue date, and (4) that has “significant original issue discount.”

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