Since the United States moved away from the gold standard in 1933, the concept of money has fundamentally changed. Today, money largely exists in the form of debt instruments like notes, Federal Reserve Notes (FRNs), and credit agreements. These instruments hold cash value themselves and are recorded in financial institutions’ ledgers under alternate accounting books. According to Generally Accepted Accounting Principles (GAAP), these entries confirm the value of these assets. These debt securities are traded on the open market, yet the original creators of this ‘credit’—the consumers—are typically not remunerated with a Form 1099-OID, which is used to report the original issue discount pertaining to the use of their credit. This oversight highlights a gap in the recognition of the true value generated by individuals in the financial system.

What are ‘Intangibles’ ?

Intangibles are non-physical assets that represent value. Federal Reserve Notes are the paper currency issued by the Federal Reserve, representing legal tender for debts. Promissory notes are written promises to pay a specific sum of money to a specified person at a determined future time. Checks are documents instructing a bank to pay a specific amount from a person’s account to another individual or entity. Credit agreements are contracts outlining the terms of credit extended from a lender to a borrower. Each of these represents a value based on trust and legal enforceability, rather than physical substance.

WHO MUST File a 1099-A and 1099-OID ?

According to instructions from the IRS (Internal Revenue Service), creators and owners of financial instruments like promissory notes, credit agreements, and federal reserve notes can utilize Form 1099-OID to report interest that accrues from these “loans” of credit to the lender. When such a loan is issued, interest is generated and billed monthly. This interest, or the discount from the face value at which the loan was issued, is considered as income for tax purposes.

Property, as defined for these purposes, includes real property and intangible property. It’s important to note that the 1099-A form is filed in the event of acquisition or abandonment of secured property, and in the case of certain loan arrangements, multiple owners of a single loan, like those in pooled investments, have specific filing responsibilities.

The IRS mandates the filing of these forms to account for and tax income from various sources properly. When an asset such as a promissory note is securitized, its associated interest or discount must be reported using the 1099-OID, which acknowledges the income generated through the lending process. Failure to report such income can lead to penalties from the IRS.

For a detailed understanding of these forms and requirements, the IRS’s General Instructions for Certain Information Returns can be referenced.

In the financial realm, particularly within the scope of credit agreements and loans, the concept of rescission is a powerful tool for consumers. Codified in 15 USC §1635, the right of rescission allows borrowers to cancel certain types of loan transactions within a specific timeframe, typically within three days, providing a cooling-off period to reconsider. However, the statute becomes even more potent in instances of fraud or lack of proper disclosure.

The law states, “Notwithstanding any rule of evidence, written acknowledgment of receipt of any disclosures required under this subchapter by a person to whom information, forms, and a statement is required to be given pursuant to this section does no more than create a rebuttable presumption that the disclosure was made to the person.” This implies that if there has been a failure to disclose critical information, such as the true nature and value of the borrower’s assets—be they promissory notes, checks, credit agreements, or other instruments with cash value—the presumption of proper disclosure can be challenged.

Further, if such assets have been securitized without the borrower’s knowledge and are being traded in financial markets, this could constitute a significant breach of the duty to disclose. In such circumstances, the timeframe for the right of rescission could potentially extend indefinitely, as per the interpretation that the statute of limitations for the right to rescind does not expire until the borrower has been fully informed.

In essence, if a financial institution or lender has not been forthcoming about the cash value of a borrower’s financial instruments, or about the fact that these instruments have been entered into securities markets, the borrower may assert their right to rescind the loan transaction. This right, empowered by 15 USC §1635, offers protection against deceptive practices and ensures that lenders are held to a standard of full and honest disclosure.

15 U.S. Code § 1635 – Right of rescission as to certain transactions