On July 1, 2018, Jones sold new property to Harold, Inc. in exchange for a debt instrument with a stated principal amount of $3,000,000 and a stated redemption price at maturity of $3,000,000. The debt instrument call for interest payments at the rate of 4% per annum, payable semiannually. The debt instrument was to be redeemed on June 30, 2024. Interest payments of $60,000 were due on June 30^thand December 31^st during the term of the instrument.

Neither the debt instrument nor the property was publicly traded. At the time of the sale the applicable federal rate (AFR) was equal to 5%, and the present value of all payments to be received on the debt instrument was equal to $2,840,000.

(a) What is the total amount, if any, of original issue discount (OID) with respect to the debt instrument? Fully explain your answer.

(b) Regardless of your answer to part (a), above, assume that on January 2, 2020 when the adjusted issue price was $2,925,000, Martina purchased the debt instrument from Jones for $2,875,000. What does the difference between the adjusted issue price and the price paid by Martina for the debt instrument represent? How should that amount be treated for tax purposes?

(c) Assume that if instead of paying the amount set forth in part (b), Martina paid $2,950,000 for the debt instrument, how would that impact the amount of OID that Martina would have to include in her 2020 income, if the OID on the debt instrument for the year 2020 was equal to $45,000? What is the amount of OID that Martina must include in her gross income for the taxable year 2020? Explain your answer.