Definition:
Original Issue Discount (OID) is the excess of the stated redemption price at maturity over the issue price. In simpler terms, it is when a debt instrument is issued for an amount that is less than its face amount. The obligations are sold at a discount upon original issue or they carry stated interest that is payable only at maturity. OID may be subject to Chapter 3 withholding and reporting.
Reference: IRC s. 1273(a)(1), Treas. Reg. s. 1.1273-1(c)(5), 1.1441-2(b)(3)(ii), 1.1473-1