PHANTOM INCOME

Income paid to a taxpayer during the tax year that is not constructively received at the taxpayer's end. Phantom income is not terribly common, but does manifest itself in such investments as limited partnerships, where the earnings are taxed but not received, and zero-coupon bonds, which are issued at a discount and mature at par. The interest payments for zeros are credited to the taxpayer but no check is actually cut for them. The bondholder effectively receives the payments at maturity, when the bond is redeemed at the higher par value.

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