I hope this is clear.  My client has a brokerage account with  LPL Financial and received a 1099 Consolidated statement.     The statement includes OID, and interest Shortfall on Contingent Payment Debt and the sale of the security.  

Facts:

The CPDI was sold in 2024.  The proceeds from the sale were $1,011,360 and cost basis $1,000,005 for an ordinary gain of $11,355.

Since 2017 the client has reported OID totaling $237,050 on this security.   This year, the OID is $36,069 for the security and the interest shortfall is $237,050.   

I am reporting as follows:

1.  The OID of $36,069 as interest income on Schedule B

2.  Ordinary income of $11,355 for the sale of the security 

3.  What do I do with the interest shortfall of $237,050?   I am getting a little lost in the instructions.   There was never a shortfall prior to this year on this security.   I am scared I am misinterpreting the instructions.   My understanding is I can offset it against the OID to create a loss...if that is the case, how do I provide info to the IRS to explain why I am taking the interest shortfall in one year?

4.   I have reported an interest shortfall on a different security (prior to selling it) as an offset against OID and the IRS sent a letter with a bill to the taxpayer stating additional taxes were due.   They completely disregarded the shortfall.   Should I have included additional detail with the return?   I did attach a copy of the 1099 with that return.   

If additional clarification is necessary, please let me know.   Constructive advice is appreciated.