Assuming no ulterior motives by the issuer and the taxpayer, if you haven't, I would suggest reviewing IRS Publication 550 and the section "Discount on Debt Instruments."  

If you want more details on the investment, the following might help to put some of it in context (more from the issuer's perspective), not sure...  JOFP-21-02-Bauer-Bozkurt-Nicholas.pdf