I wouldn't overcomplicate CDs - tax is paid in the year the interest is paid (which in the case of bank CDs is often paid and compounded to the CD account) and reported on 1099-INT. You should not need/want to pay tax on the accrued interest without a 1099, and doing so effectively reduces your yield which assumes compounding/reinvestment of interest payments until maturity.
The references to Pub 550 "If you buy a CD with a maturity of more than 1 year, you must include in income each year a part of the total interest due and report it in the same manner as other OID."
.... this section is referring to OID - Original Issue Discount. In the CD space this would apply to brokered CDs which are issued and traded on secondary market like bonds, if they happen to be issued at discount. Bank CDs don't have this feature. This has nothing to do with the interest paid due to the coupon on the CD.
