Holder
(2) Holder. If a taxable debt instrument is acquired at a premium within the meaning of 1.171-1 and the holder elects to amortize the premium, any amount deductible as a bond premium deduction under section 171(a)(1) and 1.171-2(a)(4)(i)(A) or (C) is treated as interest expense of the holder. (B) Treatment of ordinary income or loss on certain debt instruments. If an issuer of a contingent payment debt instrument subject to 1.1275-4(b), a nonfunctional currency contingent payment debt instrument subject to 1.988-6, or an inflation-indexed debt instrument subject to 1.1275-7 recognizes ordinary income on the debt instrument in accordance with the rules in 1.1275-4(b), 1.988-6(b)(2), or 1.1275-7(f), whichever is applicable, the ordinary income is treated as interest income of the issuer. If a holder of a contingent payment debt instrument subject to 1.1275-4(b), a nonfunctional currency contingent payment debt instrument subject to 1.988-6, or an inflation-indexed debt instrument subject to 1.1275-7 recognizes an ordinary loss on the debt instrument in accordance with the rules in 1.1275-4(b), 1.988-6(b)(2), or 1.1275-7(f), whichever is applicable, the ordinary loss is treated as interest expense of the holder. (C) Substitute interest payments. A substitute interest payment described in 1.861-2(a)(7) is treated as interest expense to the payor only if the payment relates to a sale-repurchase agreement or a securities lending transaction that is not entered into by the payor in the ordinary course of the payor's business. A substitute interest payment described in 1.861-2(a)(7) is treated as interest income to the recipient only if the payment relates to a sale-repurchase agreement or a securities lending transaction that is not entered into by the recipient in the ordinary course of the recipient's business; however, in the case of a sale-repurchase agreement or a securities lending transaction relating to tax-exempt bonds, the recipient of a substitute payment does not receive tax-exempt interest income. This paragraph (b)(22)(iii)(C) does not apply to an amount described in paragraph (b)(22)(i)(N) of this section. (D) Section 1258 gain. Any gain treated as ordinary gain under section 1258 is treated as interest income. (E) Factoring income. The excess of the amount that a taxpayer collects on a factored receivable (or realizes upon the sale or other disposition of the factored receivable) over the amount paid for the factored receivable by the taxpayer is treated as interest income. For purposes of this paragraph (b)(22)(iii)(E), the term factored receivable includes any account receivable or other evidence of indebtedness, whether or not issued at a discount and whether or not bearing stated interest, arising out of the disposition of property or the performance of services by any person, if such account receivable or evidence of indebtedness is acquired by a person other than the person who disposed of the property or provided the services that gave rise to the account receivable or evidence of indebtedness. This paragraph (b)(22)(iii)(E) does not apply to an amount described in paragraph (b)(22)(i)(C) or (E) of this section. (F) Section 163(j) interest dividends(1) In general. Except as otherwise provided in this paragraph (b)(22)(iii)(F), a section 163(j) interest dividend is treated as interest income.