Swaps with significant nonperiodic payments
(ii) Swaps with significant nonperiodic payments(A) In general. Except as provided in paragraphs (b)(22)(ii)(B) and (C) of this section, a swap with significant nonperiodic payments is treated as two separate transactions consisting of an on-market, level payment swap and a loan. The loan must be accounted for by the parties to the contract independently of the swap. The time value component associated with the loan, determined in accordance with 1.446-3(f)(2)(iii)(A), is recognized as interest expense to the payor and interest income to the recipient. (B) Exception for cleared swaps. Paragraph (b)(22)(ii)(A) of this section does not apply to a cleared swap (as defined in paragraph (b)(6) of this section). (C) Exception for non-cleared swaps subject to margin or collateral requirements. Paragraph (b)(22)(ii)(A) of this section does not apply to a non-cleared swap that requires the parties to meet the margin or collateral requirements of a federal regulator or that provides for margin or collateral requirements that are substantially similar to a cleared swap or a non-cleared swap subject to the margin or collateral requirements of a federal regulator. For purposes of this paragraph (b)(22)(ii)(C), the term federal regulator means the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), or a prudential regulator, as defined in section 1a(39) of the Commodity Exchange Act (7 U.S.C. 1a), as amended by section 721 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Public Law 111-203, 124 Stat. 1376, Title VII. (iii) Other amounts treated as interest(A) Treatment of premium(1) Issuer. If a debt instrument is issued at a premium within the meaning of 1.163-13, any ordinary income under 1.163-13(d)(4) is treated as interest income of the issuer.