Special rules relating to debt instruments., 26 CFR 1.1275-2
Summary
Payment ordering rule —
In general. Except as provided in paragraph (a)(2) of this section, each payment under a debt instrument is treated first as a payment of OID to the extent of the OID that has accrued as of the date the payment is due and has not been allocated to prior payments, and second as a payment of principal. Thus, no portion of any payment is treated as prepaid interest.
Exceptions. The rule in paragraph (a)(1) of this section does not apply to —
A payment of qualified stated interest;
A payment of points deductible under section 461(g)(2) [26 USCS § 461(g)(2)], in the case of the issuer;
A pro rata prepayment described in paragraph (f)(2) of this section; or
A payment of additional interest or a similar charge provided with respect to amounts that are not paid when due.
Debt instruments distributed by corporations with respect to stock —
Treatment of distribution. For purposes of determining the issue price of a debt instrument distributed ...