Author Topic: LC Losses - Potential Tax Strategy  (Read 1781 times)


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LC Losses - Potential Tax Strategy
« on: March 08, 2014, 11:31:58 AM »
All - I was doing research on my P2P taxes and I ran across the following in the LC Prospectus...

LendingClub’s determination is not binding on the IRS. If the IRS determines that the Notes are “contingent payment debt
instruments” due to the contingencies described above (or in the future, if LendingClub so concludes with respect to a particular series of Notes), the Notes will be subject to special rules applicable to contingent payment debt instruments. Such rules generally require a holder to (i) accrue interest income based on a projected payment schedule and comparable yield, which may be higher or lower than the stated interest rate on the Notes, and (ii) treat as ordinary income, rather than capital gain, any gain recognized on the sale, exchange, or retirement of the debt instrument and treat any loss recognized on such a disposition as an ordinary loss to the extent of prior OID inclusions and as capital loss thereafter. This discussion assumes that the Notes are not subject to the contingent payment debt instrument rules.

Based on my research, if LC & Prosper notes are considered Contingent Payment Debt Instruments, any losses would be considered ordinary losses (and gains would be ordinary gains).  The fact that the notes are issued by LC and they are certainly contingent on the behavior of 3rd party, I think a strong case could be made for this accounting treatment.  Not sure of how difficult this would make the tax filing but it seems logical to me.

AmCap and/or Peter - any thoughts?
« Last Edit: March 09, 2014, 08:45:04 AM by jpildis »