Folio and IRAs

[core]

To make this more clear, Lending Club recently made the update to the website to prominently notify investors that at this time Notes purchased through a tax deferred individual retirement account cannot be traded on the secondary market.  I  will keep you apprised of any developments to permit trading on the secondary market.

This has already been shown to be false by all the IRA holders here that say they still trade.  All he seemed to say is the same thing that's on the site, plus a little color.  What does "cannot" mean, when you obviously "can"? 

He said nothing of consequences.  Absolutely no info.  I think I'm more confused now than I was before.   Seems like a dodge to me.

[thezfunk]

To make this more clear, Lending Club recently made the update to the website to prominently notify investors that at this time Notes purchased through a tax deferred individual retirement account cannot be traded on the secondary market.  I  will keep you apprised of any developments to permit trading on the secondary market.

This has already been shown to be false by all the IRA holders here that say they still trade.  All he seemed to say is the same thing that's on the site, plus a little color.  What does "cannot" mean, when you obviously "can"?  He said nothing of consequences.  I think I'm more confused now than I was before.

I think the problem is they don't know how to handle folio trading via IRA in respect to tax reporting.  Or they don't know how to explain it to the IRS so the IRS doesn't either come after them or you.  Does folio report your stuff to the IRS...does Lending Club?  I don't have any idea since this is my first year with Lending Club and first year with an P2P IRA.  I have been doing Prosper taxes the last couple of years but no secondary market trading until this year.  I would imagine this is something that would need some sort of blessing from the IRS for IRAs?

[core]

Sure there's plenty of possible reasons/problems.

All I want to know is:  Can you or can't you?  What if I claim I never saw that page?  What about those who legitimately haven't yet? They just blissfully keep trading?  I know what I'm going to do.  My memory is about to become rather poor.

[thezfunk]

Sure there's plenty of possible reasons/problems.

All I want to know is:  Can you or can't you?  What if I claim I never saw that page?  What about those who legitimately haven't yet? They just blissfully keep trading?  I know what I'm going to do.  My memory is about to become rather poor.

Don't forget those terrible reading comprehension skills!

[Vlad]

If LC does indeed take away my ability to trade in IRA, I will close my account. Since we can't write off losses like we can in a taxable account, it's critical to have the ability to sell loans that may default. I thus do less selling in my non-IRA account, plus I hate dealing with tax paperwork.

What worries me is that we can't get a clear answer from LC on this. The rep whom I called at LC told me he thinks the new policy may only apply to new accounts, but he wasn't confident in his answer.

[core]

What worries me is that we can't get a clear answer from LC on this. The rep whom I called at LC told me he thinks the new policy may only apply to new accounts, but he wasn't confident in his answer.

Hmmm at first read I thought maybe that would make sense, just having it apply to new accounts.  But wait a second:  If there is a legal reason why IRA accounts cannot currently trade, then what difference would it make when you opened the account?  FolioFN has no mechanism to allow this, but if you did it before, hey that's ok, just keep doing it forever?  *scratching head*

[GS]

I really don't understand why this is an IRA/IRS problem.  Folio says it holds no cash or notes, and seems to just act as a 3rd party that matches buyers with seller, for a commission.  I don't know why they'd be involved in reporting my income to the IRS when they are not actually handling the cash.  The IRS report should be handled by LC, and if ever called into question, it should be easy to match up the folio buy/sell record with the LC account activity report.

[core]

I really don't understand why this is an IRA/IRS problem.  Folio says it holds no cash or notes, and seems to just act as a 3rd party that matches buyers with seller, for a commission.  I don't know why they'd be involved in reporting my income to the IRS when they are not actually handling the cash.

Folio may not "hold" any cash, but as you can see from the statements, they go out of their way to make it clear that cash and notes are being transferred between the two accounts.  Almost to a silly level of detail about such transfers... as if trying to make a point or CYA.  As for IRS reporting, Folio has (?) to be the one that sends out the 1099-B's for any sales you make.  I don't think LC could do this since they aren't the broker-dealer.

[Rob L]

What worries me is that we can't get a clear answer from LC on this. The rep whom I called at LC told me he thinks the new policy may only apply to new accounts, but he wasn't confident in his answer.

I have a guess with absolutely nothing to back it up. This has nothing with new or old accounts. All current FolioFn accounts are not IRA's (a guess). Money and notes are moved back and forth between our LC IRA account(s) and our FolioFn account(s) every trade. Look at your FolioFn statements to verify that fact. They do not qualify as IRA "custodian to custodian transfers" and are therefore taxable events, and possibly worse. Hope I'm dead wrong; I really do! Please, someone out there who knows (not guesses) post it!

And how many years has LC been in business only to now figure out that LC IRA to/from FolioFn accounts have taxable consequences?
How far back will the IRS go and what will they do about it? How many LC former and current customers are exposed?
I'm new here, but haven't heard any IRA account holders mention receiving end of year IRS forms regarding FolioFn transactions? If you are out there fill me in.

The fix then will possibly be a "new FolioFn account" which you open as an IRA. Then money or notes may be transferred between LC and FolioFn "custodian to custodian". No taxable consequences that I know. Don't I know how SDIRA fits into this picture since they after all are the IRA custodian for my LC account.

I'm not pretending to really understand this stuff. IRA rules, tax law, ... makes my head hurt.

[core]

Does folio report your stuff to the IRS...does Lending Club?  I don't have any idea since this is my first year with Lending Club and first year with an P2P IRA.

For taxable accounts they both do.  The 1099-OID comes from LendingClub.  You get a 1099-B from FOLIOfn Investments, Inc. for any notes you sold on Folio.  I suppose you might also get a 1099-B from LC if you had chargeoffs and a 1099-MISC for bonuses/etc but I haven't had either of those so I don't know.  For IRAs though I have no clue who does what.  I think we would have heard screaming last Feb already if people were getting 1099-B's for their Folio IRA trades last year.

It is apparent that LC isn't going to give us an answer soon enough.  Certain decisions have to be made by year end for many folks here I'm sure.  The only solution is for someone who traded in their IRA last year to call up the IRS and ask to be audited.  I think they would be happy to do so. 

[Verto]

It is apparent that LC isn't going to give us an answer soon enough.  Certain decisions have to be made by year end for many folks here I'm sure.  The only solution is for someone who traded in their IRA last year to call up the IRS and ask to be audited.  I think they would be happy to do so. 

A private letter ruling for someone with a large account size or large amount of trades would be the best approach. I don't see the IRS commenting officially on anything anytime soon.

[Rob L]

The saga continues... I was looking at https://www.lendingclub.com/foliofn/howTradingWorks.action and found the following:

About the Platform
The Note Trading Platform is operated by FOLIOfn, a registered broker dealer member of FINRA/SIPC, based in Vienna, VA. More information about FOLIOfn is available at www.foliofn.com.

Naturally I visit www.foliofn.com and attempt to log into my account. No luck. I then tried "Lost my user name", entered name and full SSN. Once again no joy. Response indicated I was unknown.

This morning I called FolioFn and explained that I had applied to join the FolioFn trading platform through Lending Club in mid-May this year and received email notification of approval the next day. I asked for my account number, account type (they do offer retirement accounts of all kinds), and my login credentials. I was told they could not find any account associated with my SSN, nor one associated with my name and residence, nor my email address. I explained that for each LC note purchase or sale my FolioFn monthly statement quite clearly showed funds and notes being transferred to / from my FolioFn account, so I must have an account with them. I was told they would contact Lending Club on Monday (this is Saturday) and email me a response. If I hear something I'll pass it along.

[Zach]

The saga continues... I was looking at https://www.lendingclub.com/foliofn/howTradingWorks.action and found the following:

About the Platform
The Note Trading Platform is operated by FOLIOfn, a registered broker dealer member of FINRA/SIPC, based in Vienna, VA. More information about FOLIOfn is available at www.foliofn.com.

Naturally I visit www.foliofn.com and attempt to log into my account. No luck. I then tried "Lost my user name", entered name and full SSN. Once again no joy. Response indicated I was unknown.

This morning I called FolioFn and explained that I had applied to join the FolioFn trading platform through Lending Club in mid-May this year and received email notification of approval the next day. I asked for my account number, account type (they do offer retirement accounts of all kinds), and my login credentials. I was told they could not find any account associated with my SSN, nor one associated with my name and residence, nor my email address. I explained that for each LC note purchase or sale my FolioFn monthly statement quite clearly showed funds and notes being transferred to / from my FolioFn account, so I must have an account with them. I was told they would contact Lending Club on Monday (this is Saturday) and email me a response. If I hear something I'll pass it along.

LC accounts are handled separately from their brokerage offerings. Just because you have an LC trading account doesn't mean you have a Folio Investing brokerage account. Why did you contact them anyway?

[core]

Naturally I visit www.foliofn.com and attempt to log into my account. No luck.

This part, at least, is not surprising. If you trade notes on Prosper you have to go through the full FOLIOfn signup and get an actual account, but LC doesn't do it that way.  So you don't have anything to log in with.  I thought nothing of it at the time, back when I started with LC.

This morning I called FolioFn and explained that I had applied to join the FolioFn trading platform through Lending Club in mid-May this year and received email notification of approval the next day. I asked for my account number, account type (they do offer retirement accounts of all kinds), and my login credentials. I was told they could not find any account associated with my SSN, nor one associated with my name and residence, nor my email address.

Whoa, I'm starting to get that little feeling I get when something funny is going on. 

We already know, or I should say I already know based on my previous telephone calls, that Folio is not actually involved in any of this on a hands-on level.  Folio does not operate the site (contrary to the warning message LC displays), and all the trade settlement is handled by LendingClub.  Not Folio. Both 1099's are identical, except for the corporation name, down to the pixel.  That's all fine so far. 

But now from this new information, it seems there isn't even a dummy account over there to make it quasi-legit?  I can only assume that LC at least has permission to use Folio's name on the site?   It wouldn't be too cool if LC saw what Prosper had done with FOLIOfn and just started copying logos and legalese and stuff, now would it?  Sending a 1099-B on behalf of a company they don't even have relations with would be somewhat troublesome.

Before you call me absolutely nuts, let's look for some evidence.
On the page https://www.lendingclub.com/foliofn/tradeDisclosurePage.action (login required to view), among other things is this snippet:

All starting bid prices for the Notes are determined solely by the seller of a Note. The trading platform displays the Notes a seller has offered or desires to sell, and the starting price at which the proposed transaction would occur as determined by the seller. Trading members may bid higher than the starting price to purchase the Note, but may not bid a price higher than the total of the payments remaining on the corresponding loan.

Sound familiar to anyone?  All of this auction/bidding stuff is Prosper-esque.  LendingClub never had any such auction arrangement.  What's LC doing with a copy/paste job of Prosper legalese on their site, I wonder?

Yes I say all this half joking.  But you can't say "warning: going to Folio" and then at the same time say Folio has nothing to do with it.

[Rob L]

Hi "Zach" -- I will continue to attempt to get it right 

I contacted FolioFn because the link says "for more information..." and I wanted more information. Specifically, I wanted to know if my account with them is a Traditional IRA, like my LC account, or something else. If you read back through my long winded earlier posts you will see why I think this an important piece of information. It seemed clear to me that I must have a FolioFn account since my FolioFn monthly statement makes reference to it twice for every note purchase or sale. I did not see any reference to "LC trading account" on the FolioFn web site(maybe I missed it). The FolioFn rep didn't say aha, let me find your "LC trading account". Nothing ...

Since the rep at FolioFn indicated no account could be found,  I'm naturally confused. Can you shed some light on how this process works? My focus is on the tax consequences of moving money and notes to/from my LC traditional IRA account and this "non-account account" by using FolioFn trading.