Author Topic: Moving to a state that doesn't allow P2P lending.  (Read 3886 times)

J2E

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Moving to a state that doesn't allow P2P lending.
« on: July 30, 2012, 09:07:22 AM »
Does anyone know how things are handled from the tax/investment side of the house if a current investor is moving into a state that currently doesn't allow P2P investing?  Is it a matter of just not being able to invest any additional funds or what?  I can't see LC buying out an investors account.  How is that handled with 1099 paperwork if LC isn't registered in the state for filing taxes?

Peter

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Re: Moving to a state that doesn't allow P2P lending.
« Reply #1 on: July 30, 2012, 01:23:40 PM »
Does anyone know how things are handled from the tax/investment side of the house if a current investor is moving into a state that currently doesn't allow P2P investing?  Is it a matter of just not being able to invest any additional funds or what?  I can't see LC buying out an investors account.  How is that handled with 1099 paperwork if LC isn't registered in the state for filing taxes?

Good questions. Here is my understanding of the matter. Lending Club does not notify any state about taxation - the 1099 is a federal form and what state you reside in is irrelevant for that. If you change your address at Lending Club you will not be able to add new money or reinvest in new notes but you will be able to hold all your notes to maturity.

The issue with states are that some states want to "protect" the investor from making risky investments so they have not granted LC a license to operate in their state. If you already have these investments and you happen to move to a more restrictive state they will not make you sell them. You can read more about the states issue here: http://www.lendacademy.com/regulation/why-some-states-dont-allow-p2p-lending-investments/
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J2E

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Re: Moving to a state that doesn't allow P2P lending.
« Reply #2 on: July 30, 2012, 01:48:58 PM »
Thanks Peter, I've read all about the hows and whys of the State "protecting" me.  Burns the biscuits but that's a whole other topic.  I didn't see anything about what happens if you move into or out of a state that doesn't allow P2P.  My main concern is when I go to file my state taxes that the 1099 won't have a state EIN#, but perhaps that only applies to employers, not companies that issue 1099s.  I'm hoping it doesn't raise any flags that would trigger an audit.  They're a pain even if everything is correct.

Peter

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Re: Moving to a state that doesn't allow P2P lending.
« Reply #3 on: July 30, 2012, 03:45:30 PM »
Thanks Peter, I've read all about the hows and whys of the State "protecting" me.  Burns the biscuits but that's a whole other topic.  I didn't see anything about what happens if you move into or out of a state that doesn't allow P2P.  My main concern is when I go to file my state taxes that the 1099 won't have a state EIN#, but perhaps that only applies to employers, not companies that issue 1099s.  I'm hoping it doesn't raise any flags that would trigger an audit.  They're a pain even if everything is correct.
There is no state EIN on any of Lending Club or Prosper's 1099. This is a Federal form that is not furnished to the states. Sure, you may need to include it on your state tax return but nowhere will you have to reference any state id number for LC or Prosper. I doubt that it will raise any audit issues - there are all kinds of alternative investments that issue 1099's.
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