Author Topic: Taxes - a sanity check  (Read 18159 times)

Boatguy

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Re: Taxes - a sanity check
« Reply #30 on: March 11, 2014, 09:16:50 PM »
If you sell a contingent payment debt instrument at a loss, your loss is an ordinary loss to the extent of your prior OID accruals on the debt instrument. If the debt instrument is a capital asset, treat any loss that is more than your prior OID accruals as a capital loss.

That's the same document I quoted, but we're reading it differently.  I'm seeing "...ordinary loss to the extent of your prior OID accruals..." as meaning you can deduct the interest you never actually received.

And I also interpret the notes as capital assets, thus the losses are a capital loss.

I've been audited twice and both times the IRS owed me money.  I wish you the same luck!

jpildis

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Re: Taxes - a sanity check
« Reply #31 on: March 12, 2014, 11:03:18 AM »
If you sell a contingent payment debt instrument at a loss, your loss is an ordinary loss to the extent of your prior OID accruals on the debt instrument. If the debt instrument is a capital asset, treat any loss that is more than your prior OID accruals as a capital loss.

That's the same document I quoted, but we're reading it differently.  I'm seeing "...ordinary loss to the extent of your prior OID accruals..." as meaning you can deduct the interest you never actually received.

And I also interpret the notes as capital assets, thus the losses are a capital loss.

I've been audited twice and both times the IRS owed me money.  I wish you the same luck!

But you need to go to the section in the IRS document that talks specifically about CPDIs to get the proper treatment from capital losses & gains.  Thanks for the well wishes... still deciding if I should spend the money on a tax attorney consultation.

investny

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Re: Taxes - a sanity check
« Reply #32 on: July 04, 2014, 12:35:47 AM »

But you need to go to the section in the IRS document that talks specifically about CPDIs to get the proper treatment from capital losses & gains.  Thanks for the well wishes... still deciding if I should spend the money on a tax attorney consultation.

Did you talk to tax attorney?
How did everyone file their 2013 taxes?

hoggy1

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Re: Taxes - a sanity check
« Reply #33 on: July 05, 2014, 10:27:17 AM »
From the same IRS publication 1212:

"Including OID in income.   Generally, you include OID in income as it accrues each year, whether or not you receive any payments from the debt instrument issuer.

Exceptions.   The rules for including OID in income as it accrues generally do not apply to the following debt instruments.

    U.S. savings bonds.

    Tax-exempt obligations. (However, see Tax-Exempt Bonds and Coupons, later.)

    Obligations issued by individuals before March 2, 1984.

    Loans of $10,000 or less between individuals who are not in the business of lending money. (The dollar limit includes outstanding prior loans by the lender to the borrower.) This exception does not apply if a principal purpose of the loan is to avoid any federal tax."


Why doesn't the bold exception cover all we little guys?
Steve

neals384

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Re: Taxes - a sanity check
« Reply #34 on: July 05, 2014, 11:04:36 AM »
From the same IRS publication 1212:

"Including OID in income.   Generally, you include OID in income as it accrues each year, whether or not you receive any payments from the debt instrument issuer.

Exceptions.   The rules for including OID in income as it accrues generally do not apply to the following debt instruments.

    U.S. savings bonds.

    Tax-exempt obligations. (However, see Tax-Exempt Bonds and Coupons, later.)

    Obligations issued by individuals before March 2, 1984.

    Loans of $10,000 or less between individuals who are not in the business of lending money. (The dollar limit includes outstanding prior loans by the lender to the borrower.) This exception does not apply if a principal purpose of the loan is to avoid any federal tax."


Why doesn't the bold exception cover all we little guys?

Your notes are not loans to individuals.  Legally, they are notes issued by LC.

Fred

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Re: Taxes - a sanity check
« Reply #35 on: July 05, 2014, 11:11:28 AM »
    Loans of $10,000 or less between individuals who are not in the business of lending money. (The dollar limit includes outstanding prior loans by the lender to the borrower.) This exception does not apply if a principal purpose of the loan is to avoid any federal tax."

Why doesn't the bold exception cover all we little guys?

Technically, LC loans are issued not by us investors but by WebBank -- we do not actually "lend" our money; but we "invest" our money.  It is similar to buying, say, GE corporate bonds.  Bond investors do not lend money directly to GE.

In LC, we investors invest in member payment dependent notes.

http://www.sec.gov/Archives/edgar/data/1409970/000119312514124211/d634194d10k.htm
Quote
All Consumer Loans are funded and issued by WebBank.

also

Quote
Our platform offers consumer loans, which are unsecured obligations of individual borrowers that are issued in amounts ranging from $1,000 up to $35,000, depending on the applicable policy, with fixed interest rates, and three-year or five-year original maturities (“Consumer Loans”). Consumer Loans that have a FICO score of at least 660 and meet other strict credit criteria are classified as Public Policy Loans and are issued under WebBank’s Public Credit Policy and can be invested in through member payment dependent notes (“Notes”) pursuant to our shelf registration statement (“Note Shelf”).
« Last Edit: July 05, 2014, 11:28:43 AM by Fred »

hoggy1

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Re: Taxes - a sanity check
« Reply #36 on: July 05, 2014, 12:22:17 PM »
Your notes are not loans to individuals.  Legally, they are notes issued by LC.

NO, "contractually" these notes are issued by LC.

I know all the issuance details (Webbank, loan from LC, etc) but I think the point is arguable particularly in that I expect this exception was written specifically to exempt small non-professional lenders from the accounting burden otherwise imposed by the regulations.

There is also the issue of materiality.

"  Materiality is an accounting concept which does not exist, for the most part, in tax law. Materiality is both a qualitative and quantitative concept used to identify those items most relevant and consequential in determining the correct tax liability. The materiality of an item may be measured in terms of its value and its relationship to another item of income, deduction, tax liability, credit, Schedule M-1 or Schedule M-2 adjustment, a balance sheet item or transaction as presented on a tax return, including supporting schedules.
    The process of evaluating materiality should be consistently applied, but the result will be different for each case. Absolute parameters cannot be established or used for every case because of the differing size, complexity and industry of the returns being examined, as well as the differences in the experience and professional judgment of examiners.
    In a LIFE examination, applying materiality principles is the most critical factor in limiting the scope of the examination. LIFE focuses on those issues most consequential to the overall tax liability, thereby, addressing the greatest compliance risks."
4.51.3.3.4

LC chooses to treat these loans as OID notes because it is/was easier or cheaper for them, and they contractually bound us (LC lender agreement) to agree to this treatment. There is no way in the world I would (nor would I ask my accountant to) ever even begin to jump into this accounting nightmare for a few hundred or even a few thousand dollars. I will add my LC interest to other interest income and report it on the appropriate line and report losses as discussed elsewhere in the thread. Done.

If challenged by the IRS I will print out my LC account activity for them and tell them to to recalculate my tax liability. If there is a difference in their favor I'll be happy to pay it. But they won't do it (been there before) because when the method used to report the income is demonstrated to them they could tell with a few pen strokes on the back of an envelop that the difference won't be material.

Just my opinion and plan.

Steve

investny

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Re: Taxes - a sanity check
« Reply #37 on: July 09, 2014, 04:27:58 PM »
Did anyone else look into CPDI?

jpildis

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Re: Taxes - a sanity check
« Reply #38 on: July 09, 2014, 10:03:36 PM »
That's how I filed... adjusted my OID interest with chargeoffs

severancejoan

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Re: Taxes - a sanity check
« Reply #39 on: February 11, 2019, 07:07:31 AM »
That's how I filed... adjusted my OID interest with chargeoffs

smart