For purposes of interest income reporting, Prosper reports as an intermediary, known as a “nominee recipient” under Internal Revenue Service section 6049. Nominee recipients are responsible for reporting proceeds (via 1099 forms) which are ultimately disbursed to recipients. This is the same method of reporting used by stock brokerages.
Although the matter is not free from doubt, we treat the Notes as our debt instruments that have an original issue discount (OID) for U.S. federal income tax purposes. We will file information returns with the IRS in accordance with such treatment unless there is a change or clarification in the law. There are no statutory provisions, regulations, published rulings, or judicial decisions that directly address the characterization of the Notes or instruments similar to the Notes for U.S. federal income tax purposes.
You should be aware, however, that the U.S. Internal Revenue Service (IRS) is not bound by our characterization of the Notes, and the IRS or a court may take a different position with respect to the Notes’ proper characterization.