Non resident alien ("NRA") purchases debt instruments ("DIs") from a U.S. based, online, P2P lending platform ("Platform"). The DIs that were/are purchased provide that, if the borrower makes timely payments, then the borrower ("Borrower") may request an increased line of credit and draw another advance thereon. Unclear whether funds pass directly from NRA to borrower, or whether the funds pass from NRA, to the online platform, to the borrower.
If Platform advances the funds to Borrower, and then the NRA buys (or is obligated to buy) the increased debt, then that may raise agency concerns (could be contingent purchase price). But, if the NRA advances funds directly to the borrower (pursuant to terms of the existing DI), is that considered a new origination? NRA does not evaluate credit, interact with buyer, ect.; everything is completed through an online platform even if funds pass directly to Borrower. My concerned here is that if NRA regularly purchases DIs that are also a lines of credit, then that could bust the 864(b)(2) trading safe harbor and possibly constitute a U.S. trade or business.
As may be obvious from the above questions, I have been unable to find information about how lines of credit are treated for tax purposes. For revolving lines of credit, is each advance considered a separate loan? Is a line of credit itself considered debt, or is it some sort of contract obligating the holder to provide access to debt? What about a line of credit embedded in a DI?
Any thought, input, or other considerations are appreciated. Thanks.
PS: New to site.