Consequences of loss on unsecured note held in Self Directed IRA

[Mark Carson]

Hi - I'm looking for some advice on resolving a SDIRA issue:

My Self Directed IRA made a unsecured loan to an individual (not a disqualified party).

The borrower is unable to repay the loan according to the terms of the note. I want to now accept a partial repayment as payment in full and close out the note resulting in a loss to my IRA.

Note that there isn't a third party "Loan Servicing Agent" for this loan because the custodian did not require one at the time the loan was made (I noticed that they now do require one).  

Questions: 

- Is there any special reporting required because of the loss?  If so, who does the reporting (me or the custodian)?

- Is the borrower technically liable for tax on the loss amount? 

- Do the repayment funds sent to the account custodian have to come directly from the borrower, or can he give them to me to send to the custodian from my own bank account? (I am wondering if sending from my own account somehow makes it a prohibited transaction.)

Anyone have any good advice about how to resolve this cleanly?

Thanks!