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Do NOT not report anything anyone reports to the IRS. Their scanners will pick it up and nail you for it. Instead, report 'payment of principal' as 'income received' whose basis is the same as the income received, which zeros things out, so no phantom gains are taxed, because they're aren't any when it's principal that is being returned.

That might not be the proper "accounting way" to do things. But it's honest and straight-forward, and I've been doing it for years with no hassles from the gov't.

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