Tax implications on buying/selling defaulted paper?

[John C.]

I know nothing about notes. I have the opportunity to buy a non-performing note at a discount. The note was in a pool sold by a portfolio lender to a "loan workout" group at a substantial discount. I know the property owner and am interested in stepping in as the lender. The "loan workout" group has made a verbal commitment to sell the note to me at a discount so it is time for papers to start flying. I understand that I will pay taxes on the interest and spread between what I buy the note for and my final payoff when the property owner sells. Who pays the taxes on the difference between the original value of the note and my final net payoff?

TYIA!