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Bond Linked Issue Premium (BLIPS)案例分析

Bond Linked Issue Premium (BLIPS)案例分析

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最近看了paper"LessonsfromtheKPMG’stax-shelterShocker"其中涉及KBMG诸多避税产品,例如ForeignLeveragedInvestmentProgram(FLIP)/OffshorePortfolioInvestmentStrategy(OPIS)以及更为复杂的BondLinkedIssuePr ...
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最近看了paper" Lessons from the KPMG’s tax-shelter Shocker "其中涉及KBMG诸多避税产品,例如 Foreign Leveraged Investment Program (FLIP)/Offshore Portfolio Investment Strategy (OPIS) 以及更为复杂的Bond Linked Issue Premium (BLIPS),看了半天有诸多疑问。例如,为什么纳税人的独资有限责任公司LLP要跟投资公司的附属机构成立合伙基金,为什么合伙基金要跟银行进行利率互换交易(SWAP)从而将高于市场的利率恢复为市场浮动利率。现把案例写在下面,希望专业人士帮忙分析分析!
Bond Linked Issue Premium (BLIPS) (U.S. Senate, 2003)
In 1999, KPMG approved BLIPS for sale, pitching the product as a tax-advantaged
investment. The investor was told that in exchange for payments to KPMG, which were
frequently in the millions, he would generate a tax loss of as much as 10 to 20 times the
investment (Porter, 2004). According to the U.S. Senate Report (2003), the firm sold
BLIPS to 186 individuals, and obtained more than US$53 million in revenues during
1999 and 2000. For visual explanations, see Appendix 11.4.
Step 1: Let us assume an U.S. taxpayer had made ordinary or capital gains income
of US$20 million. Pursuant to the so-called ‘tax advantaged investment strategy’, the
taxpayer formed a single-member limited liability corporation (LLC) and contributed
7% of the amount to be sheltered (i.e. US$1.4 million).
Step2: LLC obtained a non-recourse seven-year loan (US$50 million) from a bank
at an above-market interest rate, such as 16%. Because of the above-market interest rate,
the bank credited LLC with an additional US$20 million load premium, which would be
treated as a loss for tax purposes. The Report (2003) continued to explain that the
premium was equal to the net present value of the portion of the loan interest payments
that exceeded the market rate and that LLC was required to pay during the full
seven-year loan. In this way, LLC received an amount of US$70 million from the bank.
Under the loan restrictions, LLC agreed to maintain ‘collateral’ in cash equal to
101% of the loan amount, including the loan premium. Porter (2004) indicated that the
loan proceeds were deemed ‘collateral’ for the loan itself.
Step 3: Presidio, an investment advisory firm now entered the picture. LLC and two
Presidio affiliates formed a partnership called a Strategic Investment Fund (Fund) in
which LLC got a 90% interest. LLC contributed all of its assets while Presidio’s two
affiliates contributed the rest. The Fund’s capital was amounted to US$71.6 million.
Step 4: LLC assigned the loan to the Fund which assumed LLC’s obligation to
repay it. This obligation included repayments of the loan and loan premium. The Fund
entered into a swap transaction with the bank, shrinking the loan interest rate to a market
rate. The Fund agreed to pay a floating market rate (about 8 %) on the US$70 million
borrowed, while the bank agreed to pay 16% fixed rate on the amount of the loan.
Step 5: The Fund used the US$70 million to buy euros while obtaining a guarantee
that it could convert the euros back to dollars within 60 days, creating a semblance of
investment activity. And the euros were placed in an account at the bank.
Step 6: After 60 to 180 days, LLC withdrawn, unwinding the partnership, and
converting all cash into U.S. dollars. The cash was, then, be used to repay the loan plus a
prepayment penalty equivalent to the US$20 million premium originally loaned by the
bank. Any remaining partnership assets were apportioned and distributed.
Without the shelter: As stated in the Report, the taxpayer had to pay tax on the
US$20 million, which ranged from 20% to 45%, depending on his/her effective tax rates.
Under the shelter: For tax purpose, the LLC’s income or loss passes to its owner,
the taxpayer. Reg. 301.7701-3 states that a single-member LLC is a disregarded entity8
(Jones & Rhoades-Catanach, 2005). The taxpayer could attempt to claim that he/she
retained a cost basis in the partnership equaled to the contribution of LLC (US$1.4
million) and the loan premium (US$20 million). With this ‘tax loss’, the taxpayer
attempted to offset the initial capital gains. The only cost to the taxpayer was a single fee
charged by KPMG and the other participants in the transaction, which equaled to 7% of
the intended tax loss. Hence, for an individual who got US$20 million as capital gains,
the maximum saving could be extended to US$8.23 million.
IRS response: IRS Notice 2000-44 identified this kind of transactions as listed
transaction, asserting that these types of transactions ‘do not represent bona fide losses’
(Shulman and Balacek, 2000). According to Notice 2004-67, taxpayers may need to
disclose their participation as prescribed in § 1.6011.4, and promoters may need to
register these transactions under § 301.6111-2 (Goldman and Shulman, 2004).
附注:
Prepayment penalty is a charge imposed by a mortgage lender on a borrower who wants to pay off part or all
of a mortgage loan in advance of schedule. Retrieved Feb 10, 2005 from http://www.eloan.com/s/show/glossary
Single-member LLCs are disregarded entities for federal tax purposes, the LLC’s shares are treated as
directly owned by the individual member (Jones & Rhoades-Catanach, 2005).
US$21.4M (‘Loss’ + Contribution) x 45% (Max. tax rate) – US$1.4M (Fee: 7% x US$20M) = US$ 8.23M
A listed transaction is a transaction that is the same as or substantially similar to one that the IRS has
determined to be a tax avoidance transaction… parties who participate in listed transactions may be required to
disclose the transaction. Retrieved Mar 3, 2005 from http://www.irs.gov/retirement/article/0,,id=119551,00.html
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