taxes

  • 22 Jan 2014 at 4:02 PM

Bitcoin Is Getting More Real Every Day

You can buy discount broadloom, see a last-place team, donate to fringe political candidates, waste more time and money at a coffee shop, accumulate hotel rewards and buy porn, travel with some difficulty, run a massive online black market and throw your money away in Vegas, all with bitcoins. And soon, you’ll be taxed on them. Read more »

At a gathering on Monday night at 740 Park Avenue in Manhattan for Diana Taylor, the girlfriend of New York City Mayor Michael Bloomberg, some of New York’s wealthiest considered a future without the billionaire in charge. There was considerable alarm about Bill de Blasio’s lead in the polls, along with his plan to raise taxes on New York’s upper echelon. “I fear for New York City if Mr. de Blasio gets elected,” said Muffie Potter Aston. “He just wants to tax everyone to smithereens. You have to be fair to everyone. You have programs that support all of the people of New York. But if you continue to tax what you see as the upper-income brackets, it’s still only going to be providing a small percentage of additional income.” […] “I would love to support a fourth term for Mike Bloomberg. So if we can float that, you can say Muffie Potter Aston wants a fourth term for Michael Bloomberg,” she said. Her concerns about de Blasio were shared by her cohort. “I’ve never understood why New Yorkers vote against their own interests,” said Jacqueline Weld Drake. “New York is a city of financial entrepreneurs, of genius stock traders and bankers. It would be a smart idea to keep it that way. It’s not a city that’s going to benefit from high taxes because people who have substantial incomes have a choice. They have a choice of venues. New Jersey beckons. Florida beckons. All kinds of other states who do better at job creation. We are really biting the hand that feeds us. No question about it.” [WWD via Dealbook]

Back in 2009, hedge fund manager Phil Falcone came up with an idea considered genius only if you take an elastic view of securities laws, which Falcone certainly did (does?). Upon being notified by his personal accountants that he owed the government more than $100 million in state and federal taxes, and turning down the suggestion to borrow against various assets including his Manhattan townhouses, artwork, interest in the Minnesota Wild, and an estate on St. Bart’s, Falcone decided to just borrow the money from a gated investor fund, despite being told in no uncertain terms it was a bad idea by Harbinger’s “longstanding” outside counsel. Investors in that fund turned out not to like the idea very much, with the SEC feeling similarly. But while the regulator felt 5 years (plus an $18 million fine) was enough time for Falcone to really think about what he’d done– a punishment Falcone described as a blessing in disguise–, the New York Department of Financial Services felt otherwise. Read more »

  • 01 Jul 2013 at 10:13 AM

Renaissance Technologies: Buy-And-Hold Investor

You can think of a margin loan as being like an option on the underlying security: if I lend you $50 (nonrecourse) against a $100 share of stock, and tomorrow the stock is worth $45, then you’ve lost $50 and I’ve lost $5, same as if I wrote you a $50 strike put option on the stock.1 This isn’t quite right – margin calls, etc. – but what it lacks in precision it gains in tax efficiency:

James H. Simons, who became a billionaire when he turned his extraordinary mathematical ability from defense work to investing, has deployed an unusual strategy at Renaissance Technologies LLC to skirt hundreds of millions of dollars in taxes for himself and other investors, said people with knowledge of the matter.

The Internal Revenue Service is challenging the technique, which it called “particularly aggressive,” without identifying the hedge fund in the dispute. … Renaissance’s strategy involved buying an instrument called a “basket option contract,” from banks including Barclays, the people said.

That’s from today’s wonderful Bloomberg article about the IRS’s investigation. Here’s the IRS memo about the trade. Here’s the trade.2 Actually wait: here’s the trade, twice. You can just read down the left side if you enjoy getting mad at evil tax-dodging hedge funds, or just read down the right side if you don’t want to believe that Jim Simons could ever get up to no good:
Read more »

  • 21 May 2013 at 11:06 AM

Senate Discovers There’s A Tax Code

Here’s a math problem: what does this sentence, from John McCain, tell you?

“Apple claims to be the largest U.S. corporate taxpayer, but by sheer size and scale, it is also among America’s largest tax avoiders,” he said in Monday’s pre-hearing comments.

The answer, of course, is that Apple is among the most profitable companies in America.1 If you have a lot of profits, you can not pay taxes on a lot of them, and still pay lots of taxes on a different lot of them. There is much focus on the exceptions, but for the most part I’d guess that “biggest taxpayers” and “biggest tax avoiders” are both highly correlated to “biggest profits.” Warren Buffett pays more taxes than his secretary, but at a lower rate.

The Senate, not being known for its quickness with math, is holding hearings today on the avoiding part; here you can read (pdf) the committee’s report. Apple does two main things to avoid taxes that the committee doesn’t like:

  • It incorporated two of its main foreign subsidiaries, Apple Operations International (AOI) and Apple Sales International (ASI), in Ireland. Those subsidiaries are, however, managed and controlled in the U.S. by their California-based directors. The U.S. taxes corporate income based on place of incorporation; Ireland taxes corporate income based on place of management and control. So if you’re incorporated in Ireland and managed and controlled in the U.S. you pay taxes nowhere, as AOI does and ASI more or less does. This is … honestly isn’t the surprise that everyone doesn’t do this?2 I’m incorporating myself in Ireland as we speak.
  • It entered a cost sharing agreement that gave ASI the economic rights to Apple intellectual property outside of America, in exchange for ASI funding a share of Apple’s California-based R&D proportional to its share of Apple’s total sales. Apple is in the business of manufacturing cheap electronic components in China, slapping expensive cool on them in California, and selling the package for $500. ASI effectively got the California cool at cost, rather than paying retail, which means that the international share (some 60%) of the profits of that cool are, for tax purposes, “earned” abroad (in a zero-tax subsidiary!) rather than in California.

That’s the main stuff; there’s some stupid stuff too.3 Apple’s response is a lot of blather that boils down to: Read more »

Earlier this month, Bloomberg reported that John Paulson was considering making Puerto Rico his home for a little more than half the year, having been intrigued by the idea of working from the beach and not paying capital gains taxes. For its part, PR was pretty excited about the prospect of the hedge fund manager calling the island home on tax forms, as his presence would create a much needed you scratch our back we’ll scratch yours situation for the local economy. And while a spokesperson for Paulson has categorically crushed the dreams of the Commonwealth, apparently everyone has gotten over it pretty quickly and would like to make it clear that anyone with money to spend is welcome, nay, encouraged to come on down. Millionaires would be good, billionaires are better, but beggars/choosers/etc. Read more »

I’ve never heard of a “pint” before, but I hear the working classes like them.

What do you do when you’re Chancellor of the Exchequer and everything’s going wrong, possibly because of your policies, and you have to introduce a budget today full of evidence of failure? Do you abandon those policies in favor of something that might work and might not cause a triple-dip recession? Read more »

Despite reports to the contrary. Nueva York it is. Read more »