4 ms·

Yea. They all do it. It's a well known exploitable tax loophole. You have to be rich to even take advantage of this method of tax evasion. This is probably one

Yea. They all do it. It's a well known exploitable tax loophole. You have to be rich to even take advantage of this method of tax evasion. This is probably one of the best digestible write ups that I've seen on the topic, I highly recommend just reading it.

bentley 2y ago
If “they all do it” and it’s so well‐known, surely one can point to examples where it has been used?
- slater 2y ago
  https://news.ycombinator.com/item?id=41410835 https://news.ycombinator.com/item?id=41410835
  - opo 2y ago
    That doesn't sound like the lifetime loans that the supposed $2,500 an hour "private wealth attorney at an international law firm" was talking about. In his story, the loans are at .5% - 3% and only payable decades later upon death (though the firm would supposedly also get a share of earnings increase). This sounds like normal SBLOC (Securities-Based Lines of Credit).
    - anonfordays 2y ago
      His story is BS. Banks and investment firms cannot loan money for less than the AFS, which is 3.72% right now: https://www.investopedia.com/terms/a/applicablefederalrate.asp https://www.investopedia.com/terms/a/applicablefederalrate.a...
      - lelandbatey 2y ago
        They discuss this in the linked post; technically these are securities, not loans: https://old.reddit.com/r/BuyBorrowDieExplained/comments/1f26rsf/buy_borrow_die_explained/lklbnlj/ https://old.reddit.com/r/BuyBorrowDieExplained/comments/1f26... They were asked the question: > If you take a loan out to live off of of 80 million you would at least need to pay 5% to make it a true loan. The IRS That is 40 million in interest over 10 years. You said .05% loans, that is not realistic because you would get hit with inputted interest and phantom income from the difference between your loan and the IRS AFR rate. To which they answered as follows: > To your third bullet point - that’s a great observation, but by law these products are actually securities, not “loans” as the term is used in Code § 7872. That’s why it’s important that the stock appreciation rights are the predominant means of profit from the transaction for the investment bank. Where the taxpayer and investment bank can’t come to an agreement that would result in these products being characterized as securities, the interest rate will be much higher - SOFR plus 1.5-5 basis points - but may be “paid-in-kind” (i.e., the interest is not required to be paid in cash currently but added to principal).
        anonfordays 2y ago
        That is incorrect and the linked IRS tax code doesn't even cover this specific example. It is a security to the bank since you're selling what amounts to an options contract to them. The cash they loan you is still considered a cash loan, and must follow the minimum AFS rate. The "options contract" for appreciation rights is the collateral for the loan (secured loan), the loan is still a loan. It's effectively the same as a home equity loan.

bentley 2y ago

If “they all do it” and it’s so well‐known, surely one can point to examples where it has been used?

slater 2y ago
https://news.ycombinator.com/item?id=41410835 https://news.ycombinator.com/item?id=41410835
- opo 2y ago
  That doesn't sound like the lifetime loans that the supposed $2,500 an hour "private wealth attorney at an international law firm" was talking about. In his story, the loans are at .5% - 3% and only payable decades later upon death (though the firm would supposedly also get a share of earnings increase). This sounds like normal SBLOC (Securities-Based Lines of Credit).
  - anonfordays 2y ago
    His story is BS. Banks and investment firms cannot loan money for less than the AFS, which is 3.72% right now: https://www.investopedia.com/terms/a/applicablefederalrate.asp https://www.investopedia.com/terms/a/applicablefederalrate.a...
    - lelandbatey 2y ago
      They discuss this in the linked post; technically these are securities, not loans: https://old.reddit.com/r/BuyBorrowDieExplained/comments/1f26rsf/buy_borrow_die_explained/lklbnlj/ https://old.reddit.com/r/BuyBorrowDieExplained/comments/1f26... They were asked the question: > If you take a loan out to live off of of 80 million you would at least need to pay 5% to make it a true loan. The IRS That is 40 million in interest over 10 years. You said .05% loans, that is not realistic because you would get hit with inputted interest and phantom income from the difference between your loan and the IRS AFR rate. To which they answered as follows: > To your third bullet point - that’s a great observation, but by law these products are actually securities, not “loans” as the term is used in Code § 7872. That’s why it’s important that the stock appreciation rights are the predominant means of profit from the transaction for the investment bank. Where the taxpayer and investment bank can’t come to an agreement that would result in these products being characterized as securities, the interest rate will be much higher - SOFR plus 1.5-5 basis points - but may be “paid-in-kind” (i.e., the interest is not required to be paid in cash currently but added to principal).
      - anonfordays 2y ago
        That is incorrect and the linked IRS tax code doesn't even cover this specific example. It is a security to the bank since you're selling what amounts to an options contract to them. The cash they loan you is still considered a cash loan, and must follow the minimum AFS rate. The "options contract" for appreciation rights is the collateral for the loan (secured loan), the loan is still a loan. It's effectively the same as a home equity loan.