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Tue Dec 25, 2012, 08:00 AM


Private equity firms: Massive tax avoidance pyramid scheme?

The following letter was sent to SEC Chair Mary Schapiro and IRS Commissioner Doug Shulman on “tax day...” (2011)

Parish & Company
10260 S.W. Greenburg Rd., Suite 400
Portland, OR 97223

Dear Chair Schapiro...

The purpose of this letter today is to alert you directly to an alarming trend with respect to the rapidly eroding integrity of cash flow statements filed with the commission. The culprit is non-disclosure of important tax related transactions involving material net operating losses, in addition to compensation and related expense allocations subject to the “fractions rule”and NOL (net operating loss) loss limitation rules that are material to past, present and future cash flows involving publicly traded partnerships, such as Blackstone, in which tax exempt investors participate. The NOL related limitation issues are also a significant issue in mergers and buyouts of public companies.

Back in late 1999 when I provided original research to Gretchen Morgenson... of the NY Times regarding how Microsoft paid no federal income tax I was told that this was ridiculous. You discredit your excellent work by saying such a thing, Morgenson added. Six months later she did a front page story outlining the scheme involving the issuance of NQ stock options...

More recently, since last summer, I have tried to get the NY Times to do a story on how major private equity and hedge funds may indeed be escaping taxation completely via gaming carried interest deductions in violation of two key IRS reforms established by former President Reagan, the “fractions rule”and limitations on purchased NOLs... Clearly the much bigger issue is that involving the takeover of public companies by private equity and hedge funds, effectively converting these formerly tax paying entities to the equivalent of tax exempts using NQ option and carried interest schemes resulting in an NOL pyramid scheme. Again, the bulk of these NOLs were never cash expenses but simply NQ options and carried interest.

If these private equity and hedge funds were indeed catering only to affluent investors that would be fine yet today many of these organizations receive most of their funding from public pensions... One could argue such non-disclosure to the SEC is manufacturing a tax deduction pyramid or flipping scheme in which private equity firms take companies private, public, private again and then public. Each time creating staggering NOLs in the form of stock option or carried interest deductions, not resulting from an outlay of cash for equipment or wages, but rather a paper tax deduction pyramid scheme...


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Reply Private equity firms: Massive tax avoidance pyramid scheme? (Original post)
HiPointDem Dec 2012 OP
xchrom Dec 2012 #1
starroute Dec 2012 #2

Response to HiPointDem (Original post)

Tue Dec 25, 2012, 08:34 AM

1. du rec. nt

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Response to HiPointDem (Original post)

Tue Dec 25, 2012, 12:01 PM

2. Capitalism may be about to fly up its own asshole and vanish

The original idea behind the corporation was to spread risk among many investors. The second great idea was the "limited liability corporation," in which investors could only lose the money they paid in, even if the corporation tanked or had legal issues. And the third was to bring in many small investors and make stocks and bonds a mainstay of the economy.

But the greedheads and power-trippers have decided that public ownership is just a drag on their ability to do whatever they want. They're rich enough that they can take losses and barely notice, powerful enough not to worry about liability, and contemptuous of the notion of shareholders.

Which may be all very well for them -- but it completely knocks the props out from under the system of capitalism as we know it. And what then?

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