Custom Adjustable Rate Debt Structure - CARDS

AAA

DEFINITION of 'Custom Adjustable Rate Debt Structure - CARDS'

A type of tax shelter product used by high net worth individuals that involves making a large paper multimillion dollar loan to a foreign party. This party is usually a company that is related to the company that is brokering out the tax shelter. After a series of asset related swaps, the individual receives a paper loss that is equivalent to the original value of the loan. This paper loss can then be used to offset real gains that the individual has earned.

INVESTOPEDIA EXPLAINS 'Custom Adjustable Rate Debt Structure - CARDS'

CARDS were used in 2000-2002, but the IRS has since deemed them to be illegal, arguing that taxpayers should not be allowed to benefit from losses that were not realized.

Providing CARDS and other questionable tax shelter products was so lucrative that some companies based their businesses on providing them. For example, one of these companies allegedly charged $2 million to create a tax shelter for sum as large as $50 million.

RELATED TERMS
  1. Tax Shelter

    A legal method of minimizing or decreasing an investor's taxable ...
  2. Paper Profit (Paper Loss)

    Unrealized capital gain (or capital loss) in an investment. It ...
  3. Income Shifting

    A strategy of moving a person's income from a high income bracket ...
  4. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  5. Tax Evasion

    An illegal practice where a person, organization or corporation ...
  6. Taxable Income

    The amount of income that is used to calculate an individual's ...
RELATED FAQS
  1. Should you calculate Value at Risk (VaR) for counterparty credit risk?

    Value at risk (VaR) calculations may be helpful for risk management when trading credit default swaps and other derivatives ... Read Full Answer >>
  2. For what financial instruments is a modified duration relevant?

    The modified duration is a formula used to calculate the percent change in the price of a financial instrument when there ... Read Full Answer >>
  3. What is the difference between derivatives and swaps?

    Derivatives are securities with prices dependent on one or multiple underlying assets. Common derivatives include forward ... Read Full Answer >>
  4. Why is tenor important on credit default swaps?

    Tenor – the amount of time left on a debt security's maturity – is important in a credit default swap because it coordinates ... Read Full Answer >>
  5. What kinds of derivatives are types of forward commitments?

    A derivative is a type of security in which the price of the security is dependent on underlying assets. A derivative could ... Read Full Answer >>
  6. What is an over-the-counter derivative?

    A derivative is a type of security in which the price of the security depends on the price of the underlying asset. Depending ... Read Full Answer >>
Related Articles
  1. Retirement

    Tax Tips For The Individual Investor

    We give you seven guidelines to help you keep more of your money in your pocket.
  2. Taxes

    Surviving The IRS Audit

    Keeping thorough records and knowing the penalties make this experience easier than you'd expect.
  3. Investing Basics

    Explaining Currency Swaps

    A swap that involves the exchange of principal and interest in one currency for the same in another currency.
  4. Investing

    How To Read Interest Rate Swap Quotes

    Puzzled by interest rate swap quotes terminology? Investopedia explains how to read the interest rate swap quotes
  5. Economics

    Effects of OIS Discounting for Derivative Traders

    The use of OIS discounting has important implications for derivative valuations and could positively or negatively impact a trader's profit or loss.
  6. Investing

    How Swaptions Can Reduce Risk in Portfolios

    How can investing in Swaptions reduce risk in portfolios.
  7. Investing

    What Warren Buffet Calls "Weapons of Mass Destruction": Understanding the Swap Industry

    A full analysis of how the swap industry works.
  8. Investing Basics

    How Are Interest Rate Swaps Valued?

    When trading in financial markets, higher returns are generally associated with higher risk. Hedge your risk with interest rate swaps.
  9. Investing Basics

    ISDA Master Agreement

    The ISDA Master Agreement is a document outlining the terms of an over-the-counter derivatives transaction between two parties. This document serves as a standard agreement in these transactions ...
  10. Insurance

    Credit Default Swaps: What Happens In A Credit Event?

    The credit crisis of 2008 prompted important changes to the settlement of credit default swaps.

You May Also Like

Hot Definitions
  1. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  2. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  3. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  4. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  5. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  6. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!