Custom Adjustable Rate Debt Structure - CARDS

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.

BREAKING DOWN '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. Offshore Portfolio Investment Strategy ...

    A tax shelter product designed to create large, seemingly real ...
  2. Tax Shelter

    A legal method of minimizing or decreasing an investor's taxable ...
  3. Abusive Tax Shelter

    An investment scheme that claims to reduce income tax without ...
  4. Paper Trade

    Using simulated trading to practice buying and selling securities ...
  5. Stretch Loan

    A loan that is extended to another party, either an individual ...
  6. Paper Dealer

    A market maker that buys and sells extremely short-term corporate ...
Related Articles
  1. Taxes

    Tax Haven Vs. Tax Shelters: Is There a Difference?

    Learn about the difference between tax havens and tax shelters, and how both are used to reduce tax liability or avoid paying taxes altogether.
  2. Investing

    Commercial Paper

    Commercial paper is a short-term debt security issued by financial companies and large corporations. The corporation promises the buyer a return, or profit, for making the loan. The return is ...
  3. Bonds & Fixed Income

    Introduction To Commercial Paper

    Commercial paper is a short-term instrument that can be a viable alternative for retail fixed-income investors looking for a better rate of return on their money.
  4. Forex Education

    Don't Do Something Just Because You Can

    Discover your risk tolerance and understand the factors to consider when creating your investment portfolio.
  5. Taxes

    4 Reasons Why Delaware Is Considered a Tax Shelter

    Understand what a tax shelter is and how one is normally created. Learn about Delaware and the top five reasons why it's considered a tax shelter.
  6. Economics

    Calculating Net of Tax

    Net of tax is a figure that has been adjusted for taxes.
  7. Retirement

    Money Market: Commercial Paper

    For many corporations, borrowing short-term money from banks is often a laborious and annoying task. The desire to avoid banks as much as possible has led to the widespread popularity of commercial ...
  8. Professionals

    Introduction

    Introduction
  9. Trading Strategies

    Pros And Cons Of Paper Trading

    Most market novices should paper trade for a considerable amount of time, despite key drawbacks.
  10. Tax Strategy

    Assets the Ultra-Rich Use to Reduce (or Avoid) Taxes

    Paintings, oil wells and yachts can get great tax write-offs for their wealthy owners. All it takes is some smart gaming of the tax code.
RELATED FAQS
  1. Are tax shelters legal in Canada?

    Understand whether tax shelters are legal in Canada and what types of scams have been committed. Learn what happens to illegal ... Read Answer >>
  2. Can a business ever be too small to issue commercial paper?

    See why market forces regulate the size of companies that issue commercial paper, even though there are no official regulations ... Read Answer >>
  3. How can retail investors invest in commercial paper?

    Find out how individual retail investors can purchase short-term commercial paper, but why it rarely makes good investment ... Read Answer >>
  4. Can retail investors buy commercial paper?

    Find out whether retail investors buy commercial paper, and learn about the restrictions that often prevent individual investors ... Read Answer >>
  5. Can individual investors profit from interest rate swaps?

    Find out how individual investors can speculate on interest rate movements through interest rate swaps by trading fixed rate ... Read Answer >>
  6. How does the effective tax rate for an individual differ from that of a corporation?

    Read about the effective tax rate for individuals when compared with the effective tax rate for corporations, including how ... Read Answer >>
Hot Definitions
  1. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  2. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  3. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
Trading Center