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. Paper Dealer

    A market maker that buys and sells extremely short-term corporate ...
  6. Stretch Loan

    A loan that is extended to another party, either an individual ...
Related Articles
  1. Personal Finance

    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. Markets

    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. Managing Wealth

    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. Personal Finance

    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.
  5. Investing

    Calculating Net of Tax

    Net of tax is a figure that has been adjusted for taxes.
  6. Trading

    Pros And Cons Of Paper Trading

    Most market novices should paper trade for a considerable amount of time, despite key drawbacks.
  7. Managing Wealth

    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.
  8. Investing

    Different Needs, Different Loans

    Find out what options are available when it comes to borrowing money.
  9. Investing

    Different Types of Swaps

    Investopedia explores the most common types of swap contracts.
  10. Trading

    Currency Swap Basics

    Find out what makes currency swaps unique and slightly more complicated than other types of swaps.
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. In which countries do high-income earners pay the most tax?

    Find out which countries require high net worth individuals to pay the most taxes. Most of these countries are in the European ... Read Answer >>
Hot Definitions
  1. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  2. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  3. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  4. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  5. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  6. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
Trading Center