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. Paper Profit (Paper Loss)

    Unrealized capital gain (or capital loss) in an investment. It ...
  2. Tax Shelter

    A legal method of minimizing or decreasing an investor's taxable ...
  3. Income Shifting

    A strategy of moving a person's income from a high income bracket ...
  4. Tax Evasion

    An illegal practice where a person, organization or corporation ...
  5. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  6. Offshore Portfolio Investment Strategy ...

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

    How Swaptions Can Reduce Risk in Portfolios

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

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

    A full analysis of how the swap industry works.
  5. 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.
  6. 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 ...
  7. 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.
  8. Fundamental Analysis

    Derivatives 101

    Learn how to use this type of investment as an alternative way to participate in the market.
  9. Investing Basics

    The Barnyard Basics Of Derivatives

    This tale of a fictional chicken farm is a great way to learn how derivatives work in the market.
  10. Bonds & Fixed Income

    A Guide To Real Estate Derivatives

    These instruments provide exposure to the real estate market without having to buy and sell property.

You May Also Like

Hot Definitions
  1. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  2. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  3. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  4. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  5. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  6. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
Trading Center