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The First Look - Andy Cinko, Bloomberg News

Feb 19, 2013|

The First Look - Andy Cinko, Bloomberg News

Transcript - will not be 100% accurate

Tax avoidance is the name of the game and John Paulson is an expert at the game good morning Andy -- from Bloomberg News Harry -- well you know we don't have to sit there are. Anyway there's a story today June in Bloomberg. About how John ball Paulson -- a huge hedge fund manager he manages billions and billions of dollars an image fund. He has successfully. Avoided paying a lot of federal income tax using an offshore. Reinsurance compass off course in Bermuda. Indy cinco joins us now to talk was about the story any good morning -- Dolan. Morning -- -- fine thank you. So is John Paulson. Bit like one of the biggest hedge fund managers in the country. He's pretty large he's got several several tens of billions that forget the exact figure out the top of my head but yet he is like the top guy. Everybody wants to become popular because he'd bet correctly that the housing market would implode and really that's where immediate. The bulk of his money was -- -- 20082009. Bet which. You know frankly didn't look so hot in 20062007. But boy did it pay off when it fell apart. Jealousy gives you guys did a great job reporting this story and how did he legally. Exploit a little known tax loophole to the tune of 450 million dollars. Yeah his. Is one of the handful of head on that heavily at least set up what's known as re insurance companies so what is the reinsurance company. What they all they have a lot of home to Detroit and Florida. It turns around and -- -- own insurance. From a reinsurance companies -- let's say. A hurricane hits Florida office claimed it go to its reinsurance company to get paid back as well. So what's happening here just that little bit of background is. Also and is setting up. What has set up a reinsurance company in Bermuda. What he does is dump also got -- there fifteen million dollars hanging around instead of investing directly in his own hedge. He sent the money down to Bermuda and the and uses -- -- money for reinsurance company. The reinsurance company -- take that fifteen million dollars and automatically send it right back to John Paul. That fifteen million goes into his bond. The difference being -- that. With the money going from Bermuda and because to -- that does not have a corporate tax. -- at all. That money grows. For me. Why I -- that's a party that understanding that. It it's it's still on the same pundits still on the same account that because it's called the Bermuda reinsurance fund he avoids like billions of dollars of that corrects. Because because we beat the money that's made in Paul responded not going directly to John Paul -- the -- burst to the reinsurance company that he on the stake it. The -- accumulated earnings. He can use if he wants to or he can just let it sit there but he doesn't owe any tax on the accumulated earnings of the reinsurance company -- -- felt the. More importantly when he's -- mistake he doesn't pay ordinary income tax rates of like 40%. He would pay the capital long term capital gains tax rate of say 20%. But why it -- and I think a lot of us don't understand India's. Why is money in and their reinsurance company not taxable it's the same it's it's the same money. I mean it would be like June saying well gee did this 101000 dollars. Was really reinsurance -- action after a federal income tax. Well if she started -- in her own insurance company and Bermuda yes you could probably take advantage. Similar it's a loophole in the IRS tax. Regulations that let -- active reinsurance company. He it'll -- on a taxable basis to operate this way it would have to do with the regulations more than anything else the loophole that in the code. And the and Bermuda is promoting at the -- trust them begun to cotton onto it and create more of these -- insurance companies now let me. At one caveat here these are real reinsurance companies they are indeed writing policies and that and selling. They're not be company. And -- do require millions. Seed money in order to be launched so you know there is real money involved and is going into real business. To your point the question is that your earning income from that business how commit not a how commit tax rate in either -- the good questions. And and this has been around for at least a decade and the IRS is aware of the issue and has done nothing to address it even though they said that they would along time ago. But this would require congressional. Action and I think is if you're sending it through. We get to the IRS you know they write the rules and the regulations but then how they wanted to find that. And they have yet to come up with an answer again even though this question been asked several times over the years they have been answered. While while by -- -- it's discouraging to the average working guy Eric as we're getting ready to pay higher taxes now. And we're paying you know 253539%. In income tax in and you see a billionaire. Not paying any federal income tax because he's Smart enough to set up a Bermuda reinsurance companies as. It's still boggles the mind that this is -- Under the tax. As you know it they've -- that it takes money to make money and you know when he got. Several billion dollars hanging around you can find lots of different ways to two two invested and avoid paying tax and this is just the latest example of that right. This I guess good for John Paulson and bad for the rest of us yeah. All right Andy thank you very much for your time. They how do you guys feel about that and me -- this is it always doing right is. Shifting. IE is actually 450 million dollars he sent it to Bermuda for thirty days in that comes right back in a -- the same stuff and he avoids. Federal income tax. On 450 million dollars that does this happen. Every day in the world I mean it. He cannot be the only. No but I remembering this I think this is part of what Mitt Romney was talking about last September when -- -- me to get rid of somebody like Mitt Romney would know about these types of deals being out there and I think that's part of what he was. Address and a culture you know we're sitting here DA you just guy we all god. A very large federal income tax hike on January 1 when are like it taxes went up very. And yet this guy still avoiding tax on 450 million dollars half of them and then some folks out there what's it while he's Smart. You know I'm not I know if I was John Paulson I would do the same game -- -- but the fact of the matter is how -- Close and that sticks to skiing yeah it is an idea whether any of of of defining you know this is of a citizen and legal sure it's legal -- -- bribe the politicians to write this into the tax code -- to take advantage sevens and enforce and it's called money laundering. Well you know really well I would I would almost -- it is tax -- right. I -- you you said the money to Bermuda for thirty days you bring it right back to New York in your investing in the same stuff you're investing in before I would. I would take advantage of that in New York minute okay. It's given this guy. On a mile apart are we throwing him under the bus throwing him under the bucks. No it is that the night guys making a lot of money is a billionaire but it. The tax law in my opinion in this instance he is not what should -- six so traces their content has questionnaire that they have to fill out disclosing any for an income at the generates income he's got to pay. Yeah this is not income because it's going into a reinsurance company what's his party affiliate there on them. Doing on policy idea and we don't know and don't care if they NBA just ate it just strikes me as. Bloomberg is is is generally yeah I think Mike Bloomberg was they've Republican if that matters but -- I don't see how politics is relevance -- -- businesses. Nothing other than blatant. Tax avoidance at its highest -- yeah well. We'll be back.