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Posts Tagged ‘tax’

Today Oregon PERS approved a $400 million investment in Stonepeak, a firm that invests in “infrastructure projects.”

In his presentation Stonepeak’s managing director Michael Dorrell noted their strategy is to invest in “essential infrastructure assets with an economic monopoly, much like an airport.”  This includes water, power plants, transportation and telecom with a focus “outside the auction process.”  They expect an annual return of 12 percent over 30 years.

One of their major projects he discussed is the largest desalination operation in the western hemisphere, in Southern California.  The key development partner is Poseidon Resources, “former GE guys.”  Dorrell noted they obtained the exclusive rights to such desalination projects.  They brought these rights over from their former employer Blackstone, who is entitled to 50 percent of the carried interest from this project. The expected return is 14 percent over 30 years and the City of San Diego could not do much about this high rate since Stonepeak has rights to the “only viable site near San Diego.”

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In late 2014 the tax exempt Oregon Historical Society sold the Sovereign Apartment building, after owning it more than 30 years.  The Society maintains an outstanding board of directors and this was clearly a difficult decision. As part of the sale the society negotiated a long-term lease for itself yet its 44 tenants were last month given six months to vacate.

ohs2sovereign2

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Disclosure:  This post is the first of several regarding the 2016 Presidential candidates.  One post will be done on each major candidate and the focus will be their primary financial backers and their respective foundations.  Bill Parish maintains no ties to any candidate nor does he have knowledge of any client owning positions in private equity or hedge fund partnerships.  Parish & Company only recommends publicly traded securities.

With Hillary Clinton likely to win the Democratic nomination, barring a major mistake, her most influential financial backers will be analyzed first.  They are Tony James of Blackstone and Jim Simons of Renaissance, the world’s largest private equity and hedge funds respectively.

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Prior to the fractions rule, investors were investing $1 in order to get $5 to $7 in tax deductions.

President Reagan was so incensed that he signed into law new legislation, the “fractions rule,” specifically designed to end this scheme.  During this period no firm was more abusive with respect to tax avoidance than General Electric. Today Reagan’s reform is being challenged in an assault on taxpayer fairness led by the private equity firm Blackstone and its CEO Steve Schwarzman (pictured below left), in conjunction with the American Bar Association (ABA).  See my August 2010 blogpost “Blackstone: Private Equity or Public Theft,” for expanded background.

Before you consider the proposition of gaining $5 of deductions with a $1 investment preposterous, listen to the brief clip below of Sanford Presant of Greenberg Traurig, one of the nation’s leading real estate attorneys.  It is actually two short clips, the first is his introduction at a major tax conference and the second an explanation of what led to the fractions rule in his own words.

Presant is a national authority in this area and has had major roles with the ABA, in addition to heading up Ernst and Young’s real estate practice. The complete audio recordings for Presant’s remarks, in addition to those of Internal Revenue Service Associate Chief Counsel Curt Wilson, can be purchased at http://www.dcprovidersonline.com.

Also featured in the recording is Wayne Pressgrove of King & Spaulding, who makes a case to IRS Counsel Wilson for a revenue ruling to disable the fractions rule.   It is ironic that Reagan relied on the same law firm, King & Spaulding, to craft the fractions rule in the 1980’s, and these lawyers did brilliant work.

Audio Clip 1 (0:25)
Hear Sanford Presant Introduction and Background

mp3 file (for iPad users)

Audio Clip 2 (1:26)
Hear Presant Enthusiastically Explain How Investors Received $5 of Tax Deductions for Each Dollar Invested

mp3 file (for iPad users)

At a 2010 ABA conference, Internal Revenue Service Associate Chief Counsel Curt Wilson volunteered to sit on a panel and explained where the IRS stands on fractions rule enforcement. Wilson is introduced by Wayne Pressgrove of King & Spaulding.

Audio Clip 3 (3:32)
Hear IRS Associate Chief Counsel Curt Wilson Discuss the Fractions Rule

mp3 file (for iPad users)

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