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<He's declared bankruptcy once & has several cards maxed.>

I have to say that I am in agreement with all of what has been said so far. It used to be that having a bankruptcy in your past was considered a very dark mark against you. Today, in some circles it is almost a badge of honor to have been through one. While I too would make an exception for someone who went through one due to medical issues, I have no respect for those who got there through their own greed or stupidity. Your friend is playing loose and free with his finances. He may continue to get away with it for awhile. It is probably exactly the same mindset that led him into his bankruptcy in the first place.

Did anyone catch the 60 Minutes story on tax shelters? It was on a much larger scale than what you relate about your friend, but it kind of shows a similar way of thinking. The person in the story sold their business for a big profit. It was said that he would owe 13 million in CGs. Instead, he was "persuaded" to go for a tax shelter that generated sham losses to eliminate his gain. Between the accounting firm (Ernst & Young), the legal firm and the investment bankers, he paid some 7 million in fees to avoid some 13 million in taxes. The shelter was sold as being so complex that it would be impossible to explain. Yet, they felt it was legal because it had not been disallowed in the past (of course they never applied for a PLR).

After an audit, the IRS declared it was not legal and now the person owes the original 13 million, plus penalties, plus interest. He was a bit peterbed that the IRS was going after him much more forcefully than it was going after the ones who sold him the shelter. The position of the IRS was that it was the taxpayer who committed the fraud (you are after all required to sign it). They said if the taxpayer felt he was given bad advice, he had both the civil and criminal courts available to him to fight it.

It seems that lots of envelopes got pushed in the 90's. The analysis shows that many fringe "advisors" made lots of money pushing these shelters in the 90's. It eventually got the attention of the bigger fish. By lowering their ethical barriers, they were able to get into the game too. Eventually they would use their sales list to reel in new customers. Now E&Y has given that entire list over to the IRS. Methinks that some good will come out of that as lots of fingers will get pointed and a few more checks to the IRS get written.

I think we have paid a steep price in many ways for this type of activity. I remember reading how many tens of thousands of people lost their jobs because their companies were unable to meet the benchmark of WorldCom. They kept getting bigger and stronger with unmatchable profit margins. Many people wondered how they could make so many seamless mergers that always worked out so well considering each company had its own culture, management style and dissimilar computer systems, etc. They didn't wonder loud enough though. Just like in the Wizard of Oz when the curtain was pulled back there was no all powerful wizard. There was no all powerful WorldCom either. Many also wondered the same thing about all of Tyco's mergers that were always instantly profitable on paper. They were not real either.

We are a nation where shortcuts, short term results and instant gratification are glamorized. Part of the price of all of that is the accounting scandals and the huge rise in personal bankruptcies. It is galling that many of those who sat on the top of such things have largely gone unprosecuted and still have their huge piles of money. It is also galling that the IRS has to struggle to get the funding it needs to work in an area that clearly needs to watched much more closely.

BRG (sorry for climbing on the soapbox)
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