Genius - Lennar makes lemonade out of lemon's

As reported in today's Wall Street Journal

Lennar’s $800 Million Tax Refund
By DAVID REILLY
February 6, 2008; Page C3

Lennar Corp. has found a way to salvage something from the huge losses it incurred by overpaying for land during the housing boom.

Late last year, the Miami-based home builder sold a big swath of land — about 11,000 home sites — for $525 million to a partnership that it formed with Morgan Stanley. At first glance, the deal seemed terrible for Lennar, which had the land valued on its books at about $1.3 billion.

But the deal’s structure allowed Lennar to recognize a big loss that it applied against taxes paid the previous two years. The result: Lennar is expecting a tax refund of more than $800 million, according to the company’s annual results filed in late January.

As an added bonus, because of the way Lennar and Morgan Stanley structured their partnership, Lennar still effectively owns 20% of the land, according to the company. It also has a 50% voting interest in the partnership, meaning it will have a say in how the land is developed.

‘The Holy Grail’

That means Lennar gets the tax loss, but still holds an interest in the land on its books. “That’s the holy grail,” said Robert Willens, president of tax and accounting advisory firm Robert Willens LLC. “The accounting is saying that they’re not really selling it, whereas the taxes are more formal in the way they look at it.”

Positive spin on otherwise awful earnings for Lennar

Keep one thing in mind, Lennar (and the rest of the homebuilders) were making money hand over fist the last 5 years and paying lots of taxes. these huge losses they are taking now not only clean up their balance sheets but my guess is they will result in tax refunds which will come back onto the balance sheet. Also, while they are writing down the value of their land holdings (using overly conservative valuations), when the market improves these land holdings will be marked back to market and that too will come back onto the balance sheet. So net net, no need to hold a telethon for these guys. They will weather the storm and be positioned for when the market improves. moishe's take.

MIAMI (AP) — The Lennar Corporation, the home builder, reported a $1.25 billion fourth-quarter loss on Thursday — its biggest ever — as a slowdown drove home prices lower and the company took a write-down on land.

Lennar also reported a $1.9 billion loss for all of 2007. And with few signs of market improvement, the company said it was aggressively trying to generate cash and reduce inventory while taking heavy impairment charges.

The quarterly loss was $7.92 a share, compared with a loss of $1.24 a share, or $195.6 million, a year ago. Lennar lost $513.9 million in the third quarter. Excluding a charge of $7.50 a share to write down the value of land options, the company would have lost 42 cents a share in the quarter.

Revenue fell 49 percent to $2.18 billion, from $4.27 billion in the 2006 period, as home deliveries fell 50 percent to 7,044 homes, and new orders slid 50 percent with a cancellation rate of 33 percent.

In the fourth quarter, revenue from home sales was halved to $2 billion compared with the same period in 2006. The average sales price of homes decreased to $291,000, from $302,000 a year earlier.

This is pretty funny

January 24, 2008

In Taxing Illegal Drugs, the Trouble Comes in Collecting

By ANNE BARNARD

The Tennessee tax authorities slapped a young concertgoer with $11,506 in taxes and penalties when he was caught with marijuana-laced Rice Krispie Treats. North Carolina collected $11 million in taxes last year on illegal drugs and moonshine. And in Alabama, the rare drug user who chooses to pay state taxes on a stash is issued a sticker to place on the package that declares, “Say no to marijuana.”

Strange as it may seem to levy a tax on a commodity that no one is supposed to have, 29 states have passed laws that impose taxes on illegal drugs and controlled substances, and on Tuesday, Gov. Eliot Spitzer proposed that New York become the 30th.

The plan was part of a package of new or increased taxes and fees that the governor proposed in an effort to close an estimated budget deficit of $4.4 billion.

Across the country, a variety of drug tax laws have sparked legal disputes over issues like the constitutional protection against double jeopardy and the weight of spiked baked goods — as in the case of William Hoak, the Tennessee man who argued in court that he should have been taxed only for the weight of the marijuana in his Rice Krispie Treats, not for the cereal and marshmallows.

The laws have evolved over the past 20 years in response to court challenges. Some were struck down for violating the Fifth Amendment protection against self-incrimination; new laws then specified that taxes could be paid anonymously and that authorities could not report the taxpayers to the police.

North Carolina levied taxes so high that a federal appeals court ruled that the state unconstitutionally penalized drug dealers twice for the same crime: once with jail and once with the tax.

“It’s just a veiled attempt by the government to get these guys to come in and incriminate themselves for possessing drugs,” Jonathan A. Street, Mr. Hoak’s lawyer, said.

But officials say the taxes give states a new and easier way to seize drug money, handing law enforcement a tool to hobble the drug trade and replenishing state coffers along the way. Mr. Spitzer’s aides say the tax could bring in $17 million a year. That figure is extrapolated from the take in North Carolina, which revised its law in response to the federal court ruling and devotes an entire division of its Department of Revenue to enforcing it.

Paying the proposed New York tax — $3.50 per gram for marijuana and $200 per gram for other drugs — would not allow the taxpayer to keep illegal drugs, and the governor does not intend the tax to be a step toward drug legalization, said Robert Megna, who was confirmed as state tax commissioner on Tuesday.

But in order to make the laws constitutional, states must create at least the theoretical opportunity for drug users and dealers to pay the tax legally, said Verenda Smith, government affairs associate at the Federation of Tax Administrators in Washington.

For example, imagine that there is a drug dealer in North Carolina who wanted to do everything by the book. He would go to the authorities — anonymously, of course — and pay a tax based on the weight and the type of drugs he was holding. He would be given a tax stamp, not unlike the tax stickers on cigarette packs. The dealer could then place the stamp on his quarter-ounce bag of marijuana or kilo of cocaine to show that he had paid the tax.

Almost no dealers actually do this, nor does Mr. Spitzer expect them to. The vast majority of revenues from the tax are collected after law enforcement officials seize the drugs, said Kimberly Y. Brooks, a spokeswoman for the North Carolina Department of Revenue.

Officials look for the tax stamps on drugs, but not surprisingly, almost never find them, Ms. Brooks said.

Officials then can assess how much tax is owed, and the payment can be taken either from any cash found with the drugs or from the dealer’s other assets.

“It’s really about cutting the drug dealers off at the knees,” said Ms. Smith of the tax administrators group. “It kind of goes back to the Al Capone model.” Proving tax avoidance is much easier than proving a drug crime, she said, so the tax laws help the authorities keep seized drug money even when a suspect accused of dealing drugs goes free.

Since North Carolina’s law was passed in 1990, only a few dozen people have voluntarily bought the stamps. “They’re mostly stamp collectors,” Ms. Brooks said.

Ms. Smith said she had heard of only one drug dealer who paid the tax regularly, a young man in Oklahoma.

“For a drug dealer, apparently he was a very likable kid,” she said, adding that he decorated his bags of drugs with the tax stamp. “So when they caught him, they had to give him his money back. He had paid the tax.”

Would You Go For a Yacht or Fast Car, Moishe?

I'd take my yacht to Mexico, and freedom!!

By LEN BURMAN
Published: January 23, 2008

SINCE 2001, Washington’s answer to every policy question has been the same. What should we do with a big surplus? Tax cuts. How do we beat back global terrorism? Tax cuts. Increase energy independence? Rebuild New Orleans? Expand health insurance coverage? Tax cuts, tax cuts, tax cuts.

Now comes another question that becomes more pressing each day that the markets lose ground — one to which taxes have long been at least part of the answer. How do we stimulate the economy to prevent or shorten a recession? One way would be to repeal the Bush tax cuts two years early, in 2009.
...
the president has also argued for an extension of his tax cuts, now scheduled to expire at the end of 2010. This idea has met with less support. It would accomplish nothing in the short run, and most of the benefits would go to the very rich — the group least likely to spend a tax windfall.

But if they were repealed in a year, the Bush tax cuts could spur a burst of economic activity in 2008. If people knew that their tax rates were going up next year, they’d work to make sure that more of their income is taxed at this year’s lower rates. Investors would likewise have a giant incentive to cash out their capital gains now to avoid paying higher taxes later. In 1986, stock sales doubled as taxpayers rushed to avoid the capital gains tax rate increase scheduled for 1987. If people pour their stock gains into yachts and fast cars, that’s pure fiscal stimulus.

The money involved could be considerable. Capital gains in 2007 were something like $700 billion, representing well over $1 trillion in asset sales. It looks as if gains will be much lower in 2008, but a looming tax increase could easily spur an additional $500 billion in sales. If only 20 percent of that translated into extra spending, we’d have as much or more short-term stimulus as we could get from the package Congress and the president are considering.

Best of all, this is one stimulus proposal that would reduce the deficit — the single largest threat to the economy’s long-term health. And that long-term benefit wouldn’t depend on our getting the timing and amount of stimulus right, something policymakers are notoriously inept at.
Len Burman is the director of the Urban-Brookings Tax Policy Center.