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The Coming Bear Market: Part II How to Prepare
Issue #492, October 16, 2017

Some Observations on Cemeteries
Issue #Interim Bulletin #491A, October 12, 2017

The Coming Bear Market: Part I: The Myth of Buy and Hold Forever
Issue #491, October 09, 2017

The Market makes New Highs
Issue #490, October 02, 2017

The Importance of a New High
Issue #489, September 25, 2017

A Little Insurance: Wealth, War and Wisdom
Issue #488, September 18, 2017

Some Observations
Issue #487, September 11, 2017

How to be Successful in Your Career
Issue #486A, September 07, 2017

How NOT to Buy a Home
Issue #486, September 04, 2017

This Week in the Market
Issue #485, August 28, 2017

Is the “Trump Bump” Running Out of Gas?
Issue #484, August 21, 2017

Gold is on the Move
Issue #483, August 14, 2017

The Importance of Estimation
Issue #482, August 07, 2017

Buying Art and Collecting: Part II of II
Issue #481, July 31, 2017

Buying Art and Collecting in General, Part I of II
Issue #480, July 24, 2017

Physicians need to be More Forceful: Follow-up
Issue #479, July 17, 2017

Physicians need to be More Forceful
Issue #478, July 10, 2017

Your First “Real” Investment
Issue #477, July 03, 2017

Leasing a Watch: Don’t
Issue #476, June 26, 2017

The Importance of Your Children having a Job
Issue #475, June 16, 2017

The Problem with Medical Student Debt is—the Med Schools
Issue #474, June 12, 2017

Critters and Varmints in your Home and Yard
Issue #473A, June 07, 2017

Leveraged ETFs
Issue #472, May 29, 2017

Leasing a Vehicle: Don’t!
Issue #471, May 22, 2017

Issue #470, May 15, 2017

More on Buying Jewelry
Issue #469, May 08, 2017

Buying Jewelry: Gold, Diamonds and Pearls
Issue #468, April 30, 2017

Thomas Sowell: Part III of III
Issue #467, April 24, 2017

Thomas Sowell: Pat II of III
Issue #466, April 17, 2017

Live Close to Where You Work
Issue #465, April 10, 2017

Medtronic in Hospital Management
Issue #Interim Bulletin #464A, April 07, 2017

Thomas Sowell: Part I of II
Issue #464, April 03, 2017

A Political Contribution a an Investment: Part II of II
Issue #463, March 27, 2017

A Political Contribution as an Investment: Part I of II
Issue #462, March 20, 2017

Buffett Selling Vacation Home
Issue #461, March 13, 2017

Advanced Placement (AP) ourses
Issue #460, March 06, 2017

The Importance of a Credit History
Issue #459A, March 02, 2017

A Credit Card Scam
Issue #459, February 27, 2017

The Electronic Health Reord
Issue #458, February 20, 2017

Issue #457, February 13, 2017

Platinum and Palladium
Issue #456, February 06, 2017

Economic Outlook for 2017: Part II of II
Issue #455A, February 02, 2017

Economic Outlook for 2017: Part I of II
Issue #455, January 30, 2017

A Story From Vegas
Issue #454A, January 25, 2017

Land Donation Deals and the IRS
Issue #454, January 23, 2017

The Theory of Gambler’s Ruin
Issue #453, January 16, 2017

Student Loans: But Wait, There’s More!
Issue #452, January 13, 2017

A Second Home
Issue #Interim Bulletin #451A, January 04, 2017

The Consumer Confidence Index
Issue #451, January 02, 2017

Social Security
Issue #450, December 26, 2016

My Outlook for 2017: Part II of II
Issue #449, December 19, 2016

My Outlook for 2017: The Market
Issue #448, December 12, 2016

Medicine in 20 Years
Issue #447, December 05, 2016

Higher Interest Rates
Issue #446, November 28, 2016

Trump and the Markets: The Bad and Ugly
Issue #445A, November 23, 2016

Trump and the Markets: The Good
Issue #445, November 21, 2016

Negative Trends: The Suits aren’t Makin’ Steel
Issue #444, November 16, 2016

The New DOJ Fiduciary Rule
Issue #443, November 07, 2016

Barron’s Conference, Part IV of IV
Issue #442, October 31, 2016

Barron’s Conference, Part III of IV
Issue #Interim Bulletin #441A, October 26, 2016

Barron’s Conference, Part II of IV
Issue #441, October 24, 2016

Barron’s Conference, Part I of IV
Issue #440, October 20, 2016

This Newsletter
Issue #439A, October 12, 2016

Memoirs of US Grant: Vol II
Issue #439, October 10, 2016

More Points on Collecting, Investing and the Economy
Issue #Interim Bulletin #438A, October 05, 2016

Personal Memoirs of US Grant
Issue #438, October 03, 2016

Ideas for a High School Part-Time Job
Issue #Interim Bulletin #437A, September 29, 2016

Collecting, Investing, and the Economy
Issue #437, September 26, 2016

Free College
Issue #436A, September 22, 2016

A Military Commitment to Pay for Med School
Issue #436, September 19, 2016

When a CD isn’t a CD
Issue #435, September 12, 2016

I Made a Mistake
Issue #Interim Bulletin #434A, September 07, 2016

What is Your Spare Time Worth?
Issue #434, September 05, 2016

Credit Cards and Bonus/Loyalty Points
Issue #433, August 29, 2016

The Write-off of Student Loans
Issue #Interim Bulletin #432A, August 25, 2016

412 Retirement Plans
Issue #432, August 22, 2016

Join the Club
Issue #Interim Bulletin #431A, August 18, 2016

The Case for Precious Metals and Hard Assets
Issue #431, August 15, 2016

When the US went off the Silver Standard
Issue #430, August 08, 2016

Why NOT to Open a Restaurant
Issue #429, August 01, 2016

Some Tips on Life Insurance
Issue #428, July 25, 2016

More Observations on Negative Interest Rates
Issue #427, July 18, 2016

Issue #426, July 11, 2016

Is a PhD Worth It? Part II of II
Issue #425, July 04, 2016

Is a PhD Worth It? Part I of II
Issue #424, June 27, 2016

Avoid Part-time real Estate Agents
Issue #423, June 20, 2016

Issue #422, June 13, 2016

The Problem with Auction Reserves
Issue #421, June 06, 2016

Make Full Use of Your Capital Investments
Issue #420, May 30, 2016

The Fed’s Announcement
Issue #419, May 23, 2016

Quit While You’re Ahead: A True Story
Issue #418, May 16, 2016

The Precious Metals
Issue #417, May 09, 2016

Negative Secular Trends: Part Ii of II
Issue #416, May 02, 2016

Negative Secular Trends: Part I of II
Issue #415, April 25, 2016

Not Winning is not the same as not Losing
Issue #414, April 19, 2016

Behavioral Economics: Part II: Weaknesses
Issue #413, April 11, 2016

Behavioral Economics: Part I: Valid Points
Issue #412, April 04, 2016

The Most Important Books I’ve Read
Issue #411, March 28, 2016

Secret to Success: Take Risks and do Things Differently
Issue #410, March 21, 2016

The Over-Priced Food Presentation Hustle
Issue #409, March 14, 2016


By Robert M. Doroghazi, M.D., F.A.C.C.

Land Donation Deals and the IRS

Issue #454, January 23, 2017

    A landowner donates a conservation easement on an ecologically important piece of land to a non-profit land trust, permanently restricting development. An appraiser estimates the value of the land before and after the donation (it is worth less because it can’t be developed). The landowner takes the difference in value as a charitable donation.
    RMD comment: This was established to encourage such donations and has been on the books for decades.
    Some are now syndicated and sold to investors.
    RMD comment: this is legitimate. Companies buy other companies just to capture their tax losses. Also note, at least in Missouri, unused state tax credits can be sold.
    However, some recent deals have been structured offering tax deductions of $4 to 1 or more on the money invested. Some as so abusive that the IRS has labeled many “listed transactions” requiring syndicators and taxpayers to red flag their returns for deals since 2009. The IRS considers a deduction-to-investment ratio of 2.5 to 1 or more as questionable tax avoidance techniques.
    RMD comment: I discuss this specific example so you know about it and can avoid it, but more importantly, it allows me to make some important general points.
    What is the most powerful branch of government? It’s not your local police, it’s not the state police, the CIA, the FBI, the Armed Services, or even an ICBM carrying 10 nuclear warheads. It is the IRS.
    I started my LLC about 12 years ago. At first there were a lot of expenses and little income, triggering an audit. I justified every penny and there was no change in my tax bill. I would equate the experience to a financial colonoscopy.
    Now consider what it would be like if you really did something to avoid taxes. I had a lawyer friend who worked for the IRS. I said “Steve, the IRS scares the xxxx out of me”. He said “Bob, I work there, and they scare the xxxx out of me”. Sometimes you may be in a situation where something is borderline. Let it go. Forget it. Stay in the center of the court, as far away from the out-of-bounds line as you can. Also note that when you land on the IRS radar for questionable tax deals, your past returns will be audited, and expect all of your returns for the foreseeable future to be audited. 
    Point #1: you do not want the IRS in your life. I would rather be standing at the bar next to a totally inebriated ex-heavyweight champ than have the IRS on my case. At least you can offer to buy the champ another drink.
    Point #2: any deal structured just to avoid taxes is intrinsically shaky. If there are legitimate deductions, fine, but the basic idea of investing is to make money, and then pay taxes from the profits.
    Point #3: I believe more physicians have lost more money through non-core, non-traditional investments such as Limited Partnerships and syndicated deals than all other ways combined. A LP is a legitimate way to do business, but let me illustrate the problem with a reference from the classics.
    In Gulliver’s Travels, after visiting Lilliput, Brobdingnag, and several lands in between, Swift spoofs the British Royal Society when Gulliver tours the Royal Academy of Lagado in Balnibarbi. He describes the distinguished professors conducting experiments to extract sunbeams from cucumbers, to remove the gall, saliva and odor from human excrement to reduce it to the original food, to build houses from the roof down to the foundation, to have a blind man mix the colors for painters, and to feed spiders colored flies so they can weave silk of various hues. These are the exact sorts of things that in the 21st century would be packaged as a Limited Partnership or syndication and sold to physicians.
    Whenever you make a buck, give Caesar his due. Just flip the government a quarter and move on. You don’t want the IRS in your life.
    The basic facts for this discussion are from “Land-Donation Deals Face IRS Scrutiny” in the Wall Street Journal of 12/30/16.
    I noted 2 weeks ago the bullish action in Netflix (NFLX) breaking out to a new high above 130. There has been good follow through since then with NFLX closing at 138.60.
    RMD comment: the P/E on expected 2017 earnings is about 135, so NFLX better continue to put up nice numbers.
    The Consumer Price Index for December was up 0.3% over the previous month, and up 2.1% over the last year, the highest since the 12-month period ending in June, 2014.
    RMD comment: one of the fears all along with the Fed’s low interest rate policy is that when things start to heat up the Fed would be behind the curve in raising rates. Expect higher interest rates. If the Fed is too slow, the market will force the issue.
    Watch gold. The most important factor influencing the price of gold is real interest rates, the interest rate minus the rate of inflation. If inflation is 2% and interest rates are 6%, people are happy with a real return of 4% on their CD. But if inflation is 4%, and the interest rate is only 2%, people look to gold to maintain purchasing power.
    As a corollary, watch the US Dollar, since gold and the Dollar usually move in opposite directions. If the Dollar continues to weaken (which despite all the rhetoric I believe Trump wants) gold should do well. If the Dollar breaks to a new high, gold will drop.       
    I was talking with an attorney who brought up the subject of accounts receivable. He noted there are 3 situations where payment is slow.
    1) Dead beats, people who have no intention of paying their bills. You’ll have to fight to get anything.
    2) They can’t pay, they just don’t have the money. Shortly after I stared in practice in 1982, a patient came in with an acute myocardial infarction (heart attack). It was clear he would be best treated with bypass surgery. The surgeon and I were looking at the chart: no job, no insurance, no Medicaid, no nothing. The surgeon, a very religious man, said “Bob, we’re not going to get paid.” He smiled and added “We’ll do it for Jesus”. The man got the best of care, did well, we saw him at the 6 week follow-up visit, and we didn’t get paid a penny.
    3) Here’s my main point. You’ve not sent the bill to the right person. This is the problem far more often than you think. It brings up the general principle of knowing who to contact to get things done: who makes the decisions, who carries the influence? 
    I again highly recommend Northmen: The Viking Saga AD 793-1241 (Haywood, St. Martin Press). It contains all sorts of interesting facts I’ve not seen elsewhere.
    “The isolation and small size of the Faroe Island population has left it vulnerable to recessive diseases…Carnitine transporter deficiency is 1,000 more common in the islands than anywhere else in the world”.
    From Eiriks saga rauoa (Erik the Red’s Saga), c. 1265.
    Bjarni Grimolfsson’s ship was sinking. They drew lots to see who would go in the lifeboat. Bjarni drew one of the lots. A young Icelander said
    “Are you going to leave me Bjarni, because this is not what you promised when I left my father’s farm. I suggest we trade places”.
    “So be it’ said Bjarni. “I see you would spare no effort to live and are afraid to die”.
    Bjarni could save his life or his honor, but not both. He saved his honor, and was remembered by future generations. No one knows the name of the cowardly Icelander, he was nioing (a nothing) and would have lived the rest of his life as a social outcast.
    Within a few years after William the Conqueror’s victory in 1066, the native English aristocracy was either executed or exiled. The expropriation of wealth was on such a vast scale that even today, 950 years later, people in England with surnames of Norman-French origin, are, on the average, 20% richer than the national average.
    The Rudolph song goes “All of the other reindeer, used to laugh and call him names, they never let poor Rudolph, play in any reindeer games”.
    RMD comment: now that would be called bullying. But in the end, Rudolph’s difference was considered an advantage rather than a handicap.         

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