EFTA00634771.pdf

From: Brad Wechsler c:e To: "Melanie Spinella la" <IMINI > CC: Richard Joslin , 'Thomas Turrin' John Castrucci , "jeevacation®gmail.com" <jeevacation@gmail.com> Subject: Date: Mon, 26 Sep 2016 13:23:29 +0000 Attachments: LDB_Tax_Retrn_Process.xlsx MEMORANDUM 11): Leon Black (Email & Fed Ex) CC: Rich Joslin Tom Turrin John Castrucci FROM: Brad Wechsler DATE: September 26, 2016 Jeffrey Epstein Tax Summary and Status Please note the following numbers are still moving around as Rich and Tom finalize. Attached to this summary page is the internal status report that we are using to track progress to completion and October 15th filing. The following is a high-level summary that tracks cash and taxes due to the federal government for 2015 and how the Phaidon transaction plays in: I. In 2015, we paid in approximately $12MM of taxes to the federal government in addition to the $11MM overpayment rolled over from 2014. 2. In mid-December of 2015 -- after taking into account the potential Phaidon transaction -- we projected roughly $4MM of net "taxable income" which would have resulted in projected total federal tax of approximately $8MM, which is made up of AMT and Medicare tax on net investment income. The $8MM of projected tax would have resulted in a projected overpayment of approximately $15MM. At the time we were showing roughly $77MM of adjusted gross income and $73MM of itemized deductions (charity, state and local taxes and investment interest expense were the large categories). Please note, however, "taxable income" is historically not as relevant on your tax returns in calculating your actual tax liability since you are almost always subject to the AMT because of your significant capital gains and state income tax deduction. 3. As of April 2016, we projected a cash overpayment of $17MM for 2015 ($23MM paid in less $6MM of projected AMT and Medicare tax.) This is why we paid no Federal taxes in 2016. Our "taxable income" estimate was reduced to a negative $2.5MM mostly because of a $2MM decline in income (Apollo- related) and a $4MM increase in charitable contributions from December estimates. The projection was "conservative" by not claiming passive losses and used place-holder amounts for certain non-Apollo related investments where information was not available. 4. As of today, we are still projecting total tax of +/- $6MMM consisting of mostly AMT and Medicare tax on investment income with projected overpayment credited to 2016 of approximately $17MM+/-. (Please note these are early numbers and are still estimates, though based on detailed analysis). The EFTA00634771 overpayment of $17MM should be burned off by April of next year as a function of taxes due on year 2016 income plus a portion of 2017 Q I estimates. Please note, however, that expected 2015 "taxable income" has again been lowered to approximately ($19MM), a reduction of $16MM, a function of lower Apollo "finalized" income as provided by Apollo ($3MM), reducing certain placeholder income estimates ($2MM), now useable passive losses from Regan Arts, Artspace and Avionetta ($5MM) as well as more investment interest and portfolio deductions flowing through K-1's ($6MM). 5. If we had not done the Phaidon transaction in 2015 the amount of the federal overpayment that would be applied to 2016 taxes would be $7.6MM less which would increase the cash needed to pay taxes due in April of next year by that amount. In addition, NYS taxes would have been $4MM higher had we not done Phaidon. Lastly, please note that 100% of the itemized charitable deductions in 2015 was useable as was the investment interest expense (mostly from the art loan) despite the negative "taxable income". What we did not get to use is the $31MM of state and local tax deductions; however, that is always disallowed by AMT. 6. In my recent conversations with Jeffrey he has raised the issue of how the "optics" of the 1040 (negative taxable income) might or might not impact the 8865 filings. He also raised the issue of whether there is an appropriate way to view Phaidon as a 2016 close. I don't yet follow the thinking behind it, i.e., there may be some salutary benefits associated with 8865 (though they are not yet visible to me). I believe the above analysis indicates we received "value" for the Phaidon losses in 2015 and I'm not certain I (yet) identify the benefit of rolling them forward, even if that was feasible. Let's discuss as necessary. EFTA00634772