Kanye West—the Chicago-raised hip-hop lyricist, rapper, producer, media-monopolizer, and social media instigator—is now claiming he’s $53 million in debt and has asked Facebook’s Mark Zuckerberg and Google’s Larry Page for a $1 billion investment in his art. Even with his new album, The Life of Pablo, it seems like he’s in pretty deep. And his wife, Kim Kardashian, who has perfected the art of monetizing fame, isn’t coming to the rescue. So what’s a Yeezus to do?
For those wanting to get cash to Kanye, according to Forbes columnist Robert W. Wood, a few options are out there for getting him $1 billion tax free, with little to no tax hit for Mr. West: a loan, purchase, joint venture, or something else.
“Mr. Zuckerberg is probably too clever–with both tax and business savvy–to make a straight loan,” notes Wood. If Zuckerberg ever chose to forgive the debt, it would be deemed income for Kanye and be heavily taxed. That would be one tough 1099-C form for him and Kim K to fill out. Instead, Zuckerberg would likely do a purchase, possibly part of Kanye’s intellectual property.
How about a prepaid forward sale? Taking a page from the litigation funding industry, it works like this. A prepaid forward contract is basically a sale, not a loan. In the litigation context, the plaintiff selling a piece of his or her claim, or the lawyer selling a piece of the contingent fee. It arguably offers the best tax result for the plaintiff or the lawyer.
He gets how legal funding works:
You are contracting to sell now, but the sale does not close until the case is resolved. The result is that you generally should not have to report income until the conclusion of the case. Only then can the final price be tallied. It sounds similar to a loan, but is actually better in many cases.
Wood says, “sometimes the loan v. purchase dichotomy can become blurred.” But, he’s more than clear about why legal funding isn’t a loan, and why it is a purchase of property. Perhaps this type of transaction could work for Zuckerberg, Page, and Kanye?
Something to think about, Yeezy.