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MEMO: 12 Things We Could Learn From Previous Romney Tax Returns

To: Interested Parties
From: Rodell Mollineau, President American Bridge 21st Century
RE: Sunday Show Memo- 12 Things We Could Learn From Previous Romney Tax Returns
Date: January 27, 2012

Mitt Romney is in a very dangerous position. According to a Washington Post/ABC survey released on Tuesday, in the last two weeks Romney’s favorability/unfavorability rating has completely inverted, and now stands at 31% favorable and 49% unfavorable. An NBC/WSJ poll released Thursday shows similar results with only 31% of voters saying they have a positive view of Romney. If Romney is able to get out of the primary, having such high unfavorabilities will be incredibly damaging with independent voters.

Several factors have played into Romney’s precipitous drops with the most recent focused on his taxes — from his initial refusal to be open with the American people, to releasing only one year which showed overseas investments and a 13% tax rate, to the latest revelation that his release was riddled with errors and omissions.

These factors have only succeeded in raising more questions than answers. It cannot be stated enough: One year of taxes is simply unacceptable. It is too easy to scrub these returns, and one year does not paint an accurate picture for the voters of how Romney amassed his personal fortune.

Below are 12 questions that Mitt Romney needs to answer by releasing his previous years’ tax returns.

1: What was Romney’s tax rate in earlier years? Romney’s 2010 tax rate was 13.9%, but was it even lower in previous years?

Romney Paid A 13.9 Percent Tax Rate In 2010 On $21.7 Million In Income. According to Bloomberg, Romney “earned $21.6 million in 2010 and paid 13.9 percent of that amount in income taxes, using the preferential rate on investment income and charitable deductions to pay a smaller share of his earnings than top wage earners typically do. The former private-equity executive and Massachusetts governor earned more than half of his income from capital gains and dividends, which are taxed at a top rate of 15 percent, rather than the 35 percent top rate for ordinary income. […] Romney’s income puts him near the very top of U.S. taxpayers.” [BusinessWeek, Bloomberg, 01/24/12]

2: What other foreign bank accounts did Romney hold? As has been widely reported, Romney held accounts in Switzerland, Ireland, and the Grand Caymans. How many more are hidden in previous years’ returns?

Romney Held Much More Funds in Foreign Accounts in Previous Years Than He Did in 2010 And 2011. According to Mitt Romney’s 2011 estimated taxes, he paid $67,173 in foreign taxes in 2010. However, he also discloses that in 2005, he paid $333,149 in foreign taxes; paid $276,386 in 2006; $275,288 in 2007; and $151,015 in 2008. [Romney 2011 Tax Estimate, page 81]

Additionally: Romney failed to disclose IRS form TD-F 90-22. Holders of foreign bank accounts are required to complete this form and submit it separate from their tax returns. Romney opted not to disclose the form.

Romney Listed A Swiss Bank Account On His 2010 Tax Return. According to the Boston Globe, “Advisers to Republican presidential candidate Mitt Romney are acknowledging that he once had a Swiss bank account but that it was closed in 2010 as prepared to enter the race for the White House. The Swiss account is listed on Romney’s newly released 2010 federal income tax return. It had been opened by a Boston lawyer who oversees the Romney family investments and a blind trust containing millions of dollars in assets.” [Boston Globe, 01/24/12]

[UPDATED INFO BELOW]
3: In a surprising revelation, Romney’s tax returns indicated a continuing (and confusing) relationship with Bain Capital, even though Romney claims to have severed his relationship in February 1999. His previous tax returns could shed more light on this ongoing relationship.

The Ann D. Romney Blind Trust Listed A Partnership Interest In Bain Capital Partners (Am) X, Lp. Mitt Romney’s tax returns included a transfer notice of a Bain Capital Partners (AM)X LP to the Ann Romney trust. The value of the property at election was listed as $0. According to the document “The interest in the future appreciation of the Partnership’s business to which I am entitled pursuant to my partnership interest is subject to forfeiture if I cease performing services for the Partnership.” The document was signed by Romney trustee Bradford Malt. [Mitt Romney 2010 Tax Filing Pg. 131-132]

4: Did Romney pay the Unrelated Business Income Tax (UBIT) tax on his multi-million dollar IRA? If not, do Romney’s earlier taxes shed light on using off-shore “blocker” corporations to avoid the UBIT Tax) on his multi-million dollar IRA?

Mitt Romney Obtained A Multi-Million Dollar Ira By Investing Retirement Funds In Bain Capital. According to Wall Street Journal, “Like many Americans, Mitt Romney has an individual retirement account. Unlike most Americans, Mr. Romney has between $20.7 million and $101.6 million in it, a big chunk of his fortune. Experts on estate planning said it is highly unusual to accumulate such a considerable sum in an IRA, an investment vehicle restricted by annual contribution limits. It appears that Mr. Romney’s grew so large mostly because it holds investments in Bain Capital, the private-equity firm he helped start.” [Wall Street Journal, 1/19/12]

Investments In Companies That Use Debt To Buy Companies Would Normally Be Subject To The Ubit Tax. According to Wall Street Journal, “Under current tax law, anybody investing an IRA in a private-equity fund, as Mr. Romney did, would likely incur a hefty special tax on ‘unrelated business income,’ also known as UBIT. This tax, assessed at a maximum 35% rate, is meant to discourage tax-exempt entities such as an IRA, pension plan or endowment fund from unfairly competing with for-profit, taxpaying entities by operating a business without paying taxes on it. Investing in a partnership that uses debt to buy companies would trigger the tax, experts said.

 

It Is Unknown If Romney Paid The Ubit Tax, But He May Have Avoided It By Using An “Offshore Blocker Corporation.” According to Wall Street Journal, “It isn’t known whether Mr. Romney paid UBIT. His filings suggest use of a strategy involving offshore funds sometimes employed to avoid it, according to several experts. One method used by tax lawyers is to have the IRA invest through an offshore affiliate of the private-equity firm, known as an offshore blocker corporation, which in turn invests the same money in the private-equity partnership. The tax is avoided because the IRA technically is investing in the offshore corporation, not in a private-equity partnership.’ [Wall Street Journal, 1/19/12]” [Wall Street Journal, 1/19/12]

5: To which additional charities did Romney contribute? Did those charities contradict his publically stated values? Already his returns showed contributions to anti-gay groups, even though he previously sought the endorsement of the Log Cabin Republicans.

Romney’s 2010 Tax Returns Showed He Contributed $35,000 To Anti-Gay Groups “Massachusetts Family Institute” And The“Beckett Fund.” According to Human Rights Campaign, “The tax returns for Mitt Romney’s charitable foundation reveal that the GOP presidential hopeful has given at least $35,000 in recent years to groups actively working to halt the spread of LGBT equality and, in some cases, intentionally demonize LGBT people. [According] to CNN, Romney donated to the extremist group Massachusetts Family Institute, as well as the Becket Fund. The Massachusetts Family Institute received $10,000 from Romney in 2006, while the Beckett Fund received $25,000 in 2009. The donations came from the Tyler Charitable Foundation, set up and funded by the Romneys. The Massachusetts Family Institute has long been a vocal opponent of marriage equality, and believes sexual orientation is a choice that can be cured. From their website: ‘Our compassion is for those struggling with same-sex attraction and we encourage the healing of individuals who wish to change their choice of lifestyle…’ The group also is ruthless in its dedication to distorting programs intended to reduce bullying and make schools safer, more welcoming environments for all students. It says gay-straight alliances may violate the Constitution and parental rights, and says associated programming pushes a radical, pro-homosexual agenda.” [Human Rights Campaign, 01/24/12]

Romney Received The Log Cabin Republicans Endorsement After He Assured Them That He Would Provide More Effective Leadership Than Kennedy On Establishing “Full Equality For America’s Gay And Lesbian Citizens.” “Shortly after he won the GOP nomination to run against US Sen. Edward M. Kennedy, conservative businessman Mitt Romney – who is viewed with suspicion by some gays – wrote to the Log Cabin Club, a group of politically active gay Republicans, to assure them that ‘as we seek to establish full equality for America’s gay and lesbian citizens, I will provide more effective leadership than my opponent.’ The group has since endorsed Romney.” [Boston Globe, 10/17/94]

6: Did Romney claim tax deductions that were part of the stimulus? In 2010, Romney claimed a Making Work Pay Tax Deduction, although the source of that deduction is unclear without the release of additional K-1 Forms. Did any of Romney’s businesses claim tax deductions from the stimulus? Did Romney derive additional benefits from the stimulus in other unexpected ways?

The Stimulus Contained Tax Increased Benefits For Businesses Including The Making Work Pay Tax Credit, Work Opportunity Tax Credit, Cobra, Energy Efficiency And Renewable Energy Initiatives, And Net Operating Loss Carryback. According to the IRS, “Making Work Pay Tax Credit. The 2010 withholding rates, contained in Notice 1036, reflected reduced withholding. An optional withholding procedure was available for pension plan administrators. Work Opportunity Tax Credit. This expanded credit added returning veterans and “disconnected youth” to the list of new hires that businesses may claim. COBRA: Health Insurance Continuation Subsidy. The IRS has extensive guidance for employers, including an updated Form 941. Energy Efficiency and Renewable Energy Incentives. See what businesses can do to reap tax rewards. Net Operating Loss Carryback. Small businesses can offset losses by getting refunds on taxes paid up to five years ago. Find information on carrybacks, an expanded section 179 deduction and other business-related provisions. The Worker, Homeownership And Business Assistance Act Of 2009 (WHBAA) expanded the five-year NOL carryback to most businesses.” [IRS, Viewed 1/24/12]

In 2010, Romney Claimed A Work Opportunity Credit – Provided No Documentation Of The Source Of The Credit, But It Passed Through A Corporate Entity. According to Romney’s Form 5884 filed with his 1040, Romney claimed a making work pay tax benefit for an employee “from partnerships, S corporations, cooperatives, estates, and trusts.” The form does not indicate which Romney entity employed the worker, not does it indicate any information about the worker. The form indicates the credit would be part of a K-1 filing, which Romney did not release. [Mitt Romney 2010 Tax Filing Pg. 77]

The Stimulus Expanded Eligibility For The Work Opportunity Tax Credit.  According to the IRS, “The following Recovery Act provisions affect businesses: …Work Opportunity Tax Credit. This expanded credit added returning veterans and “disconnected youth” to the list of new hires that businesses may claim.” [IRS, Viewed 1/24/12]

7: How many additional household workers did Romney employ? Did he pay them fair wages?

Romney Paid $20,603 Total In Wages To Four Household Workers In 2010. According to the Huffington Post, “IRS forms released Tuesday by Mitt Romney’s presidential campaign show that despite reporting income of $21.7 million, the couple paid only $20,603 in taxable wages for household help in 2010. This figure was divided among four women: Rosania Costa ($4,808), Kelli Harrison ($8,667), Susan Moore ($2,238) and Valerie Cravens Anae ($4,890).” [Huffington Post, 01/24/12]

Romney Paid Only Half Of The Lowest Range Of An Average Housekeeper’s Salary For Only One Of Romney’s Three Houses. According the Huffington Post, “According to a number of Boston-based domestic staffing agencies, the salary range for a housekeeper is between $20 and $30 an hour, which adds up to an annual salary of $40,000 to $50,000 based on forty-hour weeks and two weeks of paid vacation a year. But this number is only for one house, and the Romneys have three houses — a 2,000 sq. ft. townhouse in Belmont, Mass., a 5,400 sq. ft. lake house on 11 acres in Wolfeboro, N.H., and a beach house in La Jolla, Calif., that is undergoing renovations to double its size. Even if the Romneys avoided spending time in La Jolla in 2010, they spent plenty of time in New Hampshire, with regular visits in the summer from five sons and their families. Yet the Romneys still paid only half of the lowest range of an average housekeeper’s salary, which raises the question of who cleaned the Romney houses the other 50 percent of the time.” [Huffington Post, 01/24/12]

8: What was Romney’s tax relationship with previously reported tax havens? In 2007, the LA Times reported Romney’s connection to funds in Bermuda and the Caymans. His tax returns for previous years could shed light on his relationships with those funds.

Romney Was “Listed As A General Partner And Personally Invested In BCIP Associates III Cayman,” A Fund That Was Registered As A Post Office Box In The Cayman Islands And Paid Him $1 Million In 2006. According to the LA Times, “In the Cayman Islands, Romney was listed as a general partner and personally invested in BCIP Associates III Cayman, a private equity fund that is registered at a post office box on Grand Cayman Island and that indirectly buys equity in U.S. companies. The arrangement shields foreign investors from U.S. taxes they would pay for investing in U.S. companies. Romney still retains an investment in the Cayman fund through a trust. Campaign disclosure forms show the investment paid him more than $1 million last year in dividends, interest and capital gains.” [LA Times, 12/17/07]

Romney “Served As President And Sole Shareholder” Of Sankaty High Yield Asset Investors Ltd. In Bermuda—The Fund Had No Staff In Bermuda And “It’s Only Presence Consists Of A Nameplate At A Lawyers Office.” According to the LA Times, “In Bermuda, Romney served as president and sole shareholder for four years of Sankaty High Yield Asset Investors Ltd. It funneled money into Bain Capital’s Sankaty family of hedge funds, which invest in bonds and other debt issued by corporations, as well as bank loans. Like thousands of similar financial entities, Sankaty maintains no office or staff in Bermuda. Its only presence consists of a nameplate at a lawyer’s office in downtown Hamilton, capital of the British island territory. ‘It’s just a mail drop, essentially,’ said Marc B. Wolpow, who worked with Romney for nine years at Bain Capital and who set up Sankaty Ltd. in October 1997 without ever visiting Bermuda. ‘There’s no one doing any work down there other than lawyers.’ Investing through what’s known as a blocker corporation in Bermuda protects tax-exempt American institutions, such as pension plans, hospitals and university endowments, from paying a 35% tax on what the Internal Revenue Service calls ‘unrelated business income’ from domestic hedge funds that invest in debt, experts say.” [LA Times, 12/17/07]

9: What did Romney’s taxes look like before his assets were in blind trusts?  Did they change dramatically as he prepared for a political career?

2003: Romney’s Investments Were Transferred Over to Blind Trusts.  By 2003, Romney’s investments were placed into a blind trust managed by attorneys from law firm Ropes & Gray.  Details of the holdings of Romney’s blind trust were not required to be disclosed according to statutes of the Massachusetts State Ethics Commission.  Romney’s family trust disclosures read, “Various investments and securities at the discretion of the trustee.  Under the terms of the blind trust, the Governor may have no knowledge of the specific holdings or management of the trust, except that the beneficiary may direct, and the trustee may report, investment allocation and performance of the trust by broad categories (i.e. publicly traded stocks, publicly traded taxable bonds, public traded tax exempt bonds, etc.).”  [Statement of Financial Interests, Massachusetts State Ethics Commission, 200320042005]

10: What was Romney’s relationship with Bain Capital affiliate Mesoamerica? Mesoamerica was a Costa Rican based investment fund that housed investments in Central American businesses. What was Romney’s tax rate on those investments?

2001-2002: Romney Held an Equity Stake in a Costa Rica-Based Private Equity Fund Which Invested in Central American Businesses.  Romney’s 2001 and 2002 Statements of Financial Interests indicate that he held 1.09 percent stake in MesoAmerica Fund I LP, a private equity fund based in Escazu, Costa Rica.  The fund invested in business located in Central America.  The fund’s office was located at Plaza Roble, Edificio El Portico, Piso , in Escazu, Costa Rica.  [Statement of Financial Interests, Massachusetts State Ethics Commission, 20012002; MesoAmerica, “History of Investments,” www.mesoamerica.com]

Mesoamerica’s Shared Investment Strategy Of “Sister Organizations Bain & Company And Bain Capital.”  According to Mesoamerica’s website, “The origins of Mesoamerica are based on a clear focus on strategy that we share with our sister organizations Bain & Company and Bain Capital.  Mesoamerica began in 1996 as a private equity fund; the investment banking and strategic consulting practices were added in 1998 with the creation of Mesoamerica Investments, founded by Harry Strachan, Luis Javier Castro, Alejandro Lozano and Julius Landell-Mills.”  [MesoAmerica, “About MesoAmerica,” www.mesoamerica.com]

11: How much did Romney save from the Bush tax cuts? Romney supports extending the Bush tax cuts permanently. It’s only fair to ask how much it saved him personally. Releasing tax returns from earlier years would facilitate a calculation.

In September, 2011 Mitt Romney Said He Would Keep The Bush Tax Cuts In Place. The Associated Press reported that “Romney said he would keep the Bush-era income tax cuts unchanged.” [AP, 9/6/11]

CBO: One-Third of The Bush Tax Cuts Went To People With the Top 1% of Income, Who Earn On Average $1.2 Million. “Fully one-third of President Bush’s tax cuts in the last three years have gone to people with the top 1 percent of income, who have earned an average of $1.2 million annually, according to a report by the nonpartisan Congressional Budget Office to be published Friday… The new estimates confirm what independent tax analysts have long said: that Mr. Bush’s tax cuts have been heavily skewed to the very wealthiest taxpayers.” [Washington Post, 8/13/04]

12. In what other countries did Romney pay taxes and claim a foreign tax credit?

Romney’s Tax Returns Showed Foreign Tax Credits And Investment In International Financial Instruments. According to Washington Post, “Republican presidential candidate Mitt Romney’s newly released tax return shows sprawling international financial interests, from Bain Capital entities based in Luxembourg to a Goldman Sachs fund in Dublin. It discusses a foreign currency transaction and details foreign tax credits. But one of Romney’s biggest foreign investments is sheltered from U.S. taxation, partly because it is based in the Cayman Islands. […]Regulatory filings show that the partnership, related to Romney’s career at the corporate buyout firm Bain Capital, is registered in the Cayman Islands. The offshore arrangement could have spared Romney a form of U.S. tax that can apply even to individual retirement accounts, experts say.” [Washington Post, 01/24/12]

Romney Claimed A Foreign Tax Credit Of More Than $120,000. According to the National Journal, Romney claimed a foreign tax credit in 2010 of more than $120,000. [National Journal, 01/24/12]

UPDATED: For Tax Day 2012 (4/13/12)

3. Why did Romney’s trust claim to provide services to Bain Capital when the Romney campaign is now saying that the claim was a false statement? Does Mitt Romney think providing false information to the IRS is insignificant or was the original tax statement actually correct?

Romney’s Taxes Contained Seemingly Unnecessary Section 83(B) Elections In Connection With Romney’s Use Of The Carried Interest Tax Loophole. According to the New York Times, “Much of the Romneys’ income comes from carried interest, an unusual tax provision that allows employees and executives of private equity firms to pay low taxes. While those executives do not invest in the partnerships that buy and sell companies, they are compensated out of the partnership profits and allowed to treat the proceeds as capital gains, which are taxed at just 15 percent. That is the principal reason the Romney tax rate is so low. Mr. Romney was allowed to keep getting carried interest on new Bain partnerships for many years after he left the firm, and in 2010 he assigned the proceeds from a couple of partnerships to the Ann Romney trust. In the tax return for that trust, Mr. Malt signed letters electing to use Section 83(b) of the tax code in connection with Mr. Romney’s carried interest from two Bain partnerships. Such an election may or may not be legal, but it is certainly unnecessary. The section is normally used to let executives pay taxes on profits from restricted stock grants at capital gains rates. Since carried interest is already taxed at those rates, there would seem to be no reason to file that form.” [New York Times, 1/26/12]

Romney’s Trustee’s 83(B) Letter Indicated Carried Interest Was “Subject To Forfeiture If I Cease Performing Services For The Partnership,” But The Romney Campaign Backtracked Claiming The Statement Was A Falsehood.  According to the New York Times, “Moreover, to qualify for Section 83(b) treatment, the grant must involve restrictions. Mr. Malt’s letters stated that the carried interest “is subject to forfeiture if I cease performing services for the partnership.” Just who was that “I” is not clear. The trust performed no services, and neither did Mr. Malt. Nor do the Romneys claim to have done any work for the partnerships. Moreover, the Romney campaign says the interest is not subject to forfeiture. In other words, the letters are untrue. When asked, the campaign conceded as much, but said there was no harm in filing the false statements since the tax obligation was not affected. It appears that Mr. Malt signed some letters he took to be boilerplate without bothering to read or understand them.” [New York Times, 1/26/12]

The Ann D. Romney Blind Trust Listed A Partnership Interest In Bain Capital Partners (Am) X, Lp. Mitt Romney’s tax returns included a transfer notice of a Bain Capital Partners (AM)X LP to the Ann Romney trust. The value of the property at election was listed as $0. According to the document “The interest in the future appreciation of the Partnership’s business to which I am entitled pursuant to my partnership interest is subject to forfeiture if I cease performing services for the Partnership.” The document was signed by Romney trustee Bradford Malt. [Mitt Romney 2010 Tax Filing Pg. 131-132]

The Ann D. Romney Blind Trust Listed A Partnership Interest In Bain Capital Partners (Am) X, Llc. Mitt Romney’s tax returns included a transfer notice of a Bain Capital Partners (AM)X LP to the Ann Romney trust. The value of the property at election was listed as $0. According to the document “The interest in the future appreciation of the Partnership’s business to which I am entitled pursuant to my partnership interest is subject to forfeiture if I cease performing services for the Partnership”  The document was signed by Romney trustee Bradford Malt. [Mitt Romney 2010 Tax Filing Pg. 133-134]

4: Did Romney pay the Unrelated Business Income Tax (UBIT) tax on his multi-million dollar IRA? If not, do Romney’s earlier taxes shed light on using off-shore “blocker” corporations to avoid the UBIT tax on his multi-million dollar IRA?

Mitt Romney Obtained A Multi-Million Dollar Ira By Investing Retirement Funds In Bain Capital. According to Wall Street Journal, “Like many Americans, Mitt Romney has an individual retirement account. Unlike most Americans, Mr. Romney has between $20.7 million and $101.6 million in it, a big chunk of his fortune. Experts on estate planning said it is highly unusual to accumulate such a considerable sum in an IRA, an investment vehicle restricted by annual contribution limits. It appears that Mr. Romney’s grew so large mostly because it holds investments in Bain Capital, the private-equity firm he helped start.” [Wall Street Journal, 1/19/12]

Romney Would Likely Incur The UBIT Tax Because His IRA Invested In Private Equity Funds. According to The Wall Street Journal, “Under current tax law, anybody investing an IRA in a private-equity fund, as Mr. Romney did, would likely incur a hefty special tax on ‘unrelated business income,’ also known as UBIT. This tax, assessed at a maximum 35% rate, is meant to discourage tax-exempt entities such as an IRA, pension plan or endowment fund from unfairly competing with for-profit, taxpaying entities by operating a business without paying taxes on it. Investing in a partnership that uses debt to buy companies would trigger the tax, experts said.” [The Wall Street Journal,1/19/12]

It Isn’t Known Whether Romney Paid UBIT; Experts Say His Filings Suggest A Strategy Using Offshore Funds To Avoid The Tax. According to The Wall Street Journal, “It isn’t known whether Mr. Romney paid UBIT. His filings suggest use of a strategy involving offshore funds sometimes employed to avoid it, according to several experts. One method used by tax lawyers is to have the IRA invest through an offshore affiliate of the private-equity firm, known as an offshore blocker corporation, which in turn invests the same money in the private-equity partnership. The tax is avoided because the IRA technically is investing in the offshore corporation, not in a private-equity partnership. .” [The Wall Street Journal, 1/19/12]

The Use Of Offshore Blocker Corporations To Avoid UBIT Costs The Us Treasury Nearly $1 Billion Every Decade. According to The New York Times, “The issue revolves around ‘blocker corporations,’ set up in tax havens like the Caymans to help nonprofit giants avoid the unrelated business income tax, which was created to prevent nonprofits from straying into profit-making ventures that compete with taxpaying companies. Although not illegal, so-called UBIT blockers cost the United States Treasury nearly $1 billion a decade, according to Congress’s bipartisan Joint Committee on Taxation.” [The New York Times, 2/7/12]

Romney’s Campaign Has “Come Close” To Admitting That Romney’s IRA Uses Blocker Corporations, But Have Not Said It Directly. According to The New York Times, “The Romney campaign has not said whether the candidate’s I.R.A. investments are in a blocker entity, but they have come close. A campaign statement said Mr. Romney’s I.R.A. ‘uses investment structures just as those commonly used by charities and pension funds, including union pension funds, to maintain their tax-exempt or tax-deferred status.’” [The New York Times, 2/7/12]