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MEMO: What’s Romney Hiding?

To: Interested Parties
From: Rodell Mollineau, President of American Bridge 21st Century
Date: 9/22/2012
RE: What’s Romney hiding with his tax summary?

Mitt Romneys inexplicable choice to release a minimal summary of his past twenty years of federal income tax returns only serves to confirm that there must be something so toxic to his candidacy in those returns that it seemed strategically sound to release a short briefing in September after questions had been raised for nearly a year.

American Bridge previously presented a list of things that Mitt Romney could be hiding, but below are just three of the biggest questions raised by Friday’s incomplete disclosure.

1) Did Mitt Romney recently amend his previous years’ tax returns to ensure he could claim he was paying a tax rate above 10%? Already we know Romney played similar games with his 2011 returns. He declined to take tax deductions to ensure he paid a higher rate of 14.1% but Romney could recoup those deductions later with an amended return. It’s also worth noting that Romney previously stated that if he “had paid more than are legally due I don’t think I’d be qualified to become president.”

IRS Amended Income Tax Returns May Be Used To Amend Income Levels. According to the IRS, “An amended tax return generally allows you to file again to correct your filing status, your income or to add deductions or credits you may have missed.” [IRS, 4/12/11]

Romney Did Not Take Advantage Of All Deductions Available In Order To Demonstrate A Higher Tax Rate. According to Huffington Post, “‘The Romneys’ generous charitable donations in 2011 would have significantly reduced their tax obligation for the year. The Romneys thus limited their deduction of charitable contributions to conform to the Governor’s statement in August, based upon the January estimate of income, that he paid at least 13% in income taxes in each of the last 10 years,’ his trustee Brad Malt said in a note accompanying the return.” [Huffington Post, 9/21/12]

Romney Can Recoup The Money Later. According to Huffington Post, “‘Luckily for Romney, after the election he can recoup that money. If the American people reject him at the polls in November — and even if they don’t — Romney would be fully within his legal rights to file an amended return, requiring the Treasury to cut him a substantial check. ‘It’s noble,’ said Boston College tax law professor Brian Galle of Romney’s generous, if temporary, gift to the Treasury. ‘It also doesn’t prevent him from taking that deduction in an amended return if he were to file it after the election.” [Huffington Post, 9/21/12]

If Mitt Romney Took Advantage Of All Deductions He Was Entitled To, His Tax Rate Would Have Been Closer To 9%. According to Think Progress, “If Romney had taken all of the deductions available to him under the tax code, he would have paid closer to a 9 percent tax rate in 2011.” [Think Progress, 9/21/12]

2) What foreign tax havens did Romney exploit for the 20 years of returns he failed to make public? In his 2010 return we learned of the infamous Swiss bank account and holdings in Bermuda and the Caymans.

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, 1/24/12]

Romney “Utilized Shell Companies In Two Offshore Tax Havens To Help Eligible Investors Avoid Paying U.S. Taxes” And In Doing So “Boosted Profits For Romney And His Partners.” According to the Los Angeles Times, “While in private business, Mitt Romney utilized shell companies in two offshore tax havens to help eligible investors avoid paying U.S. taxes, federal and state records show. Romney gained no personal tax benefit from the legal operations in Bermuda and the Cayman Islands. But aides to the Republican presidential hopeful and former colleagues acknowledged that the tax-friendly jurisdictions helped attract billions of additional investment dollars to Romney’s former company, Bain Capital, and thus boosted profits for Romney and his partners. Romney has based his White House bid, in part, on the skills he learned as co-founder and chief of Bain Capital, one of the nation’s most successful private equity groups. His campaign cites his record while governor of Massachusetts of closing state tax loopholes; his involvement with foreign tax havens had not previously come to light.” [Los Angeles Times, 12/17/07]

3) Did Mitt Romney use his IRA to manipulate his alleged income tax rate? We know that at Bain Capital employees used a split stock structure to put their higher paying shares in their IRAs. Those funds would normally be subject to the Unrelated Business Income Tax (UBIT) tax designed to avoid giving retirement accounts and non-profits an advantage over for-profit companies when investing in businesses. To avoid those taxes, Romney may have used his Cayman and Bermuda accounts as an “off-shore” blocker. Taking into account those avoided taxes would result in a much lower tax rate than the one Romney disclosed on Friday.

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.” [The Wall Street Journal,1/19/12]

Romney Could Have Inflated The Value Of His Ira By Using Split Shares In Classes A And L. According to Vanity Fair, “The Romneys won’t say, but Mark Maremont, writing in The Wall Street Journal, uncovered a likely explanation. When Bain Capital bought companies, it would create two classes of shares, named A and L. The A shares were risky common shares, to which they would assign a very low value. The L shares were preferred shares, paying a high dividend but with the payoff frozen, and most of the value was assigned to them. Bain employees would then put the exciting A shares in their I.R.A. accounts, where they grew tax-free. With all the risk of the deal, the A shares stood to gain a lot or collapse. But if the deal succeeded, the springing value could be stunning: Bain employees saw their A shares from one particularly fruitful deal grow 583-fold, 16 times faster than the underlying stock.” [Vanity Fair, 8/12/12]

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]

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]