Corporate Tax Evasion

Can't you see the Tea Party voter in the booth (closet), realizing the full secrecy of the ballot, and thinking, "I'd rather vote for the negro than that effin' Mormon..."I can. I told all and sundry there was no way an enthusiastic conservative Christian tide could wash the Angel Moroni, the golden tablets and the special underwear off of Romney.That's my analysis, and I'm sticking to it.And given the massive tax avoidance/evasion that Romney managed (the obvious reason he wouldn't release more tax returns), this isn't really off-topic.

You are so cute with your questions! The easy answer is that full reveal is in his tax returns, which Romney refused to disclose--in contravention of political custom and his father's precedent.Or we could note that in the two years worth of returns he did release, he paid only about 15% on millions, using the loophole-the-size-of-the-deficit, Bush tax cut capital gains rate for the wealthy.But we can do better than that.Let's start with his Individual Retirement Account, created and funded entirely during his years with Bain Capital. These accounts were created to encourage middle-class earners to provide for their own retirement, since pensions are so passe.This occurred during a time when the limit for an SEP-IRA annual contribution--funded entirely by an employer--was $30,000.AbE: Regular wage earners were limited to about $6000 in annual IRA contributions.Some background from Bloomberg:

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The most mysterious of the unexplained mysteries about Mitt Romney’s considerable wealth is how he was able to amass between $21 million and $102 million in his individual retirement account during the 15 years he was at Bain Capital LLC.

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How did he do it, given the relatively small amounts that the law permits to be contributed to such a plan on an annual basis? Romney has not explained this conundrum, and seeing as he wants to become president, he would be wise to start talking -- if for no other reason than there might be many Americans who would like to emulate what he did.

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During Romney’s tenure at Bain Capital -- from 1984 to 1999, although a recent Boston Globe article uncovered Romney having a role at Bain until 2002 -- the firm used a so-called SEP-IRA, which is like a 401(k) retirement plan but is funded entirely by the employer and has a much higher maximum contribution: about $30,000 annually during the period Romney was at Bain. Assuming Romney maxed out these tax-deferred contributions, he would have invested roughly $450,000 in his SEP-IRA during his years at Bain.

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The short answer is that he took advantage of leveraged buyouts to put nominally "low value" stocks into his IRA, knowing that the shedding of debt and workers that typified the Bain Capital approach would rapidly balloon those values up to their real world value.Smart? Sure.The actions of a fully engaged capitalist invested in the health of his own nation's economy? Hardly.Legal? There are strong opinions both ways, but the IRS has little interest in pursuing any investigation that might appear as post-election persecution.A familiar pattern? You bet. He testified in divorce court for his friend, the founder of Staples, on the scant value to be found in Staples stocks--and created a special class of low value Staples stock to be used to payoff the former Mrs. Founder.Will that do for starters?Edited by Omnivorous, : No reason given.

So, in the first reply I addressed the Olympic quality of Romney's tax avoidance, using mechanisms that skirt the boundary of legality.The New York Times' Michael Graetz took a hard look at what Romney's meager tax record releases showed. I'll provide a lengthy quote, since NYT has a paywall, and I cannot improve on Mr. Graetz's reporting.

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Another suggestion is that in 2009 he paid income taxes significantly below the 13.9 percent he paid in 2010. This is more plausible, and potentially more damaging politically, even if perfectly legal.

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After all, the one year’s tax returns that he has released raise doubt about his campaign’s claims that his offshore accounts did not save him one penny of tax. Putting business assets into an individual retirement account invested in a Cayman Islands corporation allows Mr. Romney to avoid the unrelated business income tax a 35 percent levy on at least some of his I.R.A.’s earnings, a tax that he would have had to pay if his I.R.A. were held directly by a financial institution in the United States.

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With an I.R.A. account of $20 million to $101 million, the tax savings would be more than a few pennies.

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The I.R.A. also allows Mr. Romney to diversify his large holdings tax-free, avoiding the 15 percent tax on capital gains that would otherwise apply. His financial disclosure further reveals that his I.R.A. freed him from paying currently the 35 percent income tax on hundreds of thousands of dollars of interest income each year.

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Given the extraordinary size of his I.R.A., we have to presume that Mr. Romney valued the assets he put in his retirement account at far less than he would have sold them for. Otherwise it is quite a trick to turn contributions that are limited to $30,000 to $50,000 a year into the $20 million to $101 million he now has there. But we cannot be certain; his meager disclosure of tax records and financial information does not indicate what kind of assets were put into the I.R.A.

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Mr. Romney’s Cayman Islands and Bermuda corporations also probably allowed him to avoid limitations on deductions for investment expenditures that would otherwise apply. So we don’t need any more tax returns to know that Mr. Romney is an Olympic-level athlete at the tax avoidance game. Rich people don’t send their money to Bermuda or the Cayman Islands for the weather.

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Moreover, we have no clue whether Mr. Romney paid any gift tax on transfers, now valued at $100 million, to a trust he set up in 1995 for the benefit of his five sons. Until this year, the federal gift tax had a lifetime exemption of $1 million, and it taxed gifts in excess of that amount at rates between 29 and 44 percent. A gift of $100 million to one’s children could, therefore, require paying a tax of as much as $29 million to $44 million.

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But every good tax professional knows that gift tax returns are rarely audited, except after the transferor’s death. And normally the I.R.S. cannot challenge such a return after three years from its filing. But if the values of the gifts were not properly appraised and disclosed on Mr. Romney’s gift tax returns, a challenge may still be possible. If he did not file any gift tax return, he would still be liable for the tax, plus interest and penalties.

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Based on his aggressive tax planning, revealed in the 2010 returns he has released and his approval of a notably dicey tax avoidance strategy in 1994 when he headed the audit committee of the board of Marriott International, my bet is that if Mr. Romney filed a gift tax return for these transfers at all he put a low or even zero value on the gifts, certainly a small fraction of the price at which he would have sold the transferred assets to an unrelated party. Otherwise, he should be happy to release his gift tax returns. According to a partner at Mr. Romney’s trustee’s law firm, valuing carried interests, such as Mr. Romney’s interests in the private equity company Bain Capital, at zero for gift tax purposes was common advice given to clients like Mr. Romney in the 1990s and early 2000s.

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If detected, undervaluing large gifts to one’s children could provoke large penalties from the I.R.S. These are the kinds of tax penalties that even multinational corporations try to avoid because they fear how the public would react to the adverse publicity that would inevitably follow.

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Read this part again, slowly: "According to a partner at Mr. Romney’s trustee’s law firm, valuing carried interests, such as Mr. Romney’s interests in the private equity company Bain Capital, at zero for gift tax purposes was common advice given to clients like Mr. Romney in the 1990s and early 2000s."Dodge the gift tax by declaring the value of the gift (worth many millions) to be zero. And it wasn't just Romney, it was commonly done by people in his economic class.That's not tax avoidance, that's tax evasion, carefully crafted in a tax area rarely subjected to IRS review.He should be audited. He won't be.

You sure seem to be fascinated by us degenerates...so fascinated you just can't stay away, even after you run to your room and slam the door.Foreveryoung, are you having...impure thoughts?I just wondered because that might explain why you run about hooting like a chimp and smearing your own feces all over the walls. What kind of mother a kid would have to have to act like that I just don't know.I wasn't going to say anything because I thought you were perhaps a troubled soul. Now I think you're just a fuckwit.NB: If you click on my name (that's the shiny cyan...ah, blue... thing in the upper left corner of my post, Master 136), you can get a list of all my posts. Then you can run and hoot and smear most efficiently, jeering them all.Be sure to wash your hands. Make your mother proud.