mykeystrokes.com

"Do or Do not. There is no try."

Not So “Friendly’s”: Tax Avoidance, Government Dependency, And Mitt Romney’s Boca Raton Host

Amid the ongoing uproar over Mitt Romney’s snooty remarks at a Florida fundraiser concerning the “47 percent” who pay no federal income taxes, the party’s high-rolling host hasn’t drawn quite as much attention as he deserves. As the head of private equity firm Sun Capital Partners, Marc Leder is a longtime associate of the Republican nominee – and a practitioner of the same dubious behavior that has smudged Romney’s reputation.

Lately Leder has been dogged by tabloid headlines recounting his nasty divorce and wild partying (replete with reported nudity and public sex around the pool at a summer house he rented on Long Island’s East End for $500,000). What he has in common with Romney, however, isn’t a taste for bacchanalian revels, of course, but a record of business and taxation practices that working Americans might find troubling.

At the moment, Leder is under investigation by New York State Attorney General Eric Schneiderman, who subpoenaed internal records from Sun Capital, Bain Capital, and several other private equity giants last July. Issued by the Attorney General’s taxpayer protection bureau, the subpoenas were evidently designed to probe whether Leder and other executives had misused “carried interest,” a method of reducing tax liability by converting management fees into investment income — which is taxed at the lower capital gains rate of 15 percent that keeps Romney’s taxes lower than the rate paid by many middle-income families. (Tax analysts say that Bain Capital records released last August indicate that the firm may have saved more than $200 million in federal taxes thanks to the carried-interest maneuver.)

If Leder did benefit from such aggressive practices, he would merely be typical of an industry where tax manipulations are not just widespread, but fundamental.

Equally common in private equity is profiting from bankrupted companies in which other stakeholders – especially workers and government – are left to cope with the loss. During the Republican primaries, Romney’s rivals helped to make Bain notorious for such practices – and his fundraiser Leder seems no different.

Although roughly 25 firms held by Sun have gone bankrupt, perhaps the best known example involves Friendly’s, the family restaurant and ice cream chain that went under at the hands of Sun Capital in 2010 after more than 70 years in business. After acquiring Friendly’s in 2007 for a premium price, Sun took the company into bankruptcy only three years later, supposedly due to rising milk prices.

But the Pension Benefit Guaranty Corporation – the federal agency that insures benefits to workers victimized by failed corporate pension plans – accused Sun of sinking Friendly’s to dump pension costs onto the government. By pushing the company’s pension burden onto federal taxpayers, who fund the PBGC, Sun could then reorganize Friendly’s in bankruptcy, get rid of laid-off workers and less profitable restaurants, and – as Romney likes to say – give the company a “turnaround.” So far, that is precisely what Sun appears to doing, and getting away with it.

So there on the videotape shot in Leder’s huge Boca mansion stood Romney, complaining about the income taxes that the working poor don’t pay and their dependence on government assistance, while the host surely nodded in agreement. At $50,000 a plate, the lobster was garnished with a nice helping of irony.

 

By: Joe Conason, The National Memo, September 24, 2012

September 25, 2012 Posted by | Election 2012 | , , , , , , , , | Leave a comment

“Trust Me, Trust Me Not”: Mitt Romney’s Bain Capital Under Investigation For Tax Avoidance

The New York Times is reporting that Bain Capital, the private equity firm founded by GOP presidential nominee Mitt Romney, is among a number of firms being investigated by New York Attorney General, Eric Schneiderman, for failing to pay taxes.

The New York AG’s Taxpayer Protection Bureau has issued subpoenas to at least twelve financial firms, including Bain, looking into whether the companies converted management fees (taxed as ordinary income) paid by investors into fund investments which are taxed at a dramatically lower rate.

The controversial tax avoidance scheme came to light last month when Bain Capital internal financial information was published online by Gawker.com , however the investigation had reportedly commenced prior to the publication and is not believed to be tied to the document dump.

According to the Times

The tax strategy — which is viewed as perfectly legal by some tax experts, aggressive by others and potentially illegal by some — came to light last month when hundreds of pages of Bain’s internal financial documents were made available online. The financial statements show that at least $1 billion in accumulated fees that otherwise would have been taxed as ordinary income for Bain executives had been converted into investments producing capital gains, which are subject to a federal tax of 15 percent, versus a top rate of 35 percent for ordinary income. That means the Bain partners saved more than $200 million in federal income taxes and more than $20 million in Medicare taxes.

While Governor Romney has not been active at Bain Capital for quite some time, he does continue to receive profits from the company and held investments in some of the funds that utilized the tax avoidance strategy.

The Romney campaign issued a statement indicating that the Governor had not benefited from the practice.

R. Bradford Malt, an attorney for Governor Romney who manages the Governor’s investments and trusts, argued that investing fee income is a common, accepted and totally legal practice. “However, Governor Romney’s retirement agreement did not give the blind trust or him the right to do this, and I can confirm that neither he nor the trust has ever done this, whether before or after he retired from Bain Capital.”

According to Jack S. Levin, a finance lawyer who has represented Bain Capital, the practice has been in use by investment firms for twenty years and is something the IRS knows about.

The investigation will, inevitably, raise questions as to whether or not Attorney General Schneiderman, who has strong contacts to the Obama Administration, is attempting to embarrass Romney as we head towards the November election.

Still, prominent investment firms, including Blackstone Group and The Carlyle Group, have noted in regulatory filings that they have not participated in diverting management fees into investments in their funds.

 

By: Rick Ungar, Contributor, Forbes, September 1, 2012

September 2, 2012 Posted by | Election 2012 | , , , , , , , , | Leave a comment

“Mitt’s Financial Mysteries”: Romney Didn’t Send His Money Overseas For The Weather

PRESSURE is mounting for Mitt Romney to release more of his financial records. Mr. Romney has made public only his 2010 tax returns and has said his 2011 documents will be released soon. “That’s all that’s necessary for people to understand something about my finances,” he said recently. He is “simply not enthusiastic,” he also said, about giving the Obama campaign “hundreds or thousands of more pages to pick through, distort and lie about.”

But it is a good bet that Mr. Romney’s vetters have picked through more than two years of returns of his vice-presidential contenders. And the Senate typically requires more for confirmation to a cabinet or even a subcabinet post. Until Mr. Romney recognizes the right of voters to understand the finances of their leaders, all we are left with is speculation.

Some commentators have suggested, for example, that — like tens of thousands of other Americans who have taken advantage of an Internal Revenue Service amnesty — he might not have declared and paid taxes on his Swiss bank account. I can’t imagine that he would have engaged in such blatant tax cheating. He is far too smart for that.

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.

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.

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

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.

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.

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.

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.

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.

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.

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.

To settle these questions, Mr. Romney should release his gift tax returns, or other documents showing how he valued his transfers to his family’s trust and to his I.R.A., and at least three additional years of income tax returns.

No one should begrudge Mr. Romney or his family the wealth they have earned. But if he has not paid the taxes that apply to transfers of such wealth, this should concern us all. After all, who do you think pays for the shortfall?

 

By: Michael Graetz, Op-Ed Contributor, The New York Times Opinion Pages, July 30, 2012

 

 

August 1, 2012 Posted by | Election 2012 | , , , , , , , , | Leave a comment

“Just A Private Family Matter”: Mitt Romney Outsources Questions About Finances

We have no way of knowing just yet whether Ann Romney’s explanation in an interview of her husband’s refusal to release tax returns was just her own effort to get past a difficult question, or represents the Final Word from the campaign. If it’s the latter, you gotta admit it’s pretty damn bold, suggesting that Mitt’s finances—not just his tax returns, but his wealth generally—are a private family matter on which the news media and the American people are strictly on a need-to-know basis. And all they need to know is that the Romneys tithe (and no tither has ever, ever been dishonest about money, right?) and that Mitt turned down a governor’s salary in Massachusetts that probably represented a rounding error in his investment income.

This talking-point would barely pass the smell-test even if Mitt had always resolutely treated his “success” (as measured by his fabulous wealth) as irrelevant to the presidential campaign, instead of being the primary reason Americans should entrust him with the presidency, even if he won’t much talk about what he would do in that office beyond killing ObamaCare and inspiring confidence in every direction.

You have to wonder if in the future Mitt is going to “outsource” all questions about his finances to his wife, and then object that anyone who complains about it is engaging in personal attacks on his family. That tactic would certainly be consistent with his general habit of expressing outrage when critics look at his biography or his tax-and-budget plans and suggest things just don’t add up.

 

By: Ed Kilgore, Contributing Writer, Washington Monthly Political Animal, July 19, 2012

July 20, 2012 Posted by | Election 2012 | , , , , , , | Leave a comment

“The Prevailing Order”: The Rich Really Are Different

In the last couple of years, we’ve occasionally seen stories where Wall Street types justify their enormous compensation packages by saying they work really, really hard. They stay late, they work weekends, they just keep their noses to the grindstone, and that’s why they get paid what they do. Sure, $30 million a year is a lot of money. But the hedge fund manager who made it probably worked 1,000 times harder than the electrician who made $30,000. Right?

I thought of those Wall Streeters and their rhetoric about hard work when considering the question of Mitt Romney’s tax returns. One of the things we’ve found out in the whole when-did-Romney-leave-Bain controversy is that even after he retired/went on a leave of absence, he was being paid at least $100,000 a year for doing what he swears was absolutely nothing. That’s a lot of money for doing nothing, at least to people like you and me, but remember that to Mitt Romney, it’s peanuts. According to the information he has released, he made over $42 million in 2010 and 2011 without doing any actual work. He hasn’t held a job in five and a half years, since he left the Massachusetts governor’s office. Tens of millions of dollars just keep pouring into his many bank accounts, without him lifting a finger. And of course, he pays a far lower tax rate on all that income than people who work for a living.

But it really seems that Romney has a hard time understanding why that would rankle people. The entire system is set up to allow people like him to play by a set of rules that was established by the wealthy, for the wealthy; but when you’re the beneficiary, it seems like the prevailing order is a just order. And what Romney wants is to make income from investments and inheritances taxed at an even lower rate. You probably haven’t heard, since there hasn’t been much discussion about it, but Barack Obama’s official position (even if he’s not going to do much about it) is that investment income should be taxed at the same rate as wage income; in other words, money you work for shouldn’t be taxed more (as it is now) than money you make when your money makes you more money. I’m sure that if somebody asked Mitt Romney about taxing all income at the same rate, he’d think the idea was nothing short of insane.

It’s not impossible for someone to benefit greatly from that system and still manage to wrap their heads around the fact that it’s unfair. There are plenty of rich people who do (Warren Buffett is the most visible example). I keep returning to Mitt’s repeated comments that of course he took advantage of every tax loophole he could find to make sure he paid as little as possible. We could argue about whether that’s unpatriotic, but the thing is that for most people who do a job and get paid a salary, there just aren’t those kinds of loopholes available. Not only can’t they afford to hire a team of accountants and tax lawyers; even if they could, there wouldn’t be much those people could do for them.

There is obviously something in Mitt Romney’s pre-2010 tax returns that he really, really doesn’t want people to see. Just how awful it is, we have no way of knowing; it could be something truly shocking, or just more of the offshore accounts and low tax rates we already know about from his 2010 return. But whatever it is, revealing it would no doubt have the effect of reminding people just how different the rules people like Mitt Romney play by really are. And if he’s afraid of that, maybe he’s more self-aware than I’m giving him credit for.

 

By: Paul Waldman, Contributing Editor, The American Prospect, July 19, 2012

July 20, 2012 Posted by | Election 2012 | , , , , , , , , | Leave a comment

%d bloggers like this: