How much more do we need to know about Romney in order to understand that his interest in the American People is for personal gain, not for a return to the Land of the Free. While we Working Class folk tighten our thread bare belts and try to figure out how to squeeze another gallon of gasoline into our tank so we can drive to the job that now pays half in purchasing power as it did four years ago, Romney continues to invest his money in off-shore banks.
Carl Jarvis
Subject: Documents Show Details on Romney Family Trusts
Documents Show Details on Romney Family Trusts
Saturday, 25 August 2012 11:39 By Nicholas Confessore and Julie Creswell,
The New York Times News Service | Report
Hundreds of pages of confidential internal documents from the private equity
firm Bain Capital published online Thursday provided new details on
investments held by the Romney family's trusts, as well as aggressive
strategies that Bain appears to have used to minimize its investors' and
partners' tax liabilities.
The documents include annual financial statements and investor letters
circulated to limited partners in more than 20 Bain and related funds where
Mitt Romney's financial advisers have at times invested large parts of his
personal fortune, estimated at more than $250 million.
As part of his retirement agreement with Bain, Mr. Romney has remained a
passive investor in the company's ventures and continues to receive a share
of the firm's investment profits on some deals undertaken after his
departure.
The documents, obtained and published by Gawker.com, do not specify the
stakes held in the funds by the Romney family trusts or by other investors.
But they highlight the range and complexity of Mr. Romney's investments at a
time when those very qualities have been the subject of the Obama campaign's
main attacks against him, including demands that Mr. Romney release his tax
returns to clear up any suggestion that he might be benefiting financially
from legal loopholes or tax shelters.
Many documents disclose information that, while routinely provided to Bain's
investors, is not typically disclosed to the public: the dollar value of
Bain investments in specific companies, fees charged by Bain and other
investment managers, and the value of different Bain funds in some years.
The documents also reveal that Bain held stakes in highly complex Wall
Street financial instruments, including equity swaps, credit default swaps
and collateralized loan obligations.
"The unauthorized disclosure of a number of confidential fund financial
statements is unfortunate," said Alex Stanton, a Bain spokesman. "Our fund
financials are routinely prepared by auditors and demonstrate a commitment
to transparency with our investors and regulators, and compliance with all
laws."
Mr. Romney said last week that he had paid an effective federal tax rate of
at least 13 percent over the past decade, but he declined - as he has over
months of speculation and attacks - to release returns before 2010.
"My view is I've paid all the taxes required by law," Mr. Romney said.
Bain private equity funds in which the Romney family's trusts are invested
appear to have used an aggressive tax approach, which some tax lawyers
believe is not legal, to save Bain partners more than $200 million in income
taxes and more than $20 million in Medicare taxes.
Annual reports for four Bain Capital funds indicate that the funds converted
$1.05 billion in accumulated fees that otherwise would have been ordinary
income for Bain partners into capital gains, which are taxed at a much lower
rate.
Although some tax experts have criticized the approach, the Internal Revenue
Service is not known to have challenged any such arrangements.
In a blog post Thursday, Victor Fleischer, a law professor at the University
of Colorado, said that there was some disagreement among lawyers, but that
he believed: "If challenged in court, Bain would lose. The Bain partners, in
my opinion, misreported their income if they reported these converted fees
as capital gain instead of ordinary income."
A typical private equity or hedge fund pays its managers in part with a
management fee based on the size of the fund, and in part with a share of
the profits earned by the fund. Those profits are considered "carried
interest" and taxed at capital gains rates, which in recent years have been
15 percent, assuming that the underlying investment profits qualified for
that treatment.
The tax strategy Bain appears to have used is intended to convert the
remaining management fee - the part not based on investment profits - into
capital gains. Mr. Romney appears to benefit from the carried interest
structure in these funds, but it is not clear from the documents made public
whether he also benefits from the fee waiver. The Romney campaign declined
to comment.
In an article that appeared in the journal Tax Notes in 2009, Gregg D.
Polsky, a tax law professor at the University of North Carolina School of
Law, called the tax strategy "extremely aggressive" and said it was "subject
to serious challenge by the I.R.S."
Details in the documents suggest that Bain funds in which Mr. Romney's
fortune is invested also used a variety of legal mechanisms to help some
investors avoid significant taxes.
A 2009 document concerning Bain Capital Asia, one of the firm's overseas
private equity funds, for example, refers to three "blocker" corporations
used to invest in D&M Holdings, a Japanese electronics company.
Blocker corporations, typically set up in tax havens like the Cayman
Islands, can help investors avoid a levy known as the unrelated business
income tax, which was created to prevent nonprofit groups from undertaking
profit-making ventures that compete with taxpaying companies.
The documents also showed that some of the funds owned equity swaps, which
have been used to avoid taxes that would otherwise be owed on dividends paid
by American companies to foreign-based investors, like funds based in the
Caymans.
The major purpose of such "swaps," a Senate committee report stated in 2008,
"is to enable non-U.S. persons to dodge payment of U.S. taxes on U.S. stock
dividends." Congress later adopted a provision intended to prevent that
tactic. Parts of that provision took effect in 2010 and other parts this
year. It is not clear how effective the provision will be, and final I.R.S.
regulations have yet to be released.
Before enactment of that provision, if a Cayman Islands hedge fund owned an
American stock that paid dividends, a tax would normally be withheld when
the dividend was paid. Under the swap arrangement, the shares were "owned"
by an American company, typically a bank or brokerage firm, which was exempt
from withholding taxes.
The hedge fund entered into a "total return swap," in which the bank agreed
to transfer all the financial benefits of owning the stock to the hedge
fund, including the dividend payment. The hedge fund pays an interest rate
that, in effect, pays the bank for the tax benefit of avoiding the
withholding tax.
The 2009 financial statements of Absolute Return Capital Partners LP, a fund
that maintains Cayman Island subsidiaries, reported $17.7 million in
realized and unrealized profits from "equity contracts." It was not clear if
all of those profits related to total return swaps, but it is likely that at
least some of them did.
That tactic is also used to avoid taxes in some other countries and to avoid
restrictions on share ownership by noncitizens of some countries. In its
2010 annual report, released by Gawker, Viking Global Strategies, a hedge
fund, reported using such swaps in Europe, Asia and Latin America. Romney
family trusts have indirect stakes in that fund through a Goldman Sachs
fund.
Like many other private equity and hedge funds, Bain and its affiliates
operate several offshore funds that are domiciled in the Caymans for a
variety of tax and regulatory reasons. For the most part, these Cayman-based
funds are completely routine and legal, tax experts say.
This article, "Documents Show Details on Romney Family Trusts," originally
appears at the New York Times News Service.
C 2012 The New York Times Company Truthout has licensed this content. It may
not be reproduced by any other source and is not covered by our Creative
Commons license.
JULIE CRESWELL
Julie Creswell is a Sunday Business feature writer for The New York Times.
Since joining the Times in 2005, she has covered Wall Street, the nation's
banking system and various business and legal issues for the paper.
After graduating from the University of Iowa, Ms. Creswell covered the debt
markets and the mutual fund industry for Dow Jones Newswires before she
joined Fortune magazine in 1998. She is married and has two sons, and lives
in New York.
________________________________________
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Documents Show Details on Romney Family Trusts
Saturday, 25 August 2012 11:39 By Nicholas Confessore and Julie Creswell,
The New York Times News Service | Report
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Hundreds of pages of confidential internal documents from the private equity
firm Bain Capital published online Thursday provided new details on
investments held by the Romney family's trusts, as well as aggressive
strategies that Bain appears to have used to minimize its investors' and
partners' tax liabilities.
The documents include annual financial statements and investor letters
circulated to limited partners in more than 20 Bain and related funds where
Mitt Romney's financial advisers have at times invested large parts of his
personal fortune, estimated at more than $250 million.
As part of his retirement agreement with Bain, Mr. Romney has remained a
passive investor in the company's ventures and continues to receive a share
of the firm's investment profits on some deals undertaken after his
departure.
The documents, obtained and published by Gawker.com, do not specify the
stakes held in the funds by the Romney family trusts or by other investors.
But they highlight the range and complexity of Mr. Romney's investments at a
time when those very qualities have been the subject of the Obama campaign's
main attacks against him, including demands that Mr. Romney release his tax
returns to clear up any suggestion that he might be benefiting financially
from legal loopholes or tax shelters.
Many documents disclose information that, while routinely provided to Bain's
investors, is not typically disclosed to the public: the dollar value of
Bain investments in specific companies, fees charged by Bain and other
investment managers, and the value of different Bain funds in some years.
The documents also reveal that Bain held stakes in highly complex Wall
Street financial instruments, including equity swaps, credit default swaps
and collateralized loan obligations.
"The unauthorized disclosure of a number of confidential fund financial
statements is unfortunate," said Alex Stanton, a Bain spokesman. "Our fund
financials are routinely prepared by auditors and demonstrate a commitment
to transparency with our investors and regulators, and compliance with all
laws."
Mr. Romney said last week that he had paid an effective federal tax rate of
at least 13 percent over the past decade, but he declined - as he has over
months of speculation and attacks - to release returns before 2010.
"My view is I've paid all the taxes required by law," Mr. Romney said.
Bain private equity funds in which the Romney family's trusts are invested
appear to have used an aggressive tax approach, which some tax lawyers
believe is not legal, to save Bain partners more than $200 million in income
taxes and more than $20 million in Medicare taxes.
Annual reports for four Bain Capital funds indicate that the funds converted
$1.05 billion in accumulated fees that otherwise would have been ordinary
income for Bain partners into capital gains, which are taxed at a much lower
rate.
Although some tax experts have criticized the approach, the Internal Revenue
Service is not known to have challenged any such arrangements.
In a blog post Thursday, Victor Fleischer, a law professor at the University
of Colorado, said that there was some disagreement among lawyers, but that
he believed: "If challenged in court, Bain would lose. The Bain partners, in
my opinion, misreported their income if they reported these converted fees
as capital gain instead of ordinary income."
A typical private equity or hedge fund pays its managers in part with a
management fee based on the size of the fund, and in part with a share of
the profits earned by the fund. Those profits are considered "carried
interest" and taxed at capital gains rates, which in recent years have been
15 percent, assuming that the underlying investment profits qualified for
that treatment.
The tax strategy Bain appears to have used is intended to convert the
remaining management fee - the part not based on investment profits - into
capital gains. Mr. Romney appears to benefit from the carried interest
structure in these funds, but it is not clear from the documents made public
whether he also benefits from the fee waiver. The Romney campaign declined
to comment.
In an article that appeared in the journal Tax Notes in 2009, Gregg D.
Polsky, a tax law professor at the University of North Carolina School of
Law, called the tax strategy "extremely aggressive" and said it was "subject
to serious challenge by the I.R.S."
Details in the documents suggest that Bain funds in which Mr. Romney's
fortune is invested also used a variety of legal mechanisms to help some
investors avoid significant taxes.
A 2009 document concerning Bain Capital Asia, one of the firm's overseas
private equity funds, for example, refers to three "blocker" corporations
used to invest in D&M Holdings, a Japanese electronics company.
Blocker corporations, typically set up in tax havens like the Cayman
Islands, can help investors avoid a levy known as the unrelated business
income tax, which was created to prevent nonprofit groups from undertaking
profit-making ventures that compete with taxpaying companies.
The documents also showed that some of the funds owned equity swaps, which
have been used to avoid taxes that would otherwise be owed on dividends paid
by American companies to foreign-based investors, like funds based in the
Caymans.
The major purpose of such "swaps," a Senate committee report stated in 2008,
"is to enable non-U.S. persons to dodge payment of U.S. taxes on U.S. stock
dividends." Congress later adopted a provision intended to prevent that
tactic. Parts of that provision took effect in 2010 and other parts this
year. It is not clear how effective the provision will be, and final I.R.S.
regulations have yet to be released.
Before enactment of that provision, if a Cayman Islands hedge fund owned an
American stock that paid dividends, a tax would normally be withheld when
the dividend was paid. Under the swap arrangement, the shares were "owned"
by an American company, typically a bank or brokerage firm, which was exempt
from withholding taxes.
The hedge fund entered into a "total return swap," in which the bank agreed
to transfer all the financial benefits of owning the stock to the hedge
fund, including the dividend payment. The hedge fund pays an interest rate
that, in effect, pays the bank for the tax benefit of avoiding the
withholding tax.
The 2009 financial statements of Absolute Return Capital Partners LP, a fund
that maintains Cayman Island subsidiaries, reported $17.7 million in
realized and unrealized profits from "equity contracts." It was not clear if
all of those profits related to total return swaps, but it is likely that at
least some of them did.
That tactic is also used to avoid taxes in some other countries and to avoid
restrictions on share ownership by noncitizens of some countries. In its
2010 annual report, released by Gawker, Viking Global Strategies, a hedge
fund, reported using such swaps in Europe, Asia and Latin America. Romney
family trusts have indirect stakes in that fund through a Goldman Sachs
fund.
Like many other private equity and hedge funds, Bain and its affiliates
operate several offshore funds that are domiciled in the Caymans for a
variety of tax and regulatory reasons. For the most part, these Cayman-based
funds are completely routine and legal, tax experts say.
This article, "Documents Show Details on Romney Family Trusts," originally
appears at the New York Times News Service.
C 2012 The New York Times Company Truthout has licensed this content. It may
not be reproduced by any other source and is not covered by our Creative
Commons license.
javascript:return addthis_sendto('email'); javascript:return
addthis_sendto('email');
Julie Creswell
Julie Creswell is a Sunday Business feature writer for The New York Times.
Since joining the Times in 2005, she has covered Wall Street, the nation's
banking system and various business and legal issues for the paper.
After graduating from the University of Iowa, Ms. Creswell covered the debt
markets and the mutual fund industry for Dow Jones Newswires before she
joined Fortune magazine in 1998. She is married and has two sons, and lives
in New York.
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