When mega-multi-millionaire Mitt Romney released his voluminous one-year tax return earlier this year, considerable attention was paid to his obscene income and the paltry 13.9 percent tax rate he pays, far lower than most middle-class Americans.
The press, however, may have overlooked what might be the most glaring revelation in Romney's return: he's either lying to the American people or he's lying to the IRS about his continued involvement in Bain.
Romney has claimed repeatedly on the campaign stump that he retired from Bain Capital in 1999 and is therefore no longer responsible for any of the company's actions, such as when Bain did business in Iran in 2004.
Yet as revealed by a little-noticed January 2012 article in the Mitt-friendly Wall Street Journal, Romney could only qualify for ultra-low tax rates if he "continued to provide 'services' to his former firm."
So how can Romney claim to the public he's no longer working for Bain, yet he continues to be paid millions of dollars by Bain and tells the IRS he's still providing services to the company?
The answer may be a complex loophole that allows someone who isn't working for a company to claim a safe-harbor treatment and thus pretend that he is still working for the company. A Romney spokesperson acknowledged this when saying "you can have it both ways."
This Houdini-ready loophole has never been tested in court and is subject to varying interpretations by tax lawyers and experts. The WSJ article quoted a tax lawyer who said "it could be argued a retired partner [like Romney] isn't entitled to favorable treatment because he didn't provide any services."
The WSJ further reported if "Romney didn't qualify for this so-called safe-harbor treatment. . .he could be liable for taxes at [the] 35 percent ordinary-income rates."
If so, then Romney would owe millions in unpaid taxes, plus penalties and interest, on up to thirteen years worth of tax returns.
That begs the question: has the IRS has already slapped Romney with a massive bill for back taxes and no one has yet caught wind of this?
After all, the IRS generally does not release any information to the public about a private citizen's tax returns or collection status. For all we know, Romney may be undergoing a massive, ugly tax audit right now.
Is this the reason why Romney has not yet released his 2011 tax returns, even though earlier in the year he said he would? Could it be that releasing them would reveal he's been slapped for using an improper tax loophole? (If Romney paid a much higher rate in 2011, the answer would likely be yes.) Is this the reason Romney has refused to release tax returns for prior years, even though he once said he would?
If you're outraged that Romney might be able to wiggle through a ridiculous tax loophole that pretends he lives in an alternative reality, you're not alone. Democrats have tried for years to kill this special advantage that allows millionaire private equity players and vulture capitalists to pay an income tax rate far below most middle class folks. Republicans, however, have habitually blocked all such attempts -- what a surprise.
Does Mitt Romney favor closing loopholes like this that millionaire vulture capitalists can squirm through? It's hard to tell. In 2002, he broke with Republicans and refused to sign the "Americans for Tax Reform" pledge "to oppose and veto any and all efforts to increase taxes." But in 2008, Romney revealed he had flip-flopped and signed the "Americans for Tax Reform" pledge after all.
Now Mitt is flip-flopping once more -- hey a complete 360! -- saying he wants to close popular loopholes for middle-class Americans, like the ability to deduct certain state taxes, which means ordinary folks like us could end up with a higher tax bill. Would he also close special "alternative reality" tax loopholes exploited by multi-millionaire vulture capitalists?
Don't expect a straight answer from Mitt the Flipper aka Mitt the Clipper.
For more information about Romney's controversial tax treatment, see the original Wall Street Journal article, "Tax Rule Opens Rich Vein for Debate; Romney's Favorable Treatment for Some Bain Income Draws Attention to Murky Reaches of IRS Code," published on January 28, 2012. The article is not available for free on the WSJ website because of a pay firewall, but is available for free online at many public libary websites with access to services InfoWeb, NewsBank, and ProQuest.
