Sure, we've had lots of speculation as to what Mitt Romney's hiding by not releasing his taxes (save for a partial one from 2010). In his defense Romney has said he "has paid all the taxes that are legally due", which theoretically could be zero. He also says that his financial disclosure forms are more than enough for you people. Here they are for 2006, 2010, and 2011. They consist of an interminable stack of spreadsheets showing every 'entity' that contains Mitt's money, with an amount range checkbox filled in - page after page of this.
I've paid every penny of taxes legally due.
Of course, we know now that his financial disclosure forms don't tell us anything but his estimated financial net worth, as revealing the partial tax return told us of previously unknown bank accounts in the Caymans and Switzerland. So who knows what is lurking in those unreleased returns. But Michael J. Graetz, a professor of tax law at Columbia, and former deputy assistant Treasury secretary for tax policy from 1990 to 1991, takes an informed look in an article in the New York Times.
Right off the bat Graetz dismisses the possiblity that Romney hasn't paid taxes on the Swiss bank account, as too brazen and easy to get caught.
I can’t imagine that he would have engaged in such blatant tax cheating. He is far too smart for that.
But with other aggressive tax strategies Romney has likely avoided paying tens of milions in taxes.
He goes on to list what he considers the two most likely possibilities of what is lurking in Willard Mitt Romney's unreleased tax returns. The possibility of paying even less than 13.9% is more likely. It's more plausible, and because of the potential political damage this could cause, gives Romney incentive to withhold the returns. Romney's claim that parking his money offshore hasn't saved him any money on his taxes, but the one year he's released casts doubt onto this.
The Individual Retirement Account
Until now, the vast size of the $100 million IRA has drawn most of the attention, but Graeitz explains how it could have been used to avoid paying a lot of taxes.
Keeping his business assets in an IRA invested in a Cayman Islands corporation could have enabled Romney to avoid paying a 35% tax on $20 million to $101 million.
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.
Further, the IRA would have allowed Romney to avoid paying 15% capital gains tax, and 35% on interest income earned.
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.
The offshore accounts probably enabled Romney to take larger deductions for investment expenditures.
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.
So it is rather brazen for Romney to claim that keeping his money in offshore accounts didn't save him "a penny". Why do it then? As Graetz says:
Rich people don’t send their money to Bermuda or the Cayman Islands for the weather.
Gift Taxes on The $100 Million Trust
The other area that Graetz focuses on as the likely culprit in tax avoidance is the $100 million trust set up in 1995 for Romney's five sons. Romney could have avoided gift taxes of between $29 million and $44 million. Apparently this is a favorite tax avoidance strategy as gift tax returns are rarely audited until the transferor's death.
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.
Graetz finds Romney's tax planning to be 'aggressive', which leads him to believe it's quite likely that Romney put a zero or very low valuation on the gifts, which was a common strategy at that time.
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.
So, not disclosing these returns makes it impossible to know the value he placed on the gifts he transferred. Undervaluing gifts can provoke not only large penalties from the IRS, but also a lot of undesirable publicity that even large multi-national corporations try to avoid.
Prof. Graetz states tnat the only way to settle these questions is for Romney to release at least three years more of his returns. My conclusion? Not only it is possible, but very probable that while Romney may have paid 'all the taxes legally due', that may not have been a 'substantial' amount. On the contrary, his aggressive tax planning seems to have save him a 'substantial' amount of taxes. Willard is stiffing America on the bill, and 'you people' have to make up the shortfall.