Skip to main content

I’m a bit surprised that THIS story, on page A14 of today’s NY Times, hasn’t received any much coverage in the community, yet. (See my note at the bottom of this post for an update on this.) Then again, it’s an article with analysis and in-depth links in follow-up to yesterday’s scoop, which included that website's release of confidential Bain tax documents comprised of: "...more than 950 pages of [Bain Capital] internal audits, financial statements, and private investor letters."

Today’s NYT piece provides us with a deeper dive about complex U.S. offshore tax law(s), and how those laws apply to the Romney family’s primary investments in Bain Capital. Specifically, the Times report tells us that these questionable an/or illegal tax strategies directly apply to “large parts of his [Mitt Romney’s] personal fortune.”

The story includes quite unminced commentary from tax law professors--Victor Fleischer at the University of Colorado and Gregg D. Polsky at the University of North Carolina School of Law--who indicate that Bain Capital’s “aggressive” tax strategies are illegal and/or “subject to serious I.R.S. challenge,” respectively.

Getting slightly granular here, and just so we’re clear, we’re talking about “questionable” or illegal strategies (depending upon whose opinions you follow) with regard to the “reclassification” of more than $1 billion in payments to Bain Capital partners.

So here are the links and excerpts from the NYT and from the experts, themselves, telling us in plain English that, when it comes to the one percent’s tax avoidance (legal) and/or evasion (illegal) strategies, “This is how they do it.”

Documents Show Details on Romney Family Trusts
New York Times
August 24, 2012

…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…”

…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…”

The article continues on to inform us that the just-released documents: “…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 intent here, according to the article: “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.’”

Bain Capital, a group of artful dodgers, indeed.

For more detail on this, checkout University of Colorado tax law professor Victor Fleischer’s blog post, from yesterday: “Romney’s Management Fee Conversions.”

#            #            #

There are a handful of Kossacks that specialize in offshore tax regulations and related, legal (theoretically, anyhow) avoidance of U.S. taxation, in general. One prominent blogger on the economy—someone who occasionally posts in this community, too—in fact, specializes in this field. I hope that he, or others with similar professional knowledge, will make an effort to educate our community about this topic in coming days.

NOTE: Just before I posted this, I saw that Kossack txdem has also published a piece on this story in the past 30 minutes. The link to it is available right HERE.

UPDATE: h/t to Kossack VClib in the comments, below, who points us to Kossack mckennamiller's brief post from early last night.

Originally posted to on Fri Aug 24, 2012 at 07:49 AM PDT.

Also republished by The Bain Files.

Your Email has been sent.
You must add at least one tag to this diary before publishing it.

Add keywords that describe this diary. Separate multiple keywords with commas.
Tagging tips - Search For Tags - Browse For Tags


More Tagging tips:

A tag is a way to search for this diary. If someone is searching for "Barack Obama," is this a diary they'd be trying to find?

Use a person's full name, without any title. Senator Obama may become President Obama, and Michelle Obama might run for office.

If your diary covers an election or elected official, use election tags, which are generally the state abbreviation followed by the office. CA-01 is the first district House seat. CA-Sen covers both senate races. NY-GOV covers the New York governor's race.

Tags do not compound: that is, "education reform" is a completely different tag from "education". A tag like "reform" alone is probably not meaningful.

Consider if one or more of these tags fits your diary: Civil Rights, Community, Congress, Culture, Economy, Education, Elections, Energy, Environment, Health Care, International, Labor, Law, Media, Meta, National Security, Science, Transportation, or White House. If your diary is specific to a state, consider adding the state (California, Texas, etc). Keep in mind, though, that there are many wonderful and important diaries that don't fit in any of these tags. Don't worry if yours doesn't.

You can add a private note to this diary when hotlisting it:
Are you sure you want to remove this diary from your hotlist?
Are you sure you want to remove your recommendation? You can only recommend a diary once, so you will not be able to re-recommend it afterwards.
Rescue this diary, and add a note:
Are you sure you want to remove this diary from Rescue?
Choose where to republish this diary. The diary will be added to the queue for that group. Publish it from the queue to make it appear.

You must be a member of a group to use this feature.

Add a quick update to your diary without changing the diary itself:
Are you sure you want to remove this diary?
(The diary will be removed from the site and returned to your drafts for further editing.)
(The diary will be removed.)
Are you sure you want to save these changes to the published diary?

Comment Preferences

Meteor Blades, RichM, bink, GainesT1958, Alumbrados, Ed in Montana, Angie in WA State, Sylv, Alma, KeithH, TXdem, dwellscho, Chi, True North, MadRuth, murphy, teacherken, glitterscale, tiggers thotful spot, MarkC, NYmom, GDoyle, mimi, emal, PeterHug, BooMan23, Shockwave, Eman, jazzizbest, Sherri in TX, Wintermute, SanJoseLady, hyperstation, lysias, celdd, Mnemosyne, swamp possum, SallyCat, bethcf4p, exNYinTX, vrexford, expatjourno, hubcap, Creosote, madhaus, JLFinch, Paulie200, Christian Dem in NC, concernedamerican, PeteB2, Babsnc, cyberKosFan, mik, SamSinister, mbayrob, whenwego, ScantronPresident, djMikulec, CoolOnion, snoopydog, Xapulin, CalvinV, themank, mkfarkus, barath, chimpy, roses, taonow, denig, Nate Roberts, semiot, griz4u, Siusaidh, artebella, fluffy, revsue, Quege, psnyder, annan, TexDem, duncanidaho, agincour, laughingriver, lizah, brenda stewart, chickeee, lcrp, 313to212, Dood Abides, dkmich, Diana in NoVa, Matt Esler, KateCrashes, zerelda, Sembtex, KayCeSF, tomjones, JayDean, Wife of Bath, Deward Hastings, eztempo, sawgrass727, Gowrie Gal, davidkc, rapala, ExStr8, maybeeso in michigan, Bluesee, 3goldens, DianeNYS, Jeffersonian Democrat, Unit Zero, caul, LarisaW, stlawrence, run around, kitchen sink think tank, basquebob, ChemBob, Brooke In Seattle, Laurence Lewis, Gary Norton, fixxit, Beetwasher, SaraBeth, uato carabau, GreyHawk, Fury, Overseas, Ozymandius, davidslane, Sandino, kaliope, Isara, deep, Tool, LieparDestin, SBandini, spunhard, Savvy813, WisePiper, Shotput8, Ginny in CO, Rusty in PA, FindingMyVoice, bookwoman, murasaki, Alan Arizona, Oye Sancho, jay23, Jim R, splashoil, Jim P, reddbierd, Mother Mags, martini, Shirl In Idaho, hlee1169, althea in il, Patriot Daily News Clearinghouse, myboo, vigilant meerkat, cybersaur, Mr Bojangles, Clytemnestra, BlueInARedState, tonyahky, Gorette, Yellow Canary, koNko, Son of a Cat, fou, kck, blueoasis, SherriG, triv33, praenomen, global citizen, StrayCat, gooderservice, Libby Shaw, JVolvo, joe shikspack, Sagebrush Bob, plf515, ER Doc, middleagedhousewife, Turbonerd, democracy is coming, doingbusinessas, Clive all hat no horse Rodeo, BB10, means are the ends, blueoregon, kurt, nannyboz, shaharazade, Statusquomustgo, Bernie68, mapman, cpresley, krwheaton, DBunn, ammasdarling, pgm 01, Cronesense, Habitat Vic, Loudoun County Dem, oklacoma dem, Dartagnan, gloriana, FishOutofWater, LillithMc, david mizner, operculum, terabytes, deepeco, suejazz, sfbob, aliasalias, davehouck, bnasley, HCKAD, jayden, rivamer, jedennis, mudslide, SeaTurtle, jnhobbs, jhop7, Wreck Smurfy, GeorgeXVIII, madgranny, janatallow, ThePlainThinker, Don midwest, TomP, Empower Ink, MKinTN, gundyj, Argyrios, wayoutinthestix, Senor Unoball, bill warnick, Involuntary Exile, bythesea, elwior, Laughing Vergil, Akonitum, Its any one guess, Calamity Jean, rssrai, tofumagoo, pamelabrown, Cassandra Waites, RandomNonviolence, smartdemmg, bluesheep, Jeff Y, alnep, mofembot, Gemina13, luckylizard, CeeusBeeus, My Spin, BYw, lissablack, statsone, GustavMahler, RWN, maxcat06, LaFeminista, prettygirlxoxoxo, Bule Betawi, Rhysling, greengemini, lostinamerica, bobatkinson, Nebraskablue, dark daze, tari, janmtairy, earicicle, BlueInRedCincy, shopkeeper, DefendOurConstitution, elziax, marzook, Mylies Voice, igwealth5tm, Keith Pickering, stevenwag, GWinkler, jan0080, Livvy5, Larsstephens, ruscle, Clyde the Cat, BlueOak, Just Bob, commonmass, parse this, brentbent, coppercelt, confitesprit, OrangeMike, KroneckerD, roadbear, The Jester, NJpeach, breathe67, Susan Grigsby, blueyescryinintherain, fidellio, eb23, Crabby Abbey, NM Ray, womankind, Eddie L, gulfgal98, ItsSimpleSimon, laserhaas, Jaimas, Publius2008, rja, Betty Pinson, skillet, ericlewis0, Floande, Loose Fur, cocinero, DirkFunk, soaglow, Actbriniel, slice, Wisdumb, Mac in Maine, no way lack of brain, Onomastic, yellow cosmic seed, kerflooey, mama jo, robcat2075, ozsea1, coquiero, Oldowan, spooks51, vahana, Olympia, OhioNatureMom, Nicci August, California06, Teiresias70, CoExistNow, Haf2Read, marleycat, Cinnamon Rollover, thomask, Wolf10, BarackStarObama, Yogurt721, CherryTheTart, Grandma Susie, bluedust, Wood Dragon, MA Mom, old mark, Vatexia, stlsophos, MikeBoyScout, DRo, DEMonrat ankle biter, ParkRanger, Davui, drawingporno, too young to give up, No one gets out alive, Only Needs a Beat, jacey, Liberal Granny, Williston Barrett, Chrislove, Siri, IndieGuy, ahumbleopinion, S F Hippie, Trotskyrepublican, JGibson, sgnola, peachcreek, hotheadCA, MartyM, Buckeye54, wxorknot, james321, jennyp, Victim of Circumstance, Kinak, Marjmar, fauve, tripodisblack, CalBearMom, countwebb, SanFernandoValleyMom, Southcoast Luna, BornDuringWWII, Jeff Murdoch, howabout, Icicle68, Laura Wnderer, ET3117, pragmaticidealist, SC Lib

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site