TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, July 18, 2012

Kleinbard & Canellos: Why Won't Romney Release More Tax Returns?


CNN op-ed:  Why Won't Romney Release More Tax Returns?, by Edward D. Kleinbard & Peter C. Canellos (Wachtell, Lipton, Rosen & Katz, New York):

Romney's 2010 tax return, when combined with his FEC disclosure, reveals red flags that raise serious tax compliance questions with respect to his possible tax minimization strategies in earlier years. The release in October of his 2011 return will at best act as a distraction from these questions.

So, what are the issues?

The first is Romney's Swiss bank account. Most presidential candidates don't think it appropriate to bet that the U.S. dollar will lose value by speculating in Swiss Francs. ... The Swiss bank account raises tax compliance questions, too. ... The IRS announced in 2009 a partial tax amnesty for unreported foreign bank accounts, in light of the Justice Department's criminal investigations involving several Swiss banks. To date, some 34,500 Americans have taken advantage of such amnesty programs. Did the Romneys avail themselves of any of these amnesty programs? ...

Second, Romney's $100 million IRA is remarkable in its size. Even under the most generous assumptions, Romney would have been restricted to annual contributions of $30,000 while he worked at Bain. How does this grow to $100 million? One possibility is that ... Romney stuffed far more into his retirement plans each year than the maximum allowed by law by claiming that the stock of the Bain company deals that the retirement plan acquired had only a nominal value. ...

Third, the vast amounts in Romney's family trusts raise a parallel question: Did Romney report and pay gift tax on the funding of these trusts or did he claim similarly unreasonable valuations, which likewise would have exposed him to serious penalties if all the facts were known?

Fourth, the complexity of Romney's one publicly released tax return, with all its foreign accounts, trusts, corporations and partnerships, leaves even experts (including us) scratching their heads. Disclosure of multiple years' tax returns is part of the answer here, but in this case it isn't sufficient. Romney's financial affairs are so arcane, so opaque and so tied up in his continuing income from Bain Capital that more is needed, including an explanation of the $100 million IRA.

Finally, there's the puzzle of the Romneys' extraordinarily low effective tax rate. For 2010, the Romneys enjoyed a federal tax rate of only 13.9% on their adjusted gross income of roughly $22 million, which gave them a lower federal tax burden (including payroll, income and excise taxes) than the average American wage-earning family in the $40,000 to $50,000 range. The principal reason for this munificently low tax rate is that much of Romney's income, even today, comes from "carried interest," which is just the jargon used by the private equity industry for compensation received for managing other people's money. ...

For a nominee to America's highest office, a clear and transparent reporting of his finances should be nothing more than routine.

(Hat Tip: Josh Blank, David Miller.)

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Nice hit piece posing as objective analysis. The people who wrote it should know better. They are certainly aware that anyone with Mitt Romney's wealth typically has a very complex tax situation, with many planning opportunities and gray areas. This is a far cry from the average Joe's 1040-EZ.

It is certainly rich, coming from them, to complain that the complexities of Romney's return cause them to "scratch their heads." Mr. Canellos' own web bio boasts of his position as head of his firm's tax department and his ability to handle "large and complex transactions." Yet he argues that the mere existence of complexity is somehow evidence of wrongdoing.

The authors fail to point to any proof that Romney has reported his income incorrectly. But they seem to be saying that Mitt Romney is to be presumed guilty of tax cheating unless he opens up his entire lifetime financials to the press. Examining gifts to the children's trusts and contributions to the IRAs, as they suggest, could go back many years. Presumably the authors wouldn't be satisfied that Romney has refuted their entirely speculative charges until they have a chance to examine all appraisals the Romneys may have done relating to those gifts.

Is there anyone who believes Mssrs. Kleinbard and Canellos would be content even if Romney turned over everything he has?

Posted by: tax guy | Jul 18, 2012 1:04:33 PM

Another biased hit job.

1. Speculation is just a blatant pejorative for investment, and wealthy people routinely diversify their holdings via resort to multiple currencies. Since they know this kind of sneaky nonsense works, why don't Ed and Pete just call Romney a thesbian to boot.

2. While resort to amnesty is a legitimate issue, there is not a shred of evidence of it and it is simply a nasty cheap shot to raise it.

3. The rather remarkable appreciation of Romney's IRA is in keeping with Romney's employment and investment history -- it is pretty much what a knowledgable observer would have expected under his circumstances.

4. See 2.

5. Ed and Pete explain why Romney's effective rate is so low in the same breadth as they describe it as a puzzle. Seriously, did they think no one would notice? Yes, carried interest is bad tax policy, but that is not Romney's fault. Was he supposed to report this type of compensation incorrectly just to appease a couple of DNC supporters for Obama?

Wachtell is a fine firm with smart lawyers. They should be embarrassed.

Posted by: Mike Petrik | Jul 18, 2012 3:04:31 PM

"Most presidential candidates don't think it appropriate to bet that the U.S. dollar will lose value by speculating in Swiss Francs."

What a bizarre allegation. Those who undertake foreign investments are now hoping their home country will fail?

Posted by: andy | Jul 18, 2012 6:26:25 PM

Man, I've never seen everyone jumping on the bandwagon to demand old tax returns from a candidate as a deflection from asking for accountability from the current president responsible for running our nation and our economy in the ground.

Don't forget "The Village Voice," which is as legitmate a source for this demand as CNN. -- Why Won't Mitt Romney Release His Pre-2010 Tax Returns?

Posted by: Woody | Jul 18, 2012 9:23:00 PM

Worth Viewing: Krauthammer on Romney's Tax Returns

What the national discussion should be: The Real Story of the Obama Economy

But, we're more likely to be forced to hear the drumbeat from "the usual authoritative sources:" Mother Jones - Do Swing Voters Care About Mitt Romney's Tax Returns?

Posted by: Woody | Jul 18, 2012 9:53:13 PM

The piece over-reaches and smacks of politics. You can always tell when a piece is written by lawyers instead of CPAs. The loaded opinions overshadow the quality of any technical points.

Posted by: This article discredits both authors | Jul 19, 2012 5:43:54 AM

Tell you what. Why not insist that Obama release his college transcripts? He is supposedly the Smartest Man in the World. Just let him prove it.

Posted by: Darth Chocolate | Jul 19, 2012 6:48:05 AM

"Most presidential candidates don't think it appropriate to bet that the U.S. dollar will lose value by speculating in Swiss Francs."

Smart move on his part. Just look at the USD-CHF exchange rate on 01/20/2009 and compare it to today. The return so far has been better than investing on Wall Street with very little risk. A man that knows how to invest his money wisely is a man who would how to manage our collective national economy wisely.

Part of Romney's disclosure problem for 2011 is the pending foreign K1 documents. Most foreign counties tax years run from June to June. As for the $100 million in his IRA, nothing mysterious about it. He probably had the money in a defined benefits retirement plan that got rolled over into an IRA as part of his estate planning for his heirs. Again if that is the case, the man knows what he is doing. As for carry interest,what would the democrat fat cats on Wall Street do without it? Speaking of amnesty, did Obama seek amnesty for the 2008 campaign finance law violation of using unverified on purpose credit card charges?

Posted by: cubanbob | Jul 19, 2012 7:55:33 AM

This is an excellent article bringing up questions of his tax positions...if they are legit and no one is saying they aren't why not reply...especially the IRA...there is no question he was very agressive on the valuation assets put in the IRA...explain it if it is legit....why are all these comments afraid of the truth to prove he is doing it correctly? I don't get it. If you are a politician you got to expect this...let's hear from his tax attorney....this would put it to strategies can be legal but can smell if you are going to run on mother and apple pie.....if it smells...let give it some air.

Posted by: Sid | Jul 19, 2012 8:15:51 AM

Along with Obama's college transcripts, why not insist that Eric Holder release all of the Fast and Furious documents that have been subpoenaed by Congress?

Posted by: Bob | Jul 19, 2012 8:18:55 AM

Politico is pretty quiet on bad unemployment numbers, but, "DID ROMNEY PAY TAXES?!!" (Let's not miss an opportunity to bring this up over-and-over.)

Obama ad on Romney: 'Makes you wonder if some years he paid any taxes' (Updated)

“Tax havens, offshore accounts, carried interest: Mitt Romney has used every trick in the book. Romney admits that over the last two years, he’s paid less than 15 percent in taxes on $43 million in income. Makes you wonder if some years he paid any taxes at all,” the ad says. “We don’t know because Romney has released just one full year of his tax returns and won’t release anything before 2010.”

The people who push this kind of sleaze don't want anyone to ask questions about the last 3 1/2 years of economic disaster and federal waste. So, why does this blog continue to push it?

Meanwhile, I'm "clinging to my guns and religion." -- Why gun lovers still fear President Obama

[President Obama's] barely said a word about guns during his presidency.

No kidding. Obama has refused to say anything about the guns of "Fast and Furious" and has invoked executive privilege on it, which "makes you wonder," "Is Obama smuggling guns to Mexican drug cartels and getting political contributions from them? No one knows," because he's engaged in a coverup.

[Even] Jon Stewart Slams Obama Executive Privilege, Fast & Furious, and Eric Holder

Posted by: Woody | Jul 19, 2012 8:29:51 AM

Sid, if Romney released his 2009 tax return, then the Democrats would say that he's hiding something in 2008, and so on. To them, there's no end to the accusations and mudslinging and demands for more records. Using your logic, police should arrest everyone who refuses to allow a search without a warrant, because they must be hiding something.

Posted by: Woody | Jul 19, 2012 9:39:48 AM