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Friday, August 24, 2012

Confidential Bain Financial Documents Released on Romney Family Trust Investments

New York Times, Documents Show Details on Romney Family Trusts:

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.

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....

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 Midicare 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 IRS.”

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Comments

The only interesting question raised by this article is the identity of the person who provided these documents to Gawker.

Posted by: Connecticut Lawyer | Aug 24, 2012 4:37:57 PM