In a post yesterday, this blog discussed some of the obvious issues that might be clarified by seeing multiple past years of presidential candidate Mitt Romney's tax returns. See What's Romney Got to Hide? (July 17, 2012). This post explores some of the other questions, somewhat more complex and more difficult for ordinary taxpayers to understand, that are raised by what we know so far about Mitt Romney's wealth, the way he holds it, and the lack of tax returns for critical past years. [Hat Tip to Ken Thomas, is the noose closing around Romney's tax returns, Middle Class Political Economist blog (July 17, 2012) for further drawing my attention to these discussions, which I am sure their authors did not entertain lightly.]
Dan Shaviro, a tax prof colleague who posts on his "Start Making Sense" blog and often contributes to discussions among tax professors, makes three important points that are worth considering if one is asking whether there is any obligation on Romney's part to make more of his returns available for voters to draw their own conclusions about his wealth and related tax issues. See Why won't Romney release his tax returns?, Start Making Sense (July 16, 2012). Shaviro notes the importance of seeing the 2009 returns: 2009 was the last year of certain Bain "retroactive retirement" payments (possibly quite high) and 2010 shows a "net capital loss carryforward from 2009 AFTER zeroing out positive capital gains including his Bain carried interest amount in 2009. To Shaviro, that raises the concern that Romney might have engaged in an aggressive tax shelter to produce useful losses that allowed him to zero out his significant capital gain income.
We know from attachments to the 2010 return that some of his "blind trusts" were engaged in transactions identified by the IRS in Notice 2002-35, which pertains to fake loss-generating scams that involved abusing and misinterpreting the notional principal contract regulations. So far as the blind trust aspect of that is concerned, note that Romney himself once called blind trusts an "age-old ruse." But I am unclear about how much to make of the 2010 disclosure, given that it would have undermined expecting to get the tax benefits if the deals at issue were complete scams. So it has struck me as conceivable that the blind trusts did something in the ballpark of required 2002-35 disclosure but less extreme and more legally defensible.
Still, willingness to do extremely aggressive tax sheltering (such as through loss generation from circular flows of cash) in 2009 would not come as a huge surprise, even though it seems like a dumb idea if you are preparing to run for president again. I wonder if the very fact that he was running for president might have led him to figure that he was audit-proof, on the ground that the IRS would look too political if it started challenging things. Id.
Another issue that makes the 2007-8-9 returns and disclosure forms particularly interesting for someone like Romney with millions of financial assets and known offshore bank accounts is the Foreign Bank Account Report (FBAR) disclosure required for Americans who hold assets abroad and the IRS crackdown on noncompliance by thousands of wealthy Americans. The UBS disclosures,and the initial breach in the rigid wall of Swiss banking secrecy, have permitted the IRS to find out about many Americans who had, prior to 2007, been able to avoid taxes on offshore funds with impunity. The FBAR enforcement initiative has led to a program that pushes people to seek amnesty under the various "voluntary disclosure" (with penalties) programs the IRS has put forth--the choice is to seek amnesty and pay the taxes and penalty now, or face the potential of criminal charges (and significantly worse penalties) later. Is it possible, Matt Yglesias asks, that Romney took advantage of the amnesty program to clean up past failures to disclose, and wants to avoid the political fallout that revealing that would cause? See Matt Yglesias, Did Mitt Romney Take the 2009 Swiss Bank Account Amnesty?, Slate (July 17, 2012).
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