I think these private equity guys are pretty good at 'converting' income into capital gains....
"Today, the Wall Street Journal expands on Graetz’s observation, posting materials here from a 2008 legal continuing education presentation by that partner from Romney’s trustee’s law firm, Ropes & Gray. In his presentation, the partner noted that based on the income tax valuation of zero the IRS had allowed for carried interest, in the 1990s and early 2000s, some lawyers were advising clients they could give carried interest away and claim it had zero value for gift tax purposes too. (Since then, practitioners have decided, based on various cases and proposed rules, that they must give gifts of carried interests a value greater than zero.) The Romney campaign wouldn’t tell the Journal if Romney gifted any of his carried-interest rights to the family trust, although there are indications that might well be the case.
Oh, yeah. And then there are the 950 pages of Bain-related documents Gawker posted on the web on Thursday. No, there were no great revelations in those documents. But as The New York Times reports here, they seem to indicate that Bain partners converted $1 billion of straight management fees (which are not contingent on profit, and are taxable at 35%) into additional lower taxed carried interest. Victor Fleischer, a University of Colorado law prof who has written extensively (and critically) on the carried interest break, argues here that such conversion isn’t legal—although there’s no evidence the IRS has challenged it.
You get the idea: It’s the carried interest, stupid. Carried interest is one sweet tax break–a loophole created (like many others benefiting the richest) not by a conscious decision of Congress, but by a combination of smart and aggressive private lawyers and outgunned and gun-shy IRS officials. It is, in other words, a good example of what some folks think is wrong with the way our tax code currently operates. For tax reformers, Mitt Romney’s income and gift tax returns could provide a unique teachable moment.
Of course, there’s nothing stopping the politicians (even without seeing Romney’s returns) from closing the carried interest loophole —nothing, that is, other than fear of angering billionaire donors. Most famously, billionaire Stephen Schwarzman, co-founder and CEO of The Blackstone Group, compared President Obama’s and fellow Democrats’ attempts to tax carried interest at 35% to Hitler’s invasion of Poland. (He later apologized for that comment.)
So what’s Romney’s position on the taxation of carried interest? As Fortune notes here, during the last presidential campaign, Romney opposed ending the carried interest break. This time around, he has yet to say." |
