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Monday, December 09, 2019 {{ new Date().getDay() }}


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What advice do tax lawyers give private equity managers about saving on taxes as they build wealth?

We may get a first glimpse at the answer on Tuesday when, bowing to public pressure, Mitt Romney promises to release his 2010 tax return and a tax estimate for 2011. (See the returns here.)

To get a full picture of Romney’s taxes while he made his multimillion-dollar fortune, we would need to see returns going back to 1984-1999, which is when he ran Bain Capital Management. So far, the Republican presidential candidate has not committed to release those returns.

There’s no suggestion that the former Massachusetts governor did anything illegal. However, Congress allows managers of investment partnerships like the one Romney ran to enjoy tax-saving strategies not available to other taxpayers.

So I asked 10 lawyers in seven states how they might advise a new client who is launching an investment partnership – someone like Romney. While we do not know just what Romney’s lawyers advised, the 10 lawyers laid out nearly identical scenarios.


(1) DEFER TAX: Congress requires that most workers have income taxes withheld from their pay, but it lets investment partnership managers like Romney earn compensation now and pay taxes later, decades later. It’s called “carried interest.” Paying a tax in the future reduces its cost. Deferring a tax for three decades is the same as not paying it, the lawyers said, because the value from investing the money is far greater than the tax eventually paid. Some of the lawyers said the ability to defer will surprise people who are used to having taxes withheld before they get paid. Mitchell Gans, who teaches tax law at Hofstra Law School in Long Island, N.Y., said it takes only a minute to make clients comfortable with the idea “because it goes with the psychological phenomena that we would all rather pay later than sooner.”

(2) MINIMIZE SALARY: Take only enough salary to live comfortably, the lawyers said, and instead take as much compensation as possible in tax-deferred carried interest. The carried interest will mostly be taxed at the capital gains rate of 15 percent. By contrast, top wage earners pay tax on their highest income of 35 percent and they pay it immediately.

(3) MAXIMIZE THE VALUE OF FAMILY GIFTS: With careful planning many millions of dollars can be given to children while paying little gift tax. Make gifts in years when appraisals show the value of the carried interest is reduced because the investment is not doing well. All 10 lawyers said thorough appraisals are essential to avoid fights with the IRS over valuation, which could result in higher gift taxes and a court fight that would end up in the public record, revealing business details that would make investors shy away from the manager in the future. Romney set up what his campaign said was a trust fund now worth $100 million for his sons, but has not indicated that he will release the gift tax returns, which would show if he discounted the value of assets put into the trust and what gift taxes, if any, he paid.

(4) OBEY THE RULES: Making sure every one of the many technical tax rules is followed at all times reduces the risk that an audit dispute with the IRS or state tax authorities will spill into the public record and cause the loss of tax benefits.

(5) START A SELF-DIRECTED RETIREMENT ACCOUNT: With a self-directed account the fund manager can invest in his own deals. Some of the lawyers noted that retirement funds, including those rolled over into Individual Retirement Accounts after leaving a job, can be shielded from creditors, a valuable strategy if things go awry in the distant future. This makes retirement accounts partial substitutes for asset protection trusts, but without the stigma of asset protection trusts, which some people consider a way to evade obligations to creditors. Large retirement accounts carry no such untoward connotation, the lawyers said. However, they did caution that any asset protection offered by retirement funds comes with an increased tax. That is because any gains are taxed at the same rate as wages, 35 percent for someone like Romney, instead of the 15 percent capital gains rate. Romney’s disclosures show that he holds about a 10th of his fortune – an overall fortune estimated by the campaign at $190 million to $250 million – in retirement accounts with some of the money legally invested in the Cayman Islands and other offshore funds.


I asked the lawyers if their advice would differ for clients whose background suggested they might run for public office someday. They split on this.

Some said that their advice would be the same. Others, noting the attacks on Romney by Republican rivals over his offshore accounts or the blistering comments at many websites by individuals, said they might raise the issue of how voters would react to offshore investments, which are legal but not widely understood by Americans who are misled to believe by movies and films that they must be improper.

Triumph, the Insult Comic Dog

What makes Trump supporters so loyal to a president who is wrecking the country and the world is one of the great mysteries of our time. And the latest political scientist to ponder this problem is Triumph, the Insult Comic Dog, whose obscene, cigar-chomping wisecracks you may recall from his many appearances on Saturday Night Live.

Now working as a "correspondent" for Stephen Colbert's Late Show, Triumph recently convened a focus group of real live Trump supporters to discuss current issues, such as the dismantling of Confederate statues and unemployment. The group watched some fictional Trump-Pence campaign ads to gauge their reaction to potentially extreme proposals by their idol.

Even Triumph, who always presumes human stupidity, was exasperated by their answers.

It's uproariously funny, the way only a gang of mindless Trumpists can be.