In the world of chess being too aggressive at the outset, advancing too far, is perilous. For Romney, his refusal to acknowledge his aggressive financial engineering and tax avoidance strategies could indeed result in an open convention. One in which the party is free to forward a higher quality candidate.
Here is a list of the facts surrounding the Reid Romney dispute:
1) On July 20, 2012 I published a blog post noting for the first time that Mitt Romney has not filed the required 990-T form and paid the related UBIT tax with his 2010 tax return, nor has he made this required filing in prior years. This filing is essential for tax exempt accounts, including IRAs, if they contain related business interests, what I call leveraged transactions in Romney’s case since Bain is an LBO firm.
Remarkably, these 990-T filings are all publicly available by law. One need only write to the IRS, specify the taxpayer, and within 30 days you will receive a reply if these 990-T filings have been made. My request regarding Romney applied from 1992-2011, 19 years, and the IRS confirmed none had been filed.
2) On July 31, 2012 Harry Reid made a claim to the Huffington Post that Romney paid no taxes for more than 10 years. While Romney may claim that he paid “lots of taxes,” Reid is technically correct in that he has failed to pay taxes on the largest share of his wealth, what is believed to be an IRA worth as much as $100 million, for more than 10 years.
3) Romney’s only defense is to claim that all his Bain related IRA investments were through foreign blocker corporations, thereby using a loophole that eliminates the need to file the 990-T and pay the required UBIT tax. Disclosing this of course proves Reid’s claim regarding him paying no taxes, even though he may have used a technically legal scheme. It is unlikely the public will care that Romney paid other taxes when he has avoided significant required taxes on Bain deals in his largest asset, the IRA.
4) Worse for Romney would be what is noted in the July 20, 2012 blog post, that being that many of his investments, in particular those in BCIP Trust Associates I and II, were via a Delaware Partnership, not availing him of the foreign blocker exemption. SEC documents clearly indicate this is the case. The most recent personal financial disclosure shows BCIP Trust Associates III in his IRA, a foreign blocker, yet previous filings show domestic partnerships.
Even more troubling for Romney would be any transfer of Bain interests from the Delaware based partnerships, non valid blockers, since domestic partnerships are fully subject to UBIT, to foreign blocker corporations such as BCIP Trust Associates III, after the initial investment, that is re-characterizing the fundamental nature of the partnership.
5) Prior to 2008 Bain Capital utilized a scheme involving SEP IRAs that allowed employees, including Romney, to invest in Bain deals. My best guess is that Reid’s office asked someone at Bain to look at the July 20 blog post and they confirmed that while at Bain they also filed no 990-Ts. What this means, since the SEP is a company sponsored plan, is that no one likely made the required filing, including Romney. This simply confirms my original analysis.
Reid therefore stands on sound footing with his claim and the Romney campaign is foolishly self destructing by not coming clean and clarifying the issue.
Romney should step up, say they have a problem and commit to fixing it, but this of course would cost his fellow associates at Bain a bundle in back taxes.
Observing this conflict between Reid and Romney, Paul Volcker comes to mind. In particular Volcker’s assertion that engineering belongs in product development, not finance.