NEW YORK — Days after Mother Jones magazine released a video that shows Mitt Romney in 1985 characterizing Bain Capital LLC as a partnership created to invest in companies and “harvest them at a significant profit,” a review of financial documents indicates that some offshore holdings may have reduced Mr. Romney’s personal income tax bills.
Mr. Romney, responding to opponents’ criticisms about his use of overseas tax havens, has said the investments have yielded him “not one dollar of reduction in taxes.”
A review of thousands of pages of financial documents and interviews with tax lawyers found that in some cases, the offshore arrangements enabled his individual retirement account to avoid taxes and may have reduced Mr. Romney’s personal income tax bills.
But perhaps a more significant impact of the presidential candidate’s offshore investments has been on the profit side of the ledger — in the way Bain’s tax-avoidance strategies have enhanced his income.
Some of the offshore entities enabled Bain-owned companies to sidestep certain taxes, increasing returns for Mr. Romney and other investors.
Others helped Bain attract money from foreign investors and nonprofit institutions by insulating them from taxes, again augmenting Mr. Romney’s bottom line, since he shared in management fees based on the size of each Bain fund.
The documents — which include confidential Bain prospectuses and foreign regulatory filings, many previously unreported — illustrate how these elaborate tax-avoidance strategies are woven into the fabric of Bain’s deal making.
While hardly a novel concept and not unique to Bain, the inevitable result is that elite investors like Mr. Romney are able to increase their fortunes in ways unavailable to most taxpayers.
“Private-equity fund managers have a responsibility to their investors to maximize their investors’ returns, and part of that responsibility involves minimizing taxes,” said David Miller, a tax partner at Cadwalader, Wickersham & Taft LLP, whose clients include high-net-worth individuals and private equity funds.
Many of the details of the Romneys’ wealth — estimated at about $250 million — remain hidden, partly because Mr. Romney has released only the last two years of his tax returns.
Those returns show an effective tax rate of about 14 percent, because most of the earnings came from investments and are taxed at the much lower rate of 15 percent.
“Governor and Mrs. Romney have scrupulously followed the tax laws and have paid 100 percent of what they owed,” the Romney campaign said.
Mr. Romney ran Bain for 15 years before leaving to manage the 2002 Salt Lake City Olympics. But he has continued to share in the profits of subsequent Bain funds, thanks to the terms of his retirement agreement.
The sophisticated tax strategies of Bain and other private equity firms begin with the basic architecture of their funds. Though headquartered in Boston, Bain and its credit affiliate, Sankaty Advisors, have set up at least 137 entities in the Caymans, using local lawyers and others who provide an islands address for paperwork purposes.
Contrary to veiled assertions by some of Mr. Romney’s Democratic foes, hiding personal assets from the Internal Revenue Service is probably not part of their rationale.
Some might still assail the arrangements as “tax dodges.” Others, however, would say they are simply efforts to make Bain’s funds more “tax efficient.”
“You can call these loopholes,” Mr. Miller said. “But they’re really just inadvertent consequences of an extremely complicated system.”
Bain released a statement addressing the investments and their complexity. “Like virtually all global asset managers, we use widely accepted, fully legal, and recognized structures so that investors may receive predictable tax treatment on investment gains for their constituents,” the Bain statement said.
Meanwhile, Mother Jones, the magazine that published a secretly made tape of Mitt Romney’s May remarks to donors, released the 1985 video last week.
Mother Jones said the video was on a 1998 CD-ROM marking the 25th anniversary of Bain & Co., the consulting firm that Mr. Romney left to co-found Bain Capital.
In the video, the Republican nominee characterized Bain Capital LLC as a partnership created to invest in companies, help manage them, and “harvest them at a significant profit.”
Ryan Williams, a Romney campaign spokesman, said in an emailed response that Mr. Romney’s work at Bain resulted in job creation.
“In addition to starting new businesses, Mitt Romney helped build Bain Capital by turning around broken companies, creating and saving thousands of jobs,” Mr. Williams said. “The problem today is that President Obama hasn’t been able to turn around our economy in the same way.”
Guidelines: Please keep your comments smart and civil. Don't attack other readers personally, and keep your language decent. Comments that violate these standards, or our privacy statement or visitor's agreement, are subject to being removed and commenters are subject to being banned. To post comments, you must be a registered user on toledoblade.com. To find out more, please visit the FAQ.