Relevant and even prescient commentary on news, politics and the economy.

Why I Think Romney Might Have Used the 2009 IRS Foreign-Bank-Account Amnesty Program

[A]n unusually high foreign tax credit in 2008 raises questions about the size and source of Mr. Romney’s foreign income that year and how it was treated for tax purposes. 
Tax Credits Shed Light on Romney,* James B. Stewart, New York Times, Aug, 24
I don’t follow finance-industry news very closely, and the only technical knowledge I have about U.S. tax law for foreign income is what I’ve read in the last few months concerning the foreign bank accounts that Romney’s 2010 income tax return shows he had in 2009.  Including his UBS account, which was opened in (if I recall correctly) 2003 and had $3 million in it at the end of 2009.  That account was managed by a trustee, a Boston lawyer and close friend of the Romney’s, who apparently closed the account in 2010; the account doesn’t appear in Romney’s 2011 tax-return estimate. 

So it is only because of the controversy surrounding Romney’s tax returns and offshore bank accounts that I even know about the 2009 IRS amnesty program for Americans who evaded U.S. income taxes by hiding income in foreign bank accounts, and that why the program was initiated: UBS, Switzerland’s largest bank had been forced to identify thousands of U.S. citizens who had accounts there, many of whom, the IRS presumed accurately, had used the bank to evade payment of U.S. taxes.  The large number of identified evaders would make it difficult to prosecute them all; thus the temporary amnesty program.

I’d wondered how this all had come about so suddenly, but hadn’t bothered to research it.  But I learned the answer today.  An American-born UBS banker named Bradley Birkenfeld decided in 2007 to try to cash in on a newly-enacted whistleblower statute that would garner him 30% of the taxes that the IRS recouped as a result of the information he provided.  He hoped also to trade his information for immunity from criminal prosecution.  Only the monetary goal succeeded.  He was released last month from prison after serving a more-than-three-year sentence. And he was just awarded $104 million under that whistleblower statute.

According to Wikipedia, Birkenfeld, who was among UBS employees whose job it was, beginning in 2001, to solicit American customers to use the bank to evade U.S. taxes, pled guilty in June 2008 to a single count of conspiracy to defraud the United States, but he was not sentenced until August 2009.  He spent the intervening 14 months earning the $104 million that he will now be paid, most of it the result of the amnesty program, which reportedly was verysuccessful.  “In February 2009, UBS paid $780 million to resolve a criminal tax avoidance investigation. It also admitted to assisting 17,000 clients evade their taxes through the use of offshore accounts between 2000 and 2007,” Wikipedia says.  “In July 2009, to avoid additional fines, UBS agreed to provide the names of 5,000 Americans who had offshore accounts with UBS.”

The New York Times article from which I quote above was published on the Saturday before the start of the Republican convention and best as I can tell received little attention.  So let me give it some.  All with the caveat that I probably don’t know what I’m talking about when I conclude that the information in the article seems to suggest, if I understand it correctly, that in 2008, when the U.S. and European economies were collapsing, Romney suddenly paid a seemingly inexplicable $800,000 in foreign income taxes, “far more than any other year,” as indicated in the 2010 tax returns.  Stewart writes that Romney “reported more than $800,000 in taxable refunds from 2009, which seems very high.” 

Stewart wondered how Romney’s blind trust could have earned such amounts in foreign countries and generated such large tax credits,” and so he consulted to experts,  Daniel Shaviro, professor of taxation at New York University School of Law, and James R. Hines Jr., a professor of international taxation at the University of Michigan Law School. “One possibility,” Stewart says, “is that the financial crisis and resulting bleak economic outlook caused Mr. Romney’s trustee to cash in long-held, appreciated foreign assets. Another possibility is that they resulted from some kind of more elaborate tax shelter, or some combination of the two.”  

Might one other possibility be that Romney suddenly paid several years’ back taxes to foreign governments in 2008 or 2009?  After all, although people like me were unaware of the Birkenfeld matter, people like Romney and like the trustee of the Swiss account of course were.  (Is Romney trying to protect the reputation of his friend, the trustee?)

The large foreign tax credit for 2009, Shaviro told Stewart, “has baffled tax experts.”  It “makes no sense to me at all’.” But, Shaviro said, the IRS has challenged many tax-shelter “deals intended to generate foreign tax credits.”  And Hines said, “Lots of people are speculating about the source of this tax credit, but at this point it’s just conjecture.”

Conjecture, yes.  And I’m not even an expert.  But conjecture about this sure is fun.

*Corrected link.

Individualism vs. Collectivism: Thanks For the Ammunition, Ann

Ann Romney said in an interview airing Wednesday that her husband has no plans to release additional tax returns, saying “it’ll just give them more ammunition” and insisting that “there’s nothing we’re hiding.”

“We have been very transparent to what’s legally required of us. But the more we release, the more we get attacked, the more we get questioned, the more we get pushed. And so we have done what’s legally required and there’s going to be no more, there’s going to be no more tax releases given,” she said in the interview by NBC News. “And there’s a reason for that, and that’s because of how, what happens as soon as we release anything.”

Romney is releasing two years of his tax returns. Democrats have said what’s he hiding and demanded he make public the last 10 years or more.

Ann Romney also defended Romney’s character and said the “only reason we don’t disclose more is we’ll just become a bigger target.”

“Mitt’s financial disclosures when he was governor are huge if people want to really look and see any question they have,” she said. “The other thing they have to understand is that Mitt is as honest — his integrity is just golden. We pay our taxes, we are absolutely — beyond paying our taxes we also give 10 percent of our income to charity.”

She also said that the couple has had a blind trust since 2002 before Romney was governor and that they don’t know what’s in it.

“There’s nothing we’re hiding,” she said, later adding: “I’ll be curious to see what’s in there too.”

            — Ann Romney: No more tax returns, Tomer Ovadia, Politico, today

An article published recently by James B. Stewart in the New York Times titled In Superrich, Clues to What Might Be in Romney’s Returns, overlooked because it was published on Saturday, the day on which Romney made his Ryan announcement, explains that 2008 and 2009 were banner tax-break years for a large number of very wealthy people whose main or entire source of income comes from stock dividends and the sale of securities. 

The occasion for the article was the IRS’s release last week of “data from the 400 individual income tax returns reporting the highest adjusted gross income, writes Stewart. “This elite ultrarich group,” he says, “earned on average $202 million in 2009, the latest year available.  And buried in the data is the startling disclosure that six of the 400 paid no federal income tax.”

Which suggestions the likelihood that the Romneys paid no, or almost no, income taxes for 2008 and 2009. 

It does not take a math genius or a tax expert to recognize this.  That’s good, because I am neither.  But I am good enough in math (if barely) to know that 2006, the last year of Romney’s term as governor, ended before 2008 began. 

And, thanks to the Romney tax-returns controversy, I know that in 2009 the Department of Justice entered into an agreement with UBS, Switzerland’s largest bank, and other Swiss banks, in which the banks agreed to disclose to the U.S. government the identities of American holders of Swiss bank accounts, and that approximately 34,000 Americans took advantage of an amnesty program that the IRS and Justice Department offered, by which voluntary payment of back taxes and interest and penalties would remove criminal liability and public disclosure. 

And I have followed the Romney tax story closely enough during the last few months to know that the Romneys’ 2010 tax returns revealed a bank account with UBS, apparently opened in 2003, was closed sometime during that year and had $3 million in it when it was closed.  And that, according to news reports, Romney did not disclose this account on his Massachusetts financial-disclosure forms—although, unless my math ability (such as it is) fails me, 2003 ended before early 2007, when Romney’s term as governor ended. 

And that, also according to news reports, the 2010 returns show that the Romneys have a shell corporation in the tax haven of Bermuda into which they apparently were funneling income from overseas Bain investments, and that one day before Romney was sworn in as governor, the corporation’s shares were transferred to Ann Romney, and the corporation was not disclosed on Romney’s Massachusetts financial-disclosure forms.

So, yes, Ann, you’re hiding something.  You’re hiding whatever it is that would give your opponent ammunition, whatever it is that would make your husband a bigger target.  And that ammunition is that, whether or not you and he failed to disclose that Swiss account and any other Swiss accounts you held that were closed before 2010 until a gun was held to your heads in 2009, you and he employed tax loopholes and special tax rates that your husband and (even more so) his running mate plan to expand so as to eliminate the very need for offshore tax shelters.  They plan to make this country an overt tax shelter for the wealthy and, especially, for the very wealthy—that is, for people like you and your husband. They have made that central to their policy plans, while desperately trying to deflect scrutiny of those proposals. 

Stewart writes in his article, “Tax experts I consulted said these results almost certainly reflected aggressive use of tax-loss carry-forwards from 2008, since the stock market bottomed in March 2009 and rallied strongly during the rest of the year.”  Expressly under Paul Ryan’s plan, there will be no income tax at all on capital gains and on dividends.  Every year will be 2008 and 2009 for the Romneys!  Except, of course, for the need for aggressive use of tax-loss carry-forwards, and the like; no more need for that sort of thing.

A lot of eyebrows were raised on Sunday when Ryan, sitting next to Romney in an interview, told Bob Schieffer that he wants to end the tax breaks that apply only to the wealthy.  That’s nice, but of no effect.  A seminal part of his tax-and-budget plan, passed this year by the House, is the elimination of all income taxes on capital gains and dividends.  And although this would mean that many very wealthy people will pay no income taxes or estate taxes, and many other very wealthy people would pay income taxes at a single-digit rate, the elimination of these taxes would apply as well to the non-wealthy who have a capital gain or receive stock dividends, however small.  And so—voila!—Ryan’s statement, made with such earnestness, does not apply to the issue of taxes on capital gains and dividends.  Nor, for that matter, to estate taxes, which his plan entirely eliminates; some non-wealthy people leave small estates, after all.  And semantics is the name of their game, the objective of which is the enabling of ever more vast accumulations of wealth, utterly unfettered by tax obligations.  Pure and simple.

My big fear about the all-Medicare-all-the-time campaign that began last weekend with Romney’s Ryan announcement is that it allows Romney and Ryan to claim the mantle of straight talkers about what they warn is a Medicare-caused fiscal calamity that awaits.  They have yet to explain why, if they fear such a calamity, they propose to reduce federal revenue by trillions of dollars, through their tax-elimination-on-the-wealthy plan.  And when they stress, as they do again and again, that their destroy-Medicare-in-order-to-save-it plan will not end the current program for its current or relatively-imminent recipients (those who are 55 or older), maybe they’ll deign to reveal what programs will be eliminated in order to pay for Medicare for current recipients and baby boomers andand—the trillions-of-dollars tax cuts for the wealthy.

My suggestion: Hurricane disaster relief for the southern Atlantic and Gulf Coast states, which will vote for this ticket en force, and crop insurance and drought disaster relief for the plains states, which will vote for them and their budget plan in almost as large percentages. 

In 2005, Ryan now-famously advised his audience when he addressed an Ayn Rand fan club that they should make no mistake: current politics is a clash between “individualism” and “collectivism.”  And indeed it is.

Now, let’s ensure that the public knows the specifics.