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View Diary: How Romney Paid ZERO U.S. Federal Income Taxes. Could it really be this simple? (149 comments)

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  •  It's not that easy to have passive income (8+ / 0-)

    Another comment made me wonder about whether royalties on Obama's books would be considered passive income (though I'm pretty sure those would all be channeled through his publisher and not paid directly from overseas sources to him).  I ended up on the IRS site reading about passive income, which is actually quite narrowly defined:

    Passive income can only be generated by a passive activity.  Just because the taxpayer did not work for the income does not mean it is passive.  There are only two sources for passive income:

    a rental activity; or,
    a business in which the taxpayer does not materially participate.
    Gain on a partial or entire disposition of a passive activity generally is passive income.  See Chapter 5 for a detailed discussion of passive income issues on  disposition.

    While the following may seem passive, generally none are passive income:

    Portfolio income, including interest, dividends, royalties, annuities and gains on stocks and bonds; [1]
    Lottery winnings;[2]
    Salaries, wages, Form 1099-Misc. commissions and retirement income;[3]
    Guaranteed payments for services; and,[4]
    Income from any activity in which the taxpayer materially participates.[5]
    Even if generated by a passive activity, portfolio income is non-passive. (Emphasis mine.)

    http://www.irs.gov/...

    Not sure what conclusions to draw from this as to what Romney's sources of passive foreign income are.

    •  Wow! I just learned a new term, and I (6+ / 0-)

      have no idea what it means, even though I've looked it up several places. What the heck is Portfolio Income? From that link it looks like there is Investment Income  and there is Portfolio Income and they seem to generate the same types of income (interest, dividends, royalties). What the heck makes them different?

      Romney's taxes do list most of his foreign income as "Passive."

      For me, Mitt reminds me of Jeff Bridges in Starman. He's like an alien that hasn't read the entire manual. You know, he's going, "Nice to be in a place where the trees are the right size. -- Robin Williams on Letterman 26 Apr 2012

      by hungrycoyote on Mon Aug 27, 2012 at 08:29:21 PM PDT

      [ Parent ]

      •  Not sure... (3+ / 0-)
        Recommended by:
        hungrycoyote, semiot, elwior

        But that link to portfolio income seems to says it is the same thing as investment income, and that it is not passive income for income tax purposes.  

        Maybe the income comes from these holding companies he owns, and the investments belong to the company, so Romney doesn't get investment income per se, but profits from a business in which he is a passive investor?  Do the holding companies serve to change non-passive income to passive income?  

        •  I wouldn't be surprised. I saw or read (4+ / 0-)
          Recommended by:
          Dreidlgirl, IreGyre, elwior, KenBee

          somebody talking about the fact that Bain Capital waived $1 Billion in fees (regular income), but then got some sort of dividends instead, change the tax rate from 35% to 15% and that was questionable ... that had to do with the document dump by Gawker.com last week.

          This is all way above my head in many ways. I do my personal taxes, and taxes for my Sub-S Corporation, neither of which have these kinds of investments.

          For me, Mitt reminds me of Jeff Bridges in Starman. He's like an alien that hasn't read the entire manual. You know, he's going, "Nice to be in a place where the trees are the right size. -- Robin Williams on Letterman 26 Apr 2012

          by hungrycoyote on Mon Aug 27, 2012 at 09:55:54 PM PDT

          [ Parent ]

        •  This. (3+ / 0-)
          Recommended by:
          Sharon Wraight, No Exit, hungrycoyote

          "Passive" means investment income in FTC-land, and means something else entirely in income tax-land.  It can be sorta confusing.

          Most of the income he'll get from partnerships will be portfolio income which will be considered passive income for FTC purposes and non-passive for income tax purposes.  

          What I found interesting is how much general basket income he has.  I don't think there's anything nefarious about it (and his accountants would prefer that he not have general basket FTC, since the more baskets you have the harder it is to make sure no FTC is wasted), but it struck me as odd.  My best guess is that some of his portfolio income is actually derived from "working capital" of a business, in which case it can be deemed to be general basket.  Or, if he has passive basket income from a "high tax" country, then there's a "high tax kick out" rule that shifts the income from the passive to the general basket (remember, the more baskets we have the harder it is to game the system, and the US doesn't want to subsidize the high tax regimes of other countries, so we kick it out of the passive basket to make it harder to fully utilize).

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