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Gawker (via Eman at Daily Kos) dropped a bombshell Thursday when it released over 950 pages of confidential documents from 21 Bain Capital-related investment vehicles, all of which Mitt or Ann Romney invested in. It made all 48 documents into a single searchable one here so that others could take a look and see what nuggets it might contain.

Romney previously claimed that his Cayman Island funds had to be located there in order to attract foreign investors, who invested via the Caymans so they would not be subject to U.S. taxes on their earnings, and that he did not reduce his tax bill as a result of his Cayman holdings. The newly released documents confirm that among these 21 funds, two set up a total of five so-called "blocker corporations" which allow U.S. non-profit entities to legally pretend to be foreign (i.e., Cayman) corporations in order to avoid the 35% "unrelated business income tax, which was created to prevent nonprofit groups from undertaking profit-making ventures that compete with taxpaying companies," as the New York Times reports. The still-unanswered question is whether Romney's huge 401-k, valued between $20 million and $102 million on financial disclosure forms, is one of the entities that invested in a blocker corporation, which would then refute Romney's assertion that his Cayman investments had not reduced his tax.

The two Bain funds with blocker corporations are Bain Capital Asia Fund LP (mentioned in the Times article; 3blockers) and Bain Capital IX Coinvestment Fund (2 blockers).

A second issue that has been raised is that various Bain entities converted management fees to carried interest (via Ryan Grim). While people know that the carried interest loophole (which makes management compensation into capital gains) exists and is legal, the issue raised by Professor Victor Fleischer of University of Colorado Law School is that private equity firms have come up with a way to make fees that are unarguably management fees subject to ordinary income (35% tax) into capital gains (15% tax) by "waiving" the fees in exchange for virtually certain future profit, so that the extremely slight economic risk is disproportionately small compared to the tax gain. Fleischer argues that this is flat out illegal and concludes: "Mitt Romney has not paid all the taxes required under law." Not all experts agree. We can look forward to more argument on this issue in coming days. Even if it is legal, it is morally even less defensible than the carried interest loophole.

In the end, we are still left with the fact that the tax system for the 1% is different from that for the rest of us.  Whether Romney releases more tax returns or not, that issue is not going away. And the drip, drip, drip of new information makes me think he will eventually cave in.

Originally posted to Kenneth Thomas on Sat Aug 25, 2012 at 02:27 PM PDT.

Also republished by The Bain Files.

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