Huffington Post has been delving into Mitt Romney's tax issues. This discovery from 8/26 has to do with information gleaned from examining his one (partial) tax release from 2010, not the Gawker document dump.
Romney has famously stated his departure date from Bain Capital either as 1999 or 2001, depending on who he was telling. It was advantageous to have already left by 1999 so the stink of subsequent layoffs thanks to Bain wouldn't stick to him. But for the MA election board he was busy being a manager so that he could claim residency status and be elected to the governorship.
But now comes news that as far as the IRS was concerned, he was still 'active' with Bain in 2009.
But according to his 2010 tax return, when the Internal Revenue Service comes calling in April, Romney has a different answer: The presumptive GOP nominee reaps lucrative tax breaks for "active" participation in the private equity firm he founded, as well as a host of other investments.
The reason to state that he was an 'active' investor was in order to reap the benefit of tax losses from a higher bracket. Active investors can claim a 35% loss while passive investors can only claim a 15% loss. So if you are Mitt Romney, which one would claim naturally?
A tax expert explains the meaning of active as far as the IRS is concerned:
As David Kautter, a tax expert at American University, explains, the concept of active investment has different meanings for the IRS and for regular people. "When you say you're actively involved in all these businesses, people do think, OK, you're actively involved. But the tax law has its own definition," he said.His claim to the IRS that he was active with the company for tax purposes is probably the harder one to believe but he made this aggressive case saving himself many dollars in taxes.
The IRS advises that "[f]actors that indicate active participation include making decisions involving the operation or management of the activity, performing services for the activity, and hiring and discharging employees. Factors that indicate a lack of active participation include lack of control in managing and operating the activity, having authority only to discharge the manager of the activity, and having a manager of the activity who is an independent contractor rather than an employee."
Even if Romney could persuade the IRS his involvement was legitimately active, that still leaves him in a rhetorical jam: For tax purposes, he claims an active status; for political purposes, he claims to have zero to do with the investments.So Romney is telling the IRS one thing, but the American people another. As usual.
Romney's 2010 tax return lists $301,630 in "trade or business interest" deductions and $503,737 in "trade or business expense" deductions -- all of it described as expenses from his business partnerships, including Bain. Specifically from his various Bain-related activities, Romney scored a total of $547,525 in such deductions.So perhaps he paid 'all the dollars legally owed', or perhaps not if he wasn't really an active investor. Once again, Mitt Romney wants to have his cake and eat it too. If he wants to screw the Treasury and the American people by aggressively taking questionable deductions, than he has to acknowledge that he was active with Bain and responsible for all the unsavory activities they conducted after he supposedly left.
The distinction is valuable, for the IRS treats passive and active income and losses differently. If a passive investment loses money, the taxpayer can only write off that loss if passive gains have also been made. But active losses can be written off at a 35 percent rate and deducted from the taxpayer's ordinary income. In other words, a taxpayer wants active losses, not passive losses. So by describing many of his investments as active, Romney saves himself millions of dollars in taxes.
With those active investments, he is also securing a tax break few Americans enjoy: When he wins, he's paying a 15 percent rate on the gain. When he loses, he's writing it off at 35 percent, meaning that tax policy is subsidizing Romney's risk in his Bain investments.