Romney used Mormon charity to avoid taxes
This story broke on Bloomberg on October 29th, but it’s been going around the blogosphere a lot today. In fact, a fellow LGF reader may have beat me to the punch on this one, but I’m not sure. At any rate, it should be clear why Romney has been so reluctant to release his tax information:
In 1997, Congress cracked down on a popular tax shelter that allowed rich people to take advantage of the exempt status of charities without actually giving away much money.
Individuals who had already set up these vehicles were allowed to keep them. That included Mitt Romney, then the chief executive officer of Bain Capital, who had just established such an arrangement in June 1996.
The charitable remainder unitrust, as it is known, is one of several strategies Romney has adopted over his career to reduce his tax bill. While Romney’s tax avoidance is legal and common among high-net-worth individuals, it has become an issue in the campaign. President Barack Obama attacked him in their second debate for paying ‘lower tax rates than somebody who makes a lot less.’
In this instance, Romney used the tax-exempt status of a charity — the Mormon Church, according to a 2007 filing — to defer taxes for more than 15 years. At the same time he is benefiting, the trust will probably leave the church with less than what current law requires, according to tax returns obtained by Bloomberg this month through a Freedom of Information Act request.
‘The main benefit from a charitable remainder trust is the renting from your favorite charity of its exemption from taxation,’ Blattmachr said. Despite the name, giving a gift or getting a charitable deduction ‘is just a throwaway,’ he said. ‘I used to structure them so the value dedicated to charity was as close to zero as possible without being zero.’
When individuals fund a charitable remainder unitrust, or ‘CRUT,’ they defer capital gains taxes on any profit from the sale of the assets, and receive a small upfront charitable deduction and a stream of yearly cash payments. Like an individual retirement account, the trust allows money to grow tax deferred, while like an annuity it also pays Romney a steady income. After the funder’s death, the trust’s remaining assets go to a designated charity.
Romney’s CRUT, which is only a small part of the $250 million that Romney’s campaign cites as his net worth, has been paying him 8 percent of its assets each year. As the Romneys have received these payments, the money that will potentially be left for charity has declined from at least $750,000 in 2001 to $421,203 at the end of 2011.