Did Romney enable company's abusive tax shelter?

Did Romney enable company's abusive tax shelter?
(CNN.com)

Article by Peter Canellos and Edward Kleinbard:

"Romney has had a close, long-standing, personal and business connection with Marriott International and its founders. He served as a member of the Marriott board of directors for many years. From 1993 to 1998, Romney was the head of the audit committee of the Marriott board.

During that period, Marriott engaged in a series of complex and high-profile maneuvers, including "Son of Boss," a notoriously abusive prepackaged tax shelter that investment banks and accounting firms marketed to corporations such as Marriott. In this respect, Marriott was in the vanguard of a then-emerging corporate tax shelter bubble that substantially undermined the entire corporate tax system.

Son of Boss and its related shelters represented perhaps the largest tax avoidance scheme in history, costing the U.S. many billions in lost corporate tax revenues. In response, the government initiated legal challenges that resulted in complete disallowance of the losses claimed by Marriott and other corporations."

More insight into Romney's leading role at Marriot;

Romney as Audit Chair Saw Marriott Son of BOSS Shelter Defy IRS
(bloomberg.com)

During Romney’s tenure as a Marriott director, the company repeatedly utilized complex tax-avoidance maneuvers, prompting at least two tangles with the Internal Revenue Service, records show. In 1994, while he headed the audit committee, Marriott used a tax shelter known to attorneys by its nickname: “Son of BOSS.”

A federal appeals court invalidated the maneuver in a 2009 ruling, siding with the U.S. Department of Justice, which called Marriott’s transaction and attempted tax benefits “fictitious,” “artificial,” “spectral,” an “illusion” and a “scheme.” Marriott had argued the plan predated government efforts to close such shelters.

Employing another strategy, Marriott legally avoided hundreds of millions of dollars in income taxes thanks to a federal tax-credit program criticized and allowed to expire by Congress. Marriott has also shifted profits to a Luxembourg shell company. During Romney’s years on the board, Marriott’s effective tax rate dipped as low as 6.8 percent, compared with the federal corporate statutory rate of 35 percent.

Another Romney corporate tax scheme to avoid paying taxes employing a Luxemborg shell company. This guy used so many ficticious shell companies in his tax-avoidance schemes it would make a mafioso blush.

If any of us "little people" tried that we'd be hauled into court for tax evasion. Wealth and power has it's priveleges, apparently. Marriot is Mormon owned, and "Willard" Mitt Romney is named after it's founder. It was only when Romney was it's director the company engaged in such a blatant attempt at tax evasion avoidance. (see: creator of Son of BOSS)

Definition of Son of BOSS (Wikipedia)

Son of BOSS is the informal name for a type of tax shelter used in the United States, one that was designed and promoted by tax advisors in the 1990s to reduce federal tax obligations on capital gains from the sale of a business or other appreciated asset. "BOSS" is an acronym for "bond and option sales strategy", a earlier tax shelter that Son of BOSS resembled.

The term was coined by Treasury officials to describe a variety of tax shelters that sought to wipe out taxes on capital gains from the sale of a business or other appreciated asset, for example, by artificially inflating the cost of an asset to make the profit from its sale appear smaller. The shelters involved creating paper losses to offset real gains. All resembled an earlier shelter marketed as "BOSS," short for "bond and option sales strategy." The Son of BOSS transaction was marketed in various forms by advisers at some accounting and law firms beginning in the late 1990s. Several thousand taxpayers likely used the shelter before the Treasury and Congress took steps to block its tax benefits, beginning in 2000.[1]

The "Son of BOSS" schemes involved 1,800 people and cost the government $6 billion in lost revenue, according to Internal Revenue Service (IRS) estimates. Of that total, the government has recovered more than half. The IRS started cracking down on "Son of Boss" in 2000. By 2005, 1,165 people had settled Son of BOSS cases with the IRS, but the complex structures used in the schemes were hard for the IRS to unravel and it was losing some court challenges to its crackdown.[2]

So they gin up a fake loss, to cover any real gains. To me that sounds a lot like "cooking the books". Smart guys like Romney are so good at figuring out ways to avoid paying anything back to the country they extract their wealth from. If we all engaged in this type of behavior and tax avoidance, we could kiss this country goodbye in a single night. I'm sure there are plenty of people around rooting for that to happen, so let's hope someone more responsible and concerned with the future of the country will lead it.

Dear Blackmarketeer,

Did I misunderstand your quotes? They seem to say that Romney left Mariott in 1998. At the time they and 1800 taxpayers were using the same method which was legal at the time. Congress started changing the rules in 2000 to prevent this from happening any more, and the IRS issued a regulation prohibiting it in 2009.

And this implicates Romney in wrongdoing?

With respect,
Charles1952

Dear Charles1952...

The Tax Shelter in question uses artificial 'losses' to offset real income. From what we have been told about the implosion of the economy in 2007-2008, what perpetrators did was 'legal'. So I guess the question is, as long as it's 'legal' it doesn't matter who gets screwed as long as it's not you and your friends. Does that about sum it up? Figures vary but the IRS believes something in the neighborhood of $6B was dodged. So, 1,800-1,900 'taxpayers' used that shelter scheme. Do you personally know anyone who did? Was it available to the general public or only to those who could afford a team of high-priced attorneys and accountants who could structure it?

The bottom line is, do we want people who engage in these kinds of dealings --- from either party --- continuing to run our country into the ground??

reply to post by jtma508

Dear jtma508,

Thanks, nice post.

No, you're right, I don't know any of the 1800. I've never travelled in those circles, besides, I understood it was used by corporations. But leave all that aside, your point was "OK, it was legal, but was it right?'

I think it was. I can't see anybody explaining to the owners (shareholders) of a business that they gave more of their money to the government in taxes than they had to. I don't know of anybody that does that. I remember the response when Warren Buffett suggested that the rich should pay more than they owed. I think the nearly unanimous response was "You can. Just write a check and send it in." I'm not sure anybody followed through on that.

There is lots to go after Romney for, but for me, this isn't one of the stronger issues.

With respect,
Charles1952

"Son of BOSS" tax sheltering had a brief heyday in the 90's but it's been made illegal since then. What Romny did at Marriott was artificially inflate a loss to offset real gains, so on paper it would look like the company lost money or made less than what they actually made.

Even back then it bordered on being criminal, the IRS didn't have specific rules against it since they knew little about that time of tax scheme.

This is highly questionable behavior by Senor Romney, it makes it much more clear just why he won't divulge his tax records.

reply to post by frankensence

Dear frankensence,

Thanks for the post, it's very helpful.

This may be a little off-topic, but may I offer my current (subject to change) opinion on his tax returns?

I am absolutely sure, as much as I am of anything, that the current administration has ordered the IRS to conduct a fine-tooth comb audit of Romney's returns. If anything odd has turned up, the administration knows about it. The leads me to one of two conclusions. Either those returns are squeaky clean, or the administration is holding off until the politically opportune time arrives.

Right now, only the IRS has the returns and unless there is an official action, they can't be legitimately criticized or discussed. If Romney makes them public, then anyone can say whatever they want about them, true or false, and he has to spend the rest of the campaign dealing with that instead of national issues, or Obama's record.

it makes it much more clear just why he won't divulge his tax records.

How is anything more clear? I don't understand.

With respect,
Charles1952

reply to post by charles1952


Dear Charles;

This may be a little off-topic, but may I offer my current (subject to change) opinion on his tax returns?

I am absolutely sure, as much as I am of anything, that the current administration has ordered the IRS to conduct a fine-tooth comb audit of Romney's returns. If anything odd has turned up, the administration knows about it. The leads me to one of two conclusions. Either those returns are squeaky clean, or the administration is holding off until the politically opportune time arrives.

Right now, only the IRS has the returns and unless there is an official action, they can't be legitimately criticized or discussed. If Romney makes them public, then anyone can say whatever they want about them, true or false, and he has to spend the rest of the campaign dealing with that instead of national issues, or Obama's record.

For Romney's taxes - I disagree. While the IRS have access to his records (obviously) there would be a large number of bookkeepers, auditors, CPAs, partners, investors from his days at Bain that would also have a large amount of financial records on Romney. Anyone doing business with Bain Capital would have done "due diligence" prior to investing with them and be given some information as well,.

I don't agree that Obama or anyone in the WH could just "order" the IRS to go over his records with a "fine-tooth comb". Anymore than Bush could have ordered that done to John Kerry back in 2004 or Al Gore in 2000.

Romney had a LOT of business entanglements, 100's of deals, maybe 1000's. Lots and lots of financial disclosures over all those years. Look at it this way, when he was asked point blank by the press (by Anderson Cooper) if he ever paid LESS than 13.9% in taxes in the previous 10 years prior to 2010, he refused to answer. He knows the answer is "yes". He knows he paid 0% in 2009. He knows the person who leaked to Reid that he didn't pay any income tax at all for the last 10 years prior to 2010 is someone he knows very well from his Bain days. When you are at that level in the business world, it hard to keep your personal finances 100% secret. Too many people have to handle your complex filings.

reply to post by charles1952


They had to pay $29,000,000.00 in fines to the IRS while Romney was in charge of there taxes.
I say it was his fault.

It was worst than I thought.

During his time on the committee, Marriott implemented the Son of BOSS shelter attacked by the Department of Justice, bought a synthetic fuels business reliant on tax credits criticized by Congress as a tax shelter and took deductions that eventually led to a $220 million settlement with the IRS on another issue.

$220 million settlement with the IRS. Boy was I off!

Given Romney’s background as chairman of Bain Capital, governor of Massachusetts and business experience with leverage buy-outs and hedge funds, it is not credible that he believed the tax shelter was legitimate. Under Romney’s watch, IRS disallowed the deductions and Marriott fought the case in court. The U.S. Department of Justice denounced the shelter as “fictitious,” “artificial,” “spectral,” an “illusion” and a “scheme.”

Note: Years later, the international accounting firm, KPMG, pled guilty to tax crimes in association with the Son of Boss tax shelter and entered a deferred prosecution agreement with the government. Also, there have been criminal indictments of others who aggressively promoted the scheme, although to date, none of the clients who participated in the tax shelter, including Marriott, has been implicated in criminal activity.

Those are some harsh words. Mitt Romney helped Marriott dodge taxes.

The Son-of-Boss ploy was presented by an investment banker to the tax department at Marriott in January, 1994. It involved generating a $71 million tax loss through a series of phony transactions involving the sale of $81 million in mortgage notes through partnerships created solely for the purpose of executing the tax shelter. IRS disallowed the loss and Marriott sued in the U.S. Court of Claims, which ruled in IRS’s favor., Marriott v U.S., 83 Fed Cl. 291 (2008). The company then appealed and the court of appeal sided with IRS, rejecting Marriott’s claim that the transaction was legitimate, Marriott v U.S., 586 F3d 962 (2009).

Read that emphasized part again --

It involved generating a $71 million tax loss through a series of phony transactions involving the sale of $81 million in mortgage notes through partnerships created solely for the purpose of executing the tax shelter.

For emphasis - Mitt Romney directed Marriott in creating a series of PHONY TRANSACTIONS to hide profits through "partnerships created solely for the purpose of executing the tax shelter". I suspect it was these bogus partnerships that involved the use of Luxembourg shell companies. A shell company is a dummy company - it exists largely on paper, but has no real assets. It's just a listing in a tax haven that companies (like Bain or Marriott) can parade tax schemes through.

reply to post by JBA2848

$220 million settlement with the IRS. Boy was I off!

Ouch!

Info on "Son of BOSS" tax schemes here;
Introduction to the Son of Boss Abusive Tax Shelter Transaction
(son-of-boss.com)

Between the Medicare fraud at Damon Corp. and the tax fraud at Marriott, the "ruling class" is clearly above the law.

reply to post by frankensence

Dear frankensence,

Thanks, I'm learning a lot. Let's keep the disagreement going a bit longer, shall we?

there would be a large number of bookkeepers, auditors, CPAs, partners, investors from his days at Bain that would also have a large amount of financial records on Romney. Anyone doing business with Bain Capital would have done "due diligence" prior to investing with them and be given some information as well,

Disagreement one. I have never worked for any company or agency that has demanded personal tax information, and I don't know anyone who has. It was a part of a clearance investigation, but I don't believe companies, especially a dozen years ago required personal tax information on their employees.

I don't agree that Obama or anyone in the WH could just "order" the IRS to go over his records with a "fine-tooth comb". Anymore than Bush could have ordered that done to John Kerry back in 2004 or Al Gore in 2000.

Disagreement two. I believe Nixon started it with audits of people on his enemies list. Here's a source (granted it's conservative, but no liberal would touch it) that includes information about audits on some state Tea Party and other groups' audits. www.humanevents.com...
Sorry, more disagreements coming.

Romney had a LOT of business entanglements, 100's of deals, maybe 1000's. Lots and lots of financial disclosures over all those years.

But still I disagree that they were personal financial disclosures.

Look at it this way, when he was asked point blank by the press (by Anderson Cooper) if he ever paid LESS than 13.9% in taxes in the previous 10 years prior to 2010, he refused to answer.

So would I if I had decided not to spread my returns over the press.

He knows the answer is "yes". He knows he paid 0% in 2009. He knows the person who leaked to Reid that he didn't pay any income tax at all for the last 10 years prior to 2010 is someone he knows very well from his Bain days. When you are at that level in the business world, it hard to keep your personal finances 100% secret. Too many people have to handle your complex filings.

Romney knows he didn't pay any taxes for ten years? How could you possibly know that? Besides, nobody at Bain would have done his personal taxes. He wouldn't spread around the office the details of his salary, his personal investments, and the like to his employees. I've never seen that happen anywhere. Why do you think they were done at Bain? One more, last minute thought. If the leak was somebody from his Bain days, why would that person know about the more recent taxes?

Thanks, frankensence. This is very helpful.

With respect,
Charles1952

The more I read on Mitt Romney and his tax schemes, the more unbelievable it gets. Talk about some shady scheming!

To give but one example, there is a Bermuda-based entity called Sankaty High Yield Asset Investors Ltd., which has been described in securities filings as “a Bermuda corporation wholly owned by W. Mitt Romney.” It could be that Sankaty is an old vehicle with little importance, but Romney appears to have treated it rather carefully. He set it up in 1997, then transferred it to his wife’s newly created blind trust on January 1, 2003, the day before he was inaugurated as Massachusetts’s governor. The director and president of this entity is R. Bradford Malt, the trustee of the blind trust and Romney’s personal lawyer. Romney failed to list this entity on several financial disclosures, even though such a closely held entity would not qualify as an “excepted investment fund” that would not need to be on his disclosure forms. He finally included it on his 2010 tax return. Even after examining that return, we have no idea what is in this company, but it could be valuable, meaning that it is possible Romney’s wealth is even greater than previous estimates. While the Romneys’ spokespeople insist that the couple has paid all the taxes required by law, investments in tax havens such as Bermuda raise many questions, because they are in “jurisdictions where there is virtually no tax and virtually no compliance,” as one Miami-based offshore lawyer put it.

Investigation: Mitt Romney's Offshore Accounts

Long article but very insightful, someone should make it a topic!

Ps: this is why Mitt won't release his taxes! He's been ducking paying taxes forever!

reply to post by frankensence

Dear frankensence,

I was hoping to discuss my last post, but, oh well, time to move on I guess.

Sankaty was a strange choice to make, though. I looked at his 2010 tax returns (You're very welcome), and on page 98 of the 203 page return, income from Sankaty was disclosed.

That year they made $3 in Dividends, $1218 in Interest, $1267 in other income. They had $574 in Deductions and lost $2246 in selling some capital assets. Total? A net loss of $332.

We'd better find some other target.

With respect,
Charles1952

Originally posted by charles1952
Dear Blackmarketeer,

Did I misunderstand your quotes? They seem to say that Romney left Mariott in 1998. At the time they and 1800 taxpayers were using the same method which was legal at the time. Congress started changing the rules in 2000 to prevent this from happening any more, and the IRS issued a regulation prohibiting it in 2009.

And this implicates Romney in wrongdoing?

With respect,
Charles1952

Like everything else with Romney...no one is saying he did anything illegal...just very slimy and suspicious looking.

Romney is probably the reason the Federal government had to make regulations prohibiting it...because he and others were abusing it.

It's like Bush saying water boarding isn't torture because it wasn't specifically defined as torture...same concept.

reply to post by charles1952


Tax records are a private record. Meaning the press can't obtain them from the IRS. It means the IRS protects them, and not even the White House can circumvent that - without breaking the law. You invoke Nixon as an example of someone who broke the law to order punitive and political attacks on his "enemies", and we all know what a scumbag Nixon was. But I take issue with your implication that Obama or Bush or Clinton has engaged in the same - without providing the proof. I suppose the cynical poster would say "they all do it", but let's stick to what we have as facts, which is that the IRS has not surreptitiously leaked Romney's tax record on orders from Obama. If you want to allege that, then back it up with some facts.

Financial records, however, are exchanged in complex business dealings, usually as a part of "due diligence", as a previous poster pointed out. Now obviously, you or I cannot fathom how many tax lawyers, advisers, CPAs, and consultants Romney may have used/hired over the years, or how many investors he may have provided with prospectus' and financial statements pertaining to some business dealing, but given Romney's massive wealth and apparent heavy use of tax shelters off shore, it'd seem to be a large number.

reply to post by OutKast Searcher


Corporations never do anything illegal.
There not a person when it comes down to the Crimnal Courts.
There only people when they buy our government.

reply to post by OutKast Searcher

Dear OutKast Searcher,

I can always count on you for a relevant post.

no one is saying he did anything illegal...just very slimy and suspicious looking.

If we adopt your standard for politicians, I'm afraid we'll be looking at blank ballots in November.

With respect,
Charles1952

reply to post by Blackmarketeer


We know who his tax guy is. Ropes & Gray LLP.
Here they are in the news when two attorney's at the office went to jail for insider tradeing on information from Mitt Romney on a Bain deal with China that Congress stopped because of National Security.
newsandinsight.thomsonreuters.com...

Prosecutors said the alleged scheme involved tips on Bain Capital Partners LP's and Huawei Technologies Co Ltd's failed takeover of computer network equipment maker 3Com Corp, and private equity firm TPG Capital LP's takeover of Canadian drug company Axcan Pharma Inc.

Zvi Goffer, 34, pleaded not guilty to 12 counts of securities fraud and two counts of conspiracy.

Emanuel Goffer, 32, and Kimelman, 40, each pleaded not guilty to two counts of securities fraud and one count of conspiracy. The defendants face as much as 25 years in prison if convicted.

reply to post by OutKast Searcher


Precisely, "Son of BOSS" tax schemes weren't illegal THEN, but thanks in large part to the Romney-Marriott scheme, Son-of-BOSS is NOW illegal. The abuse of that tax shelter scheme is what caused the rules to be changed.

The Department of Justice in 2009 called Romney's scheme: “fictitious,” “artificial,” “spectral,” an “illusion” and a “scheme.”

Charles1952 - if you're wondering why the dates don't jive with Romney's time on the Marriott board (1998), it's because the DoJ ruling came from an appeal court, it took that long from the case to wind it's way through the system.

reply to post by Blackmarketeer


You should also look at the Governor of Utah who learned tricks from Romney at the Olympics. He started scams with charities and trust in his family name. Congress also passed laws to stop that too.

en.wikipedia.org...

Leavitt FoundationLeavitt's family charitable foundation, the Dixie and Anne Leavitt Foundation, was established by the Leavitt family in 2000, and the family has donated nearly $9 million of assets to it since. It has provided them with tax write-offs for the donated assets. About a third of the foundation's assets have been loaned back to family businesses, such as a $332,000 loan to Leavitt Land and Investment Inc., in which Mike Leavitt has a substantial interest. According to a 2006 National Public Radio report, these loans were legal because they were made at market rates.[4] A month following the NPR report, Congress made such transactions illegal.

The same NPR report also revealed that nearly $500,000 in charitable contributions provided to the Southern Utah Foundation were used for housing scholarships to Southern Utah University. The scholarships were subsequently used to place students in the Cedar Development Co., a Leavitt family business, with the money used to pay the students' rent. NPR's investigation found that the arrangement was legal and that the Leavitts did not profit from the arrangement. Although legal, the procedure, called "round-tripping" in philanthropic circles, has garnered criticism as lacking in the spirit of philanthropy.[4] The report also stated that Mike Leavitt was not directly involved in the foundation's operations.

Total charitable grants from the foundation during its first six years were $1,468,055. The foundation's principal beneficiaries have been Southern Utah University and The Church of Jesus Christ of Latter-day Saints. Other beneficiaries have included arts, educational and humanitarian organizations, including the Leavitt family genealogical society.