That Mitt Romney has managed to avoid paying a staggering amount of taxes is no secret. In his defense, Romney’s supporters often cite Romney’s charitable donations. However, a new report by Bloomburg has cast an eye over Romney’s engaging in a practice that, while technically legal, has allowed Romney to exploit the Mormon Church’s tax exempt status in order to defer taxes.
A review of Mitt Romney’s tax returns by Bloomberg News, obtained through a Freedom of Information Act request, shows Romney set up a charitable remainder unitrust (CRUT) in June 1996.
The CRUT has enabled Romney to effectively borrow the Mormon Church’s tax exempt status, specifically the rule that allows a religious institution to sidestep capital gains tax when selling assets, and therein defer for 15 years paying tax on certain assets while at the same time collecting profit, all without having to give away much money at all.
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.
Now, the amount of money that is believed to be involved in the unitrust is barely a fraction of Romney’s $250 million wealth, but it does raise some interesting questions.
The Romney campaign team has so far declined to comment specifically on the CRUT, but has stressed that Romney is in full compliance with the law.
This, technically, is true but, as Bloomburg points out, the amount of money Romney’s trust will leave for a charity is unlikely to meet the legal requirements established by Congress in 1997, and it is only because Romney set up the trust prior to the rule change that it remains legal.
This is because the amount of money available to pay out to a charity or, should Romney fail to designate a beneficiary, to the Mormon Church, has dwindled from at $750,000 as of 2001, to $421,203 at the end of 2011. Romney has reportedly collected yearly cash payments from the trust without its value increasing, meaning he is still getting profit despite the cash pot dwindling.
Romney’s campaign has been dogged by questions over taxes, from how Romney has avoided taxes by playing a so-called “active role” at Bain Capital even after he had retired, to his refusal to issue what is considered a full set of tax records, and his secretly taped comments to a wealthy donor crowd in which he appeared disdainful of the 47 percent who would vote for Obama “no matter what,” whereby he implied that those among the 47 percent are the ones who pay no income tax.
There has not at any point been a suggestion that Romney has acted outside of the law, but this shows yet another example of how Romney’s creative accounting has enabled him to keep his tax costs impressively, and some would say unfairly, low.
For Romney’s critics, this will no doubt fuel their contention that a Romney presidency would favor the so-called one percent, whatever their party affiliation, at the expense of the majority of Americans who are not able to avail themselves of such tax loopholes and so face a ceiling on their own prosperity.
Photo credit: Gage Skidmore, Wikimedia commons.