The Bain Files: Inside Mitt Romney’s Tax-Dodging Cayman Schemes

John Cook/gawker

Mitt Romney's $250 million fortune is largely a black hole: Aside from the meager and vague disclosures he has filed under federal and Massachusetts laws, and the two years of partial tax returns (one filed and another provisional) he has released, there is almost no data on precisely what his vast holdings consist of, or what vehicles he has used to escape taxes on his income. Gawker has obtained a massive cache of confidential financial documents that shed a great deal of light on those finances, and on the tax-dodging tricks available to the hyper-rich that he has used to keep his effective tax rate at roughly 13% over the last decade.

Today, we are publishing more than 950 pages of internal audits, financial statements, and private investor letters for 21 cryptically named entities in which Romney had invested—at minimum—more than $10 million as of 2011 (that number is based on the low end of ranges he has disclosed—the true number is almost certainly significantly higher). Almost all of them are affiliated with Bain Capital, the secretive private equity firm Romney co-founded in 1984 and ran until his departure in 1999 (or 2002,depending on whom you ask). Many of them are offshore funds based in the Cayman Islands. Together, they reveal the mind-numbing, maze-like, and deeply opaque complexity with which Romney has handled his wealth, the exotic tax-avoidance schemes available only to the preposterously wealthy that benefit him, the unlikely (for a right-wing religious Mormon) places that his money has ended up, and the deeply hypocritical distance between his own criticisms of Obama's fiscal approach and his money managers' embrace of those same policies. They also show that some of the investments that Romney has always described as part of his retirement package at Bain weren't made until years after he left the company.

Bain isn't a company so much as an intricate suite of steadily proliferating inter-related holding companies and limited partnerships, some based in Delaware and others in the Cayman Islands, Luxembourg, and elsewhere, designed to collectively house roughly $66 billion in wealth in its many crevices and chambers. When Romney left in 1999, he and his wife retained significant investments in many of those Bain vehicles—he claims they are "passive investments" and that they are managed in a blind trust (though the trustee isn't blind enough to meet federal standards of independence). But aside from disparate snippets of information contained in his federal and Massachusetts financial disclosure forms, his 2010 tax returns, and SEC filings, the nature of those investments has been obfuscated by design.

When he disclosed his finances to the U.S. Office of Government Ethics in 2007, Romney took care to publish the underlying holdings of many funds he invested with—after disclosing his $1 million-plus stake in "GS 2002 Exchange Place Fund LP," for instance, he listed six pages of individual equities the fund held, from Panera Bread Co. to Tribune Co. But when it came to the Bain investments, he simply listed the value of his investments in odd-sounding entities like "Sankaty High Yield Partners II LP" with no indication of what was inside. In an accompanying note, he claimed that he had tried and failed to get the information: "The filer has requested information about the underlying holdings of these funds and values and income amounts for these underlying holdings. However, the fund managers have informed the filer in writing that this information is confidential and proprietary, and has declined to provide such information."

That information—for Sankaty and 20 other funds—is now available here, in the form of 48 documents totaling more than 950 pages. They consist predominantly of confidential internal audited financial statements from 2008, 2009, and 2010, as well as investor letters from the same period, for Bain entities that Romney has previously disclosed owning an interest it. Owing to the timeframe—during and after the catastrophic economic meltdown of 2008—some of the investments show substantial losses. One limited partnership had even entered into liquidation as of October 2008 after failing to meet certain payments owed to partners. Others show astronomical gains.

The documents are exceedingly complicated. We don't pretend to be qualified to decode them in full, which is why we are posting them here for readers to help evaluate—please leave your thoughts in the discussion below. We asked an attorney who specializes in complex offshore corporate transactions, including ones involving Cayman Island entities, to review them and help us understand them. (We also asked the Romney campaign. It hasn't responded yet.) Thefull set can be read here.

Here's what we've found so far:

Equity Swaps, AIVs, and Mitt Romney's Other Tax-Dodging Tricks

Mitt Romney's Endless ‘Retirement' Package

How Mitt Romney Puts His Money Where Obama's Mouth Is

Derivatives, Short Sales, and Mitt Romney's Other Exotic Financial Instruments

Mitt Romney Is the National Enquirer's Banker

Facebook co founder called a hero for dodging taxes

Visit msnbc.com for breaking news, world news, and news about the economy

Facebook Unfriends Uncle Sam: Mark Zuckerberg’s Plan To Avoid Taxes

By Pat Garofalo/Think Progress

The right-wing has been lauding Facebook co-founder Edward Saverin for his decision to renounce his U.S. citizenship in order to avoid taxes. But he isn’t the only one who’s going to slash his tax bill in the wake of Facebook’s upcoming initial public offering: both CEO Mark Zuckerberg and the company itself will lower their tax bill for years to come.

While Zuckerberg will pay a hefty tax bill right off the bat if he follows through on his plan to sell $5 billion in Facebook stock options, as the New York Times noted, he may then never pay a dime of taxes on the rest of his Facebook wealth. “Instead, he can simply use his stock as collateral to borrow against his tremendous wealth and avoid all tax,” the Times reported.

And, as Citizens for Tax Justice has noted, Facebook may use the issuance of stock options to avoid corporate income taxes, instead receiving hundreds of millions of taxpayer dollars in refunds:

The tax law says that if a corporation issues options for employees to buy the company’s stock in the future for its price when the option issued, then if the stock has gone up in value when employees exercise the options, the company gets to deduct the difference between what the employee bought it for and its market price.

When, as Facebook expects, the 187 million stock options are cashed in this year, Facebook will get $7.5 billion in tax deductions (which will reduce the company’s federal and state taxes by $3 billion). According to Facebook, these tax deductions should exceed the company’s U.S. taxable 2012 income and result in a net operating loss (NOL) that can then be carried back to the preceding two years to offset its past taxes, resulting in a refund of up to $500 million.

“When profitable corporations can use the stock option tax deduction to pay zero corporate income taxes for years on end, average taxpayers are forced to pick up the tax burden,” said Sen. Carl Levin (D-MI). “It isn’t right, and we can’t afford it.” This tax preference for corporations costs the U.S. about $2 billion in revenue per year.

In addition, Zuckerberg’s using a totally legal accounting gimmick to transfer money to his unborn children, thus avoiding the gift tax. He also — by virtue of accepting a $1 dollar salary and purely living off his wealth — could be eligible for the Earned Income Tax Credit, which is intended to benefit low-income Americans.

Apple Used Low-Tax States, Foreign Tax Havens To Dodge $2.4 Billion In Taxes Last Year

By Travis Waldron/Think Progress

Sales of iPhones, iPads, and iPods have made Apple the world’s most profitable technology company — its stock price is hovering around $600 a share, and it is now largerthan the rest of the American retail market by itself. Apple often boasts about the number of jobs it has created in the United States; according to its own estimates, the company is responsible for a half-millionAmerican jobs.

What Apple hasn’t told Americans, though, is that an intricate financial set up utilizing low-tax states in the U.S. and offshore tax havens has allowed it to skirt billions of dollars in American taxes over the last decade. By setting up financial offices in states like Nevada — which has no income tax — and routing other profits through Ireland, Luxembourg, and nations in the Caribbean, Appleavoided an estimated $2.4 billion in American taxes in 2011 alone, the New York Times reports:

Apple’s headquarters are in Cupertino, Calif. By putting an office in Reno, just 200 miles away, to collect and invest the company’s profits, Apple sidesteps state income taxes on some of those gains.

California’s corporate tax rate is 8.84 percent. Nevada’s? Zero. [...]

Apple was a pioneer of an accounting technique known as the “Double Irish With a Dutch Sandwich,” which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean. [...]

Without such tactics, Apple’s federal tax bill in the United States most likely would have been $2.4 billion higher last year, according to a recent study by a former Treasury Department economist, Martin A. Sullivan.

Apple’s American tax rate was 9.8 percent in 2011, according to Sullivan. Its global tax rate, however, was just 3.2 percent and has been in the single digits for the last decade. Its profits are skyrocketing. The amount it pays in taxes, however, has barely budged:

While dodging American taxes, Apple has lobbied both state and federal governments for large tax breaks. The California state legislature has passed four tax breaks aimed at tech companies since the mid-1990s — the most recent, which Apple lobbied for itself, will cost the already-crunched state government $1.5 billion a year. The company is part of a coalition called Win America that has lobbied Congress to temporarily lower the tax rate on overseas profits that are returned to the United States — even as it admits to routing profits overseas to avoid American taxes in the first place.

Corporations like Apple have argued for lower corporate tax rates in the United States, insisting that the current 35 percent tax rate is hurting growth. But while that is the highest marginal rate in the world, companies rarely pay it. The U.S. is actually near the bottom in corporate tax revenues collected; in 2009, only Iceland collected a smaller share of its GDP in taxes. That has an adverse effect on all taxpayers, who foot the bill for the $60 billion lost to corporate tax dodging each year. In 2009, offshore tax havens cost the average individual taxpayer $434; in 2010, making up the lost revenue would have required an extra $2,116 from each American small business.