SALON

Wednesday, Oct 31, 2012 1:57 AM UTC

How Romney used his church’s charity status to lower his tax bill

Mitt rented the Mormon church's tax exempt status to decrease his bill, new documents show

By

Topics: Election 2012, Presidential Elections, Mormon Church, Charity, Taxes, Mitt Romney, Non-profit,

How Romney used his church's charity status to lower his tax billMitt Romney (Credit: AP/Charles Krupa)

We already know that Mormon Mitt Romney has been tremendously generous to his church, giving over $5 million in the past two years alone, but now we learn that his charitable activity with LDS may not have been entirely altruistic. Bloomberg’s Jesse Drucker reports that Romney exploited the church’s tax-exempt status to lower his tax bill.

Romney reportedly took advantage of a loophole, called a charitable remainder unitrust or CRUT, which allows someone to park money or securities in a tax-deferred trust marked for his or her favorite charity, but which often doesn’t pay out much to the nonprofit. The donor pays taxes on the fixed yearly income from the trust, but the principal remains untaxed. Congress outlawed the practice in 1997, but Romney slid in under the wire when his trust, created in June 1996, was grandfathered in.

The trust essentially lets someone “rent” the charity’s tax-exemption while not actually giving the charity much money. If done for this purpose, the trust pays out more every year to the donor than it makes in returns on its holdings, depleting the principal over time, so that when the donor dies and the trust is transferred to the charity, there’s often little left. The actual contribution “is just a throwaway,” Jonathan Blattmachr, a lawyer who set up hundreds of CRUTs in the 1990s, told Bloomberg. “I used to structure them so the value dedicated to charity was as close to zero as possible without being zero.”

Indeed, this appears to be the case for Romney’s trust as well. Bloomberg obtained the trust’s tax returns through a Freedom of Information Request and found that Romney’s CRUT started at $750,000 in 2001 but ended 2011 with only $421,203 — over a period when the stock market grew. Romney’s trust was projected to leave less than 8 percent of the original contribution to the church (or another charity that he can designate).  This, along with the trust’s poor returns — it made just $48 in 2011 — suggest the trust is not designed to grow for the LDS church but just serve as a tax-free holding pool from which annual payments can be disbursed to the Romneys.

This is hardly the first tax-avoidance strategy Romney has employed. It’s well known that he holds offshore bank accounts in Switzerland and the Cayman Islands, but he has used more obscure vehicles as well. There’s the “total return equity swap,” where a taxpayer calls a stock he owns by another name and doesn’t pay taxes on it. There’s the way he’s been avoiding gift and estate taxes through a trust that he set up for his children and grandchildren. And there’s the neat trick whereby private equity firms claim that management fees are capital gains and thus qualify for a lower tax rate than straight income. Bain Capital was known for pursuing an aggressive tax-mitigation strategy (they’re now under investigation for it), and so was Marriott Hotels when Romney was an influential board member.

And it’s not just taxpayers who lose out. “The Romneys get theirs off the top and the charity gets what’s left,” said Michael Arlein, a trusts and estates lawyer at Patterson Belknap Webb & Tyler LLP. “So by definition, if it’s not performing as well, the charity gets harmed more.”

Alex Seitz-Wald

Alex Seitz-Wald is Salon's political reporter. Email him at aseitz-wald@salon.com, and follow him on Twitter @aseitzwald. More Alex Seitz-Wald.

Next Article

Related Stories

More Related Stories

Featured Slide Shows

The week in 10 pics

close X
  • Share on Twitter
  • Share on Facebook
  • Thumbnails
  • Fullscreen
  • 1 of 11
  • Lisa Montgomery embraces her nephew Thursday after a tornado tore apart her home in Cleburne, Texas. The twister killed six people and destroyed entire swaths of the North Texas town.
    Credit: AP/LM Otero

  • Jack McMahon, the defense attorney for abortion doctor Kermit Gosnell, speaks outside the Criminal Justice Center in Philadelphia Tuesday. His client was convicted of killing three babies in his clinic, and will serve multiple life sentences.
    Credit: AP/Matt Rourke

  • A photo taken Monday captures Vice President Joe Biden's response to a Milwaukee second-grader's innovative proposal to end America's epidemic of gun violence. This guy!
    Credit: AP/Jenny Aicher

  • Sen. Rand Paul, R-Ky., flanked by a grouper-eyed Michele Bachmann, addresses the IRS' admission that it targeted Tea Party groups in advance of the 2012 election. In an op-ed for CNN Thursday, the Kentucky senator slammed the president for his faux outrage.
    Credit: AP/Molly Riley

  • Ousted IRS chief Steven Miller is sworn in on Capitol Hill Friday. Miller testified before the House Ways and Means Committee on the extra scrutiny the agency gave conservative groups applying for tax-exempt status.
    Credit: AP/J. Scott Applewhite

  • Attorney General Eric Holder pauses as he testifies on Capitol Hill before the House Judiciary Committee Wednesday. Holder is under fire, among other things, for the Justice Department's gathering of phone records at the Associated Press.
    Credit: AP/Carolyn Kaster

  • O.J. Simpson sits during an evidentiary hearing at Clark County District Court in Las Vegas, Nev., Thursday. Simpson, who is currently serving a nine-to-33-year sentence in state prison for armed robbery and kidnapping, is using a writ of habeas corpus to seek a new trial.
    Credit: AP/Las Vegas Review-Journal/Jeff Scheid

  • Major Tom to ground control: On Sunday astronaut Chris Hadfield recorded the first music video from space, a cover of David Bowie's "Space Oddity."
    Credit: AP/NASA/Chris Hadfield

  • When it rains it pours. President Barack Obama speaks during a news conference Thursday with Turkish Prime Minister Recep Tayyip Erdogan, inexplicably inspiring an #umbrellagate Twitter meme.
    Credit: AP/Jacquelyn Martin

  • A smoke plume rises high above a road block at the intersection of County A and Ross Road east of Solon Springs, Wis., Tuesday. No injuries were reported, but the the wildfire caused evacuations across northwestern Wisconsin.
    Credit: AP/The Duluth News-Tribune/Clint Austin

  • Recent Slide Shows

  • Share on Twitter
  • Share on Facebook
  • Thumbnails
  • Fullscreen
  • 1 of 11

Related Videos

Comments

 27 Comments

Comment Preview

Your name will appear as username

You may use these HTML tags and attributes: <a href=""> <b> <em> <strong> <i> <blockquote>

follow salon

Most Read

Popular on Reddit

links from salon.com

From Around the Web

Presented by Scribol
listener_new_rect The Listener: So long, Sookie Stackhouse

Recommendations