Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Romney's Cayman Islands Holdings Complicate Tax Return Debate

Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Romney's Cayman Islands Holdings Complicate Tax Return Debate

Article excerpt

Republican presidential candidate Mitt Romney's newly released tax return shows sprawling international financial interests, from Bain Capital entities based in Luxembourg to a Goldman Sachs fund in Dublin. It discusses a foreign currency transaction and details foreign tax credits.

But one of Romney's biggest foreign investments is sheltered from U.S. taxation, partly because it is based in the Cayman Islands.

"This is a classic example of how good tax planning avoids taxes until you want to pay taxes on the money," said Martin Lobel, a Washington lawyer and chairman at Tax Analysts, a provider of information for tax specialists.

Even many Americans with sophisticated tax advisers "can't take advantage of that kind of loophole," Mr. Lobel said.

According to an August 2011 financial disclosure, Mr. Romney's individual retirement account included a stake valued at $5 million to $25 million in something called BCIP Trust Associates III.

Regulatory filings show that the partnership, related to Mr. Romney's career at the corporate buyout firm Bain Capital, is registered in the Cayman Islands.

The offshore arrangement could have spared Mr. Romney a form of U.S. tax that can apply even to individual retirement accounts, experts say.

IRAs are widely used investment vehicles that allow people to save money and postpone paying taxes on it until their golden years. But even within the shelter of tax-exempt entities such as IRAs or nonprofit organizations, some investments can trigger taxes by throwing off profits known as "unrelated business taxable income."

That includes returns on debt-financed investments. Hedge funds and private equity funds are especially likely to trigger the tax because they often seek to magnify their returns by using borrowed money.

To spare investors the tax bite, hedge funds and private equity firms often set up corporate shells known as "blockers" in havens such as the Cayman Islands, experts said. …

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