Republican presidential nominee Mitt Romney used a loophole to "rent" the Mormon church's tax exemption status and defer paying taxes for 15 years, according to a new report.
Tax returns obtained by Bloomberg News through a Freedom of Information Act request indicated that Romney set up a charitable remainder unitrust (CRUT) in June 1996 just before Congress cracked down on the loophole in 1997.
"In this instance, Romney used the tax-exempt status of a charity -- the Mormon Church, according to a 2007 filing -- to defer taxes for more than 15 years," Bloomberg's Jesse Drucker explained. "At the same time he is benefitting, the trust will probably leave the church with less than what current law requires."
Estates lawyer Jonathan Blattmachr told Bloomberg that Romney's trust benefits from the Mormon church's exempt status because charities don't pay capital gains taxes when they make a profit from the sale of assets.
"The main benefit from a charitable remainder trust is the renting from your favorite charity of its exemption from taxation," Blattmachr said, adding that the charitable contribution "is just a throwaway" and the church would receive little if any financial benefit from the trust.
“I used to structure them so the value dedicated to charity was as close to zero as possible without being zero,” he pointed out.
The CRUT allows individuals to "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," Drucker wrote. "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."
In fact, the amount available to go to the Mormon church has decreased from at least $750,000 in 2001 to $421,203 at the end of 2011 as Romney has collected yearly cash payments from the trust.
The Romney campaign declined to answer questions about the trust but insisted that it was "operated in accordance with the law" in an email to Bloomberg.
The trust represents a small fraction of Romney's more than $250 million fortune and is only one of several methods the formal Bain Capital CEO has employed to avoid paying taxes.
Earlier this year, Senate Majority Leader Harry Reid (D-NV), who is also a Mormon, had suggested that the Republican presidential nominee refused to release his tax returns because he had not paid any income taxes over a 10-year period.
In a September speech on the Senate floor, Reid said that leaked tapes insulting the 47 percent of Americans who don’t pay income taxes as “dependant” on the government have gave the world a “rare look at the real Mitt Romney.”
“For all we know Mitt Romney could be one of those who have paid no federal income tax. Thousands of families making more than a million dollars per year pay nothing in federal income tax," the Nevada Democrat observed. "Is Mitt Romney among those? We’ll never know because he refuses to release his tax returns.”
“We know that Mitt Romney pays a lower tax rate than middle-class families, thanks to a number of things he’s done: Swiss bank accounts, Cayman Islands tax shelters. And we can only imagine what new secrets would be revealed if he showed the American people a dozen years of tax returns like his dad did.”
Reid noted that most of “those people” who Romney talked about “are not avoiding their tax bills using Cayman Islands tax shelters or Swiss Bank accounts like Mitt Romney. Millions of the 47 percent are seniors on Social Security, who don’t have Bain Capital retirement funds or inherited stock to fall back on.”