What we still don't know about Mitt Romney's taxes

By Theodoric Meyer, ProPublica

This article has been updated to include new reporting. It was first published on Oct. 1.

With the documents Mitt Romney released recently, we know a bit more about his taxes.

We know, for instance, that Romney paid a rate of 14.1 percent on $13.7 million in income on his 2011 tax return, which he achieved by purposely overpaying. Though he was entitled to deduct $4 million in charitable contributions, Romney deducted only $2.25 million to keep his tax rate above 13 percent.

(Romney, it has beenpointed out, could file an amended return to claim the full deduction after the election. We've contacted the Romney campaign, and Michele Davis, a spokeswoman, assured us he would not do so.)

We know, according to a letter from his accountants at PricewaterhouseCoopers, that Romney has paid state and federal income taxes each year since at least 1990, which would seem to disprove Senate Majority Leader Harry Reid's claim in July that Romney had not paid any taxes for a decade.

And we know that Romney's tax rate since 1990 never dipped below 13.66 percent, according to his accountants. Romney paid an average effective tax rate between 1990 and 2009 of 20.2 percent.

But there's still a lot we don't know. "I think most of the major questions we had before [last Friday] are still out there," said Brian Galle, a tax law professor at Boston College. Here are a few: 

How much did Romney make before 2010?

While Romney has disclosed his average effective tax rate for the last two decades, he hasn't said how much he earned in those years or how much — the dollar amount — he paid in taxes.

That's an important distinction, said Daniel Shaviro, a tax law professor at New York University. Various tax-planning strategies may have enabled Romney to reduce his adjusted gross income in some years.

In 2008, for instance, investors everywhere lost money when the stock market tanked. Romney may have carried those losses forward, Shaviro said, and used them to reduce his adjusted gross income in 2009. While we know Romney paid at least 13.66 percent of the income he recorded on his taxes in a given year, we don't know what percentage he paid of the money actually took home that year.

Why is Romney's IRA worth so much?

Much of Romney's wealth sits in his IRA, which is worth as much as $101.6 million. It's a remarkable number, in part because Romney would have been able to contribute a maximum of $30,000 a year to his IRA while he was at Bain, from 1984 to 1999.

Galle, the Boston College tax law professor, said the most likely explanation for the outsized IRA is that Romney put in shares in Bain investments that swelled in value. According to the Wall Street Journal, Bain allowed employees to buy a special class of shares in the firm's investments. The shares didn't cost very much, but they could be extremely lucrative. In one deal, the Journal reported, "some Bain employees saw a 583-fold increase" in the value of their shares — an astronomical return. Because the shares were in IRAs, the profits could be plowed into new Bain deals without subtracting taxes.

Romney also may have beefed up his IRA by contributing "carried interest" — a share of the profits in funds managed by Bain. As Reuters reported earlier this year, any potential carried interest would "not be disclosed in his personal financial summary or on a federal income tax return." In other words, even if Romney released all his tax returns, we still might not know exactly how he accumulated his huge IRA.

What about Romney's investments offshore?

We know many of Romney's IRA investments are based in foreign countries but it's hard to know how much. He valued one account in the Cayman Islands at anywhere between $5 million and $25 million.

One thing we do know is that Romney pays a far lower tax rate overseas than he does here. According to Quartz, Romney paid only 2.4 percent in foreign taxes in 2011 on the $3.5 million he earned abroad.

We also know where Romney's current overseas investments are held —Bermuda, the Cayman Islands, Switzerland, Luxembourg — and many of the firms he has invested in, including a state-owned Chinese oil company and a Chinese bank that Romney's family trusts sold their stake in last year. But we don't have a lot of other important documentation, including forms would show whether Romney had, as the New York Times has reported, "over the years declared all of his foreign income to the IRS in a timely manner."

The Wall Street Journal has reported that Romney's offshore IRA investments likely helped him avoid a little-known tax called the unrelated business income tax. The tax, "meant to discourage tax-exempt entities such as an IRA or college endowment fund from unfairly competing with for-profit, taxpaying entities by operating a business without paying taxes on it," could have hit Romney at up to 35 percent.

The Romney campaign seems unlikely to release any more information about his finances, but that hasn't kept reporters from digging it up. Bloomberg, for instance, analyzed securities filings to report last Thursday that Romney has set up a type of trust known as an "I Dig It" trust — a legal way for Romney to avoid estate and gift taxes and pass some of his fortune onto future generations.

And the New York Times shed a bit more light on Romney's offshore holdings on Tuesday. The Times obtained documents that included a confidential offering memorandum for an offshore fund in which Romney's wife, Ann, has an interest. The memo states that the fund is designed to "accommodate qualified non-U.S. investors and U.S. tax-exempt investors" — making it, in other words, a tax haven. A similar fund in Delaware, the memo noted, would likely be hit with the unrelated business income tax.