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Don’t Forget About That Other Curious Romney Account
BRIAN BEUTLER - TPMDC
JULY 6, 2012, 10:55 AM

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After a six-month hiatus, a Vanity Fair article about Mitt Romney’s tangled web of investments has thrust his foreign holdings and complicated tax strategies back into the center of the 2012 campaign. But questions have persisted for months about an individual retirement account held by the Romneys valued at upwards of $100 million — a stunning amount for a savings vehicle designed to provide middle class retirees comfortable, but non-lavish retirement.

His IRA raises two key questions, both of which his campaign has consistently declined to answer: How, despite a $6000 legal limit on annual contributions to an IRA, did Romney’s IRA grow to over $100 million? And did he avoid any U.S. taxes on its enormous returns?

Tax law experts we spoke to explained to us how an IRA could in theory reach the size of Romney’s. And though it’s impossible to know — without more information from Romney — whether he’s avoided any taxes, the experts explained how a massive IRA could easily benefit from legal avoidance of one obscure U.S. tax.

First, on size.

As Reuters reported when the controversy first emerged in January, Romney’s IRA likely thrives on a strategy of gaming the valuation of investment partnerships in a way that yields outsized dividends.

“An Internal Revenue Service loophole … allows investors to undervalue interests in investment partnerships when first putting them into an IRA,” Reuters reported. “These assets can produce returns far in excess of those that could be generated from other investments made at the capped level. An investor could even set an initial value for a partnership interest at zero dollars, because under tax regulations an interest in a partnership represents future income, not current value.”

That’s only one half of the equation. According to Daniel Shaviro, a tax expert at New York University, those investments would have to thrive.

As Shaviro explained, “borrowing to hold a stock portfolio is not necessarily a magic formula for wealth, or all of us would go out there and borrow as much as we can to invest in the stock market. The key, presumably, is that the stocks the IRA held performed extremely well (and that the IRA could hold more of the high-performing stock once it borrowed than if it just used the IRA contributions.”

There’s a third variable too...

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More: http://tpmdc.talkingpointsmemo.com/2012/07/romney-offshore-ira-tax-avoidance.php