Romney's gigantic $100 million IRA

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http://www.cnn.com/2012/07/18/opinion/kleinbard-canellos-romney-tax/index.html

Why won't Romney release more tax returns?By Edward D. Kleinbard and Peter C. Canellos, Special to CNN
updated 12:50 PM EDT, Wed July 18, 2012

Editor's note: Edward D. Kleinbard is a professor at Gould School of Law at the University of Southern California. He is the former chief of staff of Congress's Joint Committee on Taxation. Peter C. Canellos, a lawyer, is former chair of the New York State Bar Association Tax Section.

(CNN) -- By announcing that he will release no further tax returns beyond his 2010 and 2011 returns, Mitt Romney appears to have exempted himself from the proud bipartisan tradition of presidential nominees displaying genuine financial candor with the electorate. snip

Second, Romney's $100 million IRA is remarkable in its size. Even under the most generous assumptions, Romney would have been restricted to annual contributions of $30,000 while he worked at Bain. How does this grow to $100 million?

One possibility is that a truly mighty oak sprang up virtually overnight from relatively tiny annual acorns because of the unprecedented prescience of every one of Romney's investment choices.

Another, which on its face is quite plausible, is that Romney stuffed far more into his retirement plans each year than the maximum allowed by law by claiming that the stock of the Bain company deals that the retirement plan acquired had only a nominal value. He presumably would have done so by relying on a special IRS "safe harbor" rule relating to the taxation of a service partner's receipt of such interests, but that rule emphatically does not apply to an interest when sold to a retirement plan, which is supposed to be measured by its true fair market value.

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1. Bain had a penchant for buying up distressed and failing companies.

This strikes me as clutching at incriminating straws. A nice fantasy, but an alternative seems even more likely.

Bain Co.'s original modus operandi was as turnaround guys. Go in, hack away all the parts of a company that they didn't think was helping, and let the resulting "right sized" company be profitable. They consultants. Nothing more.

Bain Investment was a spin off to leverage that skill. Buy up a company or corporation that wasn't worth much. You want the debt to be near the level of assets. You want the stock to be a dollar or less. You take it over, do the "Bain magic" as turnaround guys, and then decide: If it's stock, you might sell high because the annual dividends aren't probably where the bit payoff is. If it's a company, you want the profits or to sell at the top.

In 2000 we had NASDAQ and the NYSE crash. Now, if you had an IRA in the '90s and you saw good investments coming along, you might have been lucky and sold after the longest bull market in a long, long time. Then if you were liquid during the crashes, you might stay liquid until you move into a known investment. Your own company. Doesn't sound silly. Sounds like something Romney may well have done.

We know Romney was heavily invested in Bain in 1999; he says it took him a few years to disentangle from Bain. Look at a chart of Bain's assets. You will see a growing Bain in the '90s. Then, in 1999 or 2000 Bain's assets skryrocked. If you have to be heavily invested in a company for 3 years, you want to be invested in a company who's net worth is skyrocketing.