A leading reporter recently asked me to take a look at Mitt Romney’s 502 page tax return. What resulted was a fascinating journey that will hopefully initiate a common sense dialogue on needed tax reforms. Newt Gingrich’s return was also analyzed, yet revealed no substantive tax policy issues.
To be clear, I am a strong critic of large private equity and hedge fund “buyout” firms. To me they are clearly no more than sophisticated tax deduction pyramid schemes. Others might argue they are the very definition of crony capitalism and via “club deals” are creating abusive monopolies that are destroying open markets.
That said, it is also true that these large private equity firms pay very close attention to my work and jokingly refer to me as Sherlock’s Sherlock when it comes to financial analysis. So here we go.
Photo of Mitt Romney and former Sprint CEO Bill Esrey
My first advice to Romney, after reviewing his return, would be to read about Bill Esrey, pictured above, the former CEO of Sprint, and his current battles with the IRS over tax fraud. Esrey paid his trusted advisor, Ernst and Young, millions of dollars to set up tax shelters that were later ruled to be illegal and abusive, leaving Esrey with a $100 million bill to the IRS. Since Esrey’s primary asset, Sprint stock, has lost most its value, he may have little chance of repaying the debt. He later resigned as CEO of Sprint.
The real tale of Romney’s tax return is not about his income, but rather his tax deductions taken and whether a significant accounting and tax fraud is being manipulated by his “trusted advisor,” Pricewaterhouse Coopers (PWC). This firm is also the auditor of record for both Bain Capital and Goldman Sachs in addition to preparing the tax returns for key partners such as Romney. Pricewaterhouse Coopers also audits many key Bain portfolio companies including Domino’s Pizza. (more…)