Friday, September 21, 2012

The letter from Romney's tax lawyer

The Romney campaign also published a letter from the Romneys' tax lawyer, R. Bradford Malt at Ropes & Gray, LLP.  Ropes & Gray is a prominent and reputable Boston law firm, which many would call the leading firm there.  While I don't know Mr. Malt personally, he apparently is the Chairman of their Management Committee and founded their private equity practice.

Among the main points in his letter, other than previewing things from the PriceWaterhouseCoopers letter (which it preceded by several hours), are the following:

(1) He explains the point about not claiming more than $1.75 million of allowable charitable contribution deductions, noted by me in an earlier post, so that the effective tax rate on the return wouldn't dip too low. 

(2) He states that all of the investments within certain trusts "are managed on a blind basis by me, the trustee.  I have sole responsibility for making, holding, and disposing of the investments."

(3) "During the 20-year period covered by the PWC letter, Gov. and Mrs. Romney paid 100 percent of the taxes that they owed."

As to point 3, it would be pretty shocking if Romney's tax lawyers at Ropes & Gray didn't believe this.  But it is very far from being self-verifying.  Keep in mind that, for the last 10-plus years, there have been a number of very aggressive tax reporting practices that became commonplace in the private equity world.  One was using lowball valuations of special, non-publicly traded stock.  Another was aggressively converting (or purporting to convert) ordinary income from fees into capital gains, via late-in-the-day conversion of an impending fee right into a fund payment right that is supposedly risky enough to warrant treating the ultimate realization as a capital gain.  I don't doubt that Mr. Malt believes in good faith that anything of this nature on the Romney tax returns was legally correct.  But that is not to say that either the IRS, or numerous tax experts who are not representing people in the private equity industry, would agree.


jbp said...

Just a note - Brad Malt is actually a corporate lawyer at Ropes, not a tax lawyer. I do have the sense that he's had the most personal contact with Romney over the past ten years, but if Romney and the other Bain partners got tax advice from Ropes and Gray, it didn't originally come from Brad Malt, although it may have filtered through him, as he was the client lawyer for Bain.

Daniel Shaviro said...

Thanks. I had thought of changing my blog post slightly when I realized this, but I assume that Malt has been talking to Ropes & Gray tax lawyers who handle that side of the firm's work for Romney, and presumably represents their views