I found a possible answer on Statement 35. This statement shows the same 10-year history as Statement 30, again in the passive category, except this time under the AMT. As before, in every year except 2009, Romney claims a credit for the full amount of the foreign taxes paid. The difference is that instead of claiming a zero foreign tax credit for 2009, as was the case on Statement 30, he claims a $71,069 foreign tax credit against his 2009 AMT tax liability.
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According to both Statement 30 and Statement 35, foreign taxes paid in 2009 amounted to $81,461. Per Statement 30, however, none of this was claimed as a credit against federal taxes computed the normal way while, according to Statement 35, $71,069 was claimed as a credit against the AMT.
So clearly there was foreign taxable income under the AMT system in every year of the 10-year period including 2009. It's possible that under the regular tax system there was foreign taxable income every year -- except 2009. It's possible. On the other hand, the reason the credit wasn't claimed in 2009 against federal income tax computed the normal way could well be that there was no federal income tax due to an NOL deduction. That would be consistent with the state refunds from prior years that I found on Statement 4.
Using my tax software, I entered a $5.25 million nonpassive loss into a hypothetical Romney 2009 income tax return, with amounts otherwise based on the 2010 year except without the capital gains. I computed zero income tax under the regular system, meaning no need for a foreign tax credit, but found that, on the same return, the AMT was high enough, due to high miscellaneous deductions, to fully absorb the foreign tax credit. It was high enough to absorb $71,069 but not much higher.
TAXES FOREIGN AND DOMESTIC
I found some provocative information on another statement. Statement 32 shows the history of foreign taxes paid, and credits claimed, based on general category income. General category income, on a more typical tax return, would tend to be wages or other earned income.
According to Statement 32, there were no foreign taxes paid or credits claimed in connection with general category income from 2000 through 2006. But such credits appear starting in 2007 and continue through 2009. They cease in 2010. What happened? Did Romney come out of retirement, start earning a wage, and retire again in 2010?
The more likely explanation is that the foreign tax paid on foreign income exceeded the highest U.S. tax that could be paid on the income in the years of 2007, 2008 and 2009. Under those circumstances, passive income flips to general category income.
The foreign tax credit claimed for 2008 is particularly noteworthy. Including the credit on general category income, foreign credits add up to $710,076, considerably more than any of the other years in the 10-year period disclosed.
Given that the foreign tax likely exceeded the U.S. tax on foreign income in 2008, it is possible that the only way Romney could support his claim that he paid more than 13 percent in 2008 would be to count the foreign taxes paid as part of his total tax.
Review of the foreign tax credits led me back to Statement 4 and that large state income tax refund from prior years. Although states do not tend to allow foreign tax credits, they do frequently allow deductions for the foreign taxes paid. The state refunds on Statement 4 might have been generated by a large subtraction on a state return of foreign taxes paid in 2008, rather than by a 2009 NOL, with the refund arriving in 2010 due to a delay in processing.
In summary, the 2010 federal return provides some evidence that the U.S. tax paid on the 2009 and 2008 returns may have been astonishingly low, and that perhaps Romney paid more foreign tax in 2008 than U.S. tax.
It's remarkable the lengths some people will go to avoid income taxes (and many within our profession have acted as enablers), repatriating their investments, committing what feels morally like a kind of tax treason. I know -- all Romney's rich friends are doing it, too. Or did Romney help pioneer this form of tax-motivated foreign investing, just as Bain was in the vanguard of U.S. companies shipping American jobs over sea? I am not sure which would be the most disheartening.
Am I as guilty as Romney? I had that investment in the foreign mutual fund after all. The difference is that I invested in the Canadian mutual fund because, at the time, I was aware of no other way to purchase gold bullion. The type of investment drove my decision to buy a foreign-based mutual fund. With Romney, the foreign investments, in places like the Cayman Islands, are likely tax-avoidance schemes (hence the Form 8886 filings). My decision to purchase a foreign investment increased my tax liability.
(Full disclosure: I contributed my profit from the sale of the Canadian mutual fund to the Obama campaign.)
Harry Bose, CPA, is a partner with read & Bose PC, in Pendleton, Ore.