{"id":15388,"date":"2012-10-17T09:05:54","date_gmt":"2012-10-17T13:05:54","guid":{"rendered":"http:\/\/www.technologyinvestor.com\/?p=15388"},"modified":"2012-10-17T09:16:43","modified_gmt":"2012-10-17T13:16:43","slug":"back-to-the-mattress-or-maybe-luxembourg-or-maybe-not","status":"publish","type":"post","link":"https:\/\/www.technologyinvestor.com\/?p=15388","title":{"rendered":"Back to the mattress, or maybe Luxembourg? Or maybe not."},"content":{"rendered":"
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The world is awash with money. I hear more and more talk of The Mattress Bank<\/strong><\/em> as the only place to put your money — given the paucity of returns in places like savings accounts, money market funds, muni bonds, etc.<\/p>\n

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Many of my friends are keen to put some of their money into sound startups. This may be today’s oxymoron. And for most of them it is. But the flood continues. Everyone is starting a new company. And many of them are being financed. If you do start something and your presentation ends up on my desk (as many do) and here I”m begging, please don’t waste my time with this sort of drivel (I’ve disguised their name). These were the first few sentences of the presentation:<\/p>\n

XYZ Equity International Inc. was incorporated on October 1, 2010 as a Nevada Corporation for the express purpose of acquiring\u00a0 XYZ Global Equity Partners Plc.<\/p>\n

XYZ GE Partners Plc., an integrated corporate finance company, was set up in 2009 to address short comings an expanding business faces with a full spectrum of facilities to help companies succeed in their growth and prosperity.<\/p>\n

The company seeks to enable small to medium sized companies develop their full potential by providing access to capital and bringing the public financing sector into the mainstream of business, and “raising the bar” in terms of quality and breadth of service to the entrepreneur.<\/p>\n

Those three sentences will put any self-respecting angel investor to sleep in fewer than 20 seconds. They did with me.<\/p>\n

You think it’s also possible to write these things with realistic financial projections?\u00a0 I got one yesterday which showed an EBITDA of minus $920,000 this year and a positive EBITDA of $25 million by 2017. No one can grow that fast — unless you’re the newest Google, which this one surely is not. For that matter, I’m having trouble trying to figure out exactly what this one does.<\/p>\n

Did I tell you about another one that has a great product — on paper — but can’t get it working on my iPhone, despite a week or so of trying.<\/p>\n

Oih.<\/p>\n

Doesn’t anyone understand that angel investors have other more important things to do — like play tennis.<\/p>\n

How does Mitt Romney pay so little (14%) in federal taxes?<\/strong><\/span> We don t completely know. His various tax-saving techniques may be one reason he’s only released two years of his tax returns. Personally, I’m less concerned about the techniques — much more concerned as to whether I could use some of them, too. Rolling Stone (the magazine) did some research. It found a lot of Romney money and deals in overseas tax havens. Techniques include:<\/span><\/span><\/p>\n

+ Swiss bank accounts.<\/p>\n

+ A corporation owned by Romney in Bermuda. It participated and benefited by some of Romney’s biggest deals.<\/p>\n

+ Bain has subsidiaries in Luxembourg, a favored European tax haven (and according to my friends, the richest place in the world, as measured by GDP per citizen). Profits get passed through them and effectively bypass U.S. tax laws, somehow.<\/p>\n

+ Money in the Cayman Islands. Rolling Stone says Romney “has nearly $30 million stashed in at least half a dozen Bain Funds in the Cayman Islands, where, as one filing boasts, are free from ‘income, estate, transfer, sales or other Cayman Islands taxes.'”<\/p>\n

+ “Romney has stockpiled as much as $87 million in his IRA – even though contributions to such retirement accounts are limited to just $30,000 a year.” Says Rolling Stone, “Romney also padded his IRA by investing in “blocker funds” that Bain has set up in the Caymans. Such funds attract tax-exempt investors – like college endowments or Romney’s IRA – that want to avoid paying the Unrelated Business Income Tax, a 35 percent penalty designed to prevent tax-exempt investors from having an unfair advantage over for-profit businesses in private-equity deals. But by buying shares in offshore blocker funds that then invest in Bain and other takeover artists, investors like Romney bilk the Treasury out of $100 million a year.<\/p>\n

+ The carried interest tax entitlement. Here’s how that works, according to the magazine, “Bain partners earn a cut of the profits from the investments they manage \u2013 usually 30 percent. This “carried-interest” is not a return on any personal investment they made \u2013 it’s just another form of compensation, like an ordinary paycheck. Yet under the carried-interest loophole, the earnings are taxed at the capital gains rate of 15 percent, rather than the income-tax rate of 35 percent. (They’re also completely exempt from payroll taxes, which support Social Security and Medicare.) “When Romney says, ‘I have a low tax rate because most of my income comes from investments,’ that’s not really true,” says Fleischer. “He’s receiving carried interest in exchange for past services.”<\/p>\n

Indeed, more than a decade after he left Bain, Romney is still booking carried interest as though he were actively leading the firm. Ann Romney’s blind trust also claims carried interest, for allegedly “performing services” for a Bain fund in the Caymans. In the past two years alone, the loophole has allowed the Romneys to dodge $2.6 million in taxes.<\/p>\n

+ Fee fakery. Says Rolling Stone:<\/p>\n

Bain also uses a scheme known as fee conversion to transform smaller management fees – which are supposed to be taxed as regular earnings – into investment income taxed at only 15 percent. A Bain manager simply “waives” his right to his fee and is instead staked an investment of equal value in the private equity fund. Because the manager can then cherry-pick from the fund’s investments, he is virtually guaranteed a rich return – flouting the spirit of the lower tax rate on capital gains, which is designed to reward investors who take risks with their money. “Because they didn’t receive the cash, they claim that it’s not a taxable event,” says Fleischer. “It’s not legal.” New York’s attorney general has launched a criminal investigation into the practice.<\/p>\n

Romney denies he took part in such waivers, which may have robbed the Treasury of up to $220 million. But according to Fleischer, Romney’s financial records suggest he “benefited personally from fee conversion.” He also served as the sole shareholder in the firm that set up the deals, making him legally responsible for determining how Bain structured them.<\/p>\n

+ Tax-free trust. Says the magazine,<\/p>\n

Romney has shifted enormous wealth – as much as $100 million – into a family trust, a fortune he doesn’t include in the $250 million estimate of his net worth. His campaign admits he paid no gift taxes in transferring assets to the trust, even though individual gifts above $13,000 are subject to taxation. A direct gift of $100 million would have incurred a tax hit of at least $29 million, according to Michael Graetz, a former Treasury official under George H.W. Bush.<\/p>\n

How did Romney skirt the limits on gifts? Tax experts believe that he made his contributions to the trust in the form of the carried interest he received from his Bain funds. For income-tax purposes, the assets were technically valued at zero, because the gains would not be taxed until the fund’s investments were cashed out years later. In reality, though, Romney could have sold his carried interest to a third party for millions – making it absurd for him to pretend that his gift had no market value. Yet even if the move was illegal, Romney has nothing to fear: Tax returns on gifts are almost never audited, and they can’t be challenged at all after three years.<\/p>\n

Romney also used a scheme called an “intentionally defective grantor trust” to dodge the gift tax. Instead of having the trust pay taxes on its profits, Romney pays the tax bill himself. That keeps more money in the trust – amounting to another massive transfer of wealth that evades the gift tax. Even worse, the trust is exempt from the estate tax – meaning Romney’s heirs will eventually pocket some $31 million they would have owed in taxes had he not siphoned off his fortune into the trust, tax-free.<\/p>\n

The article is titled,<\/p>\n

Mitt Romney’s Tax Dodge<\/strong>
\nA guide to how the multimillionaire twists the law to hide his massive fortune – and avoid paying his fair share in taxes<\/p>\n

I don’t care whether you think\u00a0 Rolling Stone, the magazine, is left-wing pinko commie, or not. I”m publishing excerpts today because I’m curious as to whether you\u00a0 (and I) can learn something to save on our taxes. So far, I’m not optimistic. These techniques seem to available only to the super-rich, of which I’m sadly not one. You can read the entire article here.<\/strong><\/a><\/p>\n

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Harry Newton whose laddered muni bonds are coming due (as they’re meant to) and being paid off. Great I got the money back. But how about replacing them and adhering the much-vaunted Muni Bond Ladder Theory I got a bid on a New York City general obligation bond yesterday. It pays 3 1\/8% and comes due in 2032 — twenty years from now. Oih. back to the mattress.<\/p>\n

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The world is awash with money. I hear more and more talk of The Mattress Bank as the only place to put your money — given the paucity of returns in places like savings accounts, money market funds, muni bonds, etc. Many of my friends are keen to put some of their money into sound […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-15388","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts\/15388","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=15388"}],"version-history":[{"count":0,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts\/15388\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=15388"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=15388"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=15388"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}