Romney 'uses Mormon church loophole to pay lower taxes'

-Adapted from Daily Mail

Mitt Romney has benefited from a now-outlawed loophole that enables him to use the tax-exempt status of the Mormon church to reduce his own tax bill, according to an investigation by Bloomberg News.

The Republican presidential nominee, then the chief executive officer of Bain Capital, set up the arrangement in June 1996, the year before Congress clamped down on the practice. As someone whose arrangements were already established, he was allowed to keep them in place.

Called a charitable remainder unitrust, it is one of several strategies Romney has adopted to reduce his tax bill. Such tax avoidance is legal and common among very rich people but it has been turned into an issue by the Obama campaign.

In the second presidential debate, President Barack Obama slammed Romney for paying 'lower tax rates than somebody who makes a lot less'.

In this case, Romney used the tax-exempt status of Mormon Church to defer taxes for more than 15 years.

While Romney will benefit, the trust will probably leave the church with less than what the law now requires, according to tax returns obtained by Bloomberg this month through a Freedom of Information Act request.

Charities don’t usually owe capital gains taxes when they sell assets for a profit and trusts like Romney’s permit funders to benefit from that tax-free treatment.

'The main benefit from a charitable remainder trust is the renting from your favourite charity of its exemption from taxation,' Jonathan Blattmachr, a trusts and estates lawyer who set up hundreds of such vehicles in the 1990s, told Bloomberg.

When people  fund a charitable remainder unitrust or 'CRUT' they defer capital gains taxes on any profit from the sale of the assets, and receive a small upfront charitable deduction and a stream of yearly cash payments.

Similar to an individual retirement account, the trust allows money to grow tax deferred and like an annuity it also gives Romney a steady income. After the funder’s death, the trust’s remaining assets go to a designated charity.

The Romney campaign declined to answer written questions from Bloomberg about the trust. 'The trust has operated in accordance with the law,' a spokeswoman said.

Paul Comstock, a financial adviser to LDS Philanthropies, an arm of the Mormon Church, said that while he wasn’t familiar with the trust, Romney and his trustee might arrange to compensate the church for the lesser amount with other gifts.

'It may be that they’ve made provisions for the charity someplace else that will make up for what this isn’t going to give them.'

Romney has donated tens of millions of dollars to charities, principally the Mormon church.