By David Cay Johnston
January 24, 2012
So I asked 10 lawyers in seven states how they might advise a new client who is launching an investment partnership – someone like Romney. While we do not know just what Romney’s lawyers advised, the 10 lawyers laid out nearly identical scenarios.
FIVE PIECES OF ADVICE
(1) DEFER TAX: Congress requires that most workers have income taxes withheld from their pay, but it lets investment partnership managers like Romney earn compensation now and pay taxes later, decades later. It’s called “carried interest.” Paying a tax in the future reduces its cost. Deferring a tax for three decades is the same as not paying it, the lawyers said, because the value from investing the money is far greater than the tax eventually paid. Some of the lawyers said the ability to defer will surprise people who are used to having taxes withheld before they get paid. Mitchell Gans, who teaches tax law at Hofstra Law School in Long Island, N.Y., said it takes only a minute to make clients comfortable with the idea “because it goes with the psychological phenomena that we would all rather pay later than sooner.”
Read the full article at reuters.com.