There's an excellent TPM item quoted at another thread that hasn't gotten much attention. It's a description from someone with experience in equity funds. Here's the key part of the explanation:
http://talkingpointsmemo.com/archives/2012/08/missing_the_key_issue.php?ref=fpblg
The corporate structure of most private equity firms is such that there is a management company (holding company) above a set of LLCs or limited partnerships which are the actual funds investing the capital and collecting the fees/distributing the profits. Romney was both a general partner in the funds and the sole shareholder of the management company.
The management company shares are generally considered to have relatively nominal value (i.e. you can conceivably put them into an IRA) as there generally isn’t a lot of (or any) income/revenue associated with them — however, since the management company owns the brand name and controls the funds and all hiring/firing/compensation decisions (within Bain Capital), if Romney’s partners wanted to continue using the name “Bain Capital” and take over control of the private equity firm and funds in the future, they would have to buy back Romney’s shares over a period of several years for hundred+ of millions of dollars. This is not uncommon in private equity firms undergoing an ownership transition. Since these shares (could) have been contributed to an IRA over the years, the Romney’s income 2002 to 2009 would largely be from his partners at Bain buying back shares that he’s already contributed to his IRA, and just like any trading you do in your IRA, the sale of these shares would be tax free until after he turns 65 (and/or withdraws from said IRA) and he’d pay zero income taxes on that.
What fascinates me about this explanation is that it seems to tie together three parts of the Romney story:
1 - How he could have up to $100 million in an IRA when you can only put in a maximum of $30,000 a year.
2 - How he could pay little or no taxes for ten years.
3 - Why it would have taken three years (from 1999 to 2002) for him to negotiate the terms of his departure from Bain Capital.
(On edit: Add #4 -- why Harry Reid says Romney has to be worth a lot more than $250 million.)
Item #3 is particularly interesting, because people have tended to assume Romney's version of why it took so long is a lie and that he never really meant to leave Bain until he decided to run for governor of Massachusetts. But given the description at TPM, I'm prepared to believe it really did take three years, first for his tax professionals to work out the most advantageous terms for his departure and then for him to negotiate over those terms with his former partners.
But if this is the case, and if the main source of Romney's income from 2002 to 2009 was his former partners paying hundreds of millions of dollars to buy back shares he had placed in his IRA (at nominal value), then he would effectively have been locked into the deal. There would be no way to change it when he started running for president in 2007. There would be no way he could pretty things up by simply foregoing a few loopholes.
And now he's stuck, and all he can do is lie and conceal.
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