Romneys reported sharp gain in foreign income in 2011 tax return

Tue Sep 25, 2012 5:25pm EDT

U.S. Republican presidential candidate and former Massachusetts Governor Mitt Romney and his wife Ann leave Brewster Academy in Wolfeboro, New Hampshire August 27, 2012 after preparing their speeches for the Republican National Convention. REUTERS/Brian Snyder

U.S. Republican presidential candidate and former Massachusetts Governor Mitt Romney and his wife Ann leave Brewster Academy in Wolfeboro, New Hampshire August 27, 2012 after preparing their speeches for the Republican National Convention.

Credit: Reuters/Brian Snyder

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(Reuters) - Mitt Romney and his wife, Ann, more than doubled their investment income from foreign sources in 2011 versus 2010, including some sources in tax havens around the world, according to tax returns released by the Republican presidential nominee's campaign.

The Romneys reported $3.5 million in foreign income out of $13.7 million in 2011 adjusted gross income, the benchmark figure used to figure out taxes owed.

That compares with $1.5 million in foreign income on 2010 adjusted gross income exceeding $21.6 million, according to the Romneys' tax returns for 2010 and 2011.

That means the Romneys last year derived just over a quarter of their income from non-U.S. investments, such as funds and entities in Bermuda, Luxembourg, the Netherlands, Ireland, and the Cayman and British Virgin Islands, the returns showed.

In 2010, the Romneys' foreign income was just 7 percent of their adjusted gross income, which was much higher that year.

While the Romneys' tax strategies are legal, their large share of foreign-sourced income highlights the difference between their tax returns and those of average Americans.

Asked why the Romneys' foreign income had grown, a spokeswoman for the Republican candidate declined to comment.

Brad Malt, the partner at law firm Ropes & Gray who oversees the Romney's financial affairs, was traveling and could not immediately be reached for comment.

Their foreign income comes from dividends, interest, asset sales and carried interest - a special form of income received by partners in private equity funds and some hedge funds.


Romney is one of the wealthiest Americans ever to run for the White House. He released his 2011 tax returns on Friday under pressure from Democrats and amid scrutiny of his finances.

He has cited his success in business and investing as a key qualification in his bid to oust Democratic President Barack Obama in the November 6 election.

Romney co-founded private equity firm Bain Capital in 1984 and retains stakes in the firm's funds.

Obama and his wife, Michelle, also have foreign-sourced income, chiefly from book sales. Their investment income is almost entirely from U.S. sources, their tax returns showed.

Romney has estimated his net worth at between $190 million and $250 million.

The Romneys' tax returns highlight the degree to which wealthy investors like t he former Massachusetts governor u se preferential tax breaks for certain types of investments.

Those tax breaks include the 15 percent long-term capital gains tax rate on income from assets held for at least a year, and the 15 percent tax on carried interest. Wages, by contrast, are taxed at a top rate of 35 percent.

The Romneys' foreign income is shown on Form 1116 of their personal tax return. While the return has several Form 1116s, depending on the type of investment, the one that shows where the Romneys derive their foreign income is the one for passive investments, such as dividends and interest.

David Kautter, a tax and accounting professor at American University, said the best way to determine the role foreign earnings play in total income is to divide the Form 1116 figure for "gross income from sources within country" by adjusted gross income.


Despite the growth in their foreign earnings, the Romneys' adjusted gross income fell sharply in 2011 from 2010.

"What this tells you is that his foreign investments are doing better than his domestic ones," Kautter said.

Another sign of the role foreign investments play in the Romneys' wealth comes from foreign long-term capital gains, or profits from sales of foreign assets and receipts of carried interest from foreign entities.

Of $6.8 million in total worldwide long-term capital gains reported for 2011, $4.5 million, or two-thirds, came from foreign assets, according to their return for that year.

That disclosure comes on Form 8938, which investors with foreign assets had to use for the first time last year for certain foreign assets, preventing comparisons with previous years.

The Romneys' investments "are prudent for any investor of wealth," said Charles Sarowitz, a managing partner of Sarowitz Milito & Co., an accounting firm in Brooklyn, New York, that prepares returns for high-net worth and other investors.

Romney holds many investments in many funds run by Bain Capital. These and other investments are housed in his Individual Retirement Account, or IRA, as well as in three trusts.

The three trusts - one held by Romney, the second by Ann and the third a family trust - increased their investment activities with foreign entities last year, the 2011 trust returns show.

Overall, the Romneys received income from 50 foreign investment corporations last year, nearly three times the number in 2010, the returns show. (Additional reporting by Mark Hosenball.; Editing by Kevin Drawbaugh and Howard Goller. Desking by Christopher Wilson)

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Comments (4)
Gordon2352 wrote:
While it may be “business as usual” for the wealthy, I question whether we want this man as president of this country. Especially when the largest economic problem the US economy has today is the wealthy investing anywhere in the world except here. The US will not survive our wealthy class, and I see no point in giving one of them the “keys to the kingdom” on faith that he will do right for the 99% of us who are slowing going bankrupt.

Further evidence in the unsuitability of this man for president is his choice of Ryan for vice-president. Yet another of the same wealthy class who would destroy this country’s middle class without a second thought as to what will happen to this once-great nation of ours.

While I do not like what Obama is doing, I think a vote for Romney/Ryan for office is putting another large nail in the coffin of the American people.

What is happening in this country is simply wrong for the 99% and must be stopped, before we end up as another third world country stripped of its wealth by the upper-class!

Sep 26, 2012 10:04am EDT  --  Report as abuse
DLINID wrote:
All this means is he has a good investment adviser. And he was not forced by the democrats to release his return for 2011, he had to anyway. Why all the judgement and jealousy? I know why, Americans have been getting poorer and poorer the last four years and cant see any other way to cope than to lash out at those who are prospering. It will only get worse as the wealthy find ways to offshore their income as they do not want to invest in the US in this climate.

Sep 26, 2012 11:36am EDT  --  Report as abuse
Calvin2k wrote:
@DLINID “as the wealthy find ways to offshore their income as they do not want to invest in the US in this climate.”

OK then, but those investing overseas better not make accusations against the rest of us of being “unpatriotic.”

Sep 26, 2012 12:43pm EDT  --  Report as abuse
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