Why Mitt Romney can’t answer the tax-dodge questions like Michael Bloomberg did

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Mitt Romney has struggled, notably, to explain himself since the publication of stories by Vanity Fair and the Associated Press about his extensive investments in overseas tax havens.

It's not as if he's the first wealthy American politician to find himself in this situation.

Michael Bloomberg, for example, was forced to answer some similar questions back in 2010, when it was reported (in a story I helped out on) that the nonprofit he endowed, the Bloomberg Family Foundation, had transferred $300 million to a number of off-shore companies to avoid a levy called the Unrelated Business Income Tax.

Bloomberg's foundation was avoiding the very same tax (the UBIT, as it's abbreviated) Romney appears to have avoided. And the mayor responded at the time much as Romney is responding now, by noting that none of the investments were illegal. 

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"As far as I know, the investments that my money managers make are perfectly legal, they're fully disclosed and they're appropriate to maximize the assets which I'm giving away to charities," Bloomberg said at the time.

But there was a key difference between the cases, which explains why Bloomberg's answers more or less ended the story, and Romney's answers haven't.

Bloomberg's tax dodge was executed by and for his foundation, employing a technique that is relatively common among large nonprofits, including some of the country's leading educational institutions, like Yale and Duke. (It's common, but not universal: The Bill and Melinda Gates Foundation, for example, does not use such pass-throughs to avoid the UBIT, which imposes a tax of about 35 percent on nonprofits for certain types of outside investments.)

Romney's maneuvering, by contrast, was executed on behalf of Mitt Romney. He appears to have avoided the UBIT—which can apply to individual retirement accounts if they invest in debt-financed entities like, say, Bain Capital—by routing his personal retirement investments offshore. Romney's IRA is worth somewhere between $20 million and $100 million

It's impossible to say for certain whether Romney paid the UBIT tax without additional disclosures. But in theory, by using an offshore entity, Romney will essentially have been able to protect his money from American taxes until he begins taking distributions from the IRA.

It's a much more unusual accounting maneuver.

Bloomberg's primary money manager, the financier and former Obama car czar, Steve Rattner, who helped manage the investments for the mayor's foundation, said on Sunday that Romney's tax-avoidance techniques were like nothing he had ever seen.

"I'm a private-equity guy, and I'm aware of some of these ways to use the tax code, but I have never—" Rattner said, before being interrupted by "This Week" host Terry Moran.

"Do you have offshore accounts?" Moran asked.

Rattner pressed on.

"I actually was with a very prominent private equity guy last night who said he'd never heard of some of the things Mitt Romney has done in terms of putting money offshore, in terms of having a $100 million IRA, basically getting an interest-free loan from Uncle Sam on the taxes, on all that money, until he brings it home," he said.

Romney said in a radio interview yesterday, by way of distancing himself from the tax-avoidance strategy used on his behalf, that he doesn't even know where his investments are. But as long as his personal finances are such a mystery, the questions are going to continue.