First, time for some tax accounting! Yes, this is how the Son of BOSS tax shelter works for cheating on one’s taxes:
- Tax shelter promoter sets up two companies, Company A and Company B and funds each company with $50. Company A buys a briefcase for the $50.
- Client comes to promoter and says, “I have a $1.0 million capital gain.”
- Promoter says, “No problem, I can eliminate that gain for you by generating a $1.0 million loss to offset your gain.” Promoter devises the following plan:
- Client purchases the $50 briefcase from Company A by paying Company A $1,000,050!
- Client pays $50 in cash. In addition (here’s the tax shelter part), Client “pays” another $1.0 million by signing a promissory note (a promise to pay) payable to Company A for $1.0 million in 30 years . For tax purposes, Client purchased the briefcase for the cash payment and the promissory note, so the tax cost for Client’s briefcase is $1,000,050.
- Client then sells the briefcase to Company B for $50. Thus, economically, Client is made whole; Client paid $50 for the briefcase and sold the briefcase for $50. However, Client’s tax basis in the briefcase was $1,000,050 and by selling the briefcase for $50, Client incurred a $1.0 million loss! That loss will then be used to offset Client’s $1.0 million capital gain, effectively zeroing out his tax liability.
- Assume that Company B then sold the briefcase back to Company A for $50. Promoter is ready for his next client now that Company A has the briefcase and Company B has $50, and the pattern can be repeated.
Guess who tried to carry this off? Why Mitt Romney in the 1990s, that’s who. Mr Romney was brought in to head Marriott’s audit committee:
In his key role as chairman of the Marriott board’s audit committee, Romney approved the firm’s reporting of fictional tax losses exceeding $70 million generated by its Son of Boss transaction.
So let’s look again at a man who likes to use technicalities and reread this carefully constructed sentence:
I have paid taxes every year, and a lot of taxes, so Harry is wrong.
What taxes were they exactly? He didn’t say federal taxes did he?
This guy is nothing more than a sleazebag with an honest face.