Here's the full letter, published Oct 29, 2012 (I received it from the author, with the words "at your service"):

Did Romney Cheat on His Taxes?



To the Editor:



When he released his 2010 tax return, Romney said that he had paid all the tax that was legally due. There is good reason to be skeptical.



Romney is reported to have a trust for his kids with more than $100 million in it, and his retirement plan trust is reported to have $87.4 million in it. Both of those great sums are supposed to have grown from modest contributions by Romney to the trusts. The gift to the kids’ trust was supposed to have been worth less than $1 million when he set it up, or gift tax would have been due, and the Romney campaign says no gift tax return has been filed. Contributions to his retirement trust were capped at $30,000 when he was working for Bain Capital.



Even if Romney’s trustees were the world’s smartest stock pickers, a contribution of $30,000 a year for the 15 years he worked for Bain Capital would not grow to be worth $87.4 million by 2012. Warren Buffett, who may well be the world’s smartest stock picker, made 14 percent a year over that period, but under his hand the pension contributions would have grown only to $7.4 million — less than 10 percent of the results that Romney says were achieved.



Romney’s main asset was his partnership interest in Bain Capital. Bain Capital was a leveraged buyout fund, which made its money by buying all of the stock of target companies and replacing most of the stock with debt. The replacement of stock with debt got rid of almost all the corporate tax of the acquired corporations because the interest on the debt was deductible. Getting rid of corporate tax by the acquisition typically meant that Bain capital would increase the value of its investment in the small residual stock it held by two to nine times, just by taking over the target company. The big multiple increase in value was immediate. The subsequent growth in value of the acquired stock would be more modest and losses were common. When Romney made his contribution to the kids’ trust and his retirement trust the enhancement had already occurred. It is likely that the partnership interests were worth $25 million to $75 million when contributed, judging by what a smart buyer would pay for them, which is too large to fit under the $1 million gift tax exemption or the limitations on contributions to the retirement trust.



Misvaluation of that order of magnitude is subject to a penalty of 400 percent of the tax at issue, without regard to the subjective state of mind of the contributor. For Romney, the misevaluation penalty would be many tens of millions of dollars.



Romney made most of his fortune at the expense of the tax system by wiping out corporate tax on the acquired companies. Wiping out tax had nothing to do with improving operating income or jobs. Thus, he made most of his money at the expense of other current or future taxpayers, and while that may be distasteful, it was not illegal. But the misevaluation of his assets - an act which may have defrauded the federal government out of millions of dollars - is not simply playing the game: It is fraud, subject to tens of millions of dollars of penalty.



When you're asking the taxpayers to pay your future salary if you win the elective office you seek, shouldn't they have the right to know whether you've paid all your taxes?

Calvin H. Johnson

University of Texas

School of Law

Oct. 23, 2012