* More than a quarter of income from sources abroad
* Investments in Bermuda, Cayman Islands, elsewhere
By Lynnley Browning
Sept 25 Mitt Romney and his wife, Ann, more than
doubled their investment income from foreign sources in 2011
versus 2010, i ncluding 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.
TAX BREAKS LEGAL
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 Nov. 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
FOREIGN INVESTMENTS FARE BETTER
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
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
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.