Since 1996, Mitt Romney has been deferring some of his taxes through something called a charitable remainder unitrust, a tax shelter Congress cracked down on little more than a year after Romney set his up. As Bloomberg describes it, the trust “allowed rich people to take advantage of the exempt status of charities”—in Romney’s case, the Mormon Church—“without actually giving away much money.” Since Romney’s trust had been established before Congress clamped down, he is not only perfectly legal, but also exempt from new rules that would require he donate more to the church.
When selling assets for a profit, charities typically don’t owe capital gains taxes; by setting up this trust, Romney basically benefits from that same allowance. It’s like “renting” a charity’s “exemption from taxation,” says one lawyer who set up many such trusts. As for the donation part, that’s “just a throwaway,” the lawyer says, adding that his goal when he set up the trusts was to make sure “the value dedicated to charity was as close to zero as possible.” So, Romney’s money has been growing tax-deferred, and he receives yearly cash payments. Anything left when he dies will go to charity, but at this point that amount will be less than 8% of the initial contribution. Click for more. (Read more Mitt Romney stories.)