In the interest of the Private Equity sector, perhaps Mitt Romney should simply release his taxes before progressive leaders in states like New York make tax avoidance a crime. It is reported that Romney took a apparently completely legal deduction of hundreds of thousands of dollars in Private Equity partnership interest and expenses. The big risk for Romney is his assertion that he is not an active participant in Bain Management and, if so, may not properly be able to claim said deductions.
The greater issue for Private Equity investors is that Mitt Romney’s refusal to release his tax returns though running for the highest office has attracted the scrutiny of powerful legal interests such as NY Attorney General Eric Schneiderman who has now begun investigating several Private Equity firms and has issued multiple subpoenas as well. Although those subpoenaed are comforted in the knowledge that the investigation is civil rather than criminal at this juncture, one wonders how long this will remain so. The progressive NY Attorney General has stepped into the regulatory vacuum that the SEC is simply too compromised to occupy.
The increased scrutiny of the management fee waiver programs which transmogrify ordinary income into capital gains – taxed at far lower rates, is an unintended side affect of the Romney tax issue. We will all, except the lawyers, wish that he had simply released multiple years of tax information and spared the citizenry of that foul mix of lawyers and politics.
It is not surprising that Bain Capital stands among those first sent subpoenas. The list includes the most prominent firms in the industry including Apollo Global and KKR. The practice of managerial fee waivers will doubtless now face challenge in the courts.
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Joseph Jett
Managing Partner - Jett Capital Management LLC,
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