This story is part of a package on Mitt Romney's Bain holdings. For the full report, go here.

Vanity Fair, the Associated Press, and others have reported a great deal on the extent to which Romney's wealth has been routed into offshore accounts, including a Bermuda shell corporation wholly owned by Romney and a secret Swiss bank account. Eight of the entities we've obtained documents for are based in the Cayman Islands; Romney's 2011 holdings in them amounted to at least $4.6 million (though the actual number could be many times higher).

The audited financial statements we've obtained from those offshore funds are refreshingly clear on the tax consequences of not being located in the United States. Here's how the 2009 audited financial statement for Bain Capital Fund VIII LP, a $3.7 billion fund in which the Romneys had invested more than $1 million as of 2011, put it:

The Partnership is a qualified intermediary and intends to conduct it operations so that it will not be engaged in a United States trade or business and, therefore, will not be subject to United States federal income or withholding tax on its income from United States sources.... Under the current laws of the Cayman Islands, there are no income, estate, transfer, sales, or other Cayman Islands taxes payable by the Partnership.

All the other Cayman funds have similar language in their statements. Bain Capital Fund VIII LP recorded a $643 million net increase in capital for the nine months ended September 2010 from its investments in Burlington Coat Factory, FleetCor, and other American (and international) firms, and distributed $572 million of that to its partners. The fund's manager, Bain Capital Partners LLC, is a Delaware corporation located at Bain Capital's Boston headquarters. It is of course breathtakingly routine and legal for hedge funds and equity funds (and blog companies!) to locate themselves in the Cayman Islands for tax, regulatory, and privacy reasons—Romney claims the funds are in the Caymans to allow foreign investors access—but the idea that Bain's funds aren't "engaged in United States trade or business" is a laughable fiction.

A perhaps less well-known, and sketchier, method for avoiding taxes is something called an equity swap, and several of Romney's funds make use of the trick, according to the documents. Simply put, equity swaps are agreements to exchange the gain or loss on a particular set of assets without actually transferring ownership. According to a 2008 Senate Finance Committee report, they are also a "key type of transaction used by U.S. financial institutions to help offshore clients, including offshore hedge funds, dodge payment of dividend taxes." The New York Times reported in 2010 that the IRS is scrutinizing equity swaps as a tax avoidance scheme, because the agency "suspects that the banks are disguising who owns stock[s] in order to help their offshore hedge fund clients avoid the withholding tax — a tax the banks are supposed to collect."

Four of the equity and hedge funds Romney invests in engage in equity swaps, according to the documents. Absolute Capital Return Partners LP, a $929 million fund in which the Romneys had invested $1.25 million as of 2011, entered into equity swap contracts worth $288 million in 2009, recording a $13 million profit on the deals, according to its 2009 audited financial statements. (Absolute Capital Return is organized in Delaware, but two offshore entities—Absolute Capital Return Cayman Limited and Absolute Capital Return Cayman PA—own 21% of the partnership.) Viking Global Equities LP and Taconic Capital Partners 1.5 LP, two hedge funds that the Romneys are invested in via a Goldman Sachs so-called "fund of funds," also reported equity swaps in statements we obtained.

The documents are also chock full of in AIVs, or alternative investment vehicles—holding corporations specifically established to help specific partners avoid taxes (or other legal issues) on specific investments. According to Bain Capital Fund IX LP's 2009 financial statements, the fund had diverted $1.5 billion of its funds to 18 AIVs established "to accomodate tax, legal, or similar concerns" of its partners, with evocative names like "Bain Capital (SSS 1-F) LP."

Again, offshore shell partnerships, equity swaps, and AIVs are routine tricks that the hyper-wealthy use to minimize their tax exposure. And they are one of many reasons that Romney has paid just 13% in federal taxes over the last ten years.

If you have any thoughts on, or information about, these documents, please enter the discussion here.

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