Another reason we need to see the 2009 return
Via Mark Maremont (WSJ):
As part of his Bain retirement agreement, Mr. Romney was granted the right to a piece of the firm’s management fees collected for a decade, ending in early 2009. Given that, many observers assumed the GOP candidate must be one of those at Bain who participated in the tax strategy.
According to the person familiar with Bain’s retirement agreements, however, Mr. Romney didn’t directly share in the management fees collected by active Bain partners. Instead, as a retiree, Mr. Romney was entitled to an annual cash payout based on Bain’s profits, using a formula that takes into account overall management fees collected by Bain.
Even if active Bain partners waived some of their management fees, the action had no impact on the payments due to Mr. Romney, this person said. The same was true for a handful of other Bain retirees with similar arrangements, the person said.
Doesn’t quite answer the question — how did Romney report the payments? Ordinary income or capital gain?
Questions for the fund agreement experts out there–
If Romney was a partner in the partnership, and the partnership was allocating Romney income according to a formula, wouldn’t he report this allocation with the same character as the partnership (i.e. mostly capital gain from fees converted into GP co-investment)?
If, on the other hand, the partnership made a special allocation of ordinary income to Romney, they would have allocated extra capital gains to other partners to balance the books. Depending on the tax profile of each partner, this might not work under the 704 regs.
On the third hand, maybe the allocation to Romney was treated as a 707(a)(2)(A) payment to Romney not in his capacity as a partner.