By Alan Pyke From Think Progress

Illinois gubernatorial candidate Bruce Rauner (R) made part of his fortune from investments in a Caribbean tax haven, the Chicago Sun-Times reports. But because Rauner won’t release details on his tax filings it is impossible to tell just how much of his wealth comes from those offshore accounts.

The newspaper found five Cayman Islands-based investment funds among the dozens of income sources Rauner listed on state disclosure forms last year. Three of the five are funds set up by the private equity firm Rauner founded. Two others, including one that manages money for a large public pension fund in Illinois, are run by separate firms.

While Rauner’s income from each fund could be as low as $5,000 — the threshold for disclosure on the state forms — a more realistic guess would be in the millions of dollars. As a self-described member of the richest 0.01 percent of Americans, Rauner is unlikely to make chump change investments. Most funds of the sort the Sun-Times identified require minimum investments of $500,000 or $1 million dollars, a tax expert told the newspaper.

Rauner has released summary tax forms but has declined to disclose other paperwork that would allow tax experts to figure out how much of his wealth comes from the offshore holdings. A Rauner spokesman told the Sun-Times that the offshore locations of the investment funds do not affect the Rauners’ tax rates since they pay state and federal taxes on that income. But the success of the funds themselves, and their ability to pay dividends to both individual investors like the Rauners and institutional ones like pension funds, is enhanced by having roots in a tax haven.

The exotic Caymans linkage will draw further scrutiny to Rauner’s wealth and tax maneuvering. Like many very rich people around the world, the Rauners are able to manipulate the tax code in ways that reduce their tax rate without violating the law. Despite pulling in $108 million in taxable income from 2010 to 2012 — more than enough to qualify for the top federal income tax bracket with rates of 35 percent or more — Rauner and his wife paid an effective tax rate below 20 percent. That is mostly due to how the tax code treats investment income differently from wage income. Capital gains are taxed at far lower rates than salaries.

Rauner has also benefited from “an accounting maneuver that blurs the lines” between normal income and lower-tax investment income, the Chicago Tribune reported in July. The IRS is scrutinizing the “fee waivers” that private equity companies use to shift their partners’ income from higher-tax categories to lower-tax ones.

Rauner’s campaign has received more than $4 million in funding from billionaire financial sector colleagues. He has injected nearly $10 million of his own money into his race against Gov. Pat Quinn (D-IL). Quinn’s supporters are hoping to revive the same sorts of attacks on private equity and out-of-touch multimillionaires that helped sink Mitt Romney’s 2012 presidential campaign. But Rauner, who made national news over the winter when he called for lowering the state’s minimum wage, has enjoyed a steady lead over Quinn in summer polling.

IMAGE: A beach on Grand Cayman, one of several popular tax havens for U.S. companies to claim as home.

 

CREDIT: AP

For more on this story go to: http://thinkprogress.org/election/2014/08/02/3467059/rauner-tax-strategies-cayman-islands/

Related story:

Bruce Rauner channeled part of fortune to Cayman Islands

By Dave Mckinney From Politics. Sun Times

SPRINGFIELD — Multimillionaire Republican Bruce Rauner has channeled at least part of his fortune into the Cayman Islands, a Caribbean paradise long criticized as a tax haven for American investors, the Chicago Sun-Times has confirmed.

A Rauner spokesman insisted that the former private equity investor has met his legal tax obligations and properly disclosed to the federal government information regarding at least five investments by him or his firm in a country that has no income tax and a financial system cloaked in secrecy.

Rauner’s campaign has refused so far to release a full set of his most recent tax returns to corroborate that and perhaps show the extent and value of those investments in offshore companies. No one has suggested Rauner has done anything illegal. In fact, offshore investments among the wealthy have been a common practice in recent years.

For Rauner, consistently leading Quinn in mid-summer polling, it’s the same political issue that President Barack Obama used to his advantage against uber-rich Republican Mitt Romney in the 2012 presidential campaign.

Given the political optics, Rauner’s Cayman Island interests are raising questions about why, as a candidate for governor, he would keep any of his wealth in an island nation with a reputation for its pristine, palm-tree-laden beaches — and tax avoidance.

“I’d think someone who anticipates being in the public eye wouldn’t be in the Cayman Islands because the question to be asked is, ‘Why would you have invested there?’”   Richard L. Kaplan, a University of Illinois law professor and internationally recognized expert on U.S. taxation and tax policy.

Three of Rauner’s five Cayman Island holdings trace back to GTCR, the Chicago-based investment company that Rauner founded and headed until 2012 when he stepped down to ramp up his bid for governor.

The GTCR holdings did not involve the expenditure of Rauner’s personal funds and were set up among the partners of the firm, using equity stakes each had in the company as the basis for their investments, according to Rauner spokesman Mike Schrimpf.

Schrimpf explained the motive of GTCR in establishing an offshore presence and said the candidate’s tax obligations weren’t affected.

“The main GTCR funds are incorporated in the United States. GTCR creates offshore subsidiary funds when investing in non-U.S. companies,” Schrimpf told the Chicago Sun-Times.

“Doing so helps fulfill fiduciary duties to state pension funds and other investors. GTCR investments in domestic companies are kept in the United States,” he said. “Bruce’s personal tax rate and state tax obligations are not impacted by where the GTCR subsidiary funds are located.”

GTCR did not respond to a request for comment.

The Sun-Times compared investments Rauner listed on a state economic disclosure form he filed with the online corporate registry maintained by the Cayman Islands government.

Three of Rauner’s Cayman Islands investments are tied to his old firm: GTCR Golder Rauner II AIV Ironshore LP, GTCR Partners IX AIV Ironshore LP, and GTCR Partners X/A&C AIV LP.

A fourth Cayman Islands-linked investment was The Overlook Partners Fund LP, from which Rauner disclosed receiving a capital gain of at least $5,000 in 2012 on his state economic-interest statement. The Overlook Partners Fund is a non-GTCR-related investment fund for which Rauner’s personal funds were used, his campaign said.

On his economic-interest statement, Rauner also declared having at least $5,000 worth of stock holdings or deriving $1,200 or more in dividends from a fifth Cayman Islands-based entity, HSBC Holdings PLC. A campaign aide said that investment belongs to Rauner’s family foundation. The investment is also one in which every suburban and downstate teacher has a stake because the state Teachers Retirement System holds $67.2 million in HSBC stock.

In addition to their tax advantages, Cayman Islands investments typically aren’t accessible to most Americans because they can require minimum $500,000 or $1 million deposits, Kaplan said.

The new disclosure comes as Quinn has tried to gain ground on Rauner by making his wealth a wedge issue. In their 2012 federal taxes, Rauner and wife, Diana, reported $53 million in earnings.

In 2012, Obama used Romney’s investments in the Cayman Islands, Bermuda and Switzerland in a devastating presidential campaign commercial overdubbed with Romney singing an off-key rendition of “America the Beautiful.”

Obama later took some political heat for nominating a commerce secretary, longtime Chicago businesswoman Penny Pritzker, with her own significant offshore accounts, but the matter never became a significant issue during her confirmation hearing.

Quinn’s campaign was quick to borrow from the winning Obama playbook with Romney.

“Republican billionaire Bruce Rauner doesn’t just use exotic methods to dodge taxes,” Quinn campaign spokeswoman Brooke Anderson said. “He even uses exotic, offshore locations.

“No wonder why Mr. Rauner won’t release his full tax returns. He’s been stashing money in the Cayman Islands to avoid paying U.S. and Illinois taxes,” she said.

But Rauner’s campaign stresses he is no tax-dodger.

“Bruce has disclosed all this information to the federal government and is clearly in full compliance,” Schrimpf said of Rauner’s Cayman holdings. “It’s no surprise that Pat

Quinn is still talking about Bruce’s taxes instead of the 67 percent tax hike he imposed on the working families of Illinois.”

For more on this story go to: http://politics.suntimes.com/article/springfield/bruce-rauner-channeled-part-fortune-cayman-islands/fri-08012014-643pm