One of the most interesting details on Mitt Romney’s 2010 tax return, if you ask an accountant, is the blank line item for the cost of tax preparation.
Typically, high-income people can and would include this expense as an itemized deduction, but Romney opted to leave the line blank, giving onlookers little evidence into the financial and human resources that went into his prepping his tax return of roughly 550 pages.
Still, Romney’s complex tax forms shed light on a universe that few salaried, middle-class Americans will ever encounter: the world of high-end tax preparation, where teams of tax lawyers and accountants can spend months helping millionaire and billionaire clients map out deductions, prep returns, and ensure the nitty-gritty details are kosher in time for April.
“When you’re dealing with this volume of information, a return is a work of art,” says certified public accountant Robert Martin, owner of the Houston firm Robert E. Martin & Associates, P.C. “I’ve had clients before with more sophisticated returns than this, and it’s a full-time job.”
A high-net worth individual might hire one of the four big accounting firms — as Romney does — to handle a tax return, where a partner can bill a rate of up to $1,000 an hour and the services of mid-level tax professionals can easily cost $500 per hour. Usually, a return like this would involve an entourage — everyone from lawyers to accountants to professionals from brokerage firms — who would help with investment documents.
“There could be at least 50 professionals who touch the documents at one time,” says Terri Holbrook, a former tax partner at BDO Seidman, who now teaches at the McCombs School of Business at the University of Texas (Austin).
Romney’s tax return was prepared by PricewaterhouseCoopers, one of the four big firms. Goldman Sachs bought and sold the investments in Romney’s blind trusts, and R. Bradford Malt, a corporate attorney and the chairman of Boston’s largest law firm, Ropes & Gray LLP, oversees Romney’s investments, including the controversial now-defunct Swiss bank account.
Some wealthy people have their own family offices to manage financial affairs including taxes. Others will hire full-time tax managers (estimated cost: low six figures a year) to help with the documentation.
There’s no way to estimate the cost of the financial, tax, and legal services that feed into the world of Mitt Romney’s wealth, nor did his tax returns show anything untoward or illegal.
“It does look like he paid all of the taxes he owed,” Holbrook said. “At first blush, it looks to be on the conservative side of taking aggressive tax positions and deductions.”
From the standpoint of a tax professional, one of the most telling details of the Romney tax data dump was the draft of his 2011 returns — a document far enough along in January that the campaign could release it to reporters, along with the 2010 forms Romney submitted to the IRS.
The fact that Romney could release such a comprehensive draft, while many Americans are still scrambling to gather their receipts, paperwork, and W-2 forms shows the sophistication behind the Romney tax machine and the huge resources that go into compiling the standard 1040, along with paperwork for the trusts for Romney, his wife, his sons, and a charitable foundation.
These details don’t have to fit into any grand campaign narrative, other than offering a window into the tax-planning world that’s far more advanced than the neighborhood H&R Block.