Marriott used tax shelter while Romney was on board

NEW YORK - During Mitt Romney’s tenure as a director for hotel operator Marriott International Inc., the company repeatedly used complex tax-avoidance maneuvers, prompting at least two tangles with the Internal Revenue Service, records show.

In 1994, while he headed its audit committee, Marriott used a tax shelter known to attorneys by its nickname: “Son of Boss.’’ A federal appeals court invalidated the maneuver in a 2009 ruling, siding with the Department of Justice, which called Marriott’s transaction and attempted tax benefits “fictitious,’’ an “illusion,’’ and a “scheme.’’

Marriott had asserted that the plan predated government efforts to close such shelters.


Employing another strategy, Marriott legally avoided hundreds of millions of dollars in income taxes thanks to a federal tax-credit program criticized and allowed to expire by Congress. Marriott has also shifted profits to a Luxembourg shell company.

Get Ground Game in your inbox:
Daily updates and analysis on national politics from James Pindell.
Thank you for signing up! Sign up for more newsletters here

During Romney’s years on the board, Marriott’s effective tax rate fell as low as 6.8 percent, compared with the federal corporate statutory rate of 35 percent.

Romney’s business experience is the cornerstone of his presidential campaign. Opponents have focused on his leadership of the investment company Bain Capital and his personal income tax rate of 13.9 percent.

As a Marriott director, his responsibilities included oversight over the tax planning conducted by management, according to Marriott.

Romney has long had close ties to the hotel chain. The candidate for the Republican presidential nomination, whose full name is Willard Mitt Romney, was named after the chain’s founder, J. Willard Marriott, a friend of his father. He joined the company’s board in 1993 and has served on it for 11 of the past 19 years, including six as chairman of the audit committee.


That position gave him and the other members responsibility to review financial reporting, according to Marriott’s annual proxy filings.

Romney regularly attended the meetings of the audit committee and board, said Gilbert M. Grosvenor, who overlapped with Romney for more than nine years on the board and also sat on the audit committee.

As the committee chairman, Romney examined the financial statements, “certainly deeper than we did as members,’’ recalled Grosvenor. Romney was “trying as much as possible to make sure they were accurate and fair.’’

The audit committee “would have been certainly informed’’ of the IRS dispute stemming from the Son of Boss transaction, said Grosvenor.

Such transactions can have a direct impact on a company’s financial results, putting them squarely in the purview of an audit committee, said Lynn E. Turner, former chief accountant of the Securities and Exchange Commission and a managing director at LitiNomics Inc., an economic and forensic consulting firm.


A Romney campaign spokeswoman declined to answer written questions about Romney’s role at Marriott. “For details of Marriott’s tax planning, we refer you to Marriott,’’ she said.

During Romney’s tenure, Marriott’s tax rate fell as low as 6.8 percent.

“Tax planning is conducted by the company’s management and is, like all aspects of our business, subject to board oversight,’’ said Thomas O. Marder, a Marriott spokesman. “Marriott only engages in transactions that we believe are in accordance with the tax code and that we think will create shareholder value.’’

In 2004, Marriott’s tax planning drew the ire of Senator John McCain, Republican of Arizona. Marriott received hundreds of millions of dollars in federal tax credits meant to promote so-called synthetic fuel through a business purchased by Marriott in 2001 while Romney sat on the audit committee.

“One of the greatest beneficiaries of this tax shelter - and that is all that it is, a tax shelter - is a very profitable hotel chain: Marriott,’’ McCain said at the time. He called the program a “scam.’’ Congress let the subsidy expire in 2007.

McCain endorsed Romney in January.

During his campaign for the Republican nomination, Romney has called for lower taxes almost across the board. He wants to cut the corporate rate to 25 percent; end the estate tax; end taxes on corporate profits reported offshore; cut the top personal income tax rate to 28 percent; and eliminate taxes on investment income for people with adjusted gross income below $200,000.

In its “Believe in America’’ jobs plan released last year, the Romney campaign criticized federal policy for fostering corporate tax avoidance.

Marriott clashed with the IRS on another issue. In 2000, 2001, and 2002, the company took $1 billion of deductions related to an employee stock ownership program from the forgiveness of principal and interest on a loan, Marriott securities filings show. The IRS challenged the deductions and, in 2007, Marriott agreed to pay about $220 million in taxes and interest to the Treasury and various states.