This is the type of headline a hedge fund tries to avoid. It kind of freaks out future clients or investors.
The executives of Renaissance Technologies LLC could be on the hook for $7 billion that they may have to pay the IRS after they agreed to settle a dispute regarding improperly reduced tax liabilities from trading profits.
The founder of the fund, James Simons, might be having to scratch some smaller personal checks to Democratic politics candidates, because the Left’s big money man is going to have to pay $670 million to the IRS by himself.
A story in Reuters described Renaissance Technologies as one of the world’s most successful quantitative hedge funds. Wouldn’t that have to be tweaked a little, since the idea of a hedge fund is to grow their fund, not pay the tax man $7 billion.
Renaissance CEO Peter Brown has been trying to negotiate with the IRS and had worked on coming to an agreement for over two years, but he decided to throw in the towel, and checkbook, and walk away with the shame of owing $7 billion because it actually could have been worse.
Here’s how Reuters described the actions that led to the multi-billion concession.
“The settlement comes after former U.S. Senator Carl Levin in 2014 detailed a practice in which Deutsche Bank AG (DBKGn.DE) and Barclays Plc (BARC.L) helped several hedge funds, including Renaissance, treat some capital gains as longer-term profits, attracting a lower tax rate, than gains made from trades on assets held for less than a year. The banks sold the funds options to help them achieve that outcome, the report said.”
The side hustle Renaissance tried to get away with that ended up costing them billions is mainly going to affect the seven members of the Renaissance board that was in on it. They, along with the spouses are on the hook for the tax, interest and penalties.
Oh, Renaissance can take solace in the fact they will now be all alone at the top of the list for the biggest payment to handle a tax dispute.