RenTec Hedge Fund Executives Agree To Pay $7 Billion To Settle IRS Tax Dispute Over Characterization Of Basket Option Income

Following up on my previous posts (links below):  New York Times, Hedge Fund’s Insiders Agree to Pay as Much as $7 Billion to I.R.S.:

A yearslong dispute between a pioneering hedge fund and the Internal Revenue Service ended Thursday with an enormous bill for taxes and penalties: as much as $7 billion.

James Simons, a mathematician whose algorithmic approach has been adopted by many other investment funds, and some of his former colleagues at Renaissance Technologies have settled a decade-long dispute with the government over the tax treatment of some of their investments, the firm said in a letter to investors.

The settlement, which involves 10 years’ worth of trades made by the hedge fund, could be worth as much as $7 billion, according to a person with knowledge of the agreement. It is one of the largest federal tax disputes in history.

The deal ends a standoff that led to a congressional investigation and involved two politically connected financiers: Mr. Simons, a longtime patron of Democratic candidates with an estimated net worth of $25 billion, and Robert Mercer, a former Renaissance executive whose advocacy for conservative causes included helping to found Cambridge Analytica. After Donald J. Trump won the 2016 presidential election, the now-defunct political consulting firm became embroiled in a scandal for harvesting Facebook data without users’ consent to assist his campaign.

• Bloomberg, Jim Simons, RenTech Insiders to Pay Billions in Back Taxes
• Financial Times, Executives at Hedge Fund Renaissance to Pay $7bn in Back Taxes
• Forbes, Hedge Fund Renaissance Technologies Execs Reportedly Pledge Massive $7 Billion Tax Settlement
• Reuters, Renaissance Executives Agree to Pay Around $7 Bln to Settle Tax Dispute With IRS 
• Wall Street Journal, James Simons, Robert Mercer, Others at Renaissance to Pay Up to $7 Billion to Settle Tax Probe

Prior TaxProf Blog coverage:

• $6.8 Billion Hedge Fund Tax Dispute Moves to IRS Appeals Office (Nov. 3, 2017)
• RenTech’s Billion-Dollar Tax Cloud Darkens After IRS Ruling (Nov. 14, 2019)
• Renaissance Employees Could Face Clawbacks Over Hedge Fund’s Tax Maneuver (Dec. 19, 2019)