Topline
According to the Wall Street Journal, Renaissance Technologies' leaders will pay $7 billion in penalties, back taxes, and interest to the Internal Revenue Service. This is a huge settlement after years of tax-related disputes.
James Simons, Renaissance Technologies, listens to the House Oversight... [+] Committee hearing held on November 13, 2008. AFP via Getty Images
The Key Facts
According to a letter sent to investors by Peter Brown, the current CEO of the firm, several former members of Renaissances' board and investors in one its funds will repay taxes to the IRS. This includes founder Jim Simons, whose net worth Forbes estimates at $25.4 Billion, and former co-CEO Robert Mercer. According to the Journal, Financial Times, and New York Times, the settlement could amount to $7 billion. Brown's letter stated that Simons had agreed to pay $670 million more to the IRS. The settlement concerns the tax treatment of trades by Renaissances Medallion Fund, which is closed to outside investors. Brown explained to investors that the firm participated in the IRS appeals process for many years but decided that a settlement was safer than pursuing litigation with the federal tax authorities. Forbes reached out to Renaissance for clarification but was not able to get a response.
Important Background
Renaissance was founded by Simons almost 40 years ago. It has achieved annualized returns of approximately 66% over the past three decades. U.S. Senate investigators suggested that Renaissance and other firms used financial tools called basket options to convert short-term profits into long term capital gains. The IRS charges a lower rate for these basket options. The tax savings Renaissance realized from this arrangement was estimated at $6.8 million, according to a Senate report. In 2014, Renaissance executives informed the Senate that they believe their activities are and should be allowed under current law.
Surprising Fact
Simons and Mercer both have political activities, but they are on opposing ends of the political spectrum. Simons has given a lot of money to Democratic candidates and to political action committees. Mercer has donated heavily to Republicans.
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James Simons, Robert Mercer and Other at Renaissance to Pay $7 Billillion to Settle the Tax Probe (Wall Street Journal).
