A group of current and former executives at pioneering hedge fund Renaissance Technologies have agreed to pay up to $7 billion in back taxes, interest, and penalties, the company told investors Thursday. The settlement ends a long dispute with the Internal Revenue Service over how some Renaissance funds booked short-term gains for tax purposes. It is one of the biggest tax settlement in U.S. history, if not the largest, The Wall Street Journal reports.
Among those paying the IRS are Renaissance founder James Simons, a mathematician and former code-breaker who used algorithms to find and exploit lucrative short-term patterns in financial markets, and former co-CEO Robert Mercer. Simons will make an additional “settlement payment” of $670 million on top of his back taxes. The settlement covers tax payments from the firm’s hugely successful Medallion fund between 2005 and 2015, when the IRS changed its reporting rules. Because Medallion only invests the money of employees, their families, and select friends, outside investors aren’t involved in the settlement, the Journal says.
Mercer and Simons are both political mega-donors, but with vastly different political leanings. Simons, 83, was one of Hillary Clinton’s largest donors in 2016, supported President Biden in 2020, and gave millions to help Democrats win control of Congress. Mercer, 75, was Donald Trump’s largest financial backer in 2016, has close ties with Stephen Bannon, and invested millions in Breitbart News and Cambridge Analytica, the consulting firm embroiled in scandal for harvesting Facebook data to aid Trump’s campaign.
The type of tax scheme used by Renaissance caught the attention of Congress, which helped push the IRS to change how hedge funds pay taxes on short-term gains. Sen. Carl Levin (D-Mich.), who died over the summer, led a 2014 hearing focused on Renaissance’s tax strategy. “I wish Sen. Levin were here, seven years after he first exposed its outrageous tax scam, to see RenTec finally held accountable,” said Elise Bean, a former aide to the senator. “It’s good to see that, despite a yearslong, knock-down, bare-knuckles battle, the IRS prevailed in compelling at least one set of billionaires to pay the taxes they owe.”
The settlement shows what the IRS could do with more enforcement staff and funding, Steve Rosenthal at the Tax Policy Center tells the Journal. “The IRS is so resource-constrained that they often can’t pursue difficult matters. But here they hung tight and they were vindicated.”