(PatrioticPost.com)- Under the terms of a deal reached with the IRS, Jim Simons, the founder of quantitative hedge-fund manager Renaissance Technologies, and his colleagues, will have to pay billions of dollars in back taxes, interests and penalties in order to resolve one of the biggest tax disputes in US history.
Last Thursday, Renaissance CEO Peter Brown disclosed the agreement in a letter to investors. While Brown’s letter does not specify how much money will be paid to the IRS, in 2014 Senate investigators estimated the unpaid taxes, before interest and penalties, was $6.8 billion.
The IRS long argued that Renaissance mischaracterized profits from its flagship Medallion Fund through the use of a complex options arrangement transforming short-term capital gains into the lower tax rated long-term gains.
Under the terms of the deal, Simons along with six other current and former members of Renaissance’s board will pay 100 percent of the additional tax that would have been due if they had characterized the profits as short-term gains.
These current and former board members include CEO Peter Brown as well as Robert Mercer, the former co-CEO and well-known right-leaning political donor. The board members will also be required to pay an unspecified amount in interest and penalties.
According to Brown’s letter, an additional $670 million would be paid to the IRS by Jim Simons personally. Simons, 83, served as chairman of Renaissance during the period when the options were in use.
In his letter Brown explained that the board chose to settle with the IRS rather than risk harsher terms and penalties that would result from litigation.
In 2014, the Senate Permanent Subcommittee on Investigations revealed that, for more than a decade, Renaissance used options sold by Deutsche Bank and Barclays to shelter $34 billion of income in Medallion, cutting the rate paid by fund investors by as much as 20 percent.
At the time, Peter Brown and other Renaissance executives defended the transactions during a Senate hearing, arguing that the firm had entered into the deals for non-tax reasons and that they complied with the law.
Since its formation in 1988, Medallion has been one of the best-performing funds in history – returning about 40 percent annualized.
According to Bloomberg Billionaires Index, Jim Simons has a net worth of $25.7 billion.