That’s a nice chunk of change, even for them.
Here is the issue at stake
- Trading profits can be taxed at the short-term capital gains rate (<1Y, ordinary income) or at the long-term capital gains rate (>1Y, likely 20%).
- At stake here is Rentech’s entire option trading activity. Each trade is definitely held for less than a year, but all these trades are aggregated into one single derivative (of dynamic composition), which lasts many years.
- The IRS has been characterized the activity as short-term, while Rentech argued that it was long-term.
- In 2015, Congress changed the law to make the issue more clear – and short-term.
- The IRS made the rule retroactive to January 2011.
RenTech has finally settled on $7 bn, to avoid a larger payout if he lost the tax court proceedings.
The liability will fall on the fund’s investors, aka the companies employees but mostly Mr. Simmons himself.
Related Navesink article
- New York Times, September 2, 2021: Hedge Fund’s Insiders Agree to Pay as Much as $7 Billion to I.R.S.