$7bn tax due – Renaissance Technology

James-Simons-Congressional-Hearing-2008Renaissance Technologies has agreed to pay $7bn in tax to the IRS.

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.


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Written by Gontran de Quillacq

Gontran de Quillacq is an expert witness and a legal consultant. He is a recognized authority in options, trading, derivatives, structured products, portfolio management, hedge funds, mathematical finance, quantitative investment, strategy research and financial markets in general.


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