IRS Challenges RenTech Tax Strategy

Jul 1 2013 | 12:27pm ET

Renaissance Technologies has used a “particularly aggressive” technique to shield itself and investors in its flagship hedge fund from taxes, the U.S. Internal Revenue Service has alleged.

The tax agency first challenged Renaissance’s method three years ago, publicly challenging the then-unnamed hedge fund’s use of basket options contracts, which allowed it to pay the much-lower long-term capital gains rate on returns. That hedge fund is Renaissance, and the dispute is ongoing, Bloomberg News reports.

It is unclear how much the IRS wants from Renaissance and investors in its Medallion Fund, which since 2005 has managed money only for employees. One former Renaissance employee told Bloomberg that the firm warned him he could face a $90,000 tax bill, but assured him that it believed it had done nothing wrong.

The IRS has taken issue with Renaissance’s arrangement with Barclays, in which the bank bought securities Renaissance wanted to trade, then hired Renaissance to manage the portfolio. Then the hedge fund, which had complete control over the portfolio, bought a two-year option linked to the portfolio, allowing it to claim returns as long-term capital gains. The capital gains rate is currently just over half the short-term tax rate, and was formerly less than half the rate.

Renaissance has said that its strategy was not tax-motivated and was employed for legitimate business reasons. It is unclear whether the firm continues to employ basket contracts.


In Depth

Q&A: Neil Azous Talks Global Macro Investing

Nov 24 2014 | 12:41pm ET

Neil Azous is the founder and managing member of Rareview Macro, an advisory firm...

Lifestyle

Griffin Selling Chicago Apartment

Nov 26 2014 | 11:40am ET

Citadel Investment Group’s Kenneth Griffin is making clear to his estranged wife...

Guest Contributor

Why The Big Money Is Going To Europe

Nov 14 2014 | 6:03am ET

Peer-to-peer lending was invented with the individual investor in mind. But despite...

 

Sponsored Content

    For Hedge Funds, Mastering Data Is Key To Success

    Nov 4 2014 | 9:45am ET

    Data management is important to every business, but for hedge funds, it is critical. FINalternatives recently asked Peter Sanchez, CEO of Northern Trust Hedge Fund Services, how fund managers can deal with the demands of managing data while at the same time remain transparent and abide by operational best practices. Read more…

Editor's Note

    Guidelines for Guest Articles

    Oct 22 2014 | 9:46am ET

    We are always looking for guest articles from hedge fund managers and buy-side firms.

    If you are interested in submitting a contributed piece for possible publication on FINalternatives, please take a look at the specs. Read more…

 

Futures Magazine

November 2014 Cover

Building a better market

Reg NMS created a huge bifurcation in equity markets and while much of what has followed has been positive, in terms of lower fees and greater liquidity, many traders would like to see the market come...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.