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Renaissance executives agree to pay around $7 bln to settle tax dispute with IRS -source

Sept. 2 (Reuters) – Executives of hedge fund Renaissance Technologies LLC could pay up to $7 billion to U.S. tax authorities after agreeing to settle a dispute over whether they had improperly reduced their tax liability from trading profits, according to a letter released reviewed by Reuters and a source familiar with the case.

James Simons, the founder of one of the world’s most successful quantitative hedge funds and a major Democratic donor, will make an additional $670 million settlement payment to the Internal Revenue Service, according to Renaissance Chief Executive Peter Brown’s letter to investors Thursday.

In describing the settlement, one of the largest in the history of the IRS, Brown wrote that the fund went through the IRS appeals process for years before concluding it was better to agree to the resolution “rather than a worse one.” result, including stricter terms and fines, which may result from lawsuits.”

The settlement comes after former U.S. Senator Carl Levin exposed a practice in 2014 in which Deutsche Bank AG (DBKGn.DE) and Barclays Plc (BARC.L) helped several hedge funds, including Renaissance, treat some capital gains as longer-term gains. attracting a lower tax rate than profits made from transactions on assets held for less than one year. The banks sold the fund options to help them achieve that outcome, the report said.

In the letter, Brown said the transactions in question were made through his flagship Medallion fund between 2005 and 2015. Medallion is managed internally for friends and family only.

The IRS did not immediately respond to Reuters’ request for comment. Barclays and Deutsche Bank declined to comment. The Wall Street Journal previously reported on the settlement.

Levin died in July, aged 87.

“I wish Senator Levin was here, seven years after he first exposed his disgraceful tax scam, to see RenTec finally being held accountable,” said Elise Bean, a former former assistant.

“It’s good to see that, despite years of hard-fought battle, the IRS has prevailed by forcing at least one set of billionaires to pay the taxes they owe,” Bean said.

Levin had presented the findings of a year-long investigation into basket options in 2014, in which he called for tougher action by authorities. The report said the largest user of the options, Renaissance Technologies Corp, saved an estimated $6.8 billion in taxes.

In 2015, the IRS issued guidelines that hedge funds that use “basket options” must report them in their tax returns and correct previous returns, which came after a U.S. Senate subcommittee reported that some funds were using them to avoid federal taxes.

According to Renaissance’s investor letter, the seven individuals who served on Renaissance’s board during those years, and their spouses, will have to pay taxes, interest and fines. Investors in the fund must pay additional tax and interest, but no penalties.

The payment would overshadow that of a transfer pricing dispute with GlaxoSmithKline in 2006, with the drug company paying $3.4 billion. According to the IRS press statement, it was the largest one-time payment to the IRS to resolve a tax dispute at the time.

Reporting by Manojna Maddipatla in Bengaluru, Maiya Keidan in Toronto, Paritosh Bansal and Megan Davies in New York and Pete Schroeder in DC; Editing by Amy Caren Daniel, Chris Reese and Richard Pullin

Our Standards: The Thomson Reuters Trust Principles.

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