
Renaissance Explores Settlement as IRS Seeks Billions in Taxes - jpn
https://www.bloomberg.com/news/articles/2019-04-10/renaissance-explores-settlement-as-irs-seeks-billions-in-taxes
======
chollida1
This has been discussed more than a few times here.

I've written my thoughts on this. its either very cunning or blatantly
thumbing your nose at the tax code depending on where you sit.

Long story short, I think when the tell all book for RenTech is written you'll
find that they are very smart but tax avoidance accounted for a much larger
share of their returns than most people would expect.

>
> [https://news.ycombinator.com/item?id=9859620#9859701](https://news.ycombinator.com/item?id=9859620#9859701)

>
> [https://news.ycombinator.com/item?id=13445232#13445506](https://news.ycombinator.com/item?id=13445232#13445506)

~~~
djakjxnanjak
Isn’t RenTech’s total return something like 35% annually over decades? Seems
like tax savings could account for at most one year of that.

~~~
chollida1
No, assuming all their trades are short term, probably not correct, and
assuming this basket option allows them to make short term trades look like
long term. then they are saving the long term minus the short term rate each
year, so 40% - 25% = 15%

So this saves them, or makes then an additional, 15% each year on taxes.

So a 35% gain each year becomes a 20% return each year. That's pretty darn
significant and if true makes their returns fall in line with many other of
their peers, which also means they no longer look like the superstar fund that
some people make them out to be.

~~~
djakjxnanjak
I don’t think the math works that way. Suppose your return is 35% after paying
the long term tax rate. This implies your pre-tax return was .35/(1-.25) =
46.66. Now instead pay the short-term rate and get 46.66 * (1-.4) = 28%. So
the return drops from 35% to 28%, which is still mind-boggling (even 20% over
decades would be extremely impressive).

~~~
chollida1
Yes your right, you'll even notice I made up the tax amounts as I was on my
phone.

The point I was trying to make is that the tax rate does significantly affect
the returns and once accounted for puts them back in line with some of their
peers if account for this.

------
jonathankoren
> A bipartisan Senate panel estimated in 2014 that Medallion investors
> underpaid their taxes by some $6.8 billion over more than a decade by
> masking short-term gains as long-term returns.

Holy shit.

That 10 year number is the equivalent of the NSF’s entire budget. [0]

This is t an accident. It’s criminal. And it’s not a surprise given that IRS
enforcement has been declining over a decade and focusing on small taxpayers
rather than wealthy individuals and corporate tax payers.[1]

[0]
[https://www.nsf.gov/about/budget/fy2018/](https://www.nsf.gov/about/budget/fy2018/)

[1] [https://www.propublica.org/article/earned-income-tax-
credit-...](https://www.propublica.org/article/earned-income-tax-credit-irs-
audit-working-poor)

------
walshemj
This from a UK perspective weird why is basically a collective investment
scheme liable to pay any CGT at all - isn't that the individual investors
liability.

And in this case why are not all other funds being targeted.

------
jpn
Why hasn't anyone started a Betterment for basket options?

~~~
omeze
Could you elaborate on this? What would it offer?

~~~
jpn
They would offer basket options so that anyone could make short term capital
gains looks like long term capital gains.

