Tax Loophole Closure Forcing Steve Cohen Back To Work

Won’t someone please find the loophole to the loophole before it’s too late?
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This tax bill could really put a crimp in the planned year-long celebration of his return. Getty Images

Perhaps you thought Steve Cohen’s plan to launch a $20 billion hedge fund just as soon as he’s allowed was about vindication—rebuilding his legacy, clearing the suspicions that still hound him, sticking it to Preet Bharara—to say nothing of earning a few ducats which with to keep decorating the house, having a good reason to hire hundreds and thousands of people to yell at, as well as the joy of money management and helping the extremely rich become extremely richer. Apparently, however, in the face of a huge and looming tax bill, he just doesn’t have a choice.

The billionaire founder of SAC Capital Advisors LP amassed deferred offshore income of more than $1 billion likely subject to the taxation, said people familiar with the matter….

Mr. Cohen, who ran SAC Capital before it pleaded guilty to criminal insider-trading charges in 2013, is nearing a launch of a new firm to manage as much as $20 billion, The Wall Street Journal earlier reported.

He has set that target, which would exceed the $16 billion managed at peak by SAC, partly because he wants to generate income to help pay the large tax bill, a person close to him said.

The Big Guy’s not the only one looking to buy wide enough checks to hold all the zeroes: David Einhorn and Dan Loeb probably anyone who’s anyone in the hedge fund industry who’s happily taken advantage of a little loophole that lets them defer receipt of their offshore compensation tax-free are in for a hell of a Tax Day 2018.

Total payments from all managers could amount to $25 billion, according to a 2008 estimate from the Joint Committee on Taxation. Some tax specialists say the bill could be even higher: $100 billion or more.

Even worse, in spite of the fact that those fancy tax lawyers and accountants they keep fed have had 10 long years to figure out a loophole to the loophole, so far they’ve come up with zilch.

“People have been banging on our doors since the provision was enacted looking for a solution and we still have clients coming in, but one hasn’t been found,” says Mr. Brenner. “Every tax lawyer who touches hedge funds has had these kinds of calls…there’s frustration among some clients that a solution has not been found.”

And if Cohen and the others are counting on some big returns juiced by President Trump’s plans to cut corporate taxes to as close to zero as possible, well, don’t. Even if you think he’s actually capable of getting anything through Congress.

In April, a White House policy paper pegged it at 15 percent for corporations and small businesses alike. The current rate is 35 percent.

But now the proposed business tax rate is “drifting higher,” this person said, and may end up in the low 20 percent range….

While Mr. Trump has promised the largest tax cut in history, political and fiscal realities have already begun to intervene.

Loophole Closed: Hedge-Fund Managers Prepare Huge Tax Checks [WSJ]
White House Scaling Back Goals for Business Tax Cuts [NYT]

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