No one likes paying income taxes. As the old song goes, we work hard for our money. What’s the worst tax bill you’ve ever gotten? As a freelancer, mine aren’t pretty but they are nowhere near some of the tax bills people on Wall Street or Silicon Valley get. Take Steven Cohen, for example, his Point72 Asset Management had about $11 billion under management at the beginning of 2017. His firm returned about 10% after costs and expenses during the year and raised $3 billion in outside capital in early 2018. Not too shabby.
According to the Point72 website, the firm now manages $12 billion. Hmmm. Those numbers don’t add up. About $3 billion is missing. Where did it go? Steve Cohen paid $3 billion in taxes. There was an old tax loophole that benefited hedge fund moguls that closed recently. Because of that, Cohen and other hedge fund billionaires’ net worths were expected to take a bit of a dive. But a $3 billion tax bill?
In 2008, Congress voted to stop hedge fund managers from being able put off paying taxes on offshore funds that were earned through management fees. Hedge fund managers had until 2018 to identify the income that had been earned through fees and deferred on their taxes. This effectively allowed them to increase the amount of money they put in offshore funds for nearly a decade.
Cohen isn’t the only one facing a decrease in his net worth and an enormous tax bill. David Einhorn, Dan Loeb, and others are too. Cohen’s bill is just so staggeringly large, it’s worth talking about. His $3 billion tax bill is the direct result of the huge fee income he got from his old firm, SAC Capital. That firm charged management fees of 3% of assets and performance fees as high as 50% of profits. Cohen continued to make money and stash it in offshore accounts long after Congress took the steps to eliminate this practice.
In a way, Cohen’s continued success worked against him. Look at John Paulson—he made billions shorting mortgages. When the hedge fund loophole started to close, he lost huge amounts in the following year. This allowed him to use those losses to offset the old gains. This meant his tax bill for deferred income was less. His bill was still $1.5 billion. Over the past five years, however, Paulson’s net worth has been decreased by half.
Is Cohen’s tax bill the highest ever? Mark Zuckerberg got a $2 billion tax bill after Facebook went public. If Cohen’s tax bill is $1 billion higher than Zuckerberg’s (and Zuck’s net worth is A LOT MORE than Cohen’s) then it is safe to say he holds the record for the biggest tax bill.
Cohen and SAC Capital were under investigation in 2016 for insider trading. As a result of that investigation, the Feds settled on a $1.8 billion fine and penalties for Cohen, which is less than his recent tax bill. The Feds also shut down SAC Capital and banned Cohen from managing outside investor capital for two years.
Cohen’s ban on trading ended just as his enormous tax bill came due, so he was able to replace what he owed the government with investor capital and start trading and thus making money again. So, don’t weep for him, he’s going to be just fine once he recovers from the shock of a tax bill equal to 25% of his total net worth of $12 billion.
Source: Celebrity Net Worth