The Renaissance Technologies Medallion fund is one of the most successful hedge funds in history, earning an average profit of 80% per year over the last quarter of a century. The IRS believes the fund has been successful— too successful— at dodging taxes.

A report from Bloomberg today details an ongoing dispute between Renaissance and the IRS, which seems to feel that its creative accounting for its profits has been somewhat too creative. Keep in mind, first of all, that this is a hedge fund so successful that it stopped taking new investors decades ago, because if it hadn't, all of the world's money would currently be invested in it. It is now almost exclusively the money of Renaissance employees. It averages EIGHTY FUCKING PERCENT profits per year. It would seem that paying taxes on such a bonanza would not be too onerous. Nevertheless, Renaissance had to go and get creative.

Essentially, according to Bloomberg, the fund has found an accounting trick that it uses to reclassify its short-term investing profits as long-term investing profits.

The top federal rate on long-term capital gains, derived from selling investments held for more than a year, is currently 20 percent, compared with 39.6 percent imposed on wages and investments of less than a year. Before this year, the short-term rate was 35 percent and the long-term was 15 percent. The Medallion fund trades stocks and futures so frequently that, absent the tax maneuver, it would generate mostly short-term gains, said the people with knowledge of the matter.

Renaissance, in essence, filtered its investments through a bank in order to claim that they were making long-term capital gains, when in fact they were making short-term trading profits. Then they paid the lower tax rate. The IRS calls this an "end run" around tax law.

You don't have to be a tax lawyer to appreciate the simple fact that a group of millionaire hedge fund employees can afford to pay a normal tax rate, to make their fair contribution to this nation that enables them to get so, so fucking rich. Also, capital gains should be taxed as normal income. There's no reason in the world you and I and everyone who works for a paycheck should be paying higher tax rates than hedge fund millionaires— whether because hedge funders can afford better tax scams, or because they can afford to lobby Congress for tax breaks they don't need or deserve.

[Bloomberg. Photo of Renaissance founder James Simons: AP]