New York Mets owner and successful hedge fund manager, Steve Cohen, is currently embroiled in a legal battle with the Internal Revenue Service (IRS) over the payment of self-employment taxes on income from several years ago. Cohen, who is 67 years old and has a net worth of $13.2 billion according to Bloomberg, is disputing the IRS’s interpretation of a 70-year-old law regarding limited partnerships and their exemption from self-employment tax on business profits. The IRS, in what Bloomberg has described as a “campaign targeting hundreds of US money managers,” is seeking between $7 million and $10 million in additional taxes from Cohen for income earned by his hedge fund in 2015 and 2016. It is important to note that Cohen has already paid taxes on the $344 million in total earnings generated during those two years.
This ongoing dispute is significant to money managers, as it could have a substantial financial impact on them. According to Anthony Daddino, a managing partner at law firm Meadows Collier, the continued charges imposed by self-employment tax could be a “meaningful drain” on money managers. Self-employment tax consists of a 15.3% levy, with 12.4% going towards Social Security and 2.9% towards Medicare.
The IRS launched a campaign in 2018 to closely examine businesses to determine if they qualified as “limited partnerships” and therefore exempt from self-employment tax. The agency claims that in recent years, more limited partners have expanded their roles within the businesses they invested in, which would make them liable for self-employment taxes on profits. Money managers, including Cohen, argue that self-employment tax should only apply to guaranteed payments, such as salaries, rather than overall earnings or profit.
It is worth noting that Cohen is not alone in contesting the IRS’s claims. Other asset managers, such as Soroban Capital Partners, have also challenged the agency. Over the past five years, the IRS has audited hundreds of limited partnerships among money managers, according to tax partner Miri Forster from Eisner Advisory Group. Forster added that some individuals may have resolved the issue without resorting to litigation if the amounts involved were small.
Should Cohen ultimately lose to the IRS, his hedge fund, Point72 Asset Management, could be required to pay between $7 million and $10 million in taxes. The reason for this substantial amount is that the maximum self-employment income subject to the Social Security portion of the tax was capped at $118,500 during the years in question.
As of now, neither Point72 nor the IRS have provided any official comments on the matter. It is worth noting that Point72 generated over $2.4 billion in profits for its investors last year, with Cohen himself earning $1.7 billion in personal capital gains, according to Institutional Investor.
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
