Your Money, Quit Your Whining

By Allan Rolnick

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By all rights, “Tax Day” ought to be one of our favorite holidays, like “Chanukah in April” without the latkes, dreidels, or the doughnuts. That’s because eighty percent of us get refunds, averaging $2,782 each in 2017. (When was the last time Bubby gave three grand as a present?) Of course, that means 20% of us are writing checks to the IRS. And if you’re among that 20%, we sympathize. We know it hurts. But we’re confident it doesn’t hurt nearly as much for you as it does for a “master of the Universe” named John Paulson.
Paulson started his first fund in 1994 with $2 million and one employee. He built a reputation for “event-driven” investing, betting on mergers, acquisitions, proxy fights, and similar opportunities. A decade ago, he made a fortune shorting the U.S. housing market (the same story that author Michale Lewis spotlighted in his book and movie, The Big Short). Paulson earned $15 billion on that trade. By 2011, he managed $38 billion in assets for some of the world’s most sophisticated investors.
Naturally, much of that money found its way into Paulson’s pocket. He charges a 2% management fee, which is standard for hedge funds. But he also takes 20% of his funds’ profits, and that’s where the real money is. In 2007, he took $4 billion for himself. In 2010 he outdid himself to take home another $5 billion.
Paulson isn’t flashy. He generally avoids the press, and he’s not looking to buy himself a Senate seat. But he does seem to enjoy his fortune. He splits his time between a 28,000 square-foot townhouse on Manhattan’s East 86th Street, a $49 million Aspen ranch, and a $41.3 million Southampton estate. In 2015, he donated $400 million to put his name over the door at Harvard’s school of engineering and applied science.
What does all that have to do with this year’s tax bill? Up until 2008, hedge fund managers could defer tax on most gains by simply leaving their money in the fund. But in that year Congress changed the rules and gave them until this year to pay the tax on the gains they had accumulated before that date. So now, time is up. Just how much does he owe? He’s looking at stroking a billion-dollar check to the IRS!
(Who are we kidding here? Paulson can’t even write a check that size. The most the IRS will take in one draft is $99,999,999. Theoretically, he could write ten of them. But whose handwriting is small enough to fit “ninety-nine million, nine-hundred ninety-nine thousand, nine hundred ninety-nine dollars and zero cents” on a check in the first place? He’ll wire the feds the money and pour himself a really stiff drink.)
You would think sending a billion to the IRS would be easy for a guy who’s stacked that much paper. But what goes up often comes down. In 2015 and 2016 Paulson made a series of bad calls, and on Wall Street, memories are short. Investors fled, and now Paulson is down to his last $10 billion. He’s sold enough shares in one holding, Caesars Entertainment, to help drive the price down 15%. (Imagine being a retired casino dealer somewhere out in the Nevada desert, watching your 401(k) shrink because some New York billionaire needs to pay his tax bill!)
We realize you aren’t looking at the wrong end of a billion-dollar tax bill. But paying more than you have to still stings, no matter how much it is. That’s where we come in. We give you a plan to pay less, no matter which of your three homes you’re enjoying right now. So call us for that plan, and let’s see how much we can help you save!

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