George Soros is famous for his political progressiveness, and is on the record saying the rich should pay more taxes. It turns out, however, that Soros has made an awful lot of money by delaying paying delaying taxes. For years, the octogenarian billionaire has taken advantage of a loophole to defer taxes on fees paid by clients and then reinvested the money in his fund where it appreciated tax-free until withdrawal.
According to Bloomberg data, by the end of 2013, Soros Fund Management had piled up $13.3 billion in deferred taxes.
Loophole closed, deadline looming
This loophole was closed in 2008, and the new law requires hedge fund managers like Soros who used it to pay the accumulated taxes by 2017 whether they withdraw it or not. A money manager based in the Big Apple would be subject to a federal taxes of 39.6%, combined state and city taxes of 12%, and an additional 3.8% tax on investment income for Obamacare.
Using those tax rates on Soros’s $13.3 deferred income would lead to taxes of close to $6.7 billion. That calculation is based on publicly available information, which provide only some insight into Soros’s financial situation. The tax bill will, of course, be impacted by factors specific to his financial circumstances.
It should be pointed out that Soros also transferred assets to potential tax haven Ireland in 2008 just before the law closing the loophole took effect.
The Congressional Joint Committee on Taxation projected back in 2008 that the new would generate at least $25 billion in revenue for the U.S. Treasury over the ensuing decade, including $8 billion in 2017, as the loophole was exploited by many asset managers.
“No person has a constitutional obligation to pay any more taxes than he is required to pay,” commented James Sitrick, a tax attorney who represented George Soros for decades (Soros refused comment). If Soros “couldn’t legally do it, he wouldn’t do it,” says Sitrick, who worked on international tax policy for the U.S. Department of the Treasury.
George Soros foundations
As a well-known progressive, Soros has advocated for a fairer distribution of income, and even joined Warren Buffett in encouraging Congress to raise estate taxes. He noted back in 2011 that he had already donated over $8 billion to his foundations.
Tax experts point out Soros might reduce his tax burden by donating the money to the foundations, which then typically invest his contributions back into Soros’s Quantum Endowment, according to their tax returns. However, deductions for contributions to private foundations are limited to 30% of the donor’s adjusted gross income for the year, notes Jodi Krieger, a tax attorney with Kleinberg, Kaplan, Wolff & Cohen.
