PART 2:
Mercer’s Sea Owl superyacht at Canary Wharf in London. Photograph: Alamy
At the same time, the Mercers have continued to signal that they take care over every penny. Bannon
once explained their outlook as having been shaped by the fact they “came to their great wealth late in life”.
In 2009, Mercer sued a Michigan-based miniature railroad company that installed a scale-model track at his home. He alleged, six years after the installation, that he had been overcharged. The case was settled.
In 2011, Diana Mercer successfully sued a golf cart dealer in Florida for $15,000 over “mechanical problems and the poor condition” of two carts she had bought, and returned to court when the dealer failed to pay up as ordered.
A 2010 affidavit shows Diana Mercer is domiciled in Florida, which has no state income tax. A Renaissance spokesman declined to say where Robert Mercer was domiciled for tax purposes. The Mercers were sent a bill by the state of Maryland in 2014 for $23.9m in back taxes, but this was later withdrawn. Maryland officials and the Renaissance spokesman declined to say why it was decided they did not owe the money.
In July 2013, some domestic staff who worked at the Owl’s Nest estate sued Mercer, alleging he docked $10-$20 from their pay for errors such as “failing to replace shampoos and other toiletries if there was an amount of less than one-third of a bottle remaining”. The lawsuit was later withdrawn. An attorney for the staff did not respond when asked if they were paid a settlement.
Renaissance Technologies has striven to avoid paying out where possible. The sharply critical 2014 report by the Senate permanent subcommittee on investigations said Renaissance improperly made profits from rapid trading appear to be long-term capital gains, which are taxed at a much lower rate.
The system involved Renaissance buying complex instruments known as “basket options” from banks. The bipartisan Senate investigation described the system as an “abusive tax structure” and said the IRS should collect taxes avoided with it. A spokesman for the IRS declined to comment on the status of the dispute.
Pension fund
Like Mercer’s family foundation, his hedge fund company also appears to use an offshore blocker system to legally avoid US taxes on a huge pool of retirement funds being accumulated by its employees. The fund has existed for five years but is already nearing $500m in value, according to its accounts.
In 2012, Renaissance staff were unhappy with the tepid pension options available to most Americans. So their bosses obtained special permission from the US government to help supercharge their savings.
The permission meant staff could ditch their vanilla 401(k)s and funnel their entire individual retirement accounts (IRAs) into the firm’s own hedge fund, free from restrictions designed to protect ordinary workers from risky investments. Several investment advisers said they were surprised the permission was granted.
“This is a unique perk,” said Mat Sorenson, an attorney based in Phoenix, Arizona, who specializes in law around retirement accounts.
When making the request to the US government, Renaissance identified a pair of new investment vehicles it had set up to hold the retirement funds. These were registered in Bermuda and are among those in the Paradise Papers that identify Mercer as a director.
The Renaissance retirement fund began with $103m in 2012. By last year, it had grown to more than $476m. More than $300m of the gains came purely from returns on investments in the Renaissance hedge funds.
Ordinary Americans investing their retirement funds in this way could expect to face UBIT on some investment profits. But the use of the Bermuda vehicles to protect Renaissance’s retirement fund means the tax is legally avoided.
A Renaissance source, who declined to be identified, stressed that other companies used blockers to avoid tax on retirement plan investments. But Ed Slott, an accountant based in New York who is a noted authority on IRAs, said the arrangements were far from typical.
“It may be common among people with truckloads of money and big hedge funds, but it’s not common among rank-and-file, ordinary Americans who just save for retirement,” said Slott. “Almost nobody has the wherewithal.”
In a footnote to a 2012 document prepared by the labor department about Renaissance’s arrangement, officials said the company had insisted on using the Bermuda vehicles so its employees could “avoid being subject to taxes on unrelated business taxable income”.
When asked why the US government had accepted this desire to avoid a federal tax as a legitimate cause for special treatment, a spokesman for the department declined to comment.
Filings by the Renaissance pension fund also suggest some staff may be using the system to legally reduce tax on money they made recently, rather than leaving it to grow for distant retirements.
The Renaissance staff accounts are Roth IRAs, meaning that workers have already paid tax on earnings they send to their Roth, rather than paying tax later on money the account pays out.
These rules are particularly appealing for workers such as Renaissance staff, who expect their retirement savings to grow dramatically. They pay tax on the smaller amount going in, rather than on the much bigger amount coming out.
Filings show tens of millions of dollars are being taken out of Renaissance’s retirement fund each year by workers remaining at the company.
The government imposes tax and a 10% penalty on funds removed early by younger workers. But this does not apply to early withdrawals by staff older than 59. Mercer is 71. A Renaissance spokesman declined to say whether Mercer had used the system to reduce tax on his income.
