Sen. Carl Levin’s Subcommittee on Investigations looked into some shady banking practices and reported that a hedge fund of Renaissance Technologies LLC found a clever way of cheating the IRS.

With the help of two banks, Barclays and Deutsche Bank, Renaissance was allegedly able to make short-term profits look like long-term profits. The difference, which Levin, a Democrat, calls fictitious, is in the tax bill. According to Bloomberg, “Under current law, profits from short-term capital gains are taxed at marginal federal rates of as much as 44.4 percent, compared with a 23.8 percent top rate for long-term gains. For some earlier years, the rates were 35 percent and 15 percent.”

That distinction means that over 14 years, Renaissance saved $6 billion in taxes and, for their assistance, the banks raked in $1.1 billion.

Both banks ended their participation after the IRS got interested, and Renaissance denies any wrongdoing. In a statement, the hedge fund said its actions were “appropriate under current law.”

— Posted by Peter Z. Scheer