Steve Cohen is contesting an Internal Revenue Service campaign to compel hundreds of money managers — including his Point72 Asset Management — to pay self-employment taxes on a main source of earnings.
Point72 petitioned the US Tax Court on Aug. 11 to challenge a tax assessment on $344 million of earnings from 2015 and 2016. The asset manager allocates virtually all of its earnings and expenses to Point72 Capital Holdings, a limited partnership owned by Cohen, according to the petition.
Limited partnerships pass through their income directly to their owners, and Cohen has already paid income taxes on the $344 million earnings total from 2015 and 2016, according to the people familiar with the situation. The self-employment tax is a separate 15.3% levy that includes 12.4% for Social Security and 2.9% for Medicare.
The rationale behind the exemption is that limited partners have traditionally been passive investors in a venture, as opposed to active members of management. But as more states over the years have allowed limited partners to provide services to the businesses in which they have also invested, the IRS has challenged the idea that they’re still “limited partners,” even though this phrase isn’t defined in the applicable section of the tax code.
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