NEW YORK ( TheStreet) -- George Soros, a self-made billionaire investor who has made calls in the past for higher taxes on wealthy Americans, may soon be getting his wish. According to Bloomberg, years of deferred income could leave him owing $6.7 billion in taxes.
It appears that Soros has put to use a loophole that has allowed him to defer taxes on fees paid by his clients and reinvest them in his fund. Irish regulatory filings reveal that the investor, through his firm Soros Fund Management, has amassed $13.3 billion using this mechanism.
How? In 2008, George W. Bush signed U.S. legislation closing a loophole that allowed hedge fund managers to set up parallel offshore funds as a way to defer taxes. The Congressional Joint Committee on Taxation estimated in 2008 that the new rules would generate roughly $25 billion in revenue, including $8 billion in 2017 -- the deadline for managers to pay accumulated taxes.
Just before all of this took place, Soros incorporated a new company in Ireland called Quantum Endowment Ireland. His Quantum Endowment transferred delayed fees and certain other assets to the new company.
Quantum Endowment Ireland is subject to a 25% corporate tax, in theory; however, its status as an Irish Section 110 company allows it to issue profit participation note and pay out earnings as distributions to note holders. In other words, it hasn't had to pay much.
Bloomberg reports that from October 2008 through the end of 2013, Quantum Ireland paid taxes of $962 on $3,851 of net income. It allocated $7.2 billion of operating income to investors as distributions on profit participation notes, most of which were held by Soros' tax-exempt Open Society foundations. In 2014, Soros shut down Quantum Ireland and moved deferred fees to a new entity in the Cayman Islands.