A hedge-fund manager owes $1 billion in taxes after a loophole catastrophically closed

John Paulson

Reuters

• John Paulson will have to pay $1 billion in taxes this year because of a tax loophole that is now closed.

• The hedge-fund manager made billions betting against subprime mortgages and was able to store the earnings in an offshore account for a decade.

• Paulson is a friend of Donald Trump, but his relationship will not get him out of paying what may be the largest tax bill ever.

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Nobody looks forward to Tax Day, but at least most of us can pay our dues with one check.

When hedge-fund manager John Paulson pays his tax bill this year, he may need to send 11 separate checks to the IRS.

That's because Paulson currently owes $1 billion in taxes, according to The Wall Street Journal. The IRS only accepts checks that are worth less than $100 million. 

Paulson made billions betting against subprime mortgages right before the financial crisis of 2007-2008. The bet made $15 billion for his hedge fund and an additional $4 billion for himself. At the time, he was able to postpone paying taxes on the earnings, thanks to a loophole in the tax code — but now he has to pay up. 

The hedge fund manager originally had a bill of $1.5 billion to pay back to the government — thought to be the largest required payment ever — but he submitted $500 million late last year.

Paulson is not the only one to be hit with a giant tax bill this year. The Joint Committee on Taxation estimated that closing the loophole could bring in as much as $25 billion in tax revenue, but The Wall Street Journal suggests the benefits could be much higher.

The billionaire's recent investment performance has struggled and his well-publicized mistakes have decreased the size of his funds from $38 billion to $9 billion, The Wall Street Journal reports.

Paulson, a friend of Donald Trump, made another risky bet by becoming one of the first on Wall Street to back the then presidential candidate. Vanity Fair noted Paulson was a donor and financial advisor who helped get Trump elected.

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