RenTech’s Billion-Dollar Tax Cloud Darkens After IRS Ruling (1)

A little-noticed decision by the Internal Revenue Service’s appeals unit may spell trouble for legendary investor Jim Simons, who’s embroiled in a multibillion-dollar tax dispute with the agency.

Reviewing the audit of an investment manager in Connecticut, the IRS Office of Appeals rejected a tax-avoidance maneuver involving so-called basket options. That’s the type of transaction at the heart of a separate, larger case involving Simons’s Renaissance Technologies hedge fund. The decision, made public in a court filing in May, could offer a preview of the tax agency’s reasoning in the Renaissance case.

The Renaissance dispute is one of the largest ...