Investors in a hedge fund run by Renaissance Technologies LLC probably avoided more than $6 billion in U.S. income taxes over 14 years through transactions with Barclays Plc and Deutsche Bank AG, a Senate committee said yesterday.

The New York hedge fund used contracts with the banks to establish the "fiction" that it wasn't the owner of thousands of stocks traded each day, said Sen. Carl Levin, a Michigan Democrat and chairman of the Permanent Subcommittee on Investigations. The maneuver sought to transform profits from rapid trading into long-term capital gains taxed at a lower rate, he said.

"It meant enormous profit for both the banks and the hedge funds," Levin told reporters in Washington. "Ordinary Americans had to shoulder a tax burden of billions of dollars, a burden that was shrugged off by those hedge funds."

The panel urged the Internal Revenue Service to collect taxes from the fund's investors at the higher rate that Americans pay on wages and salaries. It said Congress should remove legal obstacles to audits of hedge funds and other large partnerships.

Executives from Renaissance, founded by billionaire mathematician James Simons, of Setauket, are scheduled to testify about the transactions today in Washington, as are representatives of Barclays and Deutsche Bank.

In a statement last week, Renaissance said, "We believe that the tax treatment for the option transactions being reviewed" by the committee is "appropriate under current law. These options provide Renaissance with substantial business benefits regardless of their duration."

Simons, 76, retired from Renaissance in 2010 as one of the best-performing managers of all time.

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In the 1960s, Simons was a code breaker for the National Security Agency. Simons is a philanthropist and former math professor at Stony Brook University who has championed better math and science education.