A decade ago, Paulson correctly shorted sub-prime mortgages, earning about $15 billion of profits for his funds and approximately $4 billion for himself. The WSJ report said he deferred the bulk of the taxes on these profits, using a tax provision available at the time to hedge-fund managers, but now he has to pay up.

While he will be able to pay the sum, a run of bad results and client exits means Paulson has been selling assets to pay the IRS bill. He has also cut costs, including some senior layoffs, the report said.

Today, Paulson oversees less than $9.0 billion of assets, down from $38 billion at his peak seven years ago, the report added.