Last year, the Indiana Pacers found themselves in a National Basketball Association (NBA) showdown with the Miami Heat. As the regular season was winding down, a game hyping the #BeastsoftheEast would determine the Eastern Conference’s top seed. The Pacers took the game with a narrow 84-83 victory.
This season tells a different story. With a 38-44 record, the Pacers were out of playoff contention (barely) for 2015.
That sort of volatility in the game – one year you’re up, another you’re down – is what Bren Simon is counting on to bolster her claim for refund in federal court. Bren Simon is Pacers’ the widow of Mel Simon, who purchased the Pacers in 1983 together with his brother, Herb Simon. And to understand the refund claim (and the subsequent lawsuit), you have to understand the Pacers.
The Pacers, an American Basketball Association team since 1967, joined the NBA in the ABA-NBA merger in 1976. That same year saw the Denver Nuggets, New York Nets, and San Antonio Spurs join the NBA.
The Pacers enjoyed a roller coaster history, first struggling in the NBA before striking gold with the drafting of UCLA’s Reggie Miller (although many Pacers fans weren’t happy with the signing at the time). Miller would play his entire history with the Pacers, retiring in 2005. Miller’s last game was played on May 19, 2005 and was marked by a standing ovation which lasted long enough to merit an additional timeout. That game was a rematch between the Pacers and the Detroit Pistons. An earlier game between the Pacers and Pistons was only the beginning, claims Bren Simon in those court pleadings, of what became “a civic and family embarrassment.”
The 2004-2005 season started out well for the Pacers. By mid-November, they had a 6-2 record and were feeling good about their chances for a winning season. The team assumed the much-hyped Pacers/Pistons game was to be another notch on their road to the playoffs. It sure seemed like it: with less than a minute left in the game, the Pacers were up 97-82.
But that’s when things went terribly wrong. As Ben Wallace of the Pistons went up for a layup, the Pacers’ Ron Artest (also known today as Metta World Peace) fouled him. Hard. Wallace shoved Artest in response. Players on both sides reacted, attempting to calm Artest and Wallace down. Only that didn’t happen. Wallace threw a towel at Artest just moments before a fan threw a soda at Artest. Artest jumped into the stands and suddenly, punches, sodas – and a chair – were flying.
The next day, NBA suspended Artest indefinitely along with three teammates, calling their actions “shocking, repulsive, and inexcusable.” In total, nine players would be suspended. The lion’s share of the suspensions, 137 games, were handed down for Pacers players, resulting in more than $11 million in salary losses. And, much to the NBA’s chagrin, there were criminal charges for five players: all pleaded no contest to the charges.
The damage was extensive, not just to the NBA but to the Pacers. The team was labeled a “thug” team and fans, it seemed, were no longer interested in the game. With most of their starters facing suspensions and rumors of locker room stress, things would go from bad to worse. After a brief glimpse of life at the end of 2006, the Pacers finished the next season at 35–47, one of the worst in team history.
At that point, the team was, according to the lawsuit filed in U.S. District Court by Bren Simon, “hemorrhaging cash.” According to the complaint, the Simons had to loan the franchise money just to keep the team going. In 2007, Mel Simon approached his brother, Herb, about selling the team. Herb didn’t want to sell. Unfortunately for Mel, he didn’t have the right to sell the Pacers without Herb’s consent and by agreement, he could only make a transfer of his interest to his son, David Simon, and only with Herb’s consent.
In 2008, the pair couldn’t agree on a sale but they did agree on a solution: a corporate reorganization. The details of the reorganization were not immediately agreeable to both – and with the looming economic crisis, negotiations were tricky.
Finally, in 2009, the brothers reached an agreement. Mel passed away a few months later.
In December 2013, Bren Simon received a Notice of Deficiency from the Internal Revenue Service. The amount due? $18,6750,000. Together with interest, the amount totaled $21,372,328.43, which Bren Simon paid on May 30, 2014.
So where did the tax bill come from? The IRS “determined that the conversion of Pacers Basketball Corporation to Pacers Basketball, LLC, in 2009 resulted in a taxable gift of $83,000,000.00.”
As for Bren’s liability? In October of 2010, Mel’s estate filed a 2009 United States Gift Tax Return. As the spouse, Bren also signed as a “gift-splitter” meaning that she agreed that the total of the gifts would be treated as made one-half by each spouse. When the IRS assessed additional gift tax liability, it would follow, then, that Simon would be personally responsible for half.
Not happy with that result, Simon subsequently requested a refund in the amount of $21,372,328.43, plus additional allowable interest. IRS, not surprisingly, turned the request down and Simon went to court. Simon claims that there couldn’t have been a gift because the re-org was “made in the ordinary course of business, bona fide, and free of any donative intent” and further, the terms of the re-org were for “adequate and full consideration in money’s worth.”
The IRS has not yet commented on the lawsuit, which was filed last month.
(You can read the lawsuit here: Bren Simon V. IRS.)
If the matter moves to court, it will mark Bren Simon’s second public lawsuit since her husband’s death. The first? A nasty battle over her Mel’s $2 billion estate. That lawsuit, filed by Simon’s children from a previous marriage, claimed that the 82 year old Mel Simon was suffering from dementia when he changed his estate plans to increase his wife’s share and dramatically reduce the share passing to his children. He did so just four months before his death. A settlement was eventually reached in the lawsuit and was subsequently sealed. While nobody’s talking about the result, the Simon children seemed pleased with one letting out a loud “Yeah!” as the elevator doors closed following the hearing.
With Mel and his family now firmly out of the picture, Herb Simon is the sole owner of the Pacers. He ranks #628 on Forbes’ list of billionaires with an estimated worth of $2.8 billion, making him the the 225th richest man in the United States. That’s a significant increase over last year when he was ranked #868 on the billionaires’ list. The reason for the jump? You guessed it: those volatile Pacers.
