Just when you thought there couldn't be another surprise in the Cincinnati Bengals stadium saga, in comes the Internal Revenue Service (IRS) with a claim of $14 million in unpaid taxes and late penalties.
The $14 million is related to the sale of seat licenses at Paul Brown Stadium. While the county managed the program that sold almost all of the $26 million in seat licenses —fees of $150 to $1,500 fans paid for the opportunity to buy season tickets — the IRS believes the license fees directly benefited the Bengals and should be taxed.
The money was counted as part of the Bengals' contribution to the stadium construction, although it never entered the Bengals' bank accounts.
The kicker is, if the IRS wins its case, it's the Hamilton County taxpayers who will likely pay the $14 million bill. That's because of the third amendment to the Bengals stadium lease, adopted in June 2000.
The amendment contains a clause saying the county will be responsible for paying and defending against "any claims or assessments for taxes relating to such revenues." Similar clauses were in the lease and previous amendments, according to County Commissioner John Dowlin, but his understanding is that this is the first time "taxes" was specified.
Dowlin thought the county couldn't be responsible for taxes because it's a unit of government, he said.
"We don't pay taxes on anything," Dowlin said.
"I thought it was not a problem — not an issue at all."
County Commissioner Tom Neyer Jr. said this is simply a matter of the IRS making a claim on the Bengals. It's in the county's interest to fight the IRS' claim as vigorously as possible, he said.
During his unsuccessful re-election bid, former County Commissioner Bob Bedinghaus touted the June 2000 amendment as a generous gesture from the Bengals. Before the amendment, the county was responsible for buying as many tickets as it took to make sure 50,000 were sold for each of the first two years of home games.
The amendment transferred control of the program to the Bengals weeks before the first home game and erased the so-called ticket guarantee.
The Bengals' latest generous gesture came June 25, when they offered to split the potential cost of fighting the IRS claim. After discussing the issue in a closed-door meeting, Neyer and Dowlin voted to go along. According to a Bengals' statement, this is generous because the county, as the third amendment says, is responsible for defending tax claims concerning seat licenses.
This, among other issues, led County Commissioner Todd Portune — on vacation until July 8 — to object to splitting the legal bill with the Bengals. Yes, the Bengals and the county both want to beat the IRS.
"The mutuality of interests ends there," Portune wrote. "There are simply too many conflicts of position and interest between the county and the Bengals for a joint defense agreement to work."
The prosecutor's office was intimately involved in drafting the Bengals' contracts, Portune wrote. For that reason, he wanted the county to hire an independent attorney to represent it in the issue. He didn't get his wish.
The key questions are these: were the Bengals attorneys aware the IRS might try to collect taxes on seat license sales later? What about the county prosecutor's office, Bedinghaus and others closely involved? The prosecutor's office declined comment.
Neyer says he wasn't aware of any intentional bait and switch by Bedinghaus or the Bengals.
"I don't believe there was any shell game," Neyer said.
Did the prosecutor's office inform him of the potential tax liability in the third amendment?
"I'm getting very close to an executive session topic, so I'm going to pass on that," Neyer said.
The Bengals previously succeeded in defending the estate of Paul Brown against another IRS claim, using the same law firm that will be involved in this issue. ©