Hamilton County taxpayers will pay for half the Cincinnati Bengals' legal bills during the team's defense against a $14 million tax bill delivered on April 15.

        Although the team will initially pay the tax bill, taxpayers could be responsible for paying all of the tax — which the IRS claims is owed on the sale of $26 million in personal seat licenses.

        The licenses allowed fans to buy season tickets. Revenues from those sales were collected by the county and counted as the Bengals' contribution toward construction of the $459 million stadium.

AGREEMENT POINTS

Hamilton County and the Cincinnati Bengals have agreed to jointly fight a $14 million federal income tax bill delivered to the team April 15. County taxpayers will be responsible for final payment of whatever tax is owed. Highlights of the agreement:     • Payment of tax bill: The Bengals will pay the $14 million tax bill by July 15, then withhold rent payments to the county until the matter is resolved. If the Internal Revenue Service refunds the tax bill, the team will pay its rent plus interest. The team was scheduled to pay $1.5 million in rent this year.     • Legal fees: The county will pay the first $175 of each hour of billing for legal fees. The county and team will split out-of-pocket fees and costs (including experts, paralegals, court reporters, etc.).     • Court selection: The tax bill will be appealed in U.S. District Court in Cincinnati.     • Settlement and legal strategy: The county and team must agree before any settlement is entered into, but the same is not true for making important legal decisions along the way. The Bengals “shall be entitled to exercise final and binding decisions” with respect to legal strategies.

        In an agreement approved Tuesday by Hamilton County Commissioners Tom Neyer and John Dowlin, the team will pay the bill, then withhold rent payments until the matter is resolved.

        The Bengals were to pay $1.5 million in rent this year and $1.4 million next year.

        The agreement also obligates the county to pay the first $175 per hour of all legal invoices relating to the matter, and to pay half of all out-of-pocket expenses for lawyers, experts, paralegals, court reporters and the like.

        How much will it all come to?

        “That depends on how long (the defense) lasts and by what method the matter is defended,” Mr. Neyer said. “They are rather expensive attorneys.”

        Commissioner Todd Portune was on vacation Tuesday and did not attend the meeting. But he did have a statement read into the record, urging his fellow commissioners not to enter into the agreement.

        Mr. Portune said there are too many conflicts between the team and the county.

        “Make no mistake, the (seat license) program was a Bengals' program,” Mr. Portune's statement said. “To assert otherwise is revisionist history.

        “While we share a common interest with the Bengals in having no payments due the IRS, it is their fight and we must position the county's strategy and posture in ways that protect the taxpayer's interest.”

        Mr. Portune's statement might be his last word on the matter because of a gag order provision in the agreement.

        County and team officials can make public comments on the claim only if they are “truthful and supportive of the positions taken.”

        Troy Blackburn, the Bengals' director of business development, called the IRS action an “effort to overreach and assess taxes where none are due.”

        “This case is simple: One is either on the side of the IRS or Hamilton County,” Mr. Blackburn said.

        But the case isn't all that simple.

        Hamilton County raised $26 million from the sale of personal seat licenses, which gave fans the right to buy season tickets for Bengals games. The sale of those licenses was represented to the community as the team's contribution toward construction of the stadium.

        The IRS says the cash raised by the county's sale of the seat licenses was actually income for the Bengals, even though the team's lease calls for the county to collect and spend the money.

        In a June 2000 amendment to that lease, the Bengals waived a requirement for county taxpayers to buy any unsold tickets to the first 20 home games, up to 50,000. That same lease amendment states “the county alone shall be responsible to pay (and defend against) any claims or assessments for taxes relating to (seat license) revenues.”

        The amendment was signed in the midst of a heated commission campaign between stadium champion Bob Bedinghaus and Mr. Portune. It was hailed as a victory for taxpayers because it eliminated the ticket guarantee, which was widely criticized by many in the public.

        Mr. Dowlin said no one ever thought taxes might be owed on the seat license money.

        “Sounds like it was pretty smart to put that in there (for the Bengals),” Mr. Dowlin said. “We didn't even think about it.”

        A similarly criticized lease requirement — which would have obligated taxpayers to million-dollar penalties if the stadium had not been ready in time for the season — was waived days after the amendment was signed.

        County Administrator Dave Krings said he's not sure if the county had its own tax attorneys examine provisions of the lease or any of the amendments.

        “We had lawyers and financial people we were consulting with that who were experts on stadium projects,” Mr. Krings said. “But we don't believe there are any taxes owed to anyone in this matter.”
       

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