Mel Simon owned the Indiana Pacers with his brother, Herb, for 16 years. After the Malice in the Palace in 2004, the Pacers started losing money and Simon became disenchanted with his ownership of the team. He sold his interest to his brother in a very quiet deal that was two years in the making. The terms included being released from various personal guarantees. Simon died shortly thereafter of pancreatic cancer. The IRS determined that the deal was so favorable to his brother that his estate owes a gift tax of $21 million. His widow has sued the IRS for a refund of the gift tax paid.
Several quick points:
1. An individual may give away $5.45 million during his life before he has to start paying gift tax.
2. The gift tax rate is 40%.
3. The donor is the person responsible for paying the gift tax.
4. This deal between brothers sounds complicated. It is doubtful that one brother would intentionally give the other $83 million.
5. The widow can afford the tax bill - Simon's estate was valued at $2 billion because of his pioneering development of shopping malls.