FORT WAYNE – In 2009 and 2010, local entrepreneur James Simon sued the federal government and the IRS after his wife committed suicide, claiming the service of a search warrant on their home caused her to kill herself.
But a few months after the lawsuits were filed, a federal grand jury in South Bend handed down a 23-count indictment against Simon, accusing him of multiple counts of filing false tax returns, failure to file reports of foreign bank accounts, fraud involving financial aid and fraud involving federal financial aid.
Since Simon was convicted and sentenced on the charges, the federal government wants the lawsuit – consolidated from two to one – thrown out.
Simon had been involved in telecommunications and satellite companies over the past 15 years, notably with a company known as Rimsat. That company was forced into bankruptcy in the mid-1990s after infighting, trouble with its creditors and a conflict with the Russian Federal Space Agency over satellites.
The criminal case involved a number of other businesses, including JS Elekta Leasing Limited, Ichua Limited, JAS Partners and William R. Simon Farms.
Some of the businesses were incorporated or registered in Cyprus, Gibraltar and other overseas locations.
Federal prosecutors said Simon received nearly $1.8 million from the companies from 2003 to 2006 but failed to report the money as income.
Instead, prosecutors alleged, Simon characterized the money as loans, but he did not sign promissory notes and did not offer security for the money or have a repayment schedule.
The money was not used primarily for business purposes, according to the indictment, which outlines where the money went – for clothing, a car, hairstyling, makeup and education.
But on tax returns, Simon reported adjusted gross incomes resulting in financial losses each of the four years, according to court documents. The indictment also alleges Simon reported less than $20,000 in annual income on financial aid forms but had receipts each year totaling between $200,000 and $700,000.
In November 2010, a jury convicted Simon of 20 of the charges against him and, in March 2011, he was sentenced to six years in prison and ordered to pay $886,901 in restitution to the IRS.
The pair of civil lawsuits was eventually consolidated but remained pending while his criminal case continued. Last month, attorneys for the government asked the lawsuit be dismissed.
The government’s attorneys argued in their motion, filed in early June, that the government has sovereign immunity from lawsuits, with some exceptions, such as personal injury or death caused by negligent or wrongful actions.
But Simon’s attorneys argue that the government is only immune if its investigation into Simon’s actions was an attempt to assess or collect a tax, according to court documents.
His lawyers argue the search of the Simon residence was purely criminal in nature, rather than pertaining to the collection of revenue, according to court documents. They also argue that the search was a violation of the internal policies of the IRS, according to court documents.
The lawsuits were also filed on behalf of the estate of Simon’s wife and their minor child. Therefore, there was nothing in the criminal case that suggested any collection of any tax with regard to the child, according to court documents.
For those reasons, Simon’s attorneys contend the government should not be immune from a lawsuit.
In another document filed Monday, the government argues Simon’s attorneys are creating a false dichotomy between a criminal tax investigation and the assessment or collection of taxes. But since the conviction led directly to the nearly $1 million restitution, the government argues that it, in fact, is collecting taxes from the action.
Attorneys for the government continue to ask the case be dismissed, while Simon’s attorneys seek permission to amend their initial lawsuit, according to court documents.
Meanwhile, Simon remains in the federal Bureau of Prisons, housed in the Rochester Federal Medical Center in Minnesota. He is not scheduled for release until September 2016.