Miccosukee tribe, IRS wrangle over taxation of casino revenue
by Aug 16th 2010 2:52PM
The Miccosukee tribe has advised the IRS that members of the tribe do not owe any taxes received from the tribe's multimillion-dollar gaming and casino operations in Florida. The IRS, as you can imagine, takes a very different position.
Under existing law, tribes with gaming facilities do not pay federal income tax on revenue collected at casinos and other halls. This is in deference to the idea of tribal sovereignty and is key to the Indian Gaming Regulatory Act (IGRA), signed into law by President Reagan in 1988. However, tribes are required to report all distributions to members and to advise members that they may owe federal income taxes on those distributions. The idea was to respect the idea of tribal sovereignty to create gaming halls and casinos which might otherwise not be allowed under state law but give the federal government the power to regulate gaming.
The result of IGRA was a boon to gaming halls on Native American reservations. According to Charles Wilkinson's book, Blood Struggle: The Rise of Modern Indian Nations, in the span of less than 20 years, gaming revenues on reservations shot up from $100 million to $16.7 billion.
That increase in revenue didn't go unnoticed. While most Native American tribes complied with existing regulations such as the filing of "revenue allocation plans" with the Bureau of Indian Affairs to reveal distributions to members, the Miccosukees did not. They have taken the position that they aren't subject to U.S. federal laws because of the tribal sovereignty.
The IRS has reportedly been aware of the Miccosukee tribe's lack of cooperation for a period of about 20 years -- the same 20 years in which its former tribal leader, Billy Cypress, managed its business. Cypress was eventually ousted by the tribe in January of this year. A few months after Cypress was voted out, the IRS served Morgan Stanley Smith Barney, the tribe's Miami bank, with a summons asking for Cypress' credit card statements and other records. The IRS has also asked for credit card records and other records belonging to the tribe. Cypress is suspected of charging millions of dollars in personal expenses for travel and "high-end purchases" to the tribes in order to avoid paying taxes on the income.
Attorneys for the Miccosukees have accused the IRS of "abuse in authority" and have claimed that the tribe's financial records were protected by the tribe's status as a sovereign nation. A U.S. District Court judge disagrees. Judge Alan S. Gold has found no basis in the tribe's argument of sovereign immunity, writing, "[T]he Miccosukee Tribe is attempting to use tribal sovereign immunity as a shield to protect a limited class of records from the scrutiny of the United States. This it may not do.''
The judge did not immediately order the release of the records but did schedule an "adversary hearing" for next week if the transfer of the records does not occur. The hearing would focus not on whether the records could be compelled (that's no longer the issue), but on whether the IRS summons had been issued in good faith; the tribe claims that the IRS is on a fishing expedition. Attorneys for both sides appear to be readying for the showdown.
The IRS has already negotiated the release of tribal records at several other banks, including Citibank, Wachovia and American Express. It is expected that the records will reveal abuse from other tribal members.
The Miccosukees are a federally recognized Native American tribe with a reservation in the Miami-Dade area of Florida. They are descendants of the Lower Chiaha, a tribe from Muskogee Creek who spoke Mikasuki, also spoken by the Seminole tribe. For years, the Miccosukees had a close relationship with the Seminoles, but they established their separate tribe in the 1950s.
Despite the fact that casinos and gaming halls mean big money, the Miccosukees are in the minority when it comes to participation in the industry. Statistics provided by the National Indian Gaming Commission (NIGC) indicate casinos are operated by approximately 220 federally recognized tribes, less than 40% of the total. As of 2008, there were 562 federally recognized tribes in the United States.