Miccouskees Reach End of the Road

The Miccouskee Tribe runs a very successful casino outside of Miami.  The tribe itself is a sovereign nation and is exempt from federal taxation.  However, its members are US citizens and owe tax on all their income.  The tribe offered some unique (if bad) advice to its members: Don’t report the income–which is taxable–to the IRS, and don’t list distributions from the tribe on anything.  The then chairman of the tribe noted that if the IRS ever found about the income, trouble would ensue.  And that (as you might expect) happened.

The IRS found out and issued notices of deficiency.  Two members of the tribe fought the notices in Tax Court and had a partial victory (they lost on the tax and most of the penalties, but did have the accuracy-related penalty removed).  They appealed to the 11th Circuit.  Last week, the Court handed down its opinion upholding the Tax Court.

First, as I’ve said in the past everything is income unless Congress exempts it.  And there’s nothing in the Code exempting class II gaming: “[T]he very statute that allows tribes to run class II gaming activities—the Gaming Act—also says that any “per capita payments” made from those activities must be “subject to Federal taxation.””  The members argue that the Miccosukee Settlement Act or “land lease” payments exempt them from tax.

Unfortunately for the members, the Miccosukee Settlement Act is about a highway, and does exempt income from that highway building from federal taxation.  The casino (and income from the casino) has nothing to do with that, so the members lose.  Then they argue that the payments are exempt because they are from a lease of the tribe’s lands.  There’s a problem: you need a lease if you’re going to argue that a lease exempts the income from taxation.

The tax court found that there was no lease agreement, and that finding was not clearly erroneous. Indeed, [the members] have not pointed to anything in the record even resembling a lease agreement. And a closer look reveals why: no lease ever existed. [Citations omitted]


But there’s more–to have exemption, there must be clear statutory exemption.  The Court found there was none.  And the payments from the casino do not derive from the land, so the lease is irrelevant anyway.

So the Miccosukee members are out of luck.  They could appeal (either asking for en banc review by the entire circuit or to the Supreme Court), but neither is likely to be granted.  It appears to be the end of the line for the battle, and the members of the tribe need to start writing their checks to the IRS.

Case: Clay v. Commissioner


Comments are closed.