Posts Tagged ‘Miccosukee’

Miccouskees Reach End of the Road

Monday, March 22nd, 2021

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

Time Running Out on the Miccosukee Tribe’s Battle with the IRS

Wednesday, November 4th, 2015

I have sympathy when taxpayers battle the IRS over legitimate issues. Indeed, I’m all for fighting the IRS when they’re (imho) wrong. However, fighting quixotic battles when you are wrong isn’t a good idea. The Miccosukee Tribe in Florida is in that position.

The Miccosukees operate a successful casino near Miami. The tribe itself is exempt from taxation (it’s a sovereign nation). However, the members of the tribe are not exempt from taxation when they receive income related to the casino. And therein lies the issue.

Beginning in 2012 (or perhaps even earlier) the IRS was wondering why payments to tribe members weren’t being reported (on information reporting forms) and taxes withheld. The IRS sent requests to the tribe, and eventually summonsed material from the tribe and the tribe’s financial institutions. The tribe fought the summonses claiming sovereign immunity. The tribe lost the battles, most recently with this decision in June. (It’s unclear if the tribe has since provided this information to the IRS.)

Meanwhile, approximately 20 tribe members were sent Notices of Deficiency by the IRS pertaining to distributions from 2000-2005. The tribe members filed Tax Court petitions in 2013. As best as I can tell, no case related to this has yet been decided.

Separately, the IRS issued tax, penalties and interest on the non-withholding withholding (that is, the money that the IRS thinks should have been withheld by the Miccosukee tribe). The IRS issued a lien and levy notice. The Miccosukee Tribe had a Collection Due Process hearing. When asked to provided financial information the tribe refused. The tribe lost the Collection Due Process Hearing and then filed a Tax Court petition.

The tribe disputed both the underlying liability and the collection activity (the latter, as an abuse of discretion). In May 2014 the Tax Court used an order for summary judgment against the Miccosukee tribe on the underlying liability. Because the tribe had an opportunity to dispute the underlying liability at Appeals, the Court ruled that the tribe could not dispute it in the Tax Court case.

The Tax Court held a trial in March, and ruled today that the levy was not an abuse of discretion.

It is clear from our review of the record that the SO [settlement officer] verified that the requirements of applicable law and administrative procedure were followed and that in sustaining the filing of the NFTLs and the proposed levy the SO properly balanced “the need for the efficient collection of taxes with the legitimate concern of * * * [petitioner] that any collection action be no more intrusive than necessary.” Petitioner did not raise any valid challenge to the appropriateness of the NFTL filings and the proposed levy. Furthermore, petitioner did not submit the financial information necessary for the SO to consider an installment agreement. There is no abuse of discretion when a settlement officer declines to consider collection alternatives under these circumstances…see also sec. 301.6330-1(e)(1), Proced. & Admin. Regs. (“Taxpayers will be expected to provide all relevant information requested by Appeals, including financial statements, for its consideration of the facts and issues involved in the hearing.”). Therefore, we hold that the SO’s determination to sustain the filing of the NFTLs and proceed with the proposed levy was not an abuse of discretion. [citations omitted]

While I expect the Miccouskee Tribe to file an appeal, and this will delay any IRS action for the time while an appeal is pending, it’s clear that time is running out for the Miccosukee Tribe on this matter. They may not want to provide their financial information to the IRS, but they have to. They also need to start complying with the law in regards to reporting and withholding casino income payments. Years ago, the US government ended up owning part of the Bicycle Casino. It wouldn’t surprise me that at some date in the near future that the Miccosukee’s casino is under new management.

Miccosukees Definitely in the Running for Tax Offender of the Year

Tuesday, May 22nd, 2012

When I last reported on the Miccosukees (a South Florida Indian tribe that runs a casino), the tribe decided to apparently ignore the advice of their then-attorney and not withhold taxes on earnings of their members. They now have been accused of not remitting taxes they withheld from patrons.

Via Taxdood comes news that the Miccosukees face a lawsuit from two patrons who played Bingo at their casino, won, and had taxes withheld from their winnings. The patrons weren’t amused when the IRS informed them that the supposedly withheld funds–withholding that appeared on their W-2Gs–didn’t make it to the IRS.

One interesting issue is whether the Miccosukees can be sued in federal court by the patrons. I suspect that the case may end up in tribal court. However, I also suspect that the IRS can cause nightmares for the Miccosukees if they aren’t remitting withheld money to the IRS.

Ignoring Tax Advice and then Suing the Attorney who Gave the Advice Isn’t Brilliant

Monday, January 16th, 2012

Let’s assume you talk to your attorney, and he advises you that you should create a reserve fund for taxes. Usually, it’s a good idea to listen to your attorney. If you don’t like his opinion, perhaps get a second opinion.

Of course, there’s also the Bozo method. The Miccosukee Tribe runs a successful casino near Miami, Florida. The tribe is exempt from taxes (it’s a sovereign nation). However, its members must pay taxes. They decided that they knew better than their attorney, and didn’t report distributions to its members or create a reserve fund in case their opinion was wrong. The Miccosukees filed a malpractice suit against their longtime attorney in a Florida court. The attorney had copies of his advice which pretty much (to this layman’s eyes) throws the malpractice case in the trash can.

Taxdood has more. Hint: The Miccosukee Tribe is the first nominee for the Bozo Tax Offender of the Year.