The Miccosukee Indians must turn over loads of confidential financial records that could help the U.S. government as it seeks to collect tens of millions of dollars in taxes from tribal members who received gambling profits as personal income, a federal appeals court ruled Monday.
The West Miami-Dade Tribe, which operates a casino complex that features bingo-style slot machines and poker, has run out of legal moves. The 600-member tribe can ask for a full hearing before the 11th Circuit Court of Appeals in Atlanta, but legal experts say it would be futile.
A negotiated tax settlement between the tribe and the Internal Revenue Service would likely be the next scenario. The tribe’s main lawyer, Bernardo Roman III, did not return a call for comment.
The Miccosukees, deploying their status as a sovereign nation, have been fighting for years with the IRS over access to their banking, securities and other records. The federal agency says it should be allowed to examine those records because it has reason to believe the tribe has failed to deduct and withhold income distributed from its gambling enterprise to members for the past decade.
The appeals court sided with the IRS, rejecting the tribe’s sovereign immunity argument that the IRS has no legal right to its records held by American Express, Citibank, Morgan Stanley and Wachovia Bank. The three-judge panel also rejected the tribe’s argument that the IRS’ summonses for its financial documents dating from 2006 to 2009 were issued for an “improper purpose” and were “overbroad.”
The appellate panel, like a Miami federal judge who has handled the raging dispute, ruled that “Indian tribes may not rely on tribal… immunity to bar a [legal action] by a superior sovereign,” the U.S. government.
The federal agency’s legal battle with the Miccosukees began in 2005, when the tribe’s high-profile lawyers argued to the IRS that tribal members didn’t owe any income taxes. Each member receives from $120,000 to $160,000 a year from the tribe’s gambling profits. The tribe, which has tried to use its sovereign status to block the IRS’ civil probe, might now be on the hook for taxes owed by many of its 600 members.
The reason: The tribe’s status as a sovereign nation means the entity itself is not subject to taxes under federal law. But once the tribe distributes profits from its casino to members, they are individually responsible for reporting and paying taxes on their annual income tax returns, according to federal law.
In its 12-page ruling, the appeals court pointed out that Indian tribes are required by law to deduct and withhold a portion of any personal income distributed from their gambling enterprises to tribal members.
Earlier this year, the Miccosukee Tribe admitted in court papers that more than 100 members owed the federal government about $25.8 million in back taxes, penalties and interest on income the tribe handed out from its gaming operation off the Tamiami Trail during 2000-05.
In Miami, U.S. District Judge Alan S. Gold has repeatedly sided with the IRS in its quest to obtain the tribe’s financial records. In July, Gold denied the tribe’s latest bid to block the IRS’ summons for Miccosukee financial accounts for 2010.
IRS Agent James Furnas, in a sworn statement, said the agency’s summonses requested “information that is necessary to determine whether the tribe made unreported payments, the amount of payments, the recipients of the payments, the nature of the payments, and the source of income for the payments (including whether the payment was from gaming revenue or non-gaming revenue.)”
The tribe has a long history of fighting the federal government over major issues, from income taxes to the cleanup of the Everglades.
But since the ouster of Miccosukee Chairman Billy Cypress in late 2009, the tribe has filed one lawsuit after another against the former leader and his inner circle of advisors, including two former U.S. attorneys in Miami who represented the Miccosukees.
In a federal suit filed in July, the tribe accused Cypress of stealing $26 million from the Miccosukees to spend on numerous gambling trips, shopping sprees, real-estate investments and luxury cars.
The suit claims Cypress conspired with two former Miccosukee financial officers, along with former U.S. attorneys Dexter Lehtinen and Guy Lewis and a Miami brokerage firm, Morgan Stanley Smith Barney, to keep the tribe in the dark about his alleged “criminal enterprise.”
(The tribe also has sued Lehtinen and Lewis in separate legal malpractice cases.)
The federal racketeering suit claims the tribe did not “discover this massive web of financial theft, embezzlement and fraud until 2010,” when Colley Billie replaced Cypress as the Miccosukee chairman.
The suit details a total of $11.5 million in ATM withdrawals by Cypress at casinos in Las Vegas and elsewhere, along with an additional $4 million in American Express charges for jewelry, restaurants and other expenses, between 2006 and 2009. Cypress also acquired nearly a dozen properties and residences, from Miami-Dade to Panama City Beach, worth a total of $4 million.
The tribe’s suit targeting Cypress, who was personally represented by Lewis and law partner Michael Tein, is the latest in the former chairman’s legal woes.
In 2010, the IRS claimed that Cypress personally owed the government almost $2.8 million in taxes and penalties on $6.65 million in unreported income during 2003-05.