The Miccosukee Indians have lost a contentious tax case that experts say will strengthen federal government efforts to collect more than $1 billion in overdue personal income taxes.
U.S. District Judge Cecilia Altonaga found late Friday that a tribal member must pay $278,758 in taxes, interest and penalties to the Internal Revenue Service for failing to file a tax return in 2001. The judge concluded her family's gaming income — a distribution of casino profits — was not exempt from U.S. tax laws, a ruling likely to have ripple effects on many of the West Miami-Dade tribe’s 600 members.
Altonaga's decision, which will be formally filed as a judgment against the Miccosukees and tribe member Sally Jim later this week, provides the IRS with the legal power to compel other members — including Chairman Billy Cypress — to pay personal income taxes on casino gaming distributions dating back more than a decade.
Miami attorney and tax specialist David Garvin said the judge's decision was “definitely significant because it sets a precedent.”
“I anticipate this will propel the IRS to move more expeditiously now that they have the court agreeing with their position,” Garvin said. “The tribe cannot take any solace from this order. The outcome is inevitable.”
Jim testified at trial that she not only forgot to file the return but that she also thought she didn't have to pay taxes based on instructions from the tribe and its lawyer at the time, Dexter Lehtinen. But Altonaga found Jim's testimony “not credible” because in a pre-trial deposition, she said she had “everything ready” but “just completely forgot to file that year.” Then, in 2015, Jim tried to submit a belated return, stating she received $272,000 in “other income” from the tribe.
The tribe’s current attorney, Robert Saunooke, argued that after Congress passed a 1994 law requiring American Indian tribes to withhold income taxes from the distribution of “net revenue” from casino operations, the Miccosukees set up a “gross receipts tax” on its gaming facility with bingo-style slot machines and poker. He said the internal tax on gaming income would be placed in a non-taxable account and distributed as “general welfare payments” to members — asserting that was “excludable” from federal taxes.
But in her ruling, Altonaga completely disagreed in a decision that laid blame at chairman Cypress. Altonaga noted that Lehtinen, the tribe’s former attorney, testified that he did not represent Jim or advise her not to file her 2001 tax return, as she claimed at trial.
But she found that Cypress, who had served as Miccosukee chairman from 1995 to 2009 and regained power earlier this year, testified the tribe “instructed its members, including Jim, to take active measures to conceal from the IRS their distributions from” gaming income to avoid paying federal taxes.
At trial, Cypress testified that he told members at Miccosukee General Council meetings that their distributions were not subject to taxes and should not be reported on their tax returns, but he also instructed members not to disclose their gaming income to outsiders, including banks and credit card agencies.
Cypress, the Miccosukee leader, has been battling an IRS lawsuit over millions of dollars in unreported income — a dispute that will be directly affected by the judge’s ruling.
For decades, the Miccosukee kept their business largely private, using their sovereign status as a shield in countless civil and criminal legal cases with outsiders. But the tribe's tax troubles came to light during an internal rift when Cypress was out of power, which led to a lawsuit accusing him of stealing $26 million from Miccosukee bank accounts, including casino profits. That dispute further sharpened the IRS’ targeting of the tribe for failing to withhold taxes on gaming income doled out to members.
The tribe's traditional distribution of casino income — $120,000 to $160,000 yearly for each member — has turned into a massive tax liability.
Cypress took a tough stand against the IRS crackdown on the tribe's income from gaming profits in a special election last March, after the Miccosukee General Council voted to remove Chairman Colley Billie. He had attempted to settle the tribe's dispute with the IRS and started to withhold taxes from the distributions to tribal members — a step the agency demanded.
Unlike other tribes with casino operations in the United States, the Miccosukee Tribe has never submitted a “revenue allocation plan” to the Bureau of Indian Affairs. The bureau specifies how the funds are to be spent on general services, such as housing, education and healthcare, as well as on income distributions to members.