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Ex-Seminole leader sentenced to 1-1/2 years in prison for income tax offense

Former Seminole Tribe leader David Cypress, believed to be the first Native American ever convicted of a federal tax offense, must surrender next month to start a 1-1/2 year prison sentence for understating his income from the tribe’s $2 billion gambling operation, a federal judge ruled Thursday.

Cypress had sought probation along with four months of house arrest, after having agreed to pay about $5.5 million in overdue income taxes to the Internal Revenue Service for the years 2003 to 2009.

His sentencing hearing offered a rare peek into the Seminole Tribe and its Las Vegas-style gambling enterprise, featuring the Hard Rock Hotel & Casino in Broward County. The Cypress case also conjured comparisons to the IRS’s current income-tax crackdown on the Miccosukee Tribe in Miami-Dade County and its former chairman Billy Cypress, no relation.

David Cypress’ lawyer tried to convince the judge that the 61-year-old former tribal council member committed the crime because of “cultural” differences between the Broward-based Seminoles and the rest of America. Defense attorney Joel Hirschhorn said Cypress was a “simplistic man” who didn’t grasp he owed personal income taxes as the tribe underwent a “rags-to-riches” transformation, thanks to its gaming bonanza.

Hirschhorn also argued that Cypress, who apologized in a brief statement, was a victim of the U.S. government, which he said showcased his client as the “poster boy for tax compliance on the reservation, perhaps even in all Indian Country.”

But U.S. District Judge Kathleen Williams was not swayed, despite recognizing the “shameful episodes” of the nation’s mistreatment of Native Americans.

The judge cited evidence that showed Cypress collected $25 million in Seminole income through a “double-billing” invoice scheme. It involved voucher payments to tribal vendors that secretly ended up in Cypress’ pocket as “personal expenses.” Cypress, who represented the Big Cypress Reservation on the Seminole council from 1999 until his resignation in 2010, admitted the misconduct in his guilty plea agreement and factual statement signed in April.

“I find what Mr. Cypress pleaded to and agreed to in his proffer was uniquely and sadly American,” Williams declared. “He was cooking the books.”

The judge also noted that she could find no evidence of any Native American anywhere in the country being convicted of a tax offense.

Cypress’ prison sentence could have been much worse had federal prosecutors been able to prove he “willfully” committed the double-billing scheme for the entire seven-year period. He was only charged with and pleaded guilty to filing a false tax return in 2007, understating his income by $285,000.

Assistant U.S. Attorney Carolyn Bell, who urged the judge to give Cypress a two-year sentence, mocked the defendant’s argument that his cultural background prevented him from grasping U.S. tax laws. “This was a sophisticated individual,” Bell said. “He was a leader of the Seminole nation.”

Under federal law, the Seminole Tribe’s status as a sovereign nation means the entity itself is not subject to taxes. But once the tribe distributes profits from its gambling casino to members, they are individually responsible for reporting and paying taxes on their annual income tax returns, according to the IRS.

In court papers, Hirschhorn revealed that the Seminoles’ gaming profits reached $300 million a year by 2001, with monthly dividends paid to each member. The Seminoles have 3,800 members.

Under the distribution formula, every Seminole family of four receives dividends of about $30,000 a month.

Cypress, a notorious big spender who built a massive Mediterranean-style mansion with his millions, was paid a salary of $500,000 on top of the monthly dividend. Like other Seminole council leaders, Cypress controlled a discretionary fund that he tapped to dole out money to family and other tribal members.

The IRS case against the Miccosukees in Miami-Dade, while similar to the Cypress prosecution, is a civil matter for now.

This summer, the agency escalated its investigation into the Miccosukees’ finances, demanding that the tribe hand over a mountain of internal records showing millions in allegedly unreported payments from its gambling profits to tribal members.

The IRS’ sweeping action, which the Miccosukees are trying to stop in Miami federal court, seeks internal documents of the 600-member tribe’s gaming distributions during 2006-2010 as well as its council meeting records on tax matters from as far back as 1985.

The agency is demanding a long list of documents — from Miccosukee disbursement statements to check register reports, plus any tax advice from tribal lawyers and accountants. The demand is part of an aggressive push to recover potentially tens of millions of dollars in back income taxes from individual members.

At the same time, the Miccosukees have turned against their former chairman, Billy Cypress. In a lawsuit, the tribe has 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 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 Miccosukees’ suit targeting him is the latest of his 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.