The tax problems of the Miccosukee Tribe continue.
In January, I wrote about the tribe’s malpractice suit against its former attorney that claimed he had provided erroneous legal advice with respect to its ongoing IRS matter.
The Miami New Times is reporting two patrons of the Miccosukee Resort & Gaming Indian casino have recently filed suit against the tribe for failure to remit to the IRS taxes withheld from their gambling winnings.
The patrons, John Ricone and Francys Tolon-Ricone, claim they won just under $5,500 from bingo play during two trips in 2008. The tribe withheld approximately $1,500 for federal income tax, and issued two W-2Gs reflecting such.
On their 2008 tax return, the Ricones reported the bingo income and the withheld funds. The IRS then sent a notice to the Ricones demanding payment of income tax on the bingo winnings because the funds withheld by the tribe were not remitted to the IRS.
Sure, it’s a relatively small amount at stake. And it’s possible the IRS issued the notice in error. But when approximately $26 million from over 100 members of the tribe is owed to the IRS for distributions received from the casino, there’s little to no benefit of the doubt.
The “we’re trying to show good faith towards addressing outstanding liabilities” statement to the IRS doesn’t sound too convincing as new tax issues arise, regardless of the amount.
Last August, I wrote about the IRS seeking records from financial institutions relating to all internal financial operations of the Miccosukee Tribe and payments of gambling profits from the tribe’s casino to its members.
Subsequently, the Miccosukee Tribe sued its former attorney Dexter Lehtinen for malpractice, claiming that he provided erroneous legal advice with respect to its tax matter. The Miami Herald is reporting that on Friday Mr. Lehtinen filed a motion to dismiss the malpractice suit, revealing previously confidential information in the process.
There’s a reason why we put legal advice in writing: Because if sometime in the future the client sues for malpractice, we can prove what legal advice was actually given. In this case, Lehtinen disclosed internal memos between he and his client, indicating he advised the tribe it could be facing a massive tax problem.
Although the tribe as a sovereign nation is not required to pay federal income tax, individual members are not exempt. Allegedly, many members received distributions from the tribe that were subject to reporting and withholding, but the tribe failed to report the income on informational returns or withhold any tax. If true, the tribe’s approximately 600 members could be facing tens of millions of dollars in personal income taxes covering the past decade.
Yesterday, a federal judge in Florida ruled that the IRS may compel certain financial institutions to produce records relating to all internal financial operations of the Miccosukee Tribe and their payments of gambling profits from the tribe’s casino to its members. You can read the judge’s order in its entirety here.
The Tribe went to court to challenge the validity of third-party summonses issued by an IRS agent. The Tribe’s chief contention was that the doctrine of sovereign tribal immunity bars the IRS from obtaining the Tribe’s financial records. The judge disagreed with this argument, noting that the documents sought in the summonses are not in the possession of the Tribe, but instead held by third parties.
Although the Tribe as a sovereign nation is not subject to federal taxes, individual members of the tribe do not fall under the exemption. The IRS is examining whether the Miccosukee Tribe met its reporting and withholding obligations on certain payments. Specifically, the IRS believes the Tribe may have failed to meet its reporting and withholding obligations with respect to three types of transactions: (1) income distributions to members from the gross receipts tax; (2) income distributions to members from net gaming revenue; and (3) payments to service providers.