Miami Herald: Tribe income probed by IRS

May 21, 2010

The Miami Herald published the following on May 21, 2010:

The Miccosukee Indians are asserting their status as a sovereign nation to fight an IRS investigation into the tribe-generated income of their former chairman — and how he spent it.


The IRS is investigating Billy Cypress, the former longtime chairman of the Miccosukee Tribe, for alleged income tax violations linked to the tribe’s multimillion dollar gambling operation — a probe that coincides with a major shake-up in the tribe’s leadership and the ouster of its longtime lawyer.

The Internal Revenue Service has issued a civil summons to Morgan Stanley Smith Barney, the tribe’s Miami bank, seeking Cypress’ credit card statements and other records from 2003 to 2005. The April 6 summons also demands the tribe’s credit card records and the names of members authorized to use the Morgan Stanley account for the same three-year period.

Cypress, who lost leadership of the 650-member tribe to its longtime poker director, Colley Billie, in a January election, put the Miccosukee tribe in West Miami-Dade on the map.

During his tenure, the tribe built a casino resort, started construction on a new hospital and became a major political and legal force in Everglades restoration battles.

But Cypress also had a reputation for enjoying the high life, including frequent gambling trips to Las Vegas, according to several sources familiar with the IRS civil probe.

As an Indian tribe, the Miccosukees are a sovereign nation, and say they therefore don’t have to turn over records on Cypress or the tribe to the IRS. That has been a common tribal defense strategy used in litigation with Miami-Dade, state and federal authorities for decades.

They also are objecting to the broad scope of the IRS inquiry.

“The summons seeks a voluminous amount of sensitive, irrelevant tribal records from a third party in connection with the administrative investigation of a single tribal member,” the tribe’s lawyers, Sonia E. O’Donnell and James F. Jorden, wrote in a motion seeking to quash the IRS summons.

O’Donnell, the lead Miccosukee attorney who took over the tribe’s litigation from lawyer Dexter Lehtinen, did not return a call seeking comment.

IRS officials also declined to comment about the investigation. But they cited federal law saying that while Indian tribes and their businesses are exempt from paying taxes, tribal members who receive income from such operations — including gambling casinos — are subject to federal reporting and taxes.

Cypress’ income, along with that of other tribe members, largely comes from proceeds generated by the Miccosukee’s casino resort.

Under an Indian gaming law passed by Congress in 1988, tribes can only distribute income to members after obtaining federal approval of paperwork known as a “plan to allocate revenues.” The plan shows how, in general, gambling revenues are to be distributed.

Indian tribes do not have to publicly disclose their gaming revenues. But the widely respected Casino City Indian Gaming Industry Report estimated that all Florida tribes — primarily the Seminoles, who operate the popular Hard Rock Hotel and Casino near Hollywood — generated about $1.6 billion in 2007.

Dennis Whittlesey, a Washington, D.C., attorney, who is involved with a wrongful-death lawsuit against a tribe member in Miami-Dade court, said the Miccosukees do not have a revenue allocation plan, “meaning that any distribution of Indian gaming revenue is . . . subject to sanctions.”

The Miccosukees do not address a revenue allocation plan in their motion, but instead focus on the tribe’s sovereign “immunity,” saying it is “not a taxable entity.” They also called the IRS summons, issued out of Oklahoma, “a fishing expedition.”

“The summons is neither directed at nor limited to the records (if any) of Billy Cypress,” wrote lawyers for the firm, Jorden Burt. “Rather, the summons seeks production of all records for all accounts belonging to the entire Miccosukee Tribe of Indians of Florida.”

U.S. District Judge Alan S. Gold has set oral arguments in the dispute for June 28 in Miami.

The tribe’s historic connection to the River of Grass and its deep pockets were behind aggressive legal campaigns waged by Lehtinen. He filed an array of lawsuits over Everglades and water quality issues that, among other things, forced the state to expand its pollution treatment marshes.

Lehtinen, who handled the tribe’s environmental cases for 16 years, announced last week that the tribe had severed connection with his firm. Lehtinen could not be reached Thursday for comment, but last week said his ouster was “unrelated to Everglades matters.”

He also refused to discuss whether tribal politics played a role, saying only, “I hold no hostility toward the Miccosukee.”

One source familiar with the Miccosukee litigation and the IRS case said the tribe’s new leaders “wanted a changing of the guard.”

Another law firm that has represented the tribe in the wrongful-death suit and other litigation declined to answer questions about the Miccosukees.

Attorneys Guy Lewis and Michael Tein did not respond to e-mailed questions they requested.

Miami Herald staff writer David Ovalle contributed to this report.