Miccosukee Tribe Poised to Lose Tax Battle

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Florida has recently established itself as the tax-refund-fraud capitol of the nation, but did you realize that it is also the stage for some hot sovereign immunity disputes?

One example is the Miccosukee Tribe of American Indians.  Tribal members earn a substantial sum of money from their casino complex in Miami.  The government (namely the IRS) has been diligently trying to get its hands on records that the IRS believes will show that the tribe has failed to withhold tens of millions of dollars in income taxes over the years.  Yesterday a federal appeals court ruled in favor of the government: the tribe must comply with the terms of the IRS’ subpoena notwithstanding the tribe’s sovereign immunity.  It appears as though the IRS is going to win this battle and there will be a number of large individual tax debts for them to enforce.

The law is clear.  While American Indian governments are not subject to income tax by virtue of their sovereign immunity, when they act as employers, they must comply with all the ordinary employment tax rules, including reporting and paying employment taxes.  Furthermore, the individual tribal members must pay taxes on their individual earnings.  The IRS website contains a plethora of information regarding the tax treatment of Indian Tribal Governments.