A member of the Miccosukee Indian Tribe of Florida had to pay federal income tax on distributions of gaming income that she and her family received from the tribe. A federal appeals court concluded that the payments were taxable income under the Indian Gaming Revenue Act, rather than tax-free payments under the Tribal General Welfare Exclusion Act. Both the taxpayer and the tribe were bound by the decision.
The Miccosukee Tribe distributed income to its members in quarterly payments. Historically, these payments were in the $20 to $25 range. In 1990, however, the tribe opened a gaming center that offered high-stakes bingo, poker, and vide pull-tab machines. The tribe’s income, and its distributions to its members, increased substantially.
In 2001, the tribe distributed $68,000 to each of its members. The tribe characterized the payments as distributions of a gross receipts tax paid by the gaming operation. It told its members not to discuss the payments with outsiders, not to report them to credit card agencies, and not to cash the distribution checks in places that would report them to the IRS.
The taxpayer received a total of $272,000, which represented payments for herself, her husband, and her two children. She did not file a tax return or pay any income tax for that year.
After the IRS assessed tax, interest and penalties against her, the taxpayer attempted to file a late return that reported the $272,000 as nontaxable income. She did not pay any of her assessment. The tribe intervened in her case as a matter of right.
District Court Decision
The District Court agreed with the IRS that the payments were distributions of gaming income that were fully taxable to the taxpayer. Most of the funds came from the gaming operation. The taxpayer and the tribe did not show what portion may have come from other, nontaxable sources.
Although the $272,000 included payments on behalf of the taxpayer’s husband and children, she was responsible for tax on the entire amount. The tribe was structured as a matriarchy. Thus, the taxpayer was the head of her household, and the payments were all made available to her. She also spent all of the payments on household expenses, and she had reported all of the payments as her income when she tried to file a late return.
Indian Gaming Revenue Act vs Tribal General Welfare Act
The main issue on appeal was whether the tribe’s distributions were covered by the Indian Gaming Revenue Act or the Tribal General Welfare Exclusion Act.
The Indian Gaming Revenue Act (IGRA) was passed in 1988. It allows an Indian tribe to engage in gaming and distribute the revenue to members on a per capita basis. It also explicitly includes those distributions in a member’s taxable income.
The Tribal General Welfare Exclusion Act (GWEA) was enacted in 2014. It allows a tribe to make tax-free payments to its members for the tribe’s general welfare.
The taxpayer and the tribe claimed that GWEA effectively amended IGRA because it was more recent. However, the court disagreed. IGRA applied only to gaming income, while GWEA was a law of general application. Thus, under the rules of statutory construction, IGRA continued to apply to distributions of gaming income because it was more specific than GWEA.
The court also rejected the characterization of the payments as distributions of the tribe’s tax revenues rather than its gaming income. The tax did not affect the nature of the gaming income. Instead, it was merely a mechanism to collect the income and distribute it to members.
The distributions also were not non-taxable income from Indian land because they did not come directly from the use of the reservation land or its resources. Instead, the distributions came from improvements and related business activities–that is, gambling in the casino.
Effect on the Tribe
The tribe argued that it should not be included in the District Court’s judgment. However, the tribe had intervened as a matter of right because if the court determined the payments were taxable, the tribe would have to report them and withhold income tax from them.
As an intervenor, the tribe had the same status as an original party. It also fully participated in the trial by arguing motions, attending depositions, presenting evidence, and examining witnesses. Thus, it was bound by the District Court’s judgment.
Affirming a DC Fla. decision, 2016-2 USTC ¶50,474.
S. Jim, CA-11