The Miami Herald: IRS is probing casino payouts

The IRS is investigating allegations that the Miccosukee Tribe used armored vehicles to deliver up to $10 million in cash from its gambling operations to hundreds of Indians four times a year — without anyone reporting the money as taxable income, according to federal court records.

The investigation into the West Miami-Dade tribe has generated a related IRS probe of its former chairman, Billy Cypress. He is suspected of charging at least $3 million on tribe credit cards for personal travel to casinos in Las Vegas, Foxwoods and other glitzy gaming venues between 2003 and 2005, records show.

IRS agents described the civil investigation into the Miccosukee Tribe’s unreported distribution of gambling profits to about 650 members as “larger and broader” than the Cypress probe. The quarterly gambling distributions would amount to about $61,000 annually per member, though the IRS court filings did not indicate how long the tribe has made such payments.

A source with knowledge of Miccosukee operations told The Miami Herald that every quarter, tribal police used armored SWAT vans and patrol cars to take reams of cash stuffed in plastic bags from the Miccosukee casino near Tamiami Trail to the reservation for distribution to tribe members.

IRS agents who examined the tribe’s financial records when they launched the investigation in 2005 concluded that Cypress, who was replaced as the Miccosukee chairman in January, “misappropriated” the tribe’s money for his personal use — including making “high-end purchases” — without reporting the income, agents say.

The scope of the tribe’s gambling enterprise — a closely guarded secret — surfaced in new court filings in the IRS’ quest for Cypress’ credit card and other records from Morgan Stanley, the tribe’s bank.

Miccosukee attorneys argue that because the tribe is a sovereign nation, it doesn’t have to turn over the Morgan Stanley records — an assertion that Justice Department and IRS officials strongly dispute.

`SIGNIFICANT EVIDENCE’

 “The IRS has already amassed significant evidence suggesting that Cypress has received significant unreported income by converting tribal funds for his own use,” IRS Agent John R. Johnson wrote in a June 14 court filing. That is justification enough to continue the probe into Cypress’ spending habits, he wrote.

The case has dragged on for years because the Miccosukees’ lawyers have argued that the tribe’s sovereign status trumps the U.S. government’s rights to financial records.

The Miccosukee Tribe has never submitted a federal plan required of Indian tribes that distribute gambling profits to members, regulators say. The Indian Gaming Regulatory Act requires such tribes to have an approved “revenue allocation plan” on file with the Bureau of Indian Affairs and to notify members that they may have personal income tax liabilities.

In a separate matter this month, the National Indian Gaming Commission accused the Miccosukees’ tribal neighbor to the north — the Seminoles in Hollywood — of breaking the law by spending hundreds of thousands of dollars on jewelry, vehicles and other personal expenses for a half-dozen members.

STEPPED-UP SCRUTINY

 The Gaming Commission’s crackdown on the Seminoles — coupled with the IRS investigation of the Miccosukees and Cypress for alleged tax violations — reflects stepped-up federal scrutiny of excessive personal spending of gambling profits. The two tribes’ annual revenues total about $2 billion — though the Seminoles’ Las Vegas-style Hard Rock Hotel & Casinos in Hollywood and Tampa far outstrip the Miccosukees’ bingo-style slot machine enterprise off Tamiami Trail.

SOVEREIGN NATIONS

 Indian tribes are sovereign nations with the right to self-government. But they are also subject to federal laws and regulations that specify that gambling revenue must be spent on the general welfare of tribal members, while also allowing tribes to distribute gambling profits to members.

In the escalating court dispute in Miami, Miccosukee attorney Sonia Escobio O’Donnell is seeking to quash an IRS summons for five tribe credit cards belonging to Cypress and possibly other leaders. O’Donnell asserts the IRS summons, issued in April, amounts to a “fishing expedition.”

But Justice Department trial attorney Richard Euliss notes that the IRS negotiated with the Miccosukee Tribe in late 2005 to turn over its financial records at Citibank, Wachovia, American Express, Bank Atlantic and Smith Barney. In exchange, the IRS agreed to withdraw summonses issued to eight Miccosukee Tribe officials.

Former South Florida U.S. Attorney Dexter Lehtinen, who represented the tribe until recently, was involved in the negotiations. Former U.S. Attorney Guy Lewis, one of the tribe’s current lawyers, also was notified of the IRS’ summons, records show.

Neither Lehtinen nor Lewis returned calls for comment.

In the court filings, the IRS and prosecutors do not explain why the case is still ongoing four years after the tribe turned over some records.

Miami Herald staff writer David Ovalle contributed to this report.