In Uncategorized on 04/24/2019 at 16:25

But Not Chopped

All of my readers (few in number but strong in willpower) will recall Judge Pugh sending off IRS and the Miccosukee Tribe of Indians of Florida to try their case, concerning what part, if any of the distributions from said tribe were taxable to James Clay and Audrey Osceola, 152 T. C. 13, filed 4/24/19.

If my readers may have been distracted, they can see my blogpost “Indians Not Taxed – Redivivus,” 11/28/16.

Well, they had their trial. But the money that the tribe handed out is taxable, because not derived from their land. The next-door casino bought land adjacent to the tribe’s, and placed it in trust for the tribe. The distributions came from casino income, denominated as a tax. The tax wasn’t rent for tribal land, and gambling isn’t a land-based activity, like farming or wood-cutting.

If taxation of Indians is what you do, this is required reading, especially as Judge Pugh relies heavily on an 11 Cir. case (United States v. Jim, 891 F.3d 1242 (11th Cir. 2018)) that deals with all these issues.

I’ll spare those of my readers who don’t practice in this specialized field a trudge through details.

But the takeaway is the 30-day letter, the statement of proposed changes to the returns for the years at issue. I talked about the 30-day letter in my blogpost of even date herewith (as my high-priced colleagues say), “Exhaustion.”

Now it’s not about exhaustion, but rather it’s about Section 6751(b) Boss Hossery.

Reliance on the tribe’s Chairman, who was also the Bureau of Indian Affairs’ superintendent, is not justifiable for chops purposes. No evidence was offered as to any delegation from the Bureau as to tax, and even if there was, the Chairman’s conclusion that the distributions were tax-free is manifestly contrary to law.

IRS tries to wild-card in Civil Penalty Approval forms for the years at issue. But those were preceded by 30-day letters based on the Revenue Agent Reports (RAR) proposing the changes set forth in the 30-day letter.

“The determinations made in a notice of deficiency typically are based on the adjustments proposed in an RAR.  (‘[R]espondent sent to petitioner by registered mail a notice of deficiency determining deficiencies in income tax for the taxable years….  * * * Said determination by respondent was based on the adjustments contained in the revenue agent’s report[.]’); (‘[I]t is obvious that petitioner * * * is relying upon the revenue agent’s report of examination upon which respondent based his determination of deficiency.”). And when those proposed adjustments are communicated to the taxpayer formally as part of a communication that advises the taxpayer that penalties will be proposed and giving the taxpayer the right to appeal them with Appeals (via a 30 day letter), the issue of penalties is officially on the table.  Therefore, we conclude that the initial determination for purposes of section 6751(b) was made no later than…when respondent issued the RAR to petitioners proposing adjustments including penalties and gave them the right to protest those proposed adjustments.” 152 T. C. 13, at p. 44. (Citations omitted, but get them for your trial briefs).

The Civil Penalty Approval forms were issued two months after the 30-day letters. Too late. No chops.


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