Rolling the Dice: Eleventh Circuit Delineates the Limits of Tribal Sovereign Immunity

BY EAMON WELCH — Although Native Americans enjoy a substantial degree of sovereign immunity on their tribal lands, the United States Court of Appeals for the Eleventh Circuit recently demonstrated that this immunity is not unqualified.  On October 15, 2012, in Miccosukee Tribe of Indians of Florida v. United States, the Eleventh Circuit ruled that the Miccosukee Tribe could not escape liability for tax fraud by asserting tribal immunity.

Federal law requires Native American tribes to deduct and withdraw federal income taxes from money paid out to tribal members as a result of gambling proceeds generated by tribal casinos.  Additionally, federal law contains certain reporting requirements for this area as well.

The facts underlying the Eleventh Circuit’s recent decision arose in 2005, when the IRS commenced an investigation into the Tribe’s tax withholdings.  The IRS concluded that the Tribe had failed to comply with the federal income reporting requirements for Native American tribes. Following the investigation, the IRS Commissioner, in 2010, issued summonses for documents to several financial institutions where the Tribe maintained accounts.  The Tribe resisted the summonses on multiple grounds, including tribal sovereign immunity.

The Eleventh Circuit rejected the Tribe’s argument that tribal sovereign immunity shielded if from IRS investigation.  For one, the IRS summonses were not issued to the Tribe, but to third-party financial institutions that possessed financial information about the tribe.  Moreover, even if the summonses were considered a suit against the Tribe itself, tribal sovereign immunity would still not preclude them.  The Eleventh Circuit cited the Supreme Court’s perspective in United States v. U.S. Fidelity & Guar. Co. that what was once complete sovereign immunity for Native American tribes has waned into a custodial sovereign immunity “held” by the United States. Consequently, the Tribe “may not rely on tribal sovereign immunity to bar a suit by a superior sovereign.”

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