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IRS Targets Seminoles For Taxes

A federal grand jury is investigating whether the Seminole tribe failed to pay millions of dollars in taxes on its gambling windfall, and three regulatory agencies are examining a construction contract that could cost the tribe as much as $250 million over 10 years.

The Internal Revenue Service and the grand jury have been looking at about $120 million worth of gifts Seminole leaders gave to friends, relatives and other tribal members. Tribal leaders admittedly paid little or none of the federally required taxes on the gifts, which included luxury cars and cosmetic surgery.

At the same time, three federal agencies are raising questions about the tribe's 1999 contract to build its Coconut Creek casino, a deal regulators said is so lopsided against the Seminoles it might not be legal. In a series of letters, the Bureau of Indian Affairs, the National Indian Gaming Commission and the Interior Department said the contract, which calls for the tribe to pay up to $250 million for a building that cost no more than $16 million to construct, could be voided.

Attorney Joel Hirschhorn, representing new tribal Chairman Mitchell Cypress and advising the tribe, said the grand jury and Internal Revenue Service investigations have been going on for months. He said there was no intentional wrongdoing by the tribe, although he acknowledged it might have to pay a "substantial amount" in back taxes.

The inquiries come 10 months after an unrelated federal prosecution targeting former Seminole Chairman James Billie failed to bring any convictions. Billie was fired in March and replaced by Cypress, who is cooperating in the tax investigation, his lawyer said.

It is the latest in a series of legal skirmishes between the tribe and the federal government dating back to the early 1980s, when the Seminoles opened their first gambling halls. Billie, who was fired after the tribal council accused him of "gross misconduct," helped take the tribe from poverty to an empire making $300 million per year, but fought with state and federal agencies that repeatedly tried to shut down the casino operations.

Now, new tribal leaders are cooperating with prosecutors and even asked the government to investigate contracts and other deals made under Billie, according to a tribe lawyer and court records.

The grand jury began meeting about eight months ago, focusing on the spending habits of current tribal council members, some of whom admit they gave away tens of millions of dollars without paying taxes required by law.

Hirschhorn said tribal leaders were simply following the advice of previous lawyers and advisers. Last year, Councilman David Cypress said the same thing while testifying during an unrelated federal trial.

"They have a legitimate defense, that they were acting on good-faith advice of their counsel that they weren't liable for taxes," Hirschhorn said. "I don't necessarily agree with that advice. I think it was probably mistaken, but the tribe can't be blamed for that. I think in the end they may have to pay back taxes, maybe a lot of tax."

Spending revealed

The tax problems came to light because of the feud between current tribal leaders and Billie. Two years ago they suspended him and fired two associates, former chief executive officer Tim Cox and system analysts Dan Wisher. The tribe then sued the three, claiming they conspired to steal millions from the tribe.

That lawsuit, which is pending, became the basis for a federal indictment against Cox, Wisher and Michael Crumpton, who worked briefly under Wisher. U.S. District Judge William Dimitrouleas threw out the criminal case after ruling prosecutors failed to prove any money was stolen.

Before that happened, testimony and thousands of pages of court documents detailed extravagant spending sprees by all of the councilors except Billie, who records show spent little on himself and relatives. The money came from disbursements of $5 million to $10 million given annually to each of the tribal councilors, who then redistributed the funds to tribe members, relatives and friends.

The money was culled from the $300 million in profit the tribe makes each year from its casino operations.

Spending logs introduced at trial detailed gifts of breast implants and other cosmetic surgery, dozens of Lexuses, Mercedes Benzes and other luxury cars, and million-dollar payouts. Councilors admitted they sometimes exceeded their allowances and were given more money.

David Cypress testified he spent $57 million in about three years and complained that Billie and Cox wouldn't let him have any more money.

He also wrote checks to himself, relatives and friends totaling millions of dollars.

"I do not exclude myself from the benefits," David Cypress testified.

But he and other councilors exclude the Internal Revenue Service from the benefits, they said. By law, gifts of more than $10,000 annually are subject to federal income tax, to be paid by the giver.

Each Seminole man, woman and child -- no matter how young -- receives $3,000 per month from the tribe's gambling revenues, and all federal taxes are deducted immediately, much like payroll taxes. But tribal leaders dole out tens of millions of dollars to members as gifts, which must be paid by the presenter, according to the IRS and tax lawyers.

It is unclear how much taxes should have been paid. The grand jury and the Internal Revenue Service would have to determine how much was spent by each councilor and what their tax rates are, a complicated process, according to tax lawyers.

Whatever the outcome of its IRS problems, the tribe still must deal with the ramifications of its contract with Coconut Creek Gaming. The Bureau of Indian Affairs already has said the deal should be voided because of improprieties, and Dimitrouleas is presiding over the civil lawsuit between the tribe and the contractor.

That contract calls for the tribe to pay Coconut Creek Gaming 35 percent of its profits for 10 years -- estimated by both parties to be as much $250 million -- for building the casino. The contract put construction costs at $16 million.

Last year, the tribe stopped making its payments of nearly $2 million annually to Coconut Creek Gaming, and the two sides are suing each other in federal court.

"There are a lot of issues that the tribe is dealing with, and they are doing everything they can to straighten out the mess that's existed," Hirschhorn said. "The contract with Coconut Creek Gaming is way out of line, so we're working on that."

Federal agents are looking at an $8 million payment negotiated by Billie in 2000 to a company that tribal lawyers said in court papers had "no legitimate relationship" with the tribe or its casino operations. The payment was made in conjunction with the Coconut Creek Gaming deal, Billie has said.

Contract details

The tribe paid the money to Coconut Chips LLP "for consideration that is still unknown," according to a June letter to the tribe from the National Indian Gaming Commission. Lawyers for the tribe and the government said the company had no apparent function.

Billie told the South Florida Sun-Sentinel in February that the payment to Coconut Chips was made to pay for the land and to guarantee the casino was built.

The tribe claims Billie hid details of the contract from them, a charge he strongly denies.

"The tribe essentially asserts that it was misled by the contractor and Chairman James Billie," Penny Coleman, acting general counsel of the gaming commission, wrote in June to Seminole leaders. The tribe's claims are credible, she said, because they explain "why this Tribe would enter into agreements that appear on their face to be intended for the benefit of the contractor rather than the tribe."

Billie and his lawyer, Robert Saunooke, said in court papers that the entire tribal council knew about every aspect of the deal and voted unanimously for the project, including the payment to Coconut Chips.

The Interior Department and the gaming commission have said the contract is excessive and possibly illegal. The potential return on investment could be more than 2,000 percent, a figure so high that it might violate Florida's loan-sharking statutes, a lawyer for the gaming commission said in a court filing.

Saunooke contends Billie negotiated a "fantastic deal for the tribe." He noted that the Seminoles have pulled in more than $200 million in profit since the Coconut Creek casino opened in 2000, nearly five times original estimates by the tribe and the contractor. Coconut Creek Gaming received $58 million before the tribe stopped paying last year.

"It's easy now, in hindsight, to say it was a bad deal, but at the time it was just a vacant lot that was bringing in no money," Saunooke said. "You have to remember, Coconut Creek Gaming took all of the risk. If this casino didn't make money, they would have lost all of their investment."

Paul Filzer, a lawyer for Coconut Creek Gaming, said lawyers for the Interior Department and BIA don't understand the issues and are simply parroting the new tribal chairman's stance. Mitchell Cypress was elected the tribe's chairman in May, ending Billie's 23-year reign.

"They think that they entered into a bad deal, and now they are looking to back out," Filzer said. "The contract was legal, every single tribal council member signed onto it, and they are only complaining now because we're successful."