In a legal showdown with the IRS, the Miccosukees say their members don't owe any taxes on income they receive from the tribe's gambling operation -- a stance that sets them apart from possibly every Indian tribe with casinos in the United States.

Every year, the Miccosukees distribute millions in profits from the tribe's West Miami-Dade casino to their 650 members. They say that distribution constitutes a ``tax'' by a sovereign government, so, they argue, the IRS cannot tax the income, too.

The Miccosukees may be the only one of about 240 Indian tribes with American gambling facilities to deploy such a defense, which has failed in the past, according to legal experts and Indian regulatory authorities.

Tribe lawyers, in a new Miami federal court filing, accuse the Internal Revenue Service of ``abuse of authority'' in its ongoing investigation into the tribe's gambling distributions and former chairman Billy Cypress.

But the Miccosukees' counterattack seems to fly in the face of a key federal law regulating Indian gaming operations, the experts and authorities said.

The Indian Gaming Regulatory Act, passed by Congress in 1988, requires tribes with gambling facilities to report all member payments to federal authorities. It also requires tribes to notify the recipients that they may have to pay income taxes to the government.

The law specifically says such ``payments are subject to federal taxation.''

Unlike the Seminole Tribe, which operates the Hard Rock Hotel & Casino in Hollywood and Tampa, the Miccosukees have never filed a required ``revenue allocation plan'' with the Bureau of Indian Affairs to show how much gambling income from their bingo-style slot machines and poker games is distributed to members.

Attorneys for the Miccosukees, represented by the Jorden Burt law firm in Miami, declined comment.

In court filings, IRS officials also cited federal law saying that while Indian tribes and their businesses are exempt from paying taxes, tribal members who receive income from such operations -- including gambling casinos -- are subject to federal reporting and taxes.

An often-cited analogy is nonprofit organizations, which are tax exempt. Such organizations' earnings are not taxable, but salaries paid to staff are subject to income taxes.

HISTORICAL VIEW

Historically, Indian tribes have imposed taxes on non-Indian timber or mineral companies operating on their reservations to pay for public services such as roads or police -- but they have not taxed their own gambling operations, said a Washington, D.C., attorney who specializes in Indian and income tax laws. 

Lawyer Dennis Whittlesey described the Miccosukee Tribe's defense against the IRS' probe as ``disingenuous and pettifogging.''

``It's basically legal chicanery. They're trying to scrub the gambling payments of their casino character,'' said Whittlesey, who is involved in a wrongful-death lawsuit against a Miccosukee Indian in Miami-Dade court. ``There's no such thing as a nontaxable gift.''

Miami attorney David Garvin, who successfully represented Indy 500 champion Helio Castroneves in a criminal tax-evasion trial last year, said the tribe's legal argument ``is not novel and has been rejected in the past.''

Garvin said that many appellate cases have held that tribal income derived from any business on tax-exempt Indian land is not subject to taxes. But as soon as a tribe distributes any of that income to members, it becomes taxable under federal law, he said.

He cited a major federal appeals court case in which a Yakama Indian in Washington state was ordered to pay taxes on $18,000 he had received as income in 1976 for his duties as a tribe council member and smoke shop operator.

``There are a number of well established and often-cited cases that hold that individual tribe members' payments are taxable,'' Garvin said.

Garvin, a tax specialist, said he understands the Miccosukees' legal strategy, describing it as ``damage control.''

``It's a slippery slope once the financial records for Mr. Cypress are turned over,'' he said.

SUMMONS ISSUED

In April, the IRS issued a civil summons to Morgan Stanley Smith Barney, the tribe's Miami bank, seeking Cypress' credit card statements and other tribe financial records from 2003 to 2005. The summons also demanded the tribe's credit card records and the names of members authorized to use the Morgan Stanley account for the same three-year period. 

After the tribe refused to turn over the records, Justice Department lawyers and IRS agents disclosed that an earlier investigation into the Miccosukees' unreported gambling distributions led them to the related probe of Cypress.

The former chairman, deposed in January, 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, records show.

As a sovereign nation, the Miccosukees argue they don't have to turn over any records on Cypress or the tribe to the IRS, though they agreed to hand over some of the tribe's financial records in 2006 during the earlier probe.

In their latest court filing, the tribe's lawyers said the U.S. government's intent is to ``harass'' the Miccosukees and ``punish'' them for objecting to the summons, adding that the IRS improperly disclosed ``confidential'' records in court filings in the current case.

They also took umbrage at the IRS' allegations that the Miccosukees have used armored vehicles to deliver up to $10 million four times a year to members, attacking the agency for trying to ``malign the tribe by making public accusations based upon rumor and innuendo.''

``No armored trucks are ever used to transport currency from Miccosukee Resort and Gaming to the Miccosukee reservation or to any other place other than local banks,'' Magdalena Salinas, a casino treasury manager, said in court papers.

PAYMENTS MADE

According to court records and people familiar with the Miccosukees, the tribe has handed out millions in cash payments from the gambling operation to every member on a quarterly basis for years. 

Last August, for instance, the Miccosukee police delivered $18 million in cash from the casino off the Tamiami Trail to the tribe's government center about 20 miles west, according to one person aware of the transport. SWAT team members accompanied the motorcade of three unmarked black Chevy Tahoes.

Miccosukee police officers carried the cash packed in five burlap sacks, each weighing over 100 pounds, to the government center's safe, the person said.

Early the following morning, hundreds of tribe members -- mothers, fathers and children carrying IDs -- lined up outside the building to collect their quarterly payout,in a manila envelope or check.

Each received about $48,000, the knowledgeable source said