Case 1:10-cv ASG Document 15 Entered on FLSD Docket 06/21/2010 Page 1 of 21

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1 Case 1:10-cv ASG Document 15 Entered on FLSD Docket 06/21/2010 Page 1 of 21 MICCOSUKEE TRIBE OF INDIANS, v. UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA CASE NO. 10-CV CIV-GOLD/McALILEY Petitioner, UNITED STATES OF AMERICA, Respondent. / UNITED STATES MOTION TO DENY PETITION TO QUASH Introduction The Internal Revenue Service ( IRS ) is examining whether Billy Cypress, former Chairman of the Miccosukee Tribe of Indians (the Tribe ), misappropriated funds from a bank account in the name of the Tribe and failed to report the same as income. As part of its examination, the IRS issued an administrative summons to Morgan Stanley Smith Barney ( Morgan Stanley ) as a third party recordkeeper of the Tribe. The summons seeks information to assist the IRS to determine whether Cypress indeed took cash advances from and made charges to the Tribe s account with Morgan Stanley. Before Morgan Stanley could comply, however, the Petitioner filed the present action seeking to quash the summons. Statement of Facts A. The Examination The IRS s examination of Billy Cypress arose from a separate investigation into allegations that the Tribe was making unreported distributions of up to $10 million per quarter

2 Case 1:10-cv ASG Document 15 Entered on FLSD Docket 06/21/2010 Page 2 of 21 from its casino directly to tribal members. See Furnas Decl. at 4. During that examination, the IRS learned of facts suggesting that Billy Cypress was using charge cards secured by the assets in the Morgan Stanley account for personal expenditures. Id. at 5, 13. Specifically, while examining the Tribe, the IRS acquired bank records related to the Morgan Stanley account, true and correct samples of which are attached hereto as Exhibit D. Id. at 11. Those records indicate that approximately 5 FMA cards are linked to the Morgan Stanley account, some of which the IRS suspects were once issued in the name of and held by Billy Cypress during his tenure as Chairman of the Tribe. Id. at The bank records reflect numerous cash advances at casinos, entertainment and travel expenses, and high-end purchases. Id. at 13. The IRS currently estimates that Cypress misappropriated approximately $3 million from the Morgan Stanley account and failed to report the same to the IRS as income. Id. at 5. In order to corroborate its suspicion that it was actually Cypress who made these transactions, the IRS matched the dates of several casino advances reflected on the bank records with dates taken from casino-generated records in Billy Cypress name, including IRS Forms W2G and Currency Transaction Reports. Id. at 13. The Currency Transaction Reports, for example, report to the IRS any cash transaction exceeding $10,000 (such as a cash withdrawal). Id. The IRS gained access to several Currency Transaction Reports proving cash advances to Billy Cypress on the same day and in the same amounts as those reflected in the Tribe s bank records. Id. -2-

3 Case 1:10-cv ASG Document 15 Entered on FLSD Docket 06/21/2010 Page 3 of 21 B. The IRS Summons In order to further corroborate its suspicions regarding Cypress, Revenue Agent Johnson issued a summons in the matter of Billy Cypress to Morgan Stanley on April 6, 2010, a true and correct copy of which is attached hereto as Exhibit A. See Johnson Declaration at 6. The summons requires Morgan Stanley to give testimony and to produce documents related to Billy Cypress use and authority over the Morgan Stanley account. Specifically, the summons seeks: i. Records for the brokerage account described in paragraph 11 of the Furnas Declaration, including the account application and signature cards for the period of January 1, 2003 through December 31, 2005; ii. iii. iv. Records specific to FMA card numbers ending 6045 and 6046, which are linked to the brokerage account described in paragraph 11 of the Furnas Declaration, including card purchase receipts, charge receipts, charge instruments, and/or charge transmittals, for the period of January 1, 2003 through December 31, 2005; The names of individuals or entities who were issued FMA cards for card numbers ending 6045 and 6046 for the period of January 1, 2003 through December 31, 2005; The names of individuals or entities whose names appear on the FMA cards, as well as authorized users, for card numbers ending 6045 and 6046 for the period of January 1, 2003 through December 31, 2005; v. The FMA cards linked to the brokerage account described in paragraph 11 of the Furnas Declaration, for which Billy Cypress is an authorized user, as well as those cards which are issued in his name; and, vi. The name, address, and contact information for Morgan Stanley s third party credit card processor. See Johnson Decl. at 8 & Ex. A. The IRS served properly attested copies of the summons on Morgan Stanley, Cypress, and the Tribe. Id. at 6-7. The IRS also took all administrative steps required by the Internal Revenue Code, and there is no referral to the Justice Department with -3-

4 Case 1:10-cv ASG Document 15 Entered on FLSD Docket 06/21/2010 Page 4 of 21 respect to Cypress or the Tribe, as defined in Section 7602(d) of the Internal Revenue Code. Id. at Because Morgan Stanley has failed to comply with the summons, the IRS is not in possession of the summoned information and the United States now requests the Court deny the petition to quash. Id. at Argument I. The Summons Meets All Standards of Applicable Law Section 7602(a) of the Internal Revenue Code authorizes the IRS to issue an administrative summons for determining the liability of any person for any internal revenue tax... Specifically, Section 7602(a), in relevant part, authorizes the IRS: (1) To examine any books, papers, records, or other data which may be relevant or material to such inquiry; (2) To summon... any person having possession, custody, or care of books of account containing entries relating to the business of the person liable for tax or required to perform the act, or any other person the Secretary [of the Treasury] may deem proper, to appear before the Secretary at a time and place named in the summons and to produce such books, papers, records, or other data, and to give such testimony, under oath, as may be relevant or material to such inquiry. The United States may seek to compel compliance with a summons in the context of an action brought to quash the summons. See 26 U.S.C. 7609(b)(2)(A). Although the United States does not do so here, in such a case, the United States would have the initial burden of making a prima facie showing that the following requirements have been met: (1) the investigation has a legitimate purpose; 1 Despite the IRS s prior summons on Smith Barney (Morgan Stanley s predecessor in interest) issued on or about May 16, 2006, that summons did not request, and Smith Barney s response did not include, the specific records sought here. As a consequence, the IRS is not in possession of the information sought by the present summons. See Furnas Declaration at

5 Case 1:10-cv ASG Document 15 Entered on FLSD Docket 06/21/2010 Page 5 of 21 (2) the summoned materials may be relevant to that purpose; (3) the information sought is not already within the IRS possession; and, (4) the IRS followed the administrative steps required by the Internal Revenue Code. United States v. Powell, 379 U.S. 48, (1964); see also United States v. LaSalle Nat l Bank, 437 U.S. 298, 318 (1978). This showing can be, and typically is, made through the affidavit or sworn declaration of the IRS officer who issued the summons. See e.g., In re Newton, 718 F.2d 1015, 1019 (11th Cir. 1983); United States v. Dynavac, Inc., 6 F.3d 1407, 1414 (9th Cir. 1993); United States v. Abrahams, 905 F.2d 1276, 1280 (9th Cir. 1990), overruled on other grounds by United States v. Jose, 131 F.3d 1325 (9th Cir. 1997); Alphin v. United States, 809 F.2d 236, 238 (4th Cir. 1987); United States v. Will, 671 F.2d 963, 966 (6th Cir. 1982). Here, the showing is 2 made through the Furnas and Johnson Declarations. A. The IRS Issued the Summons for a Legitimate Purpose. An administrative summons must be issued in good-faith pursuit of the congressionally authorized purposes of United States v. LaSalle Nat l Bank, 437 U.S. 298, 318 (1978). As described above, an administrative summons may be issued for the purpose of... determining the liability of any person for any internal revenue tax. 26 U.S.C. 7602(a). In the present case, the IRS is examining Billy Cypress in order to determine whether he misappropriated upwards of $3 million of tribal funds for personal use and failed to report the 2 Although the United States does not now formally counter petition for enforcement of the summons, we nevertheless wish to demonstrate that the instant summons meets all relevant legal standards for enforceability. -5-

6 Case 1:10-cv ASG Document 15 Entered on FLSD Docket 06/21/2010 Page 6 of 21 same to the IRS. See Squire v. Capoeman, 351 U.S. 1, 6 (1956) (Indians are United States citizens and are, therefore, subject to United States income tax). In order to satisfy the legitimate purpose prong, the IRS need not at this stage present sufficient evidence to prove a deficiency against Cypress. The Supreme Court rejected the notion that the IRS must demonstrate any probable cause before a summons is enforced. In Powell, the Supreme Court noted that the IRS can issue a summons to investigate merely on suspicion that the law is being violated, or even just because it wants assurance that it is not. 379 U.S. at 57, quoting United States v. Morton Salt Co., 338 U.S. 632, (1950). The function of the district court... in an enforcement proceeding is not to test the final merits of the claimed tax deduction, but to assess within the limits of Powell whether the IRS issued its summons for a legitimate tax determination purpose. United States v. White, 853 F.2d 107, 116 (2d Cir. 1988). Here, the IRS s legitimate purpose is to determine whether it can support an income tax assessment against Billy Cypress for his personal use of tribal funds. Although the United States need not now prove that Cypress actually realized income from his suspected use of tribal funds, it is nevertheless true that the IRS already has strong reason to suspect that Cypress will indeed be liable. The IRS already knows that Morgan Stanley issued numerous charge cards linked to the account and that, as tribal Chairman, Cypress likely had control over one or more of those cards. Additionally, the IRS has uncovered persuasive, albeit circumstantial, evidence that several of the cash advances reflected on the bank records were taken by Cypress. Against this background, the IRS certainly has a legitimate purpose in continuing its investigation with the summons at issue. -6-

7 Case 1:10-cv ASG Document 15 Entered on FLSD Docket 06/21/2010 Page 7 of 21 B. The Summoned Data May Be Relevant to the Investigation The second element of the Powell test requires that the summons seek information that may be relevant to the purpose of the underlying investigation. In United States v. Arthur Young & Co., 465 U.S. 805 (1984), the Supreme Court announced the controlling standard of potential relevance in summons enforcement cases: As the language of 7602 clearly indicates, an IRS summons is not to be judged by the relevance standards used in deciding whether to admit evidence in federal court. Cf. Fed. Rule Evid The language may be reflects Congress express intention to allow the IRS to obtain items of even potential relevance to an ongoing investigation, without reference to its admissibility. The purpose of Congress is obvious: the Service can hardly be expected to know whether such data will in fact be relevant until it is procured and scrutinized. As a tool of discovery, the 7602 summons is critical to the investigative and enforcement functions of the IRS, see United States v. Powell, 379 U.S. 48, 57, 85 S.Ct. 248, 254, 13 L.E.2d 112 (1964); the Service therefore should not be required to establish that the documents it seeks are actually relevant in any technical, evidentiary sense. 465 U.S. at 814 (emphasis in original). The summons here requests various records related to the Tribe s Morgan Stanley account. These documents are certainly related to the IRS s investigation in that they help identify the individual(s) responsible for conducting the transactions flagged by the IRS, and consequently, they may exonerate or further implicate Billy Cypress. See Johnson Declaration at 11. Such summoned information includes: the account application, signature cards, and other general account records, which will indicate who had general authority over the account; records relating to specific charge cards, including receipts and transmittals, which will also help the IRS to identify precisely who conducted the transactions; -7-

8 Case 1:10-cv ASG Document 15 Entered on FLSD Docket 06/21/2010 Page 8 of 21 the names of individuals or entities who appear on the charge cards, or who are otherwise authorized users, which will also indicate whether Cypress actually had charge cards in his name or control; and, the identity of Morgan Stanley s third party credit card processor (who may also have records identifying the individual who conducted the suspicious transactions). C. The IRS Does Not Possess the Summoned Information As made clear by the Johnson Declaration, the IRS does not possess the summoned information. See Johnson Decl. at 12. Despite the IRS s prior summons on Smith Barney (Morgan Stanley s predecessor in interest) issued on or about May 16, 2006, that summons did not request, and Smith Barney s response did not include, the specific records sought here. See Furnas Declaration at 12. D. The IRS Has Substantially Followed the Administrative Steps Required by the Internal Revenue Code The IRS followed all procedures required by the Internal Revenue Code with respect to the instant summons. See Johnson Declaration at 14. In accordance with 26 U.S.C. Section 7603, the IRS served the summons on Morgan Stanley, on April 6, 2010, by mailing the summons via certified mail. Id. at 6. Additionally, in accordance with 26 U.S.C. Sections 7603 and 7609, Johnson served a copy of the summons on the Tribe and on Cypress, on April 7, 2010, by mailing copies, via certified mail. Id. at 7. II. Petitioner Cannot Meet Its Heavy Burden to Quash the Summons. In order to successfully quash the summons, the Petitioner bears the burden to rebut the United States prima facie case that the Powell requirements have been met or to prove that enforcement of the same would be an abuse of the Court s process. Powell, 379 U.S. at 58; see -8-

9 Case 1:10-cv ASG Document 15 Entered on FLSD Docket 06/21/2010 Page 9 of 21 also United States v. Balanced Financial Mgt., Inc., 769 F.2d 1440, 1444 (10th Cir. 1985). Since summons enforcement actions are intended to be summary proceedings, the burden on the Petitioner to demonstrate abuse of process is a heavy one. See e.g., Crystal v. United States, 172 F.3d 1114, 1144 (9th Cir. 1999); Dynavac, 6 F.3d at 1414; Fortney v. United States, 59 F.3d 117, 119 (9th Cir. 1995); United States v. Feminist Federal Credit Union, 635 F.2d 529, 530 (6th Cir. 1980); United States v. Kis, 658 F.2d 526, 536 (7th Cir. 1981). Petitioner makes two arguments as to why the Court should quash the summons. First, the Petitioner argues that, as a sovereign authority, the Tribe is immune from the IRS s summons authority. Second, even if the IRS may summons the Tribe, the Petitioner argues, the summons is overly broad. As demonstrated below, these arguments do not meet the heavy burden required to quash the summons. A. Sovereign Immunity Does Not Bar Enforcement of the Summons 1. Sovereign Immunity Does Not Extend to Third Party Recordkeepers The Tribe argues that, because of its status as a sovereign entity, it is immune from compelled disclosure. Aside from one vital exception discussed below, the Tribe is indeed correct that, absent waiver, [i]t is well-settled that Indian tribes are immune from suit and that such immunity also protects tribes and their officers from legal processes such as subpoenas and search warrants. NGV Gaming, Ltd. v. Upstream Pointe Molate, LLC, 2009 WL *4 (N.D. Cal. 2009) (emphasis added). But because sovereign immunity as an overall concept applies only to proceedings against the sovereign, the immunity does not extend to a tribe s third party recordkeeper. See United States Environmental Protection Agency v. General Elec. Co., 197 F.3d 592 (2d Cir. 1999). As the Second Circuit explains, [a] judicial proceeding is -9-

10 Case 1:10-cv ASG Document 15 Entered on FLSD Docket 06/21/2010 Page 10 of 21 considered brought against the sovereign if the result could serve to restrain the Government from acting, or to compel it to act. Id. at 597, citing Dugan v. Rank, 372 U.S. 609, 620 (1963). In General Elec., the Second Circuit, after concluding that a subpoena could compel the EPA to act, determined that enforcement of the subpoena is barred by sovereign immunity, absent a waiver. Accordingly, because a summons against a third party recordkeeper would not restrain or compel action by a sovereign, enforcement of the summons would not violate sovereign immunity. Cf. Fisher v. United States, 425 U.S. 391, 397 (1976) (for purposes of the Fifth Amendment, a summons to a taxpayer s lawyer as a third party recordkeeper does not compel the taxpayer to do anything, including, in that case, to incriminate himself). The unavoidable fact is that the IRS summons at issue here is not a proceeding against a sovereign in the sense that the summons does not seek to compel the Miccosukee Tribe (or its officers for that matter) to do anything. While Indian sovereign immunity may indeed protect the tribes and their officers from complying with a subpoena (or its conceptual equivalent) under certain circumstances, the IRS issued no summons to, and has sought to compel no action from, the Tribe or its officers. To the contrary, the IRS issued the instant summons (and thus sought to compel the action of) a third party recordkeeper for records within that recordkeeper s custody and control. Morgan Stanley is not a tribe or a tribal officer. Therefore, the Tribe s theory that its sovereign immunity precludes enforcement of the summons against Morgan Stanley must fail. The Petitioner seems to anticipate this problem with its sovereign immunity defense and thus states that tribal records, whether sought from a third party or from the Tribe itself, are immune from disclosure absent a waiver. (Petition at 6). This argument, of course, directly -10-

11 Case 1:10-cv ASG Document 15 Entered on FLSD Docket 06/21/2010 Page 11 of 21 contradicts the governing authority that, in order for sovereign immunity to apply, the proceeding must be against the sovereign. Nor do the two cases the Tribe cites support its argument. One of the two cases, NGV Gaming (one of the cases quoted above), involved subpoenas issued directly to the tribe and its internal agency rather than to the tribe s third party recordkeeper. NGV Gaming, therefore, is in no way dispositive of whether sovereign immunity extends to third party recordkeepers. In fact, the language from that case quoted above limiting the privilege to tribes and their officers suggests that it does not. While the other case, Catskill Dev., LLC v. Park Place Entm t. Corp., 206 F.R.D. 78 (S.D.N.Y. 2002), does involve a subpoena to a tribe s third party recordkeeper, the court specifically stated that it never reached the issue of sovereign immunity since it was clear that it should quash the subpoena on alternative grounds. 206 F.R.D. at 93. As a result, not only has the Tribe failed to cite authority sufficient to carry its burden to quash the summons, but the authority it did cite expressly limits sovereign immunity to tribes and their officers. Morgan Stanley is neither; thus the Tribe is incorrect that its sovereign immunity is legally relevant to the instant facts. 2. Indian Sovereign Immunity Does Not Bar Actions by the United States Even if sovereign immunity did typically extend to the Tribe s third party recordkeepers (a point which we contest), such immunity would nevertheless not apply to a summons issued by the United States. The Petitioner relies heavily on Catskill in support of its argument that sovereign immunity applies to the present facts. The Tribe is correct that the court in Catskill quashed, on sovereign immunity grounds, a subpoena issued by a private litigant to an Indian tribe. What the Petitioner fails to mention, however, is that the same court, in the same case, also -11-

12 Case 1:10-cv ASG Document 15 Entered on FLSD Docket 06/21/2010 Page 12 of 21 noted that the federal government as opposed to a private litigant can subpoena an Indian tribe, despite the tribe s sovereign immunity. See Catskill, 206 F.R.D. at 88 ( Velarde is distinguishable from James, in that the federal government itself subpoenaed the tribe. A tribe cannot assert sovereign immunity against the United States. ). The Eleventh Circuit has also held that, while Indian tribes enjoy sovereign immunity from suit, that immunity does not extend to actions taken by the United States. In Florida Paraplegic Ass n v. Miccosukee Tribe of Indians of Florida, 166 F.3d 1126 (11th Cir. 1999), the court considered whether a private litigant could sue an Indian tribe under the Americans with Disabilities Act ( ADA ). After satisfying itself that the ADA was a statute of general application, the court first announced that the statute did indeed apply to Indian tribes. 166 F.3d at 1129 ( A general statute presumptively governs Indian tribes and will apply to them absent some superseding indication that Congress did not intend tribes to be subject to that legislation. ). The court cautioned, however, that although the ADA applies to and imposes obligations on Indian Tribes, it did not necessarily follow that the ADA creates a private right of action against those Indian tribes. In fact, no such private right of action exists, the court reasoned, because the ADA does not expressly limit the Indian tribes sovereign immunity from suit brought by private litigants. Florida Paraplegic Ass n, 166 F.3d at 1130 ( The [Supreme] Court has held, however, that Indian Nations are exempt from suit without Congressional authorization... and that a waiver of [Indian tribal] sovereign immunity cannot be implied but must be unequivocally expressed. ). The court made clear, however, that the United States could bring suit against Indian tribes under the ADA because tribal sovereignty does not extend to prevent the federal -12-

13 Case 1:10-cv ASG Document 15 Entered on FLSD Docket 06/21/2010 Page 13 of 21 government from exercising its superior sovereign powers. 166 F.3d at (emphasis added), quoting Quileute Indian Tribe v. Babbit, 18 F.3d 1456 (9th Cir. 1994). See also, e.g., United States v. Red Lake Band of Chippewa Indians, 827 F.2d 380, 382 (8th Cir. 1987) ( [I]t is an inherent implication of the superior power exercised by the United States over the Indian tribes that a tribe may not interpose its sovereign immunity against the United States. ); Catskill, 206 F.R.D. at 88 ( A tribe cannot assert sovereign immunity against the United States. ). The Petitioner acknowledges this line of cases in footnote 2 of its memorandum of law, but seeks to distinguish the same by arguing that: none of these cases apply to the administrative summons at issue here [because] this is not a lawsuit by the United States against the Tribe... It is an administrative summons in connection with the investigation of an individual tribal member. But if the conflict here, as the Petitioner claims, truly is one between the United States and an individual tribal member, then the Tribe s assertion of sovereign immunity must certainly fail. It is, after all, universally understood that Billy Cypress as an individual tribal member enjoys no 3 sovereign immunity; that defense belongs solely to the Tribe. That being the case, in order for 3 The doctrine of sovereign immunity... does not immunize the individual members of the Tribe. See Puyallup Tribe, Inc. v. Dep t of Game, 433 U.S. 165, (1977). Although NGV Gaming extends sovereign immunity to tribes and their officers, such immunity extends only to officials acting within their official capacity and within their scope of authority. Ex parte Young, 209 U.S. 123, 160 (1908) (noting that an unconstitutional act by state employee strips that employee of official capacity and, consequently, of immunity); Burlington Northern R. Co. v. Blackfeet Tribe of Blackfeet Indian Reservation,924 F.2d 899, (9th Cir. 1991) (holding that sovereign immunity does not protect a tribal official from suit for violation of federal law); Niagra Mohawk Power Corp. v. Tonawanda Band of Seneca Indians, 862 F.Supp. 995, 1002 (W.D.N.Y.). Here, because the federal investigation is aimed at Cypress s violation of law as an individual taxpayer, and not as a tribal officer, no argument could be made that he is immune. Indeed, the Tribe, which has made no argument that Cypress enjoys sovereign immunity, classified Cypress merely as a tribal member as opposed to an official. See Petition at 8. In all events, even if sovereign immunity did apply to Cypress, such immunity would not preclude -13-

14 Case 1:10-cv ASG Document 15 Entered on FLSD Docket 06/21/2010 Page 14 of 21 the Tribe to assert sovereign immunity as a defense, it necessarily follows that it must view this dispute as one between it and the United States. Casting the dispute in this fashion accurately reflects the essence of the present conflict, to wit: the IRS, an agency of the United States of America, has summoned a third party for the records of the Miccosukee Tribe, an entity claiming to be immune from such summons authority. On its face, therefore, the Tribe now seeks to preclude or restrict an official act by the United States. This matter is a conflict between the sovereign authority of the United States and that of the Miccosukee Tribe, and while the summons at issue admittedly is not tantamount to traditional litigation between those parties, nothing in the controlling authority imposes such limitations on the United States superior sovereign interests. No amount of semantics can hide the unequivocal rule that Indian sovereign immunity if it even applies to these facts must give way to the superior sovereign interests of the United States, regardless of the circumstances. Simply put, the Tribe cannot use its demonstrably limited sovereign immunity to quash a summons issued by the United States. Footnote 2 of the Tribe s memorandum of law continues its effort to distinguish the present controversy from the authority elevating the superior sovereignty of the United States over that of Indian nations as follows: there is no applicable legislation waiving the Tribe s sovereign immunity with respect to this investigation... In fact, the Internal Revenue Code provisions specifically exempt the Tribe from federal income taxation... Thus, tribal sovereign immunity would bar enforcement of the Summons because the laws at issue here do not apply to the Tribe. The Tribe is correct that, typically, in order to overcome an Indian tribe s sovereign immunity, enforcement of the summons here because the summons does not compel him to act and because the United States enjoys superior sovereign interests. See Sections II.A.2 & II.A.3, supra. -14-

15 Case 1:10-cv ASG Document 15 Entered on FLSD Docket 06/21/2010 Page 15 of 21 one must show either explicit Congressional restriction or explicit waiver. Florida Paraplegic Ass n, 166 F.3d at As explained above, however, Indian sovereign immunity applies only to Indian tribes vis-a-vis private litigants, not vis-a-vis the United States. The doctrine of sovereign immunity having no application here in the first instance, the doctrine s exceptions similarly have no legal relevance. Also implied in the Tribe s argument is that, unlike the ADA, the Internal Revenue Code is not a statute of general application, meaning that the Code does not apply to Indian tribes. Regardless of sovereign immunity, the argument would therefore proceed, the United States cannot summons the Tribe because the Internal Revenue Code does not govern the Tribe. See Florida Paraplegic Ass n, 166 F.3d at 1130 (holding that a court s determination whether a statute applies to a Tribe is a separate and distinct inquiry from whether, if the statute does apply, the Tribe is immune). However, the Tribe is incorrect in its premise that the Internal Revenue Code does not apply to it. Although it is true that they are exempt from income taxation, it is not as though no portion of the Internal Revenue Code applies to Indian tribes. In fact, it is misleading for the Petitioner even to state that Indian tribes are not taxable entities (Petition at 4), as it is now well-settled that they do have to pay excise taxes under the Internal Revenue Code on their gambling operations. See Chicksaw Nation v. United States, 208 F.3d 871, 878 (10th Cir. 2000) aff d, 534 U.S. 84. As an additional example, section 3402(r) of the Internal Revenue Code explicitly imposes on Indian tribes the duty to make withholdings on certain casino payments. Thus, although certain provisions may not apply to Indian tribes, it simply does not follow that, ipso facto, the rest of the Code has no application either. -15-

16 Case 1:10-cv ASG Document 15 Entered on FLSD Docket 06/21/2010 Page 16 of 21 In fact, the Internal Revenue Code is classified as a statute of general application that courts must assume applies to Indian tribes, absent express Congressional indication to the 4 contrary. Florida Paraplegic Ass n, 166 F.3d at See also Chickasaw Nation v. U.S., 1998 WL *6 (E.D. Okla.); Federal Power Commission v. Tuscarora Indian Nation, 362 U.S. 99, 120 (1960) ( general Acts of Congress apply to Indians as well as to all others in the absence of a clear expression to the contrary. ). As is relevant here, section 7602(a)(2) of the Internal Revenue Code allows the IRS to summons any person, with no specific exclusion of Indian tribes from that summons authority. The express terms of the Internal Revenue Code regarding summons authority, therefore, apply to all persons, without exception. Moreover, many courts have routinely ruled that Indian tribes are included within the definition of person found within the Internal Revenue Code. See Chickasaw Nation v. United States, 1998 WL *5 (E.D. Okla.); Confederated Tribes of the Warm Springs, 691 F.2d 878 (9th Cir.1982), cert. denied, 460 U.S. 1040, 103 S.Ct. 1433, 4 There are three potential exceptions to the rule that general statutes apply to Indian tribes, none of which apply here. A general statute will not apply where it would (1) abrogate rights under an Indian treaty; (2) interfere with purely intramural matters touching on the exclusive rights of self-government; or (3) contradict Congress intent. Florida Paraplegic Ass n, 166 F.3d at The Petitioner has made no claim, and the United States is unaware, of any treaty to which the Tribe is a party that would exempt it from having to comply with an IRS summons. Additionally, the summons does not interfere with purely intramural matters of the Tribe, as Billy Cypress suspected misappropriation of tribal funds certainly touched interstate commerce. Florida Paraplegic Ass n, 166 F.3d at 1129 (holding that conduct affecting interstate commerce is not purely intramural). In fact, the Eleventh Circuit has created a bright line rule that matters related to tribal casinos as is the case here, even if only tangentially are not purely intramural. Id. Moreover, Cypress use of tribal funds for personal benefit implicates his own liability to the United States, and thus it not a purely intramural matter of the Tribe. Finally, since Congress has made no explicit exemption of Indian tribes from the IRS s summons authority, it cannot be argued that applying the summons authority here would somehow contradict Congressional intent. -16-

17 Case 1:10-cv ASG Document 15 Entered on FLSD Docket 06/21/2010 Page 17 of L.Ed.2d 792 (1983); Lac Courte Oreilles Chippewa Indians v. United States, 845 F.2d 139 (7th Cir.1988). Consequently, by the express terms of the Internal Revenue Code, a general statute, the IRS s summons authority must extend to the Tribe. Because the Tribe cannot assert sovereign immunity as a defense against the United States summons, the Petitioner has failed to demonstrate why the Court should quash the summons. 3. Even if Sovereign Immunity Did Apply, the Tribe Made an Express Waiver As described in the Furnas Declaration, towards the beginning of the Tribe examination, the IRS had issued a number of summonses on individual tribal members, as well as several on third party recordkeepers of the Tribe. See Furnas Decl. at 7. The IRS directed one such summons to Citigroup Global Markets Inc. Smith Barney ( Smith Barney ), the predecessor in interest to Morgan Stanley, the party to whom the present summons is directed. Id. at 9. True and correct copies of those summonses are attached hereto as Exhibit C. Shortly after service of several of these summonses, the Tribe had a meeting on December 29, 2005 with Kenneth G. Voght, Program Manager for the IRS s Office of Indian Tribal Governments. Id. at 8. As outlined in Voght s memorializing letter to the Tribe s representatives, a true and correct copy of which is attached hereto as Exhibit B, the IRS agreed to withdraw the summonses issued on the individual members. In exchange, the Tribe agreed to allow the third party summonses to proceed. True to its word, the Tribe did not dispute the third party summonses, including the one to Smith Barney issued subsequent to the December 29 meeting. Indian tribes may waive their sovereign immunity, but such waivers must be expressed unequivocally and cannot be implied. Quileute Indian Tribe v. Babbit, 18 F.3d 1456, 1458 (9th Cir. 1994). As demonstrated in Voght s letter, the Tribe expressly waived its sovereign -17-

18 Case 1:10-cv ASG Document 15 Entered on FLSD Docket 06/21/2010 Page 18 of 21 immunity over any records in the custody of third parties, including those held by Morgan Stanley, the present summoned party, and successor in interest of Smith Barney. Thus, even if the Tribe s sovereign immunity would apply to bar the summons at issue and we contend that is not the case the summons still should not be quashed since the Tribe made an express waiver of any such immunity over the records held by Morgan Stanley. B. The Summons Is Not Overly Broad While the Commissioner s summons authority has been described as a license to fish, United States v. Luther, 481 F.2d 429, (9th Cir. 1973) ( Sec authorizes the Secretary or his delegate to fish ); United States v. Giordano, 419 F.2d 564, 568 (8th Cir. 1969) ( Secretary or his delegate has been specifically licensed to fish by 7602 ), this license is not without limit. The IRS may not conduct an unfettered fishing expedition through a person s records, but must identify with some precision the documents it wishes to inspect. United States v. Dauphin Deposit Trust Co., 385 F.2d 129, 131 (3d Cir. 1967). Thus, in testing for overbreadth, the question is not whether the summons calls for the production of a large volume of records. Instead, the questions are, first, did the summons describe the requested documents in enough detail to inform the summoned party of exactly what is to be produced, United States v. Abrahams, 905 F.2d 1276 at 1282, 1285 (9th Cir. 1990) (overruled on other grounds), and, second, may the summoned records be relevant to the inquiry. John Does v. United States, 866 F.2d 1015, 1021 (8th Cir. 1989). Summonses that are definite in nature and finite in scope, and that request only information that may be relevant to the IRS s inquiry, consistently have been enforced against challenges for overbreadth. See, e.g., United States v. Reis, 765 F.2d 1094, 1096 n.2 (11th Cir. 1985); United States v. Linsteadt, 724 F.2d 480, 483 n.1 (5th Cir. 1984); United -18-

19 Case 1:10-cv ASG Document 15 Entered on FLSD Docket 06/21/2010 Page 19 of 21 States v. Cmty. Fed. Sav. & Loan Ass n, 661 F.2d 694 (8th Cir. 1981); United States v. Nat l Bank of South Dakota, 622 F.2d 365 (8th Cir. 1980). By these standards, the summons at issue is not overly broad. First and the Petitioner s silence on this point implies its agreement the summons describes the summoned material with sufficient particularity, including account numbers where appropriate, to make perfectly clear which records the IRS would like to inspect. Second, the United States has already demonstrated how the summoned materials may be relevant to its investigation (see Section I.B., supra). Although the summons does seek information and records belonging to the Tribe as a whole as opposed to those of Cypress, individually the IRS has a legitimate purpose for doing so since there is evidence that Cypress used this exact account to indulge in personal expenses without reporting the same as income. Given the nature of the IRS s suspicions, there is simply no other way for the investigation to identify who made the relevant charges other than through an inspection of these particular tribal account records. There is no way to narrow the summons while still achieving these necessary ends. By all applicable standards, therefore, the inquiry regarding overbreadth should end here. -19-

20 Case 1:10-cv ASG Document 15 Entered on FLSD Docket 06/21/2010 Page 20 of 21 Conclusion Petitioner has not met its heavy burden of refuting the United States showing or demonstrating that enforcement would be an abuse of the Court s process. The Court, therefore, should deny the petition to quash. Respectfully submitted, JOHN A. DICICCO Acting Assistant Attorney General /s/ Richard D. Euliss RICHARD D. EULISS Trial Attorney, Tax Division U.S. Department of Justice Post Office Box Ben Franklin Station Washington, D.C Telephone: (202) Of Counsel: WILFREDO A. FERRER United States Attorney -20-

21 Case 1:10-cv ASG Document 15 Entered on FLSD Docket 06/21/2010 Page 21 of 21 CERTIFICATE OF SERVICE I hereby certify that on June 21, 2010, I electronically filed the foregoing document with the Clerk of Court using CM/ECF. I also certify that the foregoing document is being served this day on all counsel of record, via transmission of Notices of Electronic Filing generated by CM/ECF or other approved means. /s/ Richard D. Euliss RICHARD D. EULISS

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23 Case 1:10-cv ASG Document 15-2 Entered on FLSD Docket 06/21/2010 Page 1 of 3 DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE Office of Indian Tribal Governments TAX EXEMPT AND GOVERNMENT ENTITIES DIVISION January 11, 2006 Dexter Lehtinen, Esq North Kendall Drive, Suite 303 Miami, Florida Richard M. Goldstein Bilzin, Sumberg, Baena, Price & Axelrod LLP 200 South Biscayne Blvd., Suite 2500 Miami, Florida Dear Mr. Lehtinen and Mr. Goldstein: I am writing in regard to the current federal tax examinations involving the Miccosukee Tribe of Indians of Florida, as well as several members of the tribe, and specifically as a follow-up to our recent meeting and subsequent telephone conversations. Although I realize that you each represent different interests in this matter, pursuant to our discussion on December 29 th, I will address the issues of all of the parties within this letter, using the consent you gave me at our meeting. You obviously are free t share this with others as you wish. As you are aware, we issued a series of summonses during December in order to obtain records and information we believe are necessary to the determination of the correct federal tax liability of the Tribe and its entities. These issuances were made after what we deemed to be unsuccessful attempts to secure the information through voluntary means. Following their issuance, I was contacted by Jose Marrero requesting a dialogue to discuss how this matter might be resolved, and specifically whether there was a way to obtain the needed information without the Tribe compromising its sovereign beliefs, and/or involving tribal employees or officials. There was specific concern about the ability of the summoned individuals to be responsive to the summonses, from both a lack of information and a lack of authority. In response to that request, I agreed to meet with designated representatives on December 29 th in Miami. I want to thank both of you, as well as the other representatives, for the frank discussion we held on that date. I believe all of the parties are aware of each other s interests, and the discussion focused on the development of a roadmap that would lead to the Service having the information it requires to make proper determinations of tax liability for the Tribe, its enterprises, and its members who may be affected as a result of the current examination. Your objective is to resolve this matter with minimal involvement by, or impact on, tribal members and officials. Our objective is to determine the correct federal tax responsibilities for the tribe and its members. This letter serves as an outline of those discussions, and the subsequent telephone conversations with Jim Furnas and me.

24 Case 1:10-cv ASG Document 15-2 Entered on FLSD Docket 06/21/2010 Page 2 of 3 You informed us that the Tribe is not, or will not be, contesting the third party summonses we issued to various banks and vendors. You also indicated your belief that the bank and vendor records we summoned will present a full and accurate record of all disbursements made by the Tribe, and that the level of information available will equal or exceed that presented to us for the Miccosukee gaming issues. At my request, you agreed to have knowledgeable individual(s) available to us to describe the bank records, assist in the determination of the nature of payments, and explain the flow of funds through tribal operations and bank accounts. You stated your belief that the information will be in sufficient detail so as to render the tribe s retained records unnecessary, and the testimony of the summoned officials superfluous, to our ability to determine any federal tax liability for the tribe. I accepted that commitment and agreed to rescind the first party summonses issued to the individuals for tribal records and testimony relating to tribal finances, with the understanding that we would re-issue those summonses if the bank and vendor records were inadequate, or we were unable to secure the assistance of knowledgeable officials in regard to the flow of funds, nature of payments, etc. Subsequent to our meeting on December 29 th, we issued a letter to each of the summoned individuals which extended the appearance dates to mid-february 2006, which we believe will provide sufficient time to secure the necessary explanations of funds flow, bank records, etc. I communicated that via telephone, and you have indicated you will make every effort to secure the support we need as soon as possible. You indicated that the Miccosukee General Council meets quarterly, and will next meet in early February. You stated that the General Council is the only body authorized to approve the release of tribal records, or permit the testimony of individuals. If the bank records and explanatory support will allow us to ascertain the nature and amount of tribal disbursements, our remaining immediate concern at the Tribal level is with the statute of limitations for the 2002 tax periods, specifically the Forms 941 filed by the Tribe. While our discussion indicates that the major issue may be in areas requiring the filing of Form 945, we cannot be certain that a Form 941 liability will not arise since we have not seen the records nor received the necessary explanatory support at this time. That is one of the critical reasons why we need a full explanation of the flow of funds, nature of disbursements, and the bank records. We would still request that the Tribe execute a Form SS-10 to extend the statute of limitations in regard to Forms 941 for the 2002 tax periods, and I have attached a copy of Form SS-10. Since we are willing to delay individual appearances and anticipate rescinding the individual summonses based on our good faith reliance on unseen bank records and supporting explanations, we would hope that the Tribe would reciprocate by extending the statute of limitations. You indicated a desire to conclude the Miccosukee gaming examination issues as soon as possible. We are eager to move that process forward, and the next step is to respond to the Form 5701 that was issued. Once we ascertain the issues with which you disagree, we can determine the next action required. That could include a request for Technical Advice, further development of facts, etc. In addition to the federal tax matters for the Tribe and its enterprises, we also initiated separate examinations of various individuals. You presented Forms 2848 to designate Richard Goldstein and Samuel Ullman as the power-of-attorney for these matters. I indicated that the individual examinations were separate and apart from the tribe, and that they needed to be addressed directly with Revenue Agent James Furnas. I indicated at our meeting that at least one of the individuals had a major issue that did not appear to directly involve the tribal issues under examination, but that I was not sufficiently familiar with the cases to be in a position to discuss them. Subsequent to our meeting, we

25 Case 1:10-cv ASG Document 15-2 Entered on FLSD Docket 06/21/2010 Page 3 of 3 discussed the individual examinations via a conference call, and you agreed to attempt to secure a Form 872 from one of the individuals which would extend the statute of limitations to align it the other tax periods under examination. The individual appointments that had been scheduled for this week were deferred until such time as we have more data, but in the event that the Form 872 is not secured we will need to immediately proceed with the examination of that individual. I realize that this case is complex, both in terms of the scope of issues and the long-held sovereignty beliefs within the Tribe. We are willing to work with you to move this case forward as quickly as possible. However, while our meeting and discussions have developed a rudimentary roadmap, any impediments we encounter in securing necessary bank records and supporting testimony will require us to re-visit this roadmap. I am cautiously hopeful that the records and explanatory support will be sufficient to determine any federal tax liabilities, but as I stated in our telephone conversation, we are flying blind at the moment until we see the actual records and receive the supporting explanations we will require. I also indicated at our meeting that we believe the Tribe may not be in compliance with various aspects of Title 25. In that regard, we encourage the Tribe to immediately review the requirements relating to Revenue Allocation Plans (RAP) as well as various federal tax requirements. The National Indian Gaming Commission and Department of Interior have oversight of the RAP requirements and are the principal contact for the Tribe in that area. Jim Furn principal IRS contact in this matter, and you should feel free to contact him at ext. at any time. If you have difficulty reaching hi e a matter need to be involved, you should feel free to contact me at We look forward to moving this process forward, and I thank you in advance for your cooperation and assistance in that regard. Sincerely yours, Kenneth G. Voght Program Manager Office of Indian Tribal Governments

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