Robert Wood has an interesting article on how the IRS has won a fight with a native American tribe. It shares two aspects that expats and “foreign” banks face due to FATCA.
Background: American Indian tribes are sovereign nations and cannot be taxed. However, individual members of a tribe are USCs and they can be taxed. A recent court battle in Florida brings to mind the 2009 situation with Swiss banks. The IRS was investigating gambling profits ( tribes can conduct gaming on Native American lands independently of state regulation in states that allow gaming). The IRS wants to see if federal tax withholding/reporting requirements were met for profits distributed to 600 members of the tribe. The tribe claimed immunity. A court of appeals ruled that the bank records could be subpoenaed. Here is where the situation becomes interesting (emphasis mine):
1)The tribe refused to hand over the records so the IRS subpoenaed the documents from four banks. In addition to arguing sovereign immunity, the tribe argued that the records would reveal confidential financial information and force them to change their banking practices to keep money on the reservation. … According to the court, the records became the property of the banks, not the tribe.
2) Around 100 Miccosukee owe the IRS a combined $25 million in unpaid taxes, penalties and interest. Their former chairman, Billy Cypress, owes over an alleged $26 million in gambling profits and was aided by two former US attorneys.
In the first point, once again, the IRS is attempting to force the release of confidential financial information which would force a change in banking practices, not unlike banks in Europe (and elsewhere) who are dropping USC accounts. The IRS managed to get around the privacy/confidentiality issue by claiming the records belong to the banks. And the second, the apparent justification for these actions are based upon seemingly unrelated tax problems of individual bank members. There isn’t enough information given to tie the dates being investigated to the back amounts owed by individuals.This reminds me of the wealthy homelanders who evade tax via foreign banks as the justification for going after USC’s in foreign countries. There is just the assumption that since some are guilty, a fishing expedition is allowed to begin. And what irony, instead of being aided by Swiss bankers, we have former US attorneys.
I am wondering if there isn’t something that isn’t being addressed – there seems to be a built-in contradiction here. What is the point of a tribe being a sovereign nation if it’s members have to pay taxes?
Am I missing something here?