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U.S.’CROSS-MOTION FOR SUMMARY JUDGMENT 1 (Case No. 12-CV-05122-BHS)

U.S. DEPARTMENT OF JUSTICE Tax Division, Western Region P.O. Box 683 Washington, D.C. 20044 Telephone: 202-307-6448

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Judge Benjamin H. Settle

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF WASHINGTON

AT TACOMA

UNITED STATES OF AMERICA,

Plaintiff,

v.

PUYALLUP TRIBE OF INDIANS,

Defendant.

) ) ) ) ) ) ) ) ) ) ) )

Case No.: 3:13-CV-05122-BHS

UNITED STATES’ CROSS-MOTION FOR SUMMARY JUDGMENT Note on Motion Calendar: December 20, 2013

Introduction

This is a civil tax case against the Puyallup Tribe under section 6332(d)(1) of the Internal

Revenue Code. The Tribe failed to surrender to the Internal Revenue Service numerous $2,000

monthly “per capita” payments—shares of Tribal revenue from gaming and other sources—that

were due to an enrolled member of the Tribe, Joshua D. Turnipseed, after the IRS issued levies

to collect them. The material facts are undisputed. The United States is entitled to judgment as a

matter of law that the Tribe failed to honor the IRS levies and must pay over what Turnipseed

owes, $46,918.80 as of June 30, 2013, plus statutory interest.

Case 3:13-cv-05122-BHS Document 20 Filed 11/22/13 of 25



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Issue Presented

Whether the Tribe’s $2,000 monthly per capita payments—which the Tribe has made to

every enrolled member since May 2002, and which it has repeatedly represented that it has no

intention of stopping—are “fixed and determinable” such that the Tribe should have surrendered

Turnipseed’s payments in response to IRS levies.

Statement of Facts

The parties have stipulated to numerous facts and exhibits for purposes of their cross-

motions for summary judgment. See Stipulation of Facts (“SOF”), filed herewith by the Tribe at

ECF No. 19. Those facts are reprinted below for ease of reference. The exhibits are attached to

the SOF.

THE TRIBE AND THE TAXPAYER

1. The Puyallup Tribe of Indians (“Tribe”) is a federally-recognized Indian

tribe.

2. The Tribe operates a casino on the Puyallup Indian Reservation pursuant to a

compact with the State of Washington in compliance with the Indian Gaming Regulatory

Act (“IGRA”). 25 U.S.C. § 2701 et seq.

3. Joshua D. Turnipseed (“Turnipseed”) is an enrolled member of the Tribe.

4. Turnipseed has an unpaid federal employment tax-related obligation (civil

penalties under 26 U.S.C. § 6672) for the periods ending June 30, 2004, and March 31,

2005 of $42,010.61 as of June 30, 2013, including statutory interest and penalties accrued

through that date, and an unpaid federal income tax obligation for the period ending

December 31, 2004 of $4,908.14 as of June 30, 2013, including statutory interest and




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penalties accrued through that date, which despite proper notice and demand for payment

by the Internal Revenue Service (“IRS”) he has failed or refused to pay.

THE TRIBE’S PER CAPITA PROGRAM – INTRODUCTION

5. The Tribe makes per capita payments to enrolled Puyallup Tribal members

under a Revenue Allocation Plan (“RAP”). IGRA prohibits a tribe from using net gaming

revenue for per capita payments unless the tribe first has such a plan in place that has

been approved by the Bureau of Indian Affairs. The Puyallup Tribe has such an approved

plan in place, a copy of which is attached as Exhibits 1a (2002 Revenue Allocation Plan)

and 1b (2006 Amendment to Revenue Allocation Plan).

6. During the time period relevant to the issues in this case, as well as currently,

the Tribe’s per capita payments have consisted in part of gaming revenue generated by

the Tribe’s Class III gaming facility and in part of other non-gaming Tribal funds,

including revenue from other Tribal businesses and revenue from various Tribal taxes.

The Tribe includes funds for the per capita payments in its annual fiscal year budget.

7. Per capita payments are not salaries, wages, commissions, or other

compensation for services rendered by the members to the Tribe.

8. Per capita payments are not federal payments, unemployment benefits,

workmen’s compensation benefits, or public assistance payments as any of those

payments or benefits are defined under title IV or title XVI of the Social Security Act, or

State or local government public assistance or public welfare programs for which

eligibility is determined by a needs or income test.

9. Prior to May 2002, the Tribe made per capita payments sporadically and in

varying amounts. Payments made in the 1980’s and 1990’s were made at unpredictable




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times, typically no more than twice a year, in some years not at all. These per capita

payments were typically in the range of $25 to $50 per Tribal member, although

occasionally as high as $100 or $200 per member.

10. In 1996, the Tribe opened its Class III gaming facility. Since May 2002, the

Tribe has made a per capita payment each month to each member of $2,000

(approximately $25,000 per year), less federal income tax withholding (per capita

payments are taxable income under federal law).

11. Although the Tribe’s Per Capita Ordinance and Revenue Allocation Plan

allow the Tribe to make per capita payments to groups of Tribal members smaller than

the entire membership in appropriate circumstances, each payment since May, 2002, has

been made to every enrolled member of the Tribe. Eligibility for membership in the Tribe

is governed by Article II of the Puyallup Tribal Constitution. A copy of Article II is

attached hereto as Exhibit 2.

12. Each month since May 2002, the Tribal Council has authorized a per capita

payment by adopting a Resolution. See Exhibit 3.

13. In addition to the monthly per capita payments, the Tribe has also made

bonus payments to each member each year, typically Thanksgiving, Christmas and spring

bonuses. As with the monthly payments, the bonus payments are governed by Tribal law

and are authorized by Council Resolution a few days before the payment goes out.

14. Neither federal nor tribal law requires that the Tribe make per capita

payments. The decision whether to make a payment is within the discretion of the Tribe’s

governing body, the Tribal Council.




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15. When the Tribal Council has adopted a Resolution authorizing a payment, the

Tribe’s Per Capita Department works with a contracted third party, Ceridian Corporation,

which issues the per capita payments to Tribal members by check or by direct bank

deposit at each member’s option. Since May 2002, payments have consistently been

issued during or slightly earlier than the last week of each month.

THE TAXPAYER AND THE IRS LEVIES

16. The IRS revenue officer assigned to collect Turnipseed’s liabilities

determined that the only available source of funds for that collection is the monthly per

capita payments (described below) Turnipseed receives from the Tribe.

17. On November 7, 2008, the IRS revenue officer served the Tribe with an IRS

Notice of Levy on Wages, Salary, and Other Income (the “First Notice of Levy”) to

collect the unpaid civil penalties described above. A copy is attached as Exhibit 4.

18. On October 27, 2008, the Council authorized a per capita payment of $2,000

for November, 2008. Attached as Exhibit 5 is a copy of the Resolution.

19. On October 29, 2008, the Tribe issued the November per capita payments,

including the payment to Mr. Turnipseed.

20. On November 20, 2008, the Council authorized a per capita payment of

$2,000 for December, 2008. Attached as Exhibit 6 is a copy of the Resolution.

21. On November 24, 2008, the Tribe issued the December per capita payments,


22. The Tribe notified the revenue officer by letter dated August 27, 2009, that

on the date the First Notice of Levy was served, the Tribe did not hold any property of

Turnipseed or have any obligation to pay any amount to Turnipseed and therefore did not




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have funds to provide the IRS under the terms of the First Notice of Levy. A copy of the

Tribe’s letter is attached as Exhibit 7.

23. By letter dated December 1, 2010, the IRS disagreed with the Tribe’s

position, contending that per capita payments are a fixed and determinable obligation of

the Tribe to which the First Notice of Levy attached, requiring the Tribe to pay over

Turnipseed’s payments until his liabilities are satisfied. A copy of the IRS’s letter is

attached as Exhibit 8.

24. On September 2, 2009, the IRS served on the Tribe a Final Demand for

Payment (the “First Final Demand for Payment”). A copy is attached as Exhibit 9. The

Tribe has not provided any payment to the IRS in response to the First Final Demand for

Payment.

25. On March 13, 2013, the IRS revenue officer served the Tribe with a second

IRS Notice of Levy on Wages, Salary, and Other Income (the “Second Notice of Levy”)

to collect the unpaid income tax liability described above. A copy is attached as Exhibit

10.

26. On February 21, 2013, the Council authorized a per capita payment for

March 2013. Attached as Exhibit 11 is a copy of the Resolution.

27. On February 22, 2013, the Tribe issued the March per capita payments,


28. On March 21, 2013, the Council authorized a per capita payment for April

2013. Attached as Exhibit 12 is a copy of the Resolution.

29. On March 22, 2013, the Tribe issued the April per capita payments,





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30. The Tribe did not provide any payment to the IRS in response to the Second

Notice of Levy for the reason described in paragraph 22, above.

31. On April 24, 2013, the IRS revenue officer served the Tribe with a second

Final Demand for Payment (the “Second Final Demand for Payment”). A copy is

attached as Exhibit 13. The Tribe has not provided any payment to the IRS in response to

the Second Final Demand for Payment for the reason described in paragraph 22, above.

32. According to IRS records Turnipseed has received gross annual totals of per

capita payments from the Tribe as follows:

2002: $17,930 2003 $25,030 2004 $25,030 2005 $26,050 2006 $25,550 2007 $25,550 2008 $25,550 2009 $25,550 2010 $25,575 2011 $26,300 2012 $26,300

The total for 2002 is smaller because the regular monthly payments did not begin

until May, 2002. The bonus per capita payments account for the amounts in excess of

$24,000 per year (gross).

33. The Tribe withheld federal tax from the gross annual totals listed above.

THE BASIS FOR AND FUTURE OF THE TRIBE’S PER CAPITA PROGRAM

34. The Tribal Council resolutions that authorize per capita payments describe

the reason and circumstances for the payment:

[T]he Tribal Council . . . wishes to have the Tribe make an unconditional gift to each enrolled member of the Tribe . . . and




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[T]he Tribal Council . . . is under no obligation, moral or legal, in either federal or Tribal law, to make this gift; and

[T]he Tribe do[es] not expect, intend, or anticipate any benefit to the Tribe or to the

Council from making this gift; and

[This] gift is not made in return for any services rendered to the Tribe . . . .

35. The Tribal Council’s decision whether or not to issue a payment each month

depends on the Tribe’s Per Capita Ordinance, its Revenue Allocation Plan, and competing

demands on its financial resources.

36. The Tribe’s Per Capita Ordinance is attached as Exhibit 14. The Ordinance

provides, among other things, that:

1.08.030 Scope and applicability. This chapter shall be applicable to all per capita payments made by the Puyallup

Tribe from fund sources other than revenues from gaming activities. This chapter shall also be applicable to per capita payments that are made using revenues generated by gaming activities to the extent that this chapter is not inconsistent with the provisions for the “Gaming Revenue Allocation Plan.”

1.08.040 Intent. It is the intent of the Puyallup Tribal Council that when circumstances permit and

the Council feels that it is appropriate to do so, it will direct that the Tribe make a per capita payment to each Tribal member, or to each Tribal member in a designated class or classes, pursuant to the schedule provided in this chapter, as a gift freely made out of the Tribe’s devotion to and respect and affection for its members. The Tribe is not obligated by federal or Tribal law or by any other source to make such gifts . . . .

1.08.050 Designation and identification by tribal council. When the Tribal Council has determined, in its discretion, that it will make a per

capita payment, the Tribal Council shall:

(a) Designate a deadline date; and (b) Indicate whether the per capita payment is to be made to all Tribal members or

to a certain category or categories of Tribal members.

1.08.070 Per capita payments.

The Tribe will issue a per capita payment to or on behalf of each Tribal member in the category or categories designated for payment who has complied with the




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requirements of PTC 1.08.060 and who is an enrolled member of the Tribe . . . [1.08.060 requires provision of certain information to the Tribe by the Tribal member].

1.08.160 Per capita payments not subject to seizure. (a) Funds for a scheduled per capita payment, while still in the possession of the

Tribe before distribution, shall not be subject to seizure, execution, levy, garnishment, forfeiture, lien or encumbrance for any debt or obligation.

(b) A per capita payment that has been distributed to a care provider or other appropriate person on behalf of a minor or ward shall not be subject to seizure, execution, levy, garnishment, forfeiture, lien or encumbrance for any debt or obligation.

37. The Tribe’s Revenue Allocation Plan provides in part:

REVENUE ALLOCATION PLAN: The Tribal Council will review annually the projected net revenues it expects to receive from gaming activities, and shall determine how to allocate the use of those revenues; provided, that the disbursement of the net revenues shall only be used for the purposes stated in 25 U.S.C. 2710(b)(2) and (3) of IGRA. The Tribal Council retains the authority to modify the amounts allocated from the net revenues based upon need, priorities, and projected net revenues from gaming activities. In the event the Tribal Council determines that adjustments to the allocated percentages contained herein must be made, notice of the change(s) will be submitted to the Secretary of the Department of the Interior.

ALLOCATION OF NET REVENUES: The allocation of net revenues is based

upon forecasts or projections for each year. As such, the Tribal Council will annually review the projected net revenues, and may reallocate the percentage distributions based on the Tribal Council’s determination of the needs and priorities of the Tribe and its members. Accordingly, the net revenues … shall be allocated in the following manner :

1. Tribal Government and Programs: An allocation of 25-35% from the net

revenues shall be set aside to fund tribal government operations and programs ….

2. General Welfare of the Tribe or Its Members. An allocation of 5-15% from net gaming revenues shall be set aside to fund special programs that provide direct assistance to tribal members for life sustaining necessities, such as: housing, energy, education, nutrition, child care, and health care . . . .

3. To Promote Tribal Economic Development: An allocation of 10-20% from

the net revenues shall be set aside for the promotion of tribal economic development . . .

4. Per Capita Payments: An allocation of 40-55% from the net revenues is hereby established for monthly per capita payments to be made to tribal members. . . . Per capita payments shall be made in the same amount to each Tribal member except on those occasions … when the Council determines, and provides by Resolution along with




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suitable explanation, that there is a reasonable justification for providing payments in different amounts to different age groups of Tribal members.

. . . .

AMENDMENTS TO THE PLAN: All provisions of this Plan are subject to amendment by the Tribal Council. Any amendment to this Plan will be forwarded to the Secretary of the Department of the Interior, or his/her designee, for approval.

38. The Tribe’s financial wellbeing is dependent on the Tribe’s revenue (gaming

and otherwise), population, and government budget. The Tribe’s enrollment has grown

from approximately 2800 in 2002 to over 4600 today. That change has increased

substantially the amount of money needed to make a payment of $2,000 per month to

each Tribal member. The Tribe’s budget could require or counsel a change in the size of

the payment made to each Tribal member, either larger or smaller.

39. Members of the Tribal Council are elected to office at large by the Tribal

membership. Every Tribal member over the age of 18 is eligible to vote.

40. In connection with applying for an amendment to the Revenue Allocation

Plan, the Tribe submitted a memorandum dated August 28, 2006, titled “Discussion and

Supporting Materials for Second Amendment to Revenue Allocation Plan of the Puyallup

Tribe of Indians.” The memorandum is included in Exhibit 1b.

41. Regarding the size of per capita payments, the memorandum states on page

one thereof that “the size of the monthly per capita payment made to each Tribal member

. . . will remain at $2,000 per month as it has since May, 2002. . . . The payments have

had a tremendously beneficial effect on the self-sufficiency and improved standard of

living of Tribal members.” On page two it states that “[t]he Tribe’s revenue provides

sufficient funding to: Maintain the level of the per capita payments even though the

Tribal membership has increased” and “Maintain the Tribe’s need-based assistance




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programs for Tribal members, which now require less funding because the per capita

payments have increased the standard of living of Tribal members dramatically.”

42. On pages four and five, the Tribes’ per capita program is described as

follows:

a. The Tribe’s per capita program continues the process of enabling Tribal members (the membership totaled 3591 as of August, 2006) to escape the bonds of poverty and dependency. Under the program, Tribal members have built on the steps put in place by the Land Claims Settlement to make significant progress toward self-sufficiency. The program puts in the hands of Tribal members some of the resources to provide for their own needs. More important, it also puts in their hands the ability to make their own decisions about prioritizing and taking care of themselves and their families.

b. The Tribe has struck a wise balance between need/eligibility-based

governmental assistance programs and funds paid directly to Tribal members to prioritize and spend based on their own determinations of their needs. With the per capita payments, the Tribe says to its members, “You know better what your needs are and how to address them. Here are the resources to at least begin taking care of those needs.” The program has had a dramatic and positive impact on improving the health, well-being and standard of living of Tribal members.

c. The Tribe’s per capita program is fully in keeping not only with its own

policies but also, we note, with principles espoused by the current federal administration. Rather than taxing individuals and providing governmental programs, President Bush has repeatedly asserted that it is better for the individuals to retain their funds and spend them on their own benefits rather than receive them through governmental welfare programs.

d. Although the Puyallup Tribe provides a wide array of governmental services,

as we will summarize below, it also puts emphasis on the President’s message: the per capita payments are put in the hands of Tribal members in order to help them provide for the needs of their families. Although the Tribe’s programs are efficiently and effectively administered to carry out their purposes, the per capita payments do not need to share in the administrative expense that is a hallmark of all governmental programs. Instead, the Tribe puts a modest source of income into the hands of Tribal members that they can count on to provide for their families’ needs.

43. The Tribe’s website states, under the heading “Support for Our Native

Community”: “In an effort to help its membership be financially independent, the Tribe

distributes a monthly per capita payment of $2,000 (approximately $25,000 annually) to




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each tribal member.” That statement represents the view of the current Tribal Council. A

copy of a printout of the relevant portion of the website is attached as Exhibit 15.

44. The Puyallup Tribal News is the Tribal newspaper available online through

the Tribe’s website. In the November 29, 2007, issue James V. Miles, Sr., one member of

the Tribal Council at that time, wrote a column titled, “Council, Staff Worked Hard on

Budget Process,” discussing the completion of the Tribe’s budget for fiscal year 2008.

Regarding per capita payments, Mr. Miles stated: “One important decision we made was

to keep per capita payments at their current level [$2,000 per month]. They will stay the

same. No cuts were made, and none are projected in the future. It is my belief that should

there be any changes made to per caps, in order to do so we would first have to consult

with the membership. The Tribe has much wealth, but also many responsibilities. It is the

membership’s money, not the council’s.” A copy of the printout of this article is attached

as Exhibit 16.

45. In an article titled, “Per Capita Program Designed to Meet Long Term

Needs,” in the online Puyallup Tribal News, May 10, 2012, Controller David Peterson is

accurately quoted as stating: “No future is guaranteed, but council is striving to maintain

[per capita] payments as they stand today.” He added, “As long as the Tribe’s businesses

and gaming operations continue to work at a sufficient level, council will continue to

strive to make these payments.”

46. The same article also accurately quoted statements from Per Capita Director

Monica Miller: “Monica Miller says the overall goal of the per capita program is to

ensure that members gain financial stability without relying on state assistance from the

Department of Social and Health Services. ‘When we started the per capita program, it




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took many of our people off DSHS,’ Monica Miller said. ‘These payments are used by

members to pay for groceries, utilities, transportation and mortgages on a monthly

basis.’” A copy of the printout of this article is attached as Exhibit 17.

47. According to an unnamed reporter in an article entitled “Queen’s Success” in

the March 24, 2011, issue of the Puyallup Tribal News, the Tribe’s casino was one of the

top-grossing casinos in the nation. The same reporter stated that per capita payments to

the Tribe’s members “will be maintained indefinitely.” The Tribal Council has authorized

and the Emerald Queen Casino has budgeted funds for construction of a 2,500 space

parking garage for its casino. There is no schedule set for its construction. A copy of the

article is attached as Exhibit 18.

Argument

The Tribe’s Per Capita Payments Are “Fixed and Determinable” Rights to Property, So the Tribe Should Have Surrendered Turnipseed’s Payments in

Response to the IRS Levies

1. Contentions of the parties.

The United States contends that the Tribe’s per capita payments to its members are fixed

and determinable obligations. In the United States’ view, the two Notices of Levy were sufficient

to require the Tribe to surrender all of Turnipseed’s per capita payments until his liabilities were

satisfied.

The Tribe contends that the per capita payments are discretionary gifts. In the Tribe’s

view, it has no standing obligation to make per capita payments of $2,000 or any other amount.

The Tribe argues no obligation to pay arises until the Council passes a resolution, and each

resolution obligates the Tribe to make only one payment. The Tribe did not honor the two

Notices of Levy at issue because at the time it received them, it claims that no payments were




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authorized by resolution and none were owing. The Tribe says that for an IRS levy to be

effective against a per capita payment, the levy must be served after the payment is authorized

and before it is paid out—and a new levy would have to be served in the same manner each

month.

2. Statutory duty to honor IRS levies.

Section 6331 of the Internal Revenue Code (title 26, United States Code) authorizes the

IRS to collect unpaid taxes by levy upon non-exempt1 property and rights to property belonging

to the taxpayer. United States v. National Bank of Commerce, 472 U.S. 713, 720-21 (1985).

Section 6332 requires any person in possession of (or obligated with respect to) property or

rights to property upon which a levy has been made to surrender such property or rights to

property to the IRS.

Any person who fails or refuses to surrender any property or rights to property upon

demand by the IRS shall be liable in a sum equal to the value of the property or rights not so

surrendered. I.R.C. § 6332(d)(1). On the other hand, if a person in receipt of an IRS levy honors

it by surrendering property belonging to the taxpayer or discharging an obligation owed to the

taxpayer, that person is discharged from liability to the taxpayer or anyone else. I.R.C. § 6332(e).

Only two defenses may be raised to a failure to honor levy suit. The first is that the levied

party was not in possession of property or rights to property of the taxpayer when the levy was

served; the second, is that at the time the levy was served, the property or right was subject to an

1 The per capita payments are not among the exemptions listed in Section 6334(a). See SOF ¶ 8. The Per Capita Ordinance states that the payments are exempt from levy or seizure, SOF ¶ 36, but this exemption is not effective against IRS levies. See United States v. Mitchell, 403 U.S. 190, 204 (1971) (“exempt status under state law does not bind the federal collector”).




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existing attachment or judicial execution. National Bank of Commerce, 472 U.S. at 721-22;

United States v. Hemmen, 51 F.3d 883, 887-88 (9th Cir. 1995). Only the first defense is relevant

to the instant case.

An IRS levy reaches “property possessed and obligations existing at the time of the

levy.” I.R.C. § 6331(b); Hemmen, 51 F.3d at 887. Treasury Regulation § 301.6331-1(a)(1)

states: “Obligations exist when the liability of the obligor is fixed and determinable although the

right to receive payment thereof may be deferred until a later date.”

The reach and scope of a tax levy must not be construed too restrictively. Hemmen, 51

F.3d at 889.

3. “Fixed and determinable” obligations defined.

Generally, whether an obligation is fixed and determinable turns on whether the events

giving rise to the obligation have already occurred (fixed) and whether the amount of the

obligation can be determined in the future (determinable). Hemmen, 51 F.3d at 890. An

obligation can be fixed and determinable without being capable of precise computation at the

time of levy. Id.; Reiling v. United States, 77-1 U.S.T.C. ¶ 9269, 1977 WL 1094 (N.D. Ind.

1977).

A property interest may be fixed and determinable when no future acts are required on

the taxpayer’s part. In Hemmen, for example, the Ninth Circuit held that a bankruptcy trustee’s

liability to pay the taxpayer’s administrative expense claim was fixed and determinable at the

time of levy because the taxpayer’s employment had been approved and he had fully performed

the beneficial acts that gave rise to his claim. The post-levy payment was less than the contract

amount because there was not enough money in the estate to pay in full, but this did not make the

payment any less “determinable.” 51 F.3d at 890; see also CPS Electric, Ltd. v. United States,




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200 F.Supp.2d 120, 125 (N.D.N.Y. 2002) (taxpayer’s personal injury cause of action was a

property interest to which the levy attached, even though lawsuit was still pending); United

States v. Antonio, 91-2 U.S.T.C. ¶ 50,482, 1991 WL 253021 (D. Haw. 1991) (obligation on

contract was fixed when performance occurred, so levy after that time was enforceable); Simon

v. Playboy Elsinore Assoc., 91-1 U.S.T.C. ¶ 50,231, 1991 WL 71119 (E.D. Pa. 1991) (levy

attached to unliquidated personal injury claim); United States v. Murray, 640 F.Supp. 89 (E.D.

Tenn. 1986) (manufacturer’s obligation to pay commission to taxpayer was fixed because the

contractual work was fully performed as of levy date).

The fact that a payment may be subject to conditions or defeasance does not mean that

the obligation is not “fixed.” Hemmen, 51 F.3d at 890. And “determinable” does not require

certainty at the time of levy as to amount. Id. In Hemmen, the payment to the taxpayer was

capable of measurement “at the moment the bankruptcy court approved the proposed

distribution.” Id.

4. The Tribe’s per capita payments were “fixed and determinable.”

There is no case law directly on point involving the effect of an IRS levy on a taxpayer’s

tribal per capital payments. But under relevant analogous case law and the undisputed material

facts, the United States contends that per capita payments at issue were “fixed and determinable”

and therefore subject to levy. As explained below, the Tribe’s per capita payments to Turnipseed

were “fixed” because when the IRS served each Notice of Levy on the Tribe, the events giving

rise to the obligation had already occurred. See Hemmen, 51 F.3d at 890. The payments were

“determinable” at the time of levy because the amount of each per capita payment could be

computed in the future. Id.




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A. Tribe’s consistent practice and custom of making per capita payments.

An IRS levy must be honored if the person served with the levy has a custom and

practice of making the payment even if not legally obligated to do so. In United States v. Euclid

National Bank, 510 F.2d 461(6th Cir. 1975), the IRS served a levy on a bank to collect a

customer-taxpayer’s liabilities. The customer had just deposited a check in his account. The

bank, pursuant to its custom and practice, had given the him an immediate credit. Legally the

bank was not required to do so until the customer’s check cleared. Because of this the bank

refused to honor the levy. It claimed that at the moment it received the levy, its obligation to the

customer-taxpayer was only provisional. The court did not accept this technical defense,

focusing instead on the fact that the bank had given the customer an actual credit upon deposit of

the check. The customer could have drawn on the credit immediately. Accordingly, the bank

should have been surrendered the funds to the IRS. See also IRS Revenue Ruling 79-38, 1979

WL 50912, 1979-1 C.B. 406.

In National Bank of Commerce, 472 U.S. at 719 n.6, the Supreme Court held, reversing a

judgment for the levied-upon bank (and citing Rev. Rul. 79-38 in support), that a levy on a bank

account held jointly by taxpayer and others should have been honored because taxpayer had the

right to withdraw the entire balance of the account. The IRS therefore was not required to prove

that the taxpayer owned all of the funds before the bank was required to honor the levy.

Turnipseed’s per capita payments were fixed at the time the Notices of Levy were served

because he was entitled to them by virtue of his membership in the Tribe. See SOF ¶3. The

Tribal Council’s monthly resolutions do not fix the Tribe’s obligation to make per capita

payments. The resolutions are analogous to the bankruptcy court order in Hemmen approving

distribution of funds to satisfy a previously approved contract. See also In re Howley, 446 B.R.




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506, 510 (Bankr. D. Kan. 2011) (debtor, a member of the Prairie Band of Potawatomi Indians,

had a “life-time right to distribution of gaming proceeds based upon membership status” under

tribal ordinance because “[t]ribal membership status, once established based on ancestry, is fixed

and not dependent on future events”; that right was included in her chapter 7 bankruptcy estate,

with the value to be determined as of the petition date).

The Tribal per capita payments have never been legally guaranteed, yet they have been

regular, customary, and expected by all concerned. The $2,000 monthly distributions were

promised and made consistently for years before the First Notice of Levy was served and for

years afterwards (the Second Notice of Levy was not served until March 2013; upon information

and belief, the per capita payments have been made consistently since then). Cf. Seymour v.

Hunter, 603 N.W.2d 625 (Iowa 1999) (court held that future per capita payments, though not

guaranteed, were to be included in income for purpose of setting child support obligation:

“History over recent years is the best test of whether such a payment is expected or

speculative”).

Since May 2002, Turnipseed, along with every other enrolled member of the Tribe, has

received at or near the end of each month a $2,000 per capita payment (less federal withholding

tax) from gaming revenue and other Tribal income. SOF, ¶¶ 5-6, 10-11. And annual bonus per

capita payments have been made regularly at Thanksgiving, Christmas, and in the spring. SOF ¶

13. From May 2002 through the end of 2012, Turnipseed received per capita payments totaling

$274,415, less withholding. SOF ¶32.

When the Tribe received the First Notice of Levy on November 7, 2008 (SOF ¶17), the

Tribe had given Turnipseed a $2,000 per capita payment each month since May 2002, or 78

consecutive payments totaling $156,000 (less withholding). Similarly, after the Tribe received




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the First Notice of Levy in November 2008, it paid Turnipseed the usual $2,000 payment for

November and for each month thereafter. From November 2008 through the end of 2012 (the

most recent period covered by the Stipulation of Facts), 50 consecutive payments were made

after the First Notice of Levy, totaling $100,000 (less withholding). The Second Notice of Levy

was served in 2013.2

The Tribe would have the Court believe that in the Tribal Council’s discretion it could

withhold per capita payments whenever it wants, in whole or in part, without prior notice to the

members. But in practice this has never been true. The Tribe has made it clear since at least 2006

that it has no plans to stop the per capita payments and that the payments are not gifts from the

Council but distributions of property belonging to the members. According to one Tribal Council

member, quoted in the Tribal newspaper: “It is the membership’s money, not the council’s.”

SOF ¶44.

B. Similarity of per capita payments to corporate dividends.

A notice of levy served on a corporation after the date it declares a dividend but before

the record date is not effective to require the surrender of the dividend. See Rev. Rul. 75-554,

1975 C.B. 478. This is because the taxpayer’s right to the dividend does not become vested until

the record date and his name appears on the roll of shareholders. Here, since Turnipseed is an

enrolled member of the Tribe, he is a permanent, lifetime “shareholder” entitled to a portion of

all future distributions of Tribal revenue. The Notices of Levy were both served after the

2 The First Notice of Levy should have been honored until the tax liabilities shown thereon were satisfied, then the Second Notice of Levy should have been honored in the same manner. See SOF Exhibits 4, 10 (Notice of Levy forms, with instructions).




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effective declaration date, which was no later than 2006 when the Tribe stated its intention to pay

$2,000 per month to every enrolled member of the Tribe indefinitely. SOF ¶41. Turnipseed is a

member of the Tribe, so his right to the declared “dividend” was vested by virtue of his

membership in the Tribe long before the First Notice of Levy was served on the Tribe in 2008.

SOF ¶17.

The Tribe has consistently represented over the years that it has no intention of reducing

the $2,000 per capita payments, much less stopping them. In its August 28, 2006 application to

the Bureau of Indian Affairs for an amendment to its Revenue Allocation Plan, the Tribe stated

that “the size of the monthly per capita payment made to each Tribal member . . . will remain at

$2,000 per month as it has since May, 2002.” SOF ¶41. The Tribe also stated that it had

sufficient funding to “[m]aintain the level of per capita payments even though the Tribal

membership has increased.” Id. This application was filed with BIA more than two years before

the First Notice of Levy was served on the Tribe. See SOF ¶17.

The Tribe plans far in advance to make the per capita payments. Each year since 2006 the

Revenue Allocation Plan has earmarked 40-55% of net Tribal revenue to per capita payments,

SOF ¶37, and funding for the per capita payments have been included in the Tribe’s annual fiscal

budget each year, SOF ¶6.

In 2007, the tribal newspaper quoted a Tribal Council member stating that for fiscal year

2008 (the year in which the First Notice of Levy was served), the Council decided to “keep per

capita payments at their current level [$2,000 per month].” SOF ¶44. “They will stay the same,”

he said. Id. “No cuts were made, and none are projected in the future.” Id. In March 2011, the

paper reported on the success of the Tribe’s casino, stating that the per capita payments “will be

maintained indefinitely.” SOF ¶47. In May 2012, the paper quoted the Tribe’s controller as




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stating, “[n]o future is guaranteed, but council is striving to maintain [per capita] payments as

they stand today,” so “long as the Tribe’s business and gaming operations continue to work at a

sufficient level.” SOF ¶45. Finally, the Tribe’s official website currently states that “[i]n an effort

to help its membership be financially independent, the Tribe distributes a monthly per capita

payment of $2,000 (approximately $25,000 annually) to each tribal member.” SOF ¶43. This

website statement represents the view of the sitting Tribal Council. Id.

Thus the per capita payments due to Turnipseed should be treated the same way as

corporate dividends payable to a shareholder on the record date. The Notices of Levy should

have been honored.

C. Similarity of per capita payments to social security benefits.

Social security benefits are fixed and determinable and subject to levy. Hines v. United

States, 658 F.Supp.2d 139 (D.D.C. 2009); Beam v. United States, 2007 WL 1674083 (D. Or.

2007). The per capita payments are analogous to Tribal social security.

The Tribe promotes the per capita payments as a de facto social welfare program that its

members can depend on. The Tribe’s Revenue Allocation Plan application represents that “[t]he

[per capita] payments have had a tremendously beneficial effect on the self-sufficiency and

improved standard of living of Tribal members.” SOF ¶41. Additionally, “the per capita

payments have increased the standard of living of Tribal members dramatically,” so much so that

“the Tribe’s need-based assistance programs . . . now require less funding.” Id. The program

“continues the process of enabling Tribal members . . . to escape the bonds of poverty and

dependency.” SOF ¶42. The Tribe’s website says that the program is “an effort to help its

membership be financially independent.” SOF ¶43.

The Tribe’s Per Capita Director put it in more specific terms: “The overall




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goal of the per capita program is to ensure that members gain financial stability without relying

on state assistance from the Department of Social and Health Services,” she said in May 2012.

SOF ¶ 6. “When we started the per capita program, it took many of our people off DSHS,” and

“[t]hese payments are used by members to pay for groceries, utilities, transportation and

mortgages on a monthly basis.” Id. In short, they are like social security, fixed and determinable,

intended to assure that every member of the Tribe can provide for basic needs.

5. The Tribe’s authorities are distinguishable.

The Tribe is expected to rely on several cases discussed in its letter to the IRS (Exhibit 7

to SOF): Tull v. United States, 69 F.3d 394 (9th Cir. 1995), Texas Commerce Bank N.A. v.

United States, 908 F.Supp. 453 (S.D. Tex. 1995), and In re Hawn, 149 B.R. 450, 457 (Bankr.

S.D. Tex. 1993). All are distinguishable.

In Tull, the court decided that an auctioneer who was served with a levy did not have a

fixed and determinable obligation to pay a commission to the taxpayer-seller, even though an

auction contract had been signed, because both the buyer and the price for the subject property

were undetermined at time of levy. Accordingly, the auctioneer was not required to surrender the

commission payment to the IRS. Tull does not control this case. At the time the levy was served,

the taxpayer-auctioneer had not conducted any sale. There was no buyer and no sales price, and,

viewed at the time of levy, there might never have been a sale. Here it is different. At the time

the First and Second Notices of Levy were served, Turnipseed was an enrolled member of the

Tribe, the Tribe had a consistent record of paying $2,000 every month to every member, and the

Tribe had represented that it intended to do so indefinitely.

Texas Commerce Bank N.A. involved a levy on the trustee of a trust. The taxpayer was

the beneficiary, who was entitled to annual discretionary distributions of income from the trust.




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The court held that the taxpayer’s right to future payments was not fixed and determinable at the

time the levy was served. Texas Commerce Bank provides little support unless the Court is

inclined to look only at the letter of the Tribe’s ordinances and resolutions and disregards the

Tribe’s representations and its consistent custom and practice. The Tribe’s actions effectively

vested in Turnipseed and the other Tribal members a right to future payments as long as the

Tribe’s casino and other revenue sources permit.

In In re Hawn, the court held that a notice of levy did not reach future royalty payments

from mineral production because “the taxpayer does not, at the time of the levy, have a fixed and

determinable right to those payments.” Hawn is distinguishable because the Tribe has repeatedly

represented that will make monthly payments of $2,000 indefinitely. It has budgeted for such

payments and it has requested and obtained BIA approval to use up to 55 percent of its net

revenues for such payments. SOF ¶37. The Tribe’s gaming facility remains so profitable that it

may be expanded. SOF ¶47.

6. Summary.

It is no defense for the Tribe to say that when it received the Notices of Levy it was under

no legal compulsion to make another per capita payment to Turnipseed. Based on an unbroken

payment history for years before and years after the Notices of Levy were served, and based on

the nature of the per capita program in practice and as represented by the Tribe and its officials,

Turnipseed had a fixed and determinable, vested property right in his per capita payments when

the Tribe received the Notices of Levy. As long as per capita payments were thereafter made to

enrolled members, the Tribe should have surrendered all of Turnipseed’s shares to the IRS until

his tax liabilities were satisfied. The IRS should not be forced to shadow the Tribal Council

every month until it resolves to authorize the per capita payments, then race to serve a Notice of




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Levy on the third-party contractor that actually distributes the payments. See SOF ¶ 5. Congress

intended administrative levies to be quick and efficient collection devices. See Hemmen, 51 F.3d

at 891 (“We see little benefit to requiring the Service to closely monitor the progress of the

administration of every [bankruptcy] estate against which delinquent taxpayers hold allowed

claims. This added burden and delay would defeat the very purpose that the administrative levy

was designed to serve.”).

Conclusion

Based on the foregoing, there is no genuine issue of material fact, and as a matter of law

the Tribe failed to honor the two Notices of Levy. The Tribe should have surrendered all of

Turnipseed’s per capita payments until his tax liabilities were paid in full. Accordingly,

judgment should be entered against the Tribe for $46,918.80 as of June 30, 2013 plus statutory

interest to the date of payment to the United States.

DATED this 22nd day of November, 2013.

KATHRYN KENEALLY Assistant Attorney General /s/ W. Carl Hankla W. CARL. HANKLA Trial Attorney Tax Division, U.S. Department of Justice P.O. Box 683, Washington, D.C. 20044 202-307-6448 (v) 202-307-0054 (f) [email protected] Attorneys for the United States

JENNY DURKAN United States Attorney Of Counsel


mailto:[email protected]



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CERTIFICATE OF SERVICE

IT IS HEREBY CERTIFIED that on this 22nd day of November, 2013, I filed the foregoing with the CM-ECF system, which will send a copy by e-mail to the following registered users: John Howard Bell [email protected] Sandra Veliz [email protected] Richard Johnson [email protected]

/s/ W. Carl Hankla W. CARL. HANKLA Trial Attorney Tax Division, U.S. Department of Justice P.O. Box 683, Washington, D.C. 20044 202-307-6448 (v) 202-307-0054 (f) [email protected]






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