Campbell v. Commissioner
| Decision Date | 28 February 2001 |
| Docket Number | Docket No. 8677-97. |
| Citation | 81 T.C.M. 1241 |
| Parties | Joseph B. Campbell v. Commissioner. |
| Court | U.S. Tax Court |
Lawrence H. Crosby, for the petitioner.
Jonathan R. Decatorsmith and Tracy Anagnost Martinez, for the respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
Respondent determined the following deficiencies and additions to tax with respect to petitioner's Federal income taxes:1
Additions to Tax
Sec. Sec
Year Deficiency 6651(a)(1) 6654(a)
1990 ......... $ 7,447 $1,828 $480
1991 ......... 6,137 1,534 355
1993 ......... 6,934 1,734 290
1994 ......... 14,850 3,579 734
After concessions,2 the issues for decision are:
(1) Whether per capita distributions of $19,070, $40,933, and $50,222 in 1991, 1993, and 1994, respectively, to petitioner from the Prairie Island Indian Community of the State of Minnesota (the tribe) arising out of the ownership and operation of a gambling casino constitute gross income;
(2) whether petitioner may exclude $31,238 of discharge of indebtedness income resulting from a foreclosure of mortgaged farm equipment during 1990 under section 108(a)(1)(C) as qualified farm indebtedness;3
(3) whether petitioner is entitled to deduct expenses incurred in connection with services rendered on behalf of the tribe or the tribal council during 1993 and 1994;4
(4) whether petitioner is liable for additions to tax pursuant to section 6651(a)(1) for failure to file returns for 1990, 1991, 1993, and 1994; and
(5) whether petitioner is liable for additions to tax pursuant to section 6654(a) for failure to make estimated tax payments for 1990, 1991, 1993, and 1994.
Some of the facts have been stipulated and are so found. We incorporate the stipulation of facts into our findings by this reference.
Petitioner resided in Welch, Minnesota, when the petition was filed. As of the date the statutory notice of deficiency was mailed to petitioner, he had not filed Federal income tax returns or made any estimated tax payments for 1990, 1991, 1993, and 1994.
Petitioner is an enrolled member of the tribe and resided on its reservation at all relevant times. Petitioner started farming on the reservation in or around 1979. Petitioner raised corn and soybeans on approximately 270 acres of reservation land which he leased from the tribe until about 1992. In 1992, the tribe reclaimed the land to expand its gambling operations.
The tribe approved its constitution and bylaws on June 20, 1936, and ratified its corporate charter on July 23, 1937.
The tribe owns and operates a gambling casino complex called Treasure Island Casino & Bingo (the casino) on its reservation. The tribe initially conducted class II gaming at the casino. On or about November 15, 1989, the tribe signed a compact5 with the State of Minnesota for control of class III gaming.6
As an enrolled member of the tribe, petitioner is entitled to receive per capita distributions attributable to income derived from the tribe's casino. During the years 1991, 1993, and 1994, petitioner received per capita distributions of $19,070, $40,933, and $50,222, respectively. No Federal income taxes were withheld from petitioner's per capita distributions.
Petitioner in this case was also the petitioner in Campbell v. Commissioner, Docket No. 9244-95 (Campbell I). At issue in Campbell I was the proper Federal income tax treatment of a 1992 per capita distribution from the tribe to petitioner arising out of the ownership and operation of the casino. Campbell I was tried before Special Trial Judge D. Irvin Couvillion on October 4, 1996, in St. Paul, Minnesota. The Court issued an opinion in Campbell I on November 6, 1997, in which it held that the per capita distributions were taxable as ordinary income rather than exempt farm income as asserted by petitioner. See Campbell v. Commissioner [Dec. 52,343(M)], T.C. Memo. 1997-502. On January 8, 1999, the Court of Appeals for the Eighth Circuit affirmed the Tax Court on this issue and remanded the case on another issue irrelevant to this case. See Campbell v. Commissioner [99-1 USTC ¶ 50,174], 164 F.3d 1140 (8th Cir. 1999). The U.S. Supreme Court denied a petition for writ of certiorari. See Campbell v. Commissioner, 526 U.S. 1117 (1999).
On or about October 19, 1994, the tribe passed a resolution to amend its constitutional powers and adopted a Gaming Revenue Allocation Ordinance (the ordinance) which regulates the distribution of tribal profits to tribe members. The ordinance was passed and adopted in accordance with the requirements of the Indian Gaming Regulatory Act (IGRA), Pub. L. 100-497, secs. 1-22, 102 Stat. 2467 (1988), current version at 25 U.S.C. secs. 2701-2721 (Supp. 2000). The ordinance stated, in part:
The Tribal Council shall insure that notification of the application of federal tax laws to tribal per capita payments be made when such payments are made. The Tribal Administration shall also implement a procedure by which qualified enrolled members who receive per capita payments can have applicable taxes automatically deducted from per capita payments. The Tribal Administration shall include in the notice of the application of federal tax laws, a notice of the existence of the withholding procedure.
In approximately November 1994, the Department of the Interior notified the tribe that it had determined the ordinance was in compliance with the IGRA and had approved the ordinance.
Petitioner borrowed money from the U.S. Department of Agriculture, Farmers Home Administration (FmHA), on at least three different occasions for operating expenses and other uses with respect to his farming activity. On July 25, 1983, petitioner borrowed $32,326 from the FmHA. On May 30, 1984, petitioner borrowed $35,500 from the FmHA for annual operating expenses and to purchase an irrigation system. On January 8, 1987, petitioner borrowed an unknown amount from the FmHA. In order to receive loans from the FmHA, petitioner was required to prepare and submit a projection or "prospective plan" for each operating year the loan was effective.7 At some point, petitioner entered into a security agreement for each of his FmHA loans granting the FmHA a security interest in some of his chattel, including a tractor, a combine, a planter, a wagon, a plow, and other farming equipment (chattel).
Around June 1989, petitioner received a notice from the FmHA indicating that he had defaulted on his loans and that the FmHA intended to enforce the security agreements against his chattel by repossessing, foreclosing on, or obtaining a court judgment against the property. Shortly thereafter, the FmHA foreclosed on petitioner's chattel. On or around November 18, 1989, the chattel was sold at auction by Schlegel Auction & Clerking Co. (Schlegel Auction) on behalf of the FmHA. On November 27, 1989, Schlegel Auction issued a joint check to petitioner and the FmHA for the auction proceeds of $13,790.
On January 31, 1990, the FmHA sent petitioner a letter indicating that petitioner had defaulted on his 1983 and 1984 loans and that he had an outstanding balance of $35,554 as of January 31, 1990. The letter also enclosed an Application for Settlement of Indebtedness. In 1990, the FmHA relieved petitioner of indebtedness in the amount of $31,238.8
Petitioner served on the tribe's council from October 1983 until March 1990. While serving as a member of the tribal council, petitioner held various positions, including vice chairman and assistant secretary/treasurer. Petitioner held "about 17 different jobs" at various times, including Tobacco Commissioner of the tribe, game warden, environmental specialist, and various volunteer positions on behalf of the tribal council. From about September 1988 until June 1990, and again in 1994, petitioner earned $150 per week as Tobacco Commissioner.
Any expenses petitioner incurred in connection with services performed on behalf of the tribal council were covered by a reimbursement policy. Under the reimbursement policy, petitioner was entitled to receive from the tribal council $75 for every meeting he attended, even when there were multiple meetings in a single day (meeting payments). The meeting payments were an incentive to persuade people to attend meetings. Under the reimbursement policy, petitioner was also entitled to claim reimbursement for meals, travel mileage, lodging, airfare, and other miscellaneous expenses. According to the reimbursement policy, petitioner was required to submit a form detailing the expenses he incurred, with attached receipts, and requesting the meeting payments he was entitled to receive. Petitioner kept track of his expenses by keeping calendars and receipts.
Sometime around February 1992, the tribal council stopped making reimbursements to petitioner. Petitioner stopped submitting reimbursement requests around August 1993.
OPINIONRespondent argues that the doctrine of collateral estoppel precludes petitioner from relitigating the issue of whether petitioner's per capita distributions from the tribe are taxable as ordinary income. Respondent asserts that the legal questions raised in Campbell I with respect to this issue are identical to those raised by petitioner in this case, and the only differences are the years and the amounts of tax due. Respondent contends there has been no change in the controlling facts or the applicable law since the resolution of Campbell I. Petitioner, on the other hand, argues that the primary issues and legal arguments raised in this case differ significantly from those raised in Campbell I.
The doctrine of collateral estoppel may be applied in Federal income tax cases. See United States v. International Bldg. Co. [53-1 USTC ¶...
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