Who Owes the Tax – Blue Lake Rancheria

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In the case of Blue Lake Rancheria Economic Development Corp. v. Commissioner, 152 T.C. No. 5 (2019) the Tax Court determined that only one of the two corporations against whom the IRS was pursuing collection owed the tax. I hope that we will one day receive a guest post from petitioner’s counsel, Bob Rubin, who started two weeks before me at Chief Counsel’s office in March of 1977 and occupied the office adjacent to mine, but in the meantime I want to write a short post to provide the facts and outcome on a case featuring the unique legal issues presented by tribal entities.


The primary issue in this case focused on tribal law and the powers granted to corporations chartered under the federal statutes governing these entities. Blue Lake Rancheria Economic Development Corporation (BLREDC) is the real petitioner in this Collection Due Process (CDP) case and the parent corporation in the structure created by the tribe. The second corporation, Mainstay Business Solutions (MBS), presents as a subsidiary of BLREDC.

MBS ran an employment and temp agency. During and after the recession, it experienced significant business challenges and ultimately closed its doors. Before it closed up, it incurred huge 941 liabilities for failure to pay over employment taxes for numerous quarters. MBS agrees that it owes the money but that does the IRS little good since it has no assets. The IRS seeks to also hold BLREDC liable for the unpaid taxes and BLREDC has assets.

The IRS argues for the application of state law and under state law it would have a relatively easy time tagging BLREDC with the liability. BLREDC argues that state law does not apply. The court recites the relevant statutes and notes that although MBS is structured as a division of BLREDC the form of a division is a creature of federal, and not state law, created as a result of the issuance of a federal charter to the tribe by a federal agency in a dispute over federal taxes. Under the circumstances the court states that it fails to see why state law matters.

Next, the IRS argued that the power to create legally distinct corporate divisions is not an ordinary corporate power and, therefore, it follows that the granting of such a power is outside the scope of the federal statute. As with the first argument, the court disposes of this one noting that the federal statute at issue here grants broad authority. It rejects the narrow interpretation of the scope of authority available under the statute.

Additionally, the court notes that the canons of construction at play in this this situation favor the tribe. It cites to a couple of canons it deems applicable and points out that they call for interpreting statutes in a manor favorable to the interests of the tribe.

The court closes with the following quote:

The plain terms of IRA [the federal statute at issue here] sec. 17 clearly bestow broad discretionary power on DOI to issue Federal charters of incorporation to Indian Tribes. The powers that may be conferred on a tribal corporation under IRA sec. 17 are not limited to those held by State corporations nor are they limited by State law.

As a result the Tax Court determines that BLREDC does not share the employment tax liability with its former division. On the way to this result the court had also determined that BLREDC did not have a prior opportunity to contest the merits of the employment tax liability. The court also distinguished the case of First Rock Baptist Church Child Dev. v. Commissioner, 148 T.C. 380, 387 (2017), discussed in a prior post here, as it went through its analysis concerning its jurisdiction. The court also pointed out that this case involved employment taxes and not income taxes stating that a different analysis applied in the case of employment taxes.

The tribal law that underpins the court’s decision here will not come into play in most of the cases litigated regarding related corporations and their common liabilities for tax. For that reason this taxpayer favorable opinion here will not easily translate to more common situations. Tax practitioners who do represent tribal interests will find the opinion useful not only in the way the court approached its analysis of the statute but also because of the canons it applied. Congratulations to my friend Bob Rubin for winning an unusual case and providing PT with the opportunity to explore the intersection of tribal law and tax procedure.


  1. Kenneth H. Ryesky says

    $11.5 million exclusive of interest and penalty!?!

    The IRS is not finished yet. There are lots of “other shoes” that may drop, the most logical and expected one being the IRC 6672 “trust fund” penalty assessed against MBS individuals (some or all of whom may well also be BLREDC individuals) who participated in the non-payment of the withholding taxes. One can easily envision the IRS going after the most moneyed individuals (the low-hanging fruit in the orchard), leaving them to their own devices to go after others for contribution under IRC 6672(d).

    This would entail a court (Federal or state) making one or (in greater likelihood) more determinations of relative fault/responsibility.


    • With respect to Mr. Ryesky’s comments, I disagree. The statute for making the assessments under 6672 expired long ago and if IRS had any success collecting from the responsible individuals, they would not have attempted to go after MBS.

      • Kenneth H. Ryesky says

        “MBS completed a Form 941 for the employment tax quarter ended June 30, 2011, but did not file the return with respondent.”

        The 30 June 2011 assessment is slightly north of $1 million.

        It the return in fact was never filed, then did the statute clock even begin to tick?

        Just wondering.

  2. Speaking of Petitioner’s counsel, sometimes they even get paid. See today’s Tax Court order:

    Pursuant to the determination of the Court as set forth in its Opinion filed March 6, 2019, (152 T.C. No. 5), and the parties’ Joint Stipulation of Settled Issues, filed July 3, 2019, it is
    ORDERED that petitioner’s Motion for Reasonable Litigation or Administrative Costs, filed April 4, 2019, is granted in part and denied in part. It is further
    ORDERED and DECIDED that the determinations as set forth in the Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330 dated June 30, 2017, are not sustained. It is further
    ORDERED and DECIDED that petitioner is entitled to reasonable litigation costs in the amount of $483,331.93.
    (Signed) Joseph Robert Goeke
    Entered: Jul 05 2019

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