Withholding only applies to earned income.
So unless All of the tribe members are employed by the casino withholding would not apply.
The distribution to tribe members would be most analogous to dividends which are reported to the IRS but it is up to the individual recipient to pay the taxes on the disbursement.
It seems as if someone has it in for the Indian casinos and knows that attacking the tribal members first would be a political hot potato and second would not serve their real purpose which is to eliminate the tribes casinos.
The current IRS rules require that tribes give all members that receive a portion of casino income a 1099-MISC form. The tribal member reports it as “Tribal Income” on line 20 - Other Income - of the 1040.
The tribal members do not pay FICA or Medicare since this is unearned income.
Casino employees are treated as any other employee, having normal taxes withheld.
Accurate as of the 2012 tax season. Whether we like it or not, this is the rule.
This ruling may be directed at one tribe, but the IRS would make it the ruling for all tribes and their casinos and other businesses.