Tribes Say IRS Moves to Tax Tribal Per Capita Payments; Congress Investigates
Three tribal leaders testified before the U.S. Congress on September 15 that the Internal Revenue Service (IRS) was moving to tax non-gaming per capita payments paid by tribes to their tribal citizens through trust accounts held by the U.S. Department of the Interior. They charged that this would be a violation of federal law—a charge that at least one IRS official seemed convinced of by the end of the hearing.
The Per Capita Act of 1983 and tribal treaties are supposed to prevent this type of action, the tribal leaders said, because per capita distributions of funds held in trust by the Interior Secretary for tribal citizens are not to be considered income or resources, so they therefore cannot be taxed. Even before 1983, it was longstanding federal practice not to tax such funds, according to U.S. Rep. Doc Hastings, R-Washington, and chairman of the U.S. House Natural Resources Committee.
Tribal representatives who testified on the U.S. House Subcommittee on Indian and Alaska Native Affairs oversight hearing, titled Per Capita Act and Federal Treatment of Trust Per Capita Distributions, said that recent signs suggest the IRS is willing to ignore the Per Capita Act.
Ron Suppah, vice-chairman of the Confederated Tribes of Warm Springs Reservation of Oregon, testified that the tribe received a letter from the IRS in April indicating that the per capita payments from the Bureau of Indian Affairs (BIA) to the tribe’s citizens “from the Tribe’s trust account holding timber revenue are subject to Federal income tax.” The eight-page letter was signed by Joe W. Kincaid, a manager in Oregon with the IRS. The Yakama Nation received a similar letter around the same time, according to testimony by the tribe’s executive secretary, Athena Sanchey Yallup.
U.S. Rep. Ben Luján, D-N.M., and ranking Democrat on the subcommittee, questioned Christy Jacobs, Director of the Office of Indian Tribal Governments at the IRS. He entered into the record screen shots of the IRS website from November 2011 and April 2012 that show two different postings on the same policy from the IRS on this tribal tax issue that would indicate the IRS at some point removed language that protected tribal citizens from taxation. Jacobs said she was “not aware” of the website change.
“I am concerned that the IRS is not communicating with Indian country as effectively as it should—and that tribal tax policies are not being conveyed with uniformity, and that this is contributing to ambiguity in the field,” Luján said. Sanchey Yallup backed up that argument, saying that the only time the tribe has heard from the IRS is when the agency wants to audit the tribe. “The IRS has not lived up to the proper executive order of consultation… ” she said.
U.S. Rep. Don Young, R-Alaska, and chair of the subcommittee, was tough in his questioning of Jacobs, asking her whose idea it was to begin taxing such payments. “Which brainchild, and what area of the moon did they come from?” Young asked, adding that he was willing to issue a subpoena to find out who “came up with the bright idea.”
Jacobs said she did not know whose idea it was, and that the issue was still under consideration, and “may be addressed in future guidance.”
Jacobs later said during the hearing that such taxing of per capita payments held in tribal trust resource accounts by the U.S. Department of the Interior was not going to happen. She said that she believes trust per capita payments “would not be subject to tax” under the agency’s current legal analyses. “I do not believe that per capita payments made to tribal members pursuant to the Per Capita Act from trust resources are taxable,” she said after questioning from several Congress members. Given her position, she is believed to have clout in this area, so this promise was an important victory for the Congress members questioning her—and to tribal leaders sitting next to her on the testimony stand.
Jacobs’ statement was enough to satisfy Young: “…Christy Jacobs' testimony in our mind was pretty clear—per capita payments from a tribe's trust account to all the tribes' enrolled members cannot be taxed,” Luke Miller, a spokesman for Young, said via e-mail. “We plan to [publish a transcript of] the hearing in an official document so it's on the record in writing.”
The IRS has also recently promised not to tax per capita payments made from tribes to citizens as a result of tribal trust settlements with the Obama administration.
On that issue, Young and Hastings are questioning why the IRS would grant tax relief to settlement funds in private, non-trust accounts while considering trust per capita payments to be taxable. “This, to me, makes no sense, and it creates the perception that something political has occurred in the Department of Treasury, and that would be very, very unfortunate,” Young said at the hearing, while adding that he doesn’t believe any of these funds should be taxable.
“The IRS appears to have backed off on the latter position, but we're still curious as to where all this came from and why it came about in the first place,” added Miller. “We are planning to send some follow-up questions to get to the bottom of it.”