FAQs for Indian tribal governments regarding status of tribes (taxable vs. nontaxable vs. not subject to tax)

 

These frequently asked questions and answers are provided for general information only and should not be cited as any type of legal authority. They are designed to provide the user with information required to respond to general inquiries. Due to the uniqueness and complexities of Indian law and federal tax law, it is imperative to ensure a full understanding of the specific question presented, and to perform the requisite research to ensure a correct response is provided.

When a tribal government crosses international boundaries, how does this fact affect the treatment of a tribe in federal tax matters? What if a tribe has a different chief in each country?

If a tribe has land and or members in two countries, such as the United States and Mexico or Canada, the laws of each country apply in that country only. A tribe with land and members in both the United States and Canada will be subject to the laws of the United States in the tribal lands in the United States. It will also be subject to the laws of Canada for the tribal lands in Canada.

If a tribe has separate entities in two countries, the tribe in each country is only subject to the laws of the country where located. If a tribe has chiefs in the United States and Canada, the tribe in the Canadian part of the tribe will not be subject to the laws of the United states, and vice versa. However, citizens of a foreign country are subject to the laws of the United States, in regard to withholding on gaming distributions from the United States operations.

What are the steps that a tribe can take in order to obtain federal recognition?

For a tribe to obtain federal recognition as a tribe, the Department of Interior must grant the recognition. The criteria are designed to achieve eligibility for federal services and other benefits of tribal status for Indian groups that have maintained a "substantially continuous tribal existence and which have functioned as autonomous entities throughout history until the present." 25 C.F.R. Par 83.3.

The Department of Interior's decision to acknowledge or deny acknowledgement is subject to administrative review before the Interior Board of Indian Appeals. 25 C.F.R. Par 83.11.

Congress, in 1994, required the Secretary of the Interior to publish annually in the Federal Register a list of all tribes recognized to be eligible for federal services because of their Indian status.

What are the tax implications of being a federally recognized tribe?

Federally recognized tribes are subject to numerous federal laws that deal specifically with them about taxation.

Federally recognized tribes are sovereign legal entities, similar to state governments. They have all the rights and attributes of a sovereign entity such as a state. They have a constitutionally guaranteed status as sovereign entities. They are not subject to tax based on this. Federally recognized tribal governments are a unique set of entities in the United States in this respect.

Revenue Ruling 67-284 PDF states that an Indian tribe, as an income producing entity, is not subject to income taxation. However, income earned, if not otherwise exempt from income taxation, would be included in the gross income of the Indian tribal member when distributed or constructively received by the tribal member. Examples of income that aren't taxable to Indian tribal members include payments made under certain general welfare programs and payments exempt under the Per Capita Act.

What constitutes a federally recognized tribe?

Historically, most of today’s federally recognized tribes received federal recognition status through treaties, acts of Congress, presidential executive orders or other federal administrative actions, or federal court decisions.

In 1978, the Interior Department issued regulations governing the Federal Acknowledgment Process (FAP) to handle requests for federal recognition from Indian groups whose character and history varied widely in a uniform manner. These regulations – 25 C.F.R. Part 83 – were revised in 1994 and are still in effect.

Also, in 1994, Congress enacted Public Law 103-454, the Federally Recognized Indian Tribe List Act (108 Stat. 4791, 4792), which formally established three ways in which an Indian group may become federally recognized:

  • By Act of Congress,
  • By the administrative procedures under 25 C.F.R. Part 83, or
  • By decision of a United States court.

However, a tribe whose relationship with the United States has been expressly terminated by Congress may not use the Federal Acknowledgment Process. Only Congress can restore federal recognition to a “terminated” tribe. Historically, most of today’s federally recognized tribes received federal recognition status through treaties, acts of Congress, presidential executive orders or other federal administrative actions, or federal court decisions.

In 1978, the Interior Department issued regulations governing the Federal Acknowledgment Process (FAP) to handle requests for federal recognition from Indian groups whose character and history varied widely in a uniform manner. These regulations – 25 C.F.R. Part 83 – were revised in 1994 and are still in effect.

Also, in 1994, Congress enacted Public Law 103-454, the Federally Recognized Indian Tribe List Act (108 Stat. 4791, 4792), which formally established three ways in which an Indian group may become federally recognized:

  • By Act of Congress,
  • By the administrative procedures under 25 C.F.R. Part 83, or
  • By decision of a United States court.

However, a tribe whose relationship with the United States has been expressly terminated by Congress may not use the Federal Acknowledgment Process. Only Congress can restore federal recognition to a “terminated” tribe.

Are federally recognized tribes subject to income taxes?

As governmental entities, federally recognized tribes are not subject to income taxes.

Are federally recognized tribes subject to excise taxes on such items as fuel, wagering, and luxury taxes?

There are exemptions from federal excise taxes on fuel and luxury taxes, but the federal wagering tax is applicable. Exemptions for fuel, communications, and the luxury excise taxes usually occur for activities that constitute an essential tribal governmental function. If a tribe is not engaged in an essential tribal governmental function, then in some cases, there is no exemption for the tribal government.

Are members of federally recognized tribes subject to federal taxes as individuals?

Yes, with important exceptions. Members of federally recognized tribes are subject to federal income taxes. In most situations, if a tribal member works for anyone, including himself, he is subject to the appropriate federal income taxes on the income. This is also true for passive income the person might receive, from most sources.

What are some of the exceptions to members of federally recognized tribes being subject to taxes as individuals?

One of these is income from individually allotted land that remains in trust. The General Allotment Act of 1887 provided for tribal lands to be allotted to individual Indians in trust for a period of years, after which the lands were to be conveyed to the allottees in fee " free of all charge or encumbrance whatsoever." (25 U.S.C.A. Par 348) This provision has been interpreted to prevent taxation of income or capital gains "derived directly" from allotted land while it remains in trust. (Squire v. Capoeman, 351 U.S. 1 (1956)) This exemption applies to rents and royalties as well as income from sale of crops or minerals from the land (Rev. Rul. 56-342, 1956-2 C. B. 20 PDF). Gain from the sale of livestock raised and grazed on allotted trust land has also been ruled exempt (Rev. Rul. 62-16, 1962-1 C. B. 7 PDF). Other exceptions include treaty fishing rights-related income, payments made under certain tribal government general welfare programs and certain payments made under the Per Capita Act.

Is income from the operation of a motel or smoke shop on allotted land taxable?

Income from the operation of a motel or a smoke shop on allotted land has been held to derive from labor and the use of capital improvements rather than directly from the land itself and has accordingly been held taxable. (Critzer v. United States, 597 F.2d 708 (Ct.Cl.) cert denied).

When exempt income is reinvested, is the reinvestment income subject to taxation?

When exempt income is reinvested, the reinvestment income is subject to taxation. (Superintendent of Five Civilized Tribes v. Commissioner, 295 U.S. 418 (1935)).

Is income from trust lands allotted under other allotment acts exempt from federal taxation?

Income from trust lands allotted under other allotment acts is exempt from federal taxation even though those acts do not contain the same protective language as the General Allotment Act. When allotted land is removed from trust and a fee patent is issued to the allottee, income from the land, like the land itself, becomes fully taxable.

Is income of an Indian from trust land leased from the tribe taxable?

Income of an Indian from trust land leased from the tribe has been held taxable on the ground that the individual Indian has no present or potential ownership interest, and the tax could not therefore be a charge or burden on the land.