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Tax Notes Article: Tribes Push for Tax Policy Panel as ACA Deadlines Near

February 25, 2016

As several tribal governments face anxiety over reporting requirements amid upcoming deadlines under the Affordable Care Act, policymakers are pushing top taxwriters to complete an advisory committee that would consult the Treasury Department on how to apply tax-related laws in Indian country.

The group, called the Treasury Tribal Advisory Committee (TTAC), could help expedite nonstatutory changes, such as tailoring IRS guidance that recognizes tribal sovereignty. But the seven-member advisory committee is still not complete, leaving some Native American groups uncertain over how to interpret relatively new laws with tax provisions, such as the ACA.

Under the ACA's employer mandate, an applicable large employer (ALE) is required to report employment information. The requirement poses major administrative hurdles for several tribal governments because they also have entities classified as ALEs under the IRS.

"Tribes have to pay special attention to who is responsible for filing the information reporting to avoid the tax penalties (or select to pay the tax penalties if the staffing, software, etc., outweighs the penalties)," Jennifer Parisien, financial management policy specialist at the Native American Finance Officers Association (NAFAO), told Tax Analysts in an email.

"Tribal governments often include enterprises, health care facilities, schools, nursing homes, police departments, and other entities under the umbrella of the tribe. Each separate legal entity that qualifies as an ALE, generally with its own employer identification number, must comply with the information reporting," she continued.

In December 2015 the IRS extended the deadlines (Notice 2016-4, 2016-3 IRB 279 ) to March, May, and June of this year for employers reporting information from the 2015 tax year -- a move praised by employers.

Native American groups, however, did not think that was enough time. During a phone consultation a few weeks before the notice was issued, leaders and representatives asked the IRS for an extension of transitional relief to January 2017, according to Treasury. But the tax agency did not grant the request when it released the notice.

"Considerable planning and execution across tribal departments will be required to complete the tax information returns, which entails reporting monthly on whom the coverage was offered to (employee, spouse, dependent), and the employee share of lowest cost of coverage," NAFAO said in a statement .

TTAC: 4 Down, 3 to Go

The TTAC was established by the Tribal General Welfare Exclusion Act of 2014, which calls for recognizing tribal sovereignty in the federal tax code. Given the diverse tax systems of Indian country, the advisory committee would be able to directly consult the Treasury secretary in designing tax policy and IRS training programs there.

Treasury appoints three members, while the chairs and ranking minority members of the Senate Finance and House Ways and Means committees each pick one, for a total of four members appointed by Congress. Each of the seven members serves a four-year term.

Policymakers expected the TTAC to be up and running by fall 2015, but only four members were appointed at the end of last year. It is now up to Finance Committee Chair Orrin G. Hatch, R-Utah, and ranking minority member Ron Wyden, D-Ore., as well as Ways and Means Committee Chair Kevin Brady, R-Texas, to fill the three remaining positions.

A spokesperson for Hatch said the senator is "in the final stages of selecting an appointment for the Tribal Advisory Committee and hopes to announce a final selection soon." Wyden's office did not respond to Tax Analysts' inquiries. Individuals following the process said that the senator's candidate last year did not get reelected to be a tribal leader and therefore would not be an appropriate choice for the committee.

Brady, who assumed the role as the House's top taxwriter after a leadership shakeup last fall, has been apprised of the TTAC's status and is working on a nomination, according to a spokesperson for the Ways and Means Committee.

Meanwhile, in Washington the week of February 22, the four newly minted members are getting a head start on developing the committee's agenda. They are in Washington to attend an annual legislative summit hosted by the National Congress of American Indians (NCAI).

That meeting would be the first time they are collaborating since their appointments, according to W. Ron Allen of the Jamestown S'Klallam Tribe in Washington State. One of the three members appointed by Treasury, Allen said that the committee members will also be considering recommendations from organizations such as NAFAO and NCAI.

General Welfare Programs

Another outstanding issue that the TTAC plans to tackle is the design of training materials for IRS field agents working with tribal governments. Since the committee is not yet complete, the agency has placed a moratorium on audits of general welfare programs in Indian country.

"There is always tension between tribes and the IRS on what authority the IRS has and how they respect tribal sovereignty," said Wendy Pearson of Pearson Law Offices. "I think training is going to play more of a factor in how audits are carried out."

But tribes are still developing general welfare programs, Pearson said, adding that a tax practitioner has to "advise that there are still risks without some guidelines on what's lavish or extravagant."

Pearson provided the hypothetical of a California tribe establishing a mortgage benefit program that is around $4,000 to $5,000 a month for qualifying residents. That amount is not an improbable level of mortgage to incur in a state with relatively expensive real estate, but tribal governments are taking a risk of future audits and penalties, according to Pearson.

"Is that a lavish or extravagant benefit under the facts and circumstances?" Pearson asked. "So the tribes have to do their own sort of due diligence and empirical analysis. There is always an opportunity for the IRS to second-guess a tribe's determination . . . whether that benefit level promotes the general welfare of their membership as reasonable."