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Tribes Await General Welfare Clarity, New Advisory Committee

December 3, 2015

TAXNOTES.COM 
POSTED ON DEC. 3, 2015
By KAT LUCERO

For decades, the Southwest Pueblo tribal governments offered financial assistance to low-income tribe members to purchase food and other items to participate in traditional feast days.

The tribal government and the beneficiaries considered the assistance not as income but as a tax-exempt service that it provides to its members to help maintain age-old cultural traditions -- similar to state and local governments' services they provide for the general welfare of their citizens.

But that practice changed around the early 2000s, after IRS field agents started requesting that beneficiaries file Forms 1099 to report the assistance.

The Southwest Pueblo tribal governments were not alone.

Across the United States, the IRS targeted tribal services and benefits in a manner that Native American groups said was often discriminatory, according to Native American organizations and the Taxpayer Advocate Service. The IRS began to take a closer look at a wide range of programs, including assistance for canoe journey rituals, back-to-school supplies, and travel reimbursements for college students.

"There was no clear guidance on what was acceptable to audit. Field agents took it upon themselves to really determine what was OK and not OK," Dante Desiderio of the Native American Finance Officers Association told Tax Analysts.

"This went from one of the IRS agents equating traditional powwows and ceremonies to nothing more than kids wanting to go to a NASCAR race, which is completely absurd and unacceptable that a federal agent is that ignorant of Indian policy," Desiderio said.

Tax observers hope that the new Treasury Tribal Advisory Committee (TTAC), enacted as part of the Tribal General Welfare Exclusion Act of 2014 (GWE; P.L. 113-168 2014 TNT 183-62: Text of Tax Bills), will clarify tax and audit issues between tribal governments and the IRS, while recognizing the unique legal relationship tribes have with the U.S. government as set forth in the Constitution, treaties, statutes, and court decisions.

The GWE was enacted in September 2014 to exclude from gross income some benefits and services offered by tribal governments, such as housing, elder care, healthcare, and education. Those tribal benefits, however, cannot be excessive under the general welfare doctrine, and payments cannot be compensation for services. Indian country officials want to be able to exercise tribal sovereignty in designing benefit programs, and the TTAC will allow tribal government representatives to work with the Treasury secretary to develop rules to determine what would constitute "lavish or extravagant benefits with respect to Indian tribal government programs," according to section 139E, a new code section created by the GWE.

In addition to advising the Treasury secretary on Native American tax policy, the TTAC will advise on the training and education of IRS employees who work with tribal governments and their members. The committee will comprise three members appointed by Treasury and one member appointed by each of the chairs and ranking minority members of the congressional taxwriting committees -- for a total of seven appointees.

There is growing frustration, however, that more than a year after the GWE was signed into law by President Obama, taxwriters and Treasury have failed to name their TTAC picks. The committee's charter does not provide a deadline for when it must be formed, but according to representatives from Native American organizations and tribes, the expectation is that Congress will announce its selections after Treasury does. Until the committee is formed, all general welfare audits and examinations of tribal governments and members have been temporarily suspended. Penalties and interest for these cases also have been waived.

"Hopefully, we're going to have that up and running soon," Thomas West, Treasury tax legislative counsel, said at a November 6 Senate Indian Affairs Committee listening session.

Session participants expressed their frustration with the process.

"How are people supposed to begin resolving issues when the committee is not seated?" said Christina L. Jimerson, tribal councilor for the Seneca Nation of Indians in New York.

House Ways and Means Committee member Devin Nunes, R-Calif., who introduced the GWE in August 2013, told Tax Analysts in September that he had hoped that the TTAC would have been organized by now. Officials from Native American groups had also anticipated that Treasury would unveil its three picks in the fall, but they were told that the process has been delayed.

Senate Finance Committee Chair Orrin G. Hatch, R-Utah, and ranking minority member Ron Wyden, D-Ore., are working together on their two appointments, their offices said. House Ways and Means Committee ranking minority member Sander M. Levin, D-Mich., also said he looked forward to making a selection. The office of Ways and Means Chair Kevin Brady, R-Texas, did not respond to a request for comment by press time. Some observers suggested that the recent leadership changes in the Ways and Means Committee could influence whom the chair selects.

Why Tribal Consultation?

For any proposed federal policy changes affecting Indian country, departments and agencies must consult with the tribal groups through a process called government-to-government consultation. It is a process that recognizes tribes' nationhood status as set forth in the Indian Self-Determination Act of 1975, the Self-Governance Act, and other federal laws.

"That relationship is to be based on respect for Indian tribes as governments, and it starts with consultation between governments rather than unilateral enforcement actions," said John Dossett, general counsel for the National Congress of Native Americans (NCAI).

Federal agencies like the State, Interior, Justice, and Health and Human Services departments formed their own advisory committees following Obama's November 2009 memorandum and former President Clinton's November 2000 executive order on tribal consultation. Since 2010, Treasury has been working on its own tribal consultation policy. Under the GWE, the TTAC would build off of the department's and the IRS's past guidance, helping apply those rules to the vast and intricate tax system within Indian country.

There are more than 560 federally recognized tribes with varying economic statuses, languages, and cultures, and Native American groups said that tribal governments want to determine the regulatory specifics of these Treasury and IRS rules and how they apply to their tribes.

"As I often thought about it, the tax code sees the world as individuals, corporations, governments, and nonprofits. And a tribe can be all four of those things," said a former Treasury official familiar with the tribal consultation process.

ACA and Tax Reform

The TTAC's role would also extend beyond the implementation of the GWE. Among the pressing concerns that the committee would likely address is tribes seeking relief from some Affordable Care Act requirements, such as the employer mandate penalty and the coming "Cadillac" tax on premium healthcare plans within tribal governments.

The ACA's employer mandate "is inconsistent with the federal trust responsibility to Tribes" and is also "cost prohibitive for many tribes and compliance will result in a decrease in tribal services for Indian people," according to a NCAI resolution, available at http://goo.gl/c0i1Qi.

In July 2015, Ways and Means Committee member Kristi L. Noem, R-S.D., introduced legislation, the Tribal Employment and Jobs Protection Act (H.R. 3080 2015 TNT 145-22: Proposed Legislation), that would exempt Indian tribal governments and businesses owned by tribes from the employer mandate. Finance Committee member John Thune, R-S.D., cosponsored companion legislation (S. 1771 2015 TNT 147-18: Proposed Legislation) in the Senate.

Tribes also want the TTAC to be involved in comprehensive tax reform discussions.

"The nontaxable status of tribal governments must be maintained in any version of comprehensive tax reform considered by Congress as a matter of government fairness and parity," said Kitcki A. Carroll, executive director of the United South and Eastern Tribes Inc.

Carroll added that he hopes the TTAC would help determine the fate of temporary business tax breaks, specifically those intended to spur economic development in tribal land, such as the provisions dealing with the new markets tax credit, the tax credit for Indian employment, the tax credit for Indian coal production, and accelerated depreciation for business property on Indian reservations. The Obama administration has also proposed making permanent the work opportunity tax credit and the Indian employment credit, as well as simplifying the calculation used for the employment credit.

Hurdles Ahead

Once the TTAC is organized, tribal officials and government officials acknowledge that there could be hurdles given the complicated tax systems that policymakers must navigate and the fact that the committee is a new type of tribal forum within federal agencies.

"It's a new frontier," said W. Ron Allen, chair and CEO of the Jamestown S'Klallam Tribe in Washington state.

Because the committee was formed by statutory authority, its operation must follow specific requirements, such as being subject to the Freedom of Information Act and requiring meeting notes to be publicly accessible, according to Allen.

"There's going to be a lot more discretion" in terms of what would be discussed during official meetings, Allen said.

Constant turnover among federal employees working on Native American tax issues could also pose a problem for the TTAC. It takes time to understand the complex tax issues affecting Native Americans, Allen said, and therefore everyone involved needs to "exercise patience."

Desiderio said it may also be difficult for a seven-member committee to address the myriad needs of tribal governments. But he noted that the new policy is "a step forward" and that some of the pitfalls are small compared with the gains that the committee would achieve for American Indians.

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