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ITG FAQ #1 Answer-What are the different ways that tribal entities can be structured, and what are the tax implications of each?

What are the different ways that tribal entities can be structured? What are the tax implications of each, based on how they are chartered?

A tribe may incorporate under section 17 of the Indian Reorganization Act (IRA) of 1934, 25T U.S.C. Section 477 (section 17). This type of corporation is not subject to income tax, no matter where the business is located. An Approval Article or Certificate signed by the Secretary of the Interior is evidence of incorporation under the Indian Reorganization Act.

Indian tribes in Oklahoma are not eligible to incorporate under section 17 of the IRA. Instead, Oklahoma tribes can incorporate under section 3 of the Oklahoma Indian Welfare Act, 25 U.S. C. Section 503 (section 3). This type of corporation is not subject to income tax, regardless of where the business is located. An Approval Article or Certificate signed by the Secretary of the Interior is evidence of incorporation under the Oklahoma Indian Welfare Act.

Indian tribes may also form a corporation under state law. This type of corporation is ordinarily subject to federal income tax on income earned on or after October 1, 1994, no matter where the business is located. Because the state charter creates an entity separate and distinct from the tribe, the federal income tax applies to this new entity. A Certificate of Incorporation issued by the state is evidence of incorporation under state laws. Revenue Ruling 94-16, 1994-1 CB 19, as amplified by Revenue Ruling 94-65, 1994-2 C., further defines this issue.

If a tribal entity is not owned 100% by the tribe, then it is subject to the usual federal taxes, based on the type of entity that is used. Any flow-through income to members also becomes taxable.

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Page Last Reviewed or Updated: 10-Dec-2014