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Part 22. Taxpayer Education and Assistance

Chapter 41. Indian Tribal Governments

Section 1. Indian Tribal Governments Outreach

22.41.1  Indian Tribal Governments Outreach

22.41.1.1  (08-21-2008)
Mission of Indian Tribal Governments

  1. The mission of the Indian Tribal Governments (ITG) office is to provide Indian tribal and Alaskan Native governments top quality service by helping them understand and comply with applicable tax laws, and to protect the public interest by applying the tax law with integrity and fairness to all.

  2. ITG will be guided by principles of respect for tribal self-government and sovereignty.

  3. ITG will develop a functional and interactive government-to-government relationship between the IRS and Indian tribal and Alaskan Native governments as envisioned by the President's Executive Orders.

22.41.1.2  (08-21-2008)
Protocol for Contacting Tribes

  1. Contacts with tribes should be diplomatic in tone and should express the Service's desire to meet with the leaders of the tribe to discuss, on a government-to-government basis, tax issues of mutual interest and concern. The approach should be "Our government would appreciate the assistance and cooperation of your government" .

  2. Generally, based on history, the Federal government is viewed by tribal entities with mistrust and suspicion. An understanding of the history and culture of the tribe, along with its political organization, will assist in establishing effective "government-to-government" relationships.

  3. The following steps should be considered when scheduling a visit to a tribal entity:

    1. The ITG employee should contact the responsible official(s), via phone or mail, and set an appointment for a convenient time to meet. Inform the tribal official(s) of the purpose of the appointment (education/outreach endeavor, compliance review, or examination). Be sure to express a willingness to repeat this information to the tribal council or other tribal representatives, if requested. See IRM 4.86.1.6, Disclosure and Privacy, to determine the responsible tribal official for various types of contacts.

    2. The initial meeting may be with the tribal official(s) or a designee of the tribal official(s). This meeting should include an introduction and a discussion of the issues and information needed to complete the work assignment. Personal contact is essential to obtain an understanding of tribal perspectives and concerns. As necessary, schedule additional appointments with the designated tribal official to complete the educational/outreach endeavor, compliance review, or examination.

    3. In situations when multiple IRS employees will be participating in a work assignment, their activities should be closely coordinated with the tribal official(s) or designee.

    4. If another Federal or State agency is currently working with the tribe on matters which closely relate to federal tax administration, immediately determine the scope of the other agency's involvement and elevate that information to IRS management. Interagency cooperation may resolve conflicts and avoid misunderstandings.

    5. ITG and the Small Business Self Employed (SBSE) Anti Money Laundering field personnel will assume joint responsibility for Bank Secrecy Act (BSA) and Section 6050I notification and education activities relating to entities that are owned by Indian tribal governments.

  4. For a listing of things to keep in mind when working with tribal governments, refer to IRM 4.86.1.2, Protocol for Contacting Tribes.

  5. A description of the role of ITG Compliance and Program Management (CPM) may be found in IRM 4.89.1.1.

22.41.1.3  (06-01-2006)
Education

  1. ITG is committed to working with tribes on a collaborative basis to ensure that the interests and needs of both governments are met in the least intrusive manner. To fulfill our mission with the tribes, educational sessions will be held to provide the information necessary to satisfy the Federal tax laws applicable to their situations.

  2. Indian tribal governments and the entities that they own are recognized as unique in the IRS customer community. Because of their unique nature, their education must be conducted differently than educational efforts conducted by other IRS Operating Divisions.

  3. ITG-provided educational sessions will cover a variety of topics based on the needs of the tribe. Some of the topics that could be covered include Title 31, Information Reporting Requirements, and Employment Tax. These topics are covered in detail in IRM 4.88.1.

  4. Some tribes may have topics that are of special interest to them and we will develop sessions that will meet their needs. We will work with tribes to minimize any intrusion.

  5. While the IRS has enforcement authority, it is our objective to work with tribes to minimize the need for enforcement. We believe that, through mutual respect and cooperation, the needs of both governments can be met.

  6. The following is a brief list of ITG educational topics:

    • Anti Money laundering

    • Deposit of taxes

    • Employment taxes

    • Excise tax

    • Information reporting

    • Distributions to tribal members

    • Tips

    • The Collection Process

22.41.1.3.1  (06-01-2006)
Bank Secrecy Act (BSA) and Anti Money Laundering (AML)

  1. The Anti Money Laundering (AML) Compliance Program is designed to:

    1. Assist entities in understanding reporting and record keeping requirements, and

    2. Maximize the filing of timely, complete and accurate reports.

  2. Congressional intent behind the various Anti Money laundering statutes, as stated in 31 U.S.C. 5311, is to "require certain reports or records where they have a high degree of usefulness in criminal, tax or regulatory investigations or proceedings" . The USA Patriot Act of 2001 expanded these requirements to handle security concerns.

  3. Indian tribal governments may have tribal enterprises that have filing and record keeping requirements under the following:

    1. 31 U.S.C. chapter 53 (Title 31), commonly referred to as the Bank Secrecy Act (BSA), and

    2. 26 U.S.C. 6050I (Title 26), Internal Revenue Code.

  4. Authority to conduct the AML Compliance Program can be found in IRM 4.26.1, Bank Secrecy Act. The Memorandum of Understanding between Tax Exempt & Government Entities (TE/GE), Office of Indian Tribal Governments and Small Business/Self-Employed (SB/SE) Office of Reporting Compliance addresses operating procedures between both functions. See IRM 4.88.1, Exhibit 4.88.1-5, Memorandum of Understanding.

  5. When the ITG Specialist conducts a Title 31, Bank Secrecy Act visit, the AML coordinator will be notified. All paperwork involved will be forwarded to the AML coordinator through ITG CPM.

22.41.1.3.2  (08-21-2008)
Deposit of Taxes

  1. Deposit requirements is a topic to include in outreach efforts. Circular E, Employers Tax Guide (Publication 15)provides a good referral source for the tribes on deposit requirements for Forms 941,944, and 945.

  2. Payroll tax deposits are reported on Forms 941 and 944. Backup withholding, per capita withholding and Form W-2G withholding have deposit requirements that are reported on Form 945. Form 1042-S deposits are reported on Form 1042. See IRM 4.88.1.3.3, Reporting and Deposit Requirements, and IRM 20.1.4, Failure to Deposit Penalty, for a discussion of deposit requirements.

22.41.1.3.3  (06-01-2006)
Employment Taxes

  1. IRM 4.23, Employment Tax Handbook, serves as the foundation for addressing consistent administration of employment taxes by the IRS.

  2. ITG IRM 4.88.1.2 relates to Indian tribal government employment tax issues.

  3. Indian tribal governments may be responsible for the following employment taxes:

    1. Withholding of income tax on wages

    2. Employer tax and employee tax (Social Security/Medicare) under the Federal Insurance Contributions Act (FICA)

    3. Withholding on certain gambling winnings

    4. Backup withholding requirements under IRC section 3406,

    5. Withholding of tax under IRC 1441 (nonresident aliens) and IRC 1442 foreign corporations

    6. Withholding on per capita payments from gaming profits

22.41.1.3.4  (06-01-2006)
FUTA

  1. The enactment of Section 166 of the Community Renewal Tax Relief Act of 2000 (Public Law 106-554) changed how the Federal Unemployment Tax Act (FUTA) applies to Indian tribal government entities. IRS Announcement 2001-16 provides guidance to federally recognized tribal governments about their FUTA obligations. See IRM 4.88.1, Exhibit 4.88.1-1.

  2. For more information, see IRM 4.88.1.2.2.

22.41.1.3.5  (06-01-2006)
Excise Taxes

  1. ITG Specialists conduct educational outreach and informational activities on excise taxes primarily related to wagering taxes paid by tribal entities.

  2. IRM 4.24, Excise Tax Handbook, serves as the foundation for addressing administration of excise taxes. It includes procedures for planning and selecting excise tax returns for examination and provides guidelines for the classification of claims and information items relating to excise tax returns.

  3. A booklet on Indian tribal governments and excise taxes is available to ITG Specialists on the IRWeb at http://irweb.irs.gov. Outside stakeholders can find FAQ's and other aids on the IRS Internet Home page at www:/irs.gov/tribes.

  4. A Memorandum of Understanding between ITG and the Office of Specialty Programs provides that ITG will assume responsibility for all wagering tax issues relating to tribal governments and their subsidiaries, and Specialty Programs will keep jurisdiction over all other excise tax issues. See IRM 4.88.1, Exhibit 4.88.1-10.

22.41.1.3.6  (06-01-2006)
Information Reporting

  1. ITG Specialists assist tribal governments with tax-related information reporting requirements. The requirements are broken down into gaming and non-gaming sections. There may be cross-over filing between the sections.

  2. Non-gaming: Indian tribes are required to file, and provide to the recipient, information returns for payments to various non-gaming payments to recipients. See IRM 4.88.1.3 .

  3. Gaming:Indian tribes engaged in the business of gaming are required to provide information returns for payments to gaming patrons who have won. See IRM 4.88.1.5.3 for specifics.

22.41.1.3.7  (06-01-2006)
Distributions to Tribal Members

  1. Distributions of net revenue from gaming activity are defined as payments and/or benefits made or distributed to members of the tribe, or to identified groups of members, directly from such net revenue.

  2. Distribution payments and/or benefits are subject to Federal taxation and the tribe must notify members of such tax liability when payments are made. See IRM 4.88.1.7 for more specific information on gaming revenue distributions, which includes withholding, reporting and depositing requirements. ITG Specialists are available for discussions of these requirements as part of outreach efforts.

  3. Many tribes have established trusts from net gaming revenue for minors. An "IGRA trust" is a trust that an Indian tribe establishes under IGRA (Indian Gaming Regulatory Act, 25 U.S.C. sections 2701-2721) to receive and invest per capita payments for its members who are minors or legal incompetents. The trust assets are distributed to those members after they attain the age of majority or cease to be legal incompetents.

  4. Rev. Proc. 2003-14 addresses the issue of the timing of taxability of IGRA trusts

  5. ITG Specialists are prepared to discuss in which instances the deposits into a trust are taxable, when taxability occurs, and allocable parental tax rate provisions. See IRM 4.88.1.7.3 for more specific information.

22.41.1.4  (06-01-2006)
Tips

  1. Tips are subject to Federal income tax per IRC 61.

  2. Employers are required to pay FICA tax on the full amount of tips received by employees.

  3. Compliance with tip income reporting requirements can be one of the most complicated and difficult issues for employers and employees. If noncompliance exists, both parties can be held liable for payment of significant taxes, penalties, and interest.

  4. ITG Specialists use Publication 531, Reporting Tip Income and other materials to introduce the responsibilities of employees regarding tip income.

  5. When providing outreach and educational information about tip agreements, the ITG Specialist should be able to discuss and explain the details of the two types of agreements, the Tip Rate Determination Agreement (TRDA) and the Gaming Industry Tip Compliance Agreement (GITCA) (See IRM 4.88.1.8). The following is a topical reference or reminder list for the Specialist:

    1. Overview/History/Purpose

    2. Benefits to the employer

    3. Benefits to the employee

    4. Benefits to the Internal Revenue Service

    5. Employee participation

    6. Employer record keeping, reporting, filing, and deposit requirements

    7. Tip Rates - actual, pooling, and hourly

    8. Factors to consider when establishing tip rates

    9. Rate determinations through observations and statistical analysis

    10. Termination of the agreement by the employer or Internal Revenue Service

    11. Authority to sign

  6. Filing requirements, penalties, tip agreements and other issues concerning tips are discussed in IRM 4.88.1.8 and on the IRS Internet home page at www.irs.gov/tribes.

22.41.1.5  (06-01-2006)
Indian Tribal Governments and Federal Tax

  1. Indian tribes are not entities subject to Federal income tax because they are not included in section 1 (individuals, trusts and estates) or section 11 (corporations) of the Internal Revenue Code. Generally, a tribe must be recognized by the Department of the Interior in order to be treated as such for federal income tax purposes. An annually updated list is available from the Bureau of Indian Affairs. However, it is not necessary for an Indian tribe to meet the requirements of IRC section 7871 in order to be treated as an Indian tribe for federal income tax purposes.

  2. A tribe may operate businesses either on or off its reservation. The tribe, and any unincorporated business owned by the tribe, is not subject to Federal income tax, regardless of where the business is located. However, a corporation formed by a tribe may be subject to Federal income tax, depending on the form of incorporation that the tribe chooses. A tribe may choose to form a corporation in different ways, including:

    1. Indian Reorganization Act of 1934: The tribe may incorporate under section 17 of the Indian Reorganization Act of 1934 (IRA) 25 U.S.C. section 477 (section 17 corporation). 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 Indian Reorganization Act.

    2. Oklahoma Indian Welfare Act: Tribes located in Oklahoma are not eligible to incorporate under section 17 of the IRA. Instead, Oklahoma tribes may incorporate under section 3 of the Oklahoma Indian Welfare Act, 25 U.S.C. section 503 (section 3 corporation). 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.

    3. State Chartered Corporation: The tribe may form a corporation under State law. This type of corporation is ordinarily subject to federal tax on income earned on or after October 1, 1994, regardless of where the business is located. A State chartered corporation formed by a tribe is taxed just like any other corporation because the State charter creates a separate entity, which differentiates it from the tribe. A Certificate of Incorporation issued by the State is evidence of incorporation under State law.

  3. In addition, a tribe or a corporation formed by a tribe may be a partner in a partnership. A tribe that is a partner in a partnership is not subject to Federal income tax. However, a tribally owned State chartered corporation that is a partner will be subject to Federal income tax on its distributive share of partnership income.

22.41.1.6  (06-01-2006)
Nontaxable Income of Tribal Members

  1. ) The following items are specifically excluded from the taxable income of individual tribal members:

    1. Income directly derived by the Indian allottee from restricted allotted land that is held in trust by the United States Government,

    2. Income derived from a fishing rights-related activity that is exempt under IRC section 7873,

    3. Income that is exempt under treaty or statute, and

    4. Income received from land claim settlements and judgements pursuant to 25 U.S.C. 1417.

22.41.1.7  (06-01-2006)
Income Derived From Land

  1. Restricted allotted land is land that is allotted to a tribal member but restricted as to alienation. Income directly derived from restricted allotted land includes the proceeds from sales of timber harvested from the land, grazing fees, and income from mineral rights. Examples of income not directly derived from restricted allotted land are income from smoke shops, motels, gift shops, and gaming, even if conducted on restricted allotted land.

  2. Once a tribal member acquires fee simple title to restricted allotted land, any income derived from the land, including the sale of the land, is subject to federal income tax. The tribal member's tax basis in the allotted land is determined using the fair market value as of the date the tribal member receives fee simple title, unless that value is less than the tax basis computed under the rules set forth in Rev. Rul. 58-341.

22.41.1.8  (06-01-2006)
Income Derived From Fishing Rights

  1. Internal Revenue Code section 7873 exempts from Federal taxation any income derived by a member of an Indian tribe or a qualified Indian entity from a fishing rights-related activity of that member's or entity's tribe. The fishing rights must be guaranteed to a tribe by a treaty, statute, or executive order secured as of March 17, 1988. Any member of a tribe guaranteed a right to fish for subsistence or commercial purposes by treaty, executive order, or statute may be eligible for the exclusion.

22.41.1.9  (06-01-2006)
Fishing Rights-Related Activity

  1. A fishing rights-related activity is any activity directly related to harvesting, processing, or transporting fish harvested in the exercise of a treaty fishing right; or to selling such fish but only if all of such harvesting was performed by members of such tribe. This includes administrative, judicial, and enforcement activities.

22.41.1.10  (06-01-2006)
Volunteer Income Tax Assistance/Tax Counseling For The Elderly

  1. This section provides guidelines for ITG Specialists who work with tribes in the area of Volunteer Income Tax Assistance (VITA), IRM 22.30.1.4, and Tax Counseling for the Elderly, IRM 22.30.1.5. The primary responsibility for this area is with the Wage and Investment Division (W&I). Work is coordinated with W&I to assist the tribal governments.

  2. Tribes report that this type of assistance is very beneficial to their tribal members. Due to the small number of ITG Specialists, we work only as coordinators in this area.

  3. Our main goal is to place tribal governments and the members that they represent in contact with volunteers to help them with tax return preparation, counseling, and tax education assistance.

  4. In some areas of the country, tax assistance sites are run by tribal volunteers. In other areas, reservations invite local volunteers to set up a site in the tribal center to assist tribal members. There are many possible ways to deliver assistance. The main objective is to assist the tribal governments in ways that work for them.

22.41.1.11  (08-21-2008)
Educational Outreach Materials

  1. A wide range of educational materials are available to ITG Specialists and stakeholders in Indian tribal government tax administration.

  2. The principal source of educational outreach materials for ITG Specialists is the IRWeb intranet site at http://tege.web.irs.gov/templates/TribalHome.asp .

  3. The principal source of materials for Indian tribal government stakeholders is www.irs.gov/tribes.

  4. Information reporting educational materials include the following forms and publications.

    Item Description
    Form W-2 Wage and Tax Statement and Instructions
    Form W-3 Transmittal of Income and Tax Statement
    Form W-9 Request for Taxpayer Identification and Certification and Instructions
    Form 941 Employer's Quarterly Federal Tax Return
    Form 944 Employer's Annual Federal Tax Return
    Form 1099-Misc Statement for Recipients of Miscellaneous Income and Instructions
    Forms 1098, W-2G Instructions only
    Publication 15 Employers Tax Guide (Circular E)
    Publication 15-A Employer's Supplemental Tax Guide

  5. Bank Secrecy Act (BSA) or Title 31 educational materials include the following.

    • Form FinCEN 103, Currency Transaction Report by Casino,

    • Form FinCEN 102, Suspicious Activity Report by Casinos and Card Clubs,

    • Title 31 power point presentations.

  6. Gaming educational materials include:

    Item Description
    Form W-2G Certain Gambling Winnings and Instructions
    Form 5754 Statements by Person(s) Receiving Gambling Winnings
    Form 945 Annual Return of Withheld Federal Income Tax and Instructions
    Form 1042-S Annual Withholding Tax Return for U.S. Source Income of Foreign Persons
    Form 1042 Foreign Person's U.S. Source Income Subject to Withholding
    Form 8027 Employer's Annual Information Return of Tip Income and Allocated Tips
    Form 11-C Occupational Tax and Registration Return for Wagering
    Form 730 Monthly Tax on Wagering Tip income educational materials
    – Tip Rate Determination Agreement (TRDA)
    Rev. Proc 2003-32 Gaming Industry Tip Compliance Agreement (GITCA)
    Publication 1244 Employee's Daily Record of Tips and Report of Tips to Employer
    Publication 1872 Tips on Tips (employees in Food and Beverage Industry)
    Publication 3144 Tips on Tips (employer)
    Publication 3148 Tips on Tips (employee)
    Video Tape, Publication 3374 Tips on Tips - Reporting Your Tip Income
    Publication 3908 Indian Tribal Governments Employment Tax Guide
    Publication 4268 Gaming Tax Law for Indian Tribal Governments


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