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.
1. How are gaming revenue distributions, including per capita payments, reported when the recipient is a minor?
Gaming revenue distributions, including per capita payments, are taxable in the year of distribution regardless of whether the recipient is a minor, unless placed into a qualifying deferral option such as a grantor trust arrangement outlined in Revenue Procedure 2011-56.
2. When gaming distributions are deferred through use of a trust, how are the eventual distributions from the trust reported?
The funds retain their character, and for reporting and withholding purposes, the eventual distributions are treated in the same manner as all other distribution of gaming revenues, including per capita payments. Form 1099-MISC, Miscellaneous Miscellaneous Income PDF, is used to report the distributions. The payments are reported in box 3 and the federal income tax withheld in box 4. Publication 15-T, Federal Income Tax Withholding Methods PDF, contains the necessary "Tables for Withholding on Distributions of Indian Gaming Profits to Tribal Members."
3. Under IGRA, what conditions must be met to distribute net gaming revenue to tribal members in the form of per capita payments?
Section 11(b)(3) of the Indian Gaming Regulatory Act, 25 U.S.C. 2701 (1988) provides that:
Net revenues from any class II gaming activities conducted or licensed by any Indian tribe may be used to make per capita payments to members of the Indian tribe only if --
(A) the Indian tribe has prepared a plan to allocate revenues to uses authorized by paragraph (2)(B);
(B) the plan is approved by the Secretary as adequate, particularly with respect to uses described in clause (i) or (iii) of paragraph (2)(B);
(C) the interests of minors and other legally incompetent persons who are entitled to receive any of the per capita payments are protected and preserved and the per capita payments are disbursed to the parents or legal guardian of such minors or legal incompetents in such amounts as may be necessary for the health, education, or welfare, of the minor or other legally incompetent person under a plan approved by the Secretary and the governing body of the Indian tribe; and
(D) the per capita payments are subject to Federal taxation and tribes notify members of such tax liability when payments are made.
Note: Concerning (C), FAQ 2 refers to a qualifying deferral option such as a grantor trust arrangement outlined in Revenue Procedure 2011-56.
4. Are per capita payments made from gaming revenues by an Indian tribe to its members eligible for qualified dividend treatment?
No. IRC Section 1(h)(11)(B)(i) provides that qualified dividend treatment is limited to dividends paid by a domestic corporation or a qualified foreign corporation (among other requirements). An Indian tribal government is a governmental unit; it is not a domestic corporation or qualified foreign corporation.