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.
Are Indian tribes subject to federal income taxation?
An Indian tribe, and any unincorporated business owned by the tribe, are not entities subject to federal income tax. They are not included in IRC section 1 (individuals, trusts, or estates), or IRC section 11 (corporations).
Is an incorporated business owned by a tribe subject to federal income taxation?
A corporation formed by a tribe may be subject to federal income tax, depending on the form of the corporation. A tribe may incorporate in several ways, including:
- Indian Reorganization Act of 1934 - A corporation formed under section 17 of this act is not subject to federal income tax.
- Oklahoma Indian Welfare Act - A corporation formed by an Oklahoma tribe under section 3 of this act is not subject to federal income tax. Oklahoma tribes are not eligible to incorporate under the Indian Reorganization Act of 1934.
- State Chartered Corporation - A corporation formed under state law is ordinarily subject to federal income tax on income earned after October 1, 1994. Income earned before October 1, 1994 is not subject to tax.
- Tribal Law - This issue is currently under review by IRS Counsel and guidance will be issued in the near future.
Partner in a Partnership - A tribe that is a partner is not subject to federal income tax. However, a tribally owned state chartered corporation that is a partner is subject to tax on the distributive share of partnership income.
Can a tribe be a shareholder in an S corporation?
No. Only individuals, estates, and certain trusts can be shareholders in an S corporation.