FAQs for Indian tribal governments regarding IRC Section 7871 (tribes treated like states for federal tax purposes)


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.

What is Internal Revenue Code (IRC) section 7871?

The Indian Tribal Governmental Tax Status Act of 1982, (Title II of Pub. L. No. 97-473, 966 Stat. 2605, 2607-11, as amended by Pub. L. No. 98-21, 97 Stat. 65, 87 [1983-1 CB 510, 511]) added certain provisions to the Code that pertain to the status of federally recognized Indian Tribal governments for a two-year period. (section 7871PDF)

Section 1065 of the Tax Reform Act of 1984, 1984-3 (Vol. 1) Cumulative Bulletin 556 made permanent the rules treating Indian Tribal governments, or subdivisions thereof, as states. See Revenue Procedure 86-17PDF and Revenue Ruling 86-44PDF for additional information.

What is the purpose of IRC section 7871?

IRC section 7871(a)PDF of the Internal Revenue Code and Section 305.7871-1 of the Income Tax Regulations provide that Indian Tribal governments (or subdivisions thereof) will be treated as States for certain federal tax purposes.

How does IRC section 7871 economically benefit tribal governments?

Tribal governments provide certain services to their members. In certain specific areas, IRC section 7871PDF places the tribal governments on the same footing as State and local governments that provide similar services to their citizens. The tribal governments save the cost of excise taxes for certain fuels and manufacturing. The tribal governments, under certain circumstances, are able to raise financing through issuance of tax-exempt bonds.

Tribal governments can be the recipients of income tax deductible charitable gifts, as well as the recipients of funds deductible from estate and gift taxes. Tribal governments can provide employee benefits to their employees the same as state and local governments in terms of fringe benefits, accident and health plans, and employee annuities. This is a partial list of benefits provided by IRC section 7871. The full impact of section 7871 is presented in the statute, however, the courts, regulations, and other authorities, to which the Service looks for guidance, have yet to interpret all of the statute provisions.

To which tribal governments does IRC section 7871 apply?

The term "Indian tribal government" is defined under IRC section 7701(a)(40), as amended, to mean the governing body of any tribe, band, community, village, or group of Indians, or (if applicable) Alaska Natives, that is determined by the Secretary of the Treasury, after consultation with the Secretary of the Interior, to exercise governmental functions. This definition is used to comprise the federally recognized list as determined by the Bureau of Indian Affairs.

Does IRC section 7871 also apply to political subdivisions of tribes?

Yes. IRC section 7871(d) provides that, for purposes of section 7871PDF, a subdivision of an Indian tribal government shall be treated as a political subdivision of a state if (and only if) the Secretary of the Treasury determines (after consultation with the Secretary of the Interior) that such subdivision has been delegated the right to exercise one or more of the substantial governmental functions of the Indian tribal government.

Is there additional information about the definition of an Indian tribal government in the IRC or the Treasury Regulations?

I.T. Regulations 305.7701-1 defines an Indian tribal government as a governing body of a tribe, band, pueblo, community, village, or group of Native American Indians, or Alaska Natives. A subdivision of an Indian tribal government qualifies as a political subdivision of a State under section 7871PDF upon determination by the IRS that the tribal subdivision has been delegated the right to exercise one or more substantial governmental functions of the Indian tribal government.

How can a governing body be added to the list?

If a governing body is not currently designated by the applicable revenue procedure as an Indian tribal government, and such governing body believes that it qualifies for such designation, it may apply for a ruling from IRS by following the procedural rules set forth in the Statement of Procedural Rules.

What are some examples of a political subdivision?

Private Letter Ruling (PLR) 200050015PDF determined that the Tribal Council exercised governmental functions and qualified as an Indian tribal government within the meaning of IRC section 7701(a)(40) and 7871(a) of the code.

PLR 2000290039PDF recognizes a Tribal Authority as a political subdivision.

PLR 8543016PDF says a Tribal Court is not a political subdivision but is covered by IRC section 7871 since it is an integral part of the Tribal Government. It was determined that all Federal tax benefits under section 7871PDF that accrue to the tribe, are shared with the Tribal Court.

What is an essential governmental function?

IRC section 7871(e)PDF states that the term "essential governmental function" shall not include any function which is not customarily performed by State and local governments with general taxing powers.

Treasury Regulation 305.7871-1(d) provides that an essential governmental function of an Indian tribal government (or portion thereof) is a function of a type which is:

  • Eligible for funding under 25 U.S.C. 13 and the regulations thereunder;
  • Eligible for grants or contracts under 25 U.S.C. 450 (f), (g), and (h) and the regulations thereunder; or
  • An essential governmental function under IRC section 115 and the regulations thereunder when conducted by a State or political subdivision thereof.