On March 10, 2014, the Internal Revenue Service (IRS) and the Department of Treasury (Treasury) issued Notice 2014-17 (the Notice), which contains interim guidance on the federal income tax treatment of funds held in trust by the Secretary of the Interior. The Notice provides that the IRS and Treasury will treat eligible per capita distributions, made from funds the Secretary of the Interior holds in a trust account for the benefit of a tribe (a tribal trust account), as generally excluded from the gross income of the tribal members who receive the distributions. The Notice also provides, however, that distributions to tribal members from a trust account constitute gross income to the members if the trust account is used to mischaracterize taxable income as nontaxable per capita distributions. The IRS and Treasury will issue final guidance after reviewing comments, which are due on or before Sept. 17, 2014.

Evaluating the federal income tax treatment of distributions from tribal trust accounts involves three separate, but related, statutes:

Section 61 of the Internal Revenue Code (26 U.S.C. §61)
Per Capita Act (25 U.S.C. §§117a-c)
Indian Tribal Judgment Funds Use or Distribution Act (26 U.S.C. §§1401-1408)

Under Section 61 of the Internal Revenue Code and related case law, gross income includes all income from whatever source derived (including compensation and business profits), unless an exception applies. The Per Capita Act provides authority to Indian tribes to make per capita distributions to their members out of tribal trust accounts. The Per Capita Act also provides that these payments "are subject to" the Tribal Judgment Funds Act, which includes an exclusion from gross income for certain judgment funds and for all interest and investment income accrued on these funds while held in trust.