The Internal Revenue Service might change a provision in the tax code that has restricted tax-exempt governmental bond financing for tribes.

Tribes can issue tax-exempt bonds to finance certain projects. But the "essential governmental function" standard laid out in Section 7871 has limited tribal development and has led to audits for projects that would otherwise be acceptable for state and local governments.

"The custom-based essential governmental function standard under Section 7871(e) has proven to be a difficult administrative standard and has led to audit disputes, based on difficulties in determining customs, the evolving nature of the functions customarily performed by State and local governments, and increasing involvement of State and local governments in quasi-commercial activities," the IRS said in a Federal Register notice that was published in July 12.

The comment period on potential changes to the tax code closed on September 10.

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IRS considers removing restrictive tribal tax code (Indian Country Today 9/27)