IRS affirms per capita payouts from trust settlements not taxable

Thursday, September 6, 2012  

Tribal members across the nation won't have to pay federal income taxes on their share of trust fund settlements, the Internal Revenue Service has determined.

A number of tribes that reached settlements with the Obama administration have already distributed, or are planning to distribute, the funds on a per capita basis. A forthcoming IRS notice confirms that the funds won't have to be reported as income.

"Under 25 U.S.C. § 117b(a), per capita payments made from the proceeds of an agreement between the United States and an Indian tribe settling the tribe's claims that the United States mismanaged monetary assets and natural resources held in trust for the benefit of the tribe by the Secretary of the Interior are excluded from the gross income of the members of the tribe receiving the per capita payments," the notice states, referring to Section 117b(a) of the Per Capita Act.

However, if a tribe chooses to invest its settlement and distribute the "entire amount" at a later date, the additional amount that was earned must be reported as income, the notice states. The word "entire" was emphasized in the notice.

The IRS determination comes after the Social Security Administration ruled that per capita payments won't affect Social Security or Medicare benefits.

Social Security Administration issues ruling on trust payouts (08/23)