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Final guidance issued on taxation of tribal per capita payments

Friday, September 18, 2015

Members of the Fort Peck Tribes of Montana lined up to receive a per capita payment in October 2012. Photo from The Fort Peck Journal / Facebook

Per capita payments from tribal trust funds are generally exempt from federal taxes, the Obama administration said today.

The Treasury Department and the Internal Revenue Service issued the final guidance after extensive consultation in Indian Country. It confirms that tribal members who receive per caps won't have to pay taxes, in most cases, on their share of tribal trust assets.

“Today we are providing tribes with important clarity by finalizing guidance that per capita distributions of tribal trust assets generally are not subject to federal income tax,” Assistant Secretary for Tax Policy Mark Mazur said in a press release. “This guidance was informed by extensive consultation with tribal governments, illustrating the value of these discussions to help us better understand the needs of tribal governments.”

The issue gained prominence after the Obama administration in April 2012 settled a large group of tribal trust fund settlements for $1.023 billion. Some of those tribes chose to distribute per caps and the IRS began releasing a series of notices confirming that the payments aren't subject to federal taxes.

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But tribes also wanted assurances regarding per caps from other sources of trust funds, such as timber resources or oil and gas revenues. Members of Congress have been pressing the IRS as well.

"My trust resources are not taxable," Yakama Nation Secretary Athena Sanchey-Yallup declared at a hearing on Capitol Hill in September 2012.

The final guidance in Notice 2015-67: Per Capita Distributions of Funds Held in Trust by the Secretary of the Interior confirms that position. It states that tribal payments from trust accounts are not taxable in most situations.

"For example, if proceeds from timber sales, an agricultural lease, or a grazing permit are deposited into a tribe’s tribal Trust Account and that tribe subsequently makes a per capita distribution using funds from the tribal Trust Account, the per capita distributions are excluded from the tribal members’ gross income," the notice states.

There are exceptions. The notice points out that Congress, through the Indian Gaming Regulatory Act of 1988, required taxes to paid on gaming per caps.

The notice offers other examples in which a tribal member might be compensated from a tribal trust account for payments, services or arrangements that would otherwise be considered income. In those situations, the payments are subject to federal taxation.

The final guidance issued today supersedes IRS Notice 2014-38.

Relevant Documents:
Notice 2015-67: Per Capita Distributions of Funds Held in Trust by the Secretary of the Interior (September 2015)
Notice 2014-38: Per Capita Payments from Proceeds of Settlements of Indian Tribal Trust Cases (March 2014)
Notice 2014-17: Per Capita Distributions of Funds Held in Trust by the Secretary of the Interior (March 2014)
Notice 2012-60: Per Capita Payments from Proceeds of Settlements of Indian Tribal Trust Cases (May 2014)
Notice 2013-1: Per Capita Payments from Proceeds of Settlements of Indian Tribal Trust Cases (December 2012
Notice 2012-60: Per Capita Payments from Proceeds of Settlements of Indian Tribal Trust Cases (September 2012)