On August 2, 2013, Representatives Nunes (R-CA), Kind (D-WI), and Kilmer (D-WA) each introduced legislation to address tax policy priorities of tribal governments. The bills contain provisions that would provide tribal governments with tax treatment similar to state governments on a number of matters and would provide temporary relief from Internal Revenue Service (IRS) audits while regulations are promulgated and IRS field agents are retrained on the tax rules governing general welfare benefits provided by tribal governments to their citizens. As the House Ways and Means Committee and the Senate Finance Committee continue efforts to craft an overhaul of the nation’s tax code, the bill sponsors seek to include their proposals as part of a comprehensive tax reform or in other tax-related legislation. Below, we summarize the Tribal General Welfare Exclusion Act of 2013 (HR 3043), the Tribal Tax and Investment Reform Act of 2013 (HR 3030) and the Adoption Tax Credit Tribal Parity Act of 2013 (HR 2332).
HR 3043 is a response to the now well-documented and unwarranted uptick in the auditing of tribal governments by IRS field agents – often for tribal governments taking actions such as providing school supplies and backpacks for children or paying the utility bills of needy tribal citizens. After an outcry from Indian Country and a number of listening sessions, the Treasury Department issued guidance on a General Welfare Exclusion Doctrine in December 2012. This bill would expand, clarify, and codify that guidance.
HR 3043 would allow tribal governments to provide assistance and services to their citizens without creating a taxable event – just as state and local governments provide assistance to their citizens. The bill defines “Indian general welfare benefit” to include: any payment made or service provided to or on behalf of a member of an Indian tribe (or any spouse or dependent) provided that such payment or service is made pursuant to an Indian tribal government program. The bill would require that these programs be for the promotion of general welfare, be administered under specified guidelines and that the benefits be available to any tribal member who meets the guidelines. The benefits are not to be lavish, extravagant, or compensation for services. With regard to ceremonial activities, the bill clearly states that “any items of cultural significance, reimbursement of costs, or cash honorarium for participation in cultural or ceremonial activities for the transmission of tribal culture shall not be treated as compensation for services.”
HR 3043 would direct the Treasury Secretary to establish a Tribal Advisory Committee which would be charged with advising the Secretary on matters relating to the taxation of Indians and the development of mandatory training and education for IRS field agents. It would also temporarily suspend audits and examinations of tribal governments and tribal citizens relating to the distribution of tribal general welfare benefits and would empower the Secretary to waive any associated interest and penalties that may have accrued.
HR 3043 is sponsored by Representative Nunes and co-sponsored by Representatives: Boustany (R-LA); Cardenas (D-CA); Cole (R-OK); DelBene (D-WA); Gerlach (R-PA); Gosar (R-AZ); Jenkins (R-KS); Kilmer (D-WA); Kind (D-WI); McCollum (D-MN); Moore (D-WI); Mullin (R-OK); Reichert (R-WA); and Valadao (R-CA).
HR 3030 is designed to treat tribal governments in the same manner as state and local governments with regard to: bond issuance, pension and employee benefit plans, and the formation of foundations and charities. Regarding tax-exempt bond issuance, HR 3030 would provide parity for tribes by repealing the essential government functions test and applying the same federal tax standards and requirements to tribes as states for governmental tax exempt bond issuances. The bill would also establish private activity volume cap rules to enable tribal governments, like state governments, to issue limited quantities of such bonds for economic development purposes. In addition, the bill would provide tribes and tribal entities with a $200 million allocation per calendar year (for three years) of Clean Renewable Energy Bonds (CREBs) to finance clean energy development projects.
Regarding pension and employee benefit plans maintained by tribal governments, the bill would end the requirement that tribal governments distinguish between “governmental” employees of the tribe and “commercial” employees of the tribe (the pension and benefit plans for “governmental” employees are treated differently under the tax code than those for “commercial” employees). Often determining which employees should fall under the “commercial” or the “governmental” classification is difficult and time consuming. State and local governments are not required to make this distinction.
HR 3030 would amend public charity classification rules to make it easier for tribes to form and fund separate 501(c)(3) nonprofit organizations. The bill would also extend to tribes the authority which is currently available to states to access the Federal Parent Locater Service (FPLS). The FPLS assists child support agencies in locating noncustodial parents, enforcing and establishing child support orders, and collecting child support. And finally, the bill would amend the Internal Revenue Code to extend to tribal child support agencies the authority to collect past due child support payments from the tax refunds of parents who have been ordered to pay child support. HR 3030 is sponsored by Representative Kind.
HR 2332 would treat tribal courts in the same manner as state courts with regard to determining whether an adopted child has special needs for the purposes of federal tax credits. Currently, if a child is determined by a state court to have special needs the child’s adoptive parents are eligible to receive an increased federal adoption tax credit. By recognizing tribal courts’ authority to make this determination this bill recognizes tribal sovereignty and provides tribal courts parity with state courts in this regard.
HR 2332 is sponsored by Representative Kilmer and is co-sponsored by Representatives: Becerra (D-CA); Blumenauer (D-OR); Cardenas (D-CA); Cole (R-OK); Conyers (D-MI); Cook (R-CA); Grijalva (D-AZ); Grimm (R-NY); Hanabusa (D-HI); Alcee Hastings(D-FL); Heck (D-WA); Honda (D-CA); Keating (D-MA); Kind (D-WI); Kline (R-MN); Larsen (D-WA); Maffei (D-NY); McCollum (D-MN); Moore (D-WI); Moran (D-VA); Pocan (D-WI); Rangel (D-NY); Ruiz (D-CA); Shea-Porter (D-NH); Slaughter (D-NY); and Don Young (R-AK).
Please let us know if we may provide additional information regarding the Tribal General Welfare Exclusion Act of 2013, the Tribal Tax and Investment Reform Act of 2013, the Adoption Tax Credit Tribal Parity Act of 2013, or tax reform generally.