Robust general welfare programs, deferred per capita savings plans, minors trusts, and making distributions from non-taxable sources of tribal revenues can provide value to tribal members without increasing taxable income.
Tribes may wish to seek legal counsel to ensure compliance with the Affordable Care Act's new reporting requirements and avoid major penalties.
The Obama Administration continues its focus on energy development on tribal lands.
The Native American Finance Officers Association (NAFOA) held its 34th annual conference on April 17-20, 2016, at the Gila River Indian Community's Sheraton Wild Horse Pass Resort in Phoenix. NAFOA is a national non-profit organization that advocates for growing tribal economies, strengthening tribal finance, and advocating for sound economic and fiscal policy impacting Indian Country. Below are three important takeaways from NAFOA's breakout sessions.
1. Tribal Leaders Can Reduce Taxes on Tribal Members without Reducing Income or Benefits
Jamestown S'Klallam Tribe Chief Financial Officer Diane Gange, Seminole Tribe of Florida Treasurer Pete Hahn, Internal Revenue Service (IRS) Director of Indian Tribal Governments Christie Jacobs, Holland & Knight Partner Kathleen Nilles and Akin Gump Strauss & Feld Partner Allison Binney spoke on ways that tribal leaders can help their members take advantage of various exclusions, exemptions, deferrals and deductions to reduce federal income tax without reducing income or benefits. Areas covered by the panel included:
Maximizing excludable benefits and general welfare payments
Making distributions from non-taxable sources of tribal revenue
Adopting a deferred per capita savings plan for elective deferrals
Conducting a tax-efficiency audit of the tribe's minors trust
In discussing the robust general welfare programs that their tribes had developed for their members, Hahn and Gange agreed that having written program descriptions, including eligibility criteria, is important to make sure that the programs are administered correctly and to protect their tax status. Even though not required by the Tax Code, written program descriptions and related tribal ordinances are proving to be effective best practices. Jacobs suggested that general welfare programs, which are excludable from income, must be more than just a mechanism for making cash per capita payments, which are still taxable and subject to withholding and reporting.
Another mechanism for making excludable distributions to tribal members is to structure all leases of trust land and contracts for the sale of trust resources to be paid into a tribe's Office of the Special Trustee (OST) account. Once paid into the account, the amounts can thereafter be distributed to that tribe's members free of both federal and state taxes. Hahn and Nilles further described a number of legal issues and practical barriers regarding this income tax exemption, and Jacobs announced that the IRS is working on supplementary guidance that would allow tribes to utilize the Per Capita Act exemption without having to modify their leases to provide for payment of lease revenues to a federally administered tribal trust account. Jacobs did not give a timetable for when the new IRS guidance would be approved for release to the public. (See Holland & Knight's alert, "Interim IRS Guidance Confirms Per Capita Distributions from Tribal Trust Resources are Nontaxable, March 18, 2014.)
Utilizing a tribal minors trust and an adult deferred per capita trust helps postpone or defer income taxation while amounts contributed by the tribe to a member's account earn investment income in a tribal trust. Jacobs reminded attendees that these trusts need to be carefully structured to avoid constructive receipt. Since they are owned by the tribe, they must remain accessible to the tribe's general creditors. In the case of minors trusts, the IRS has issued two Revenue Procedures, the latest of which is Rev. Proc. 2011-56. In the case of deferred per capita trusts, the IRS issued a private letter ruling in 1999, which follows the same approach as IRS guidance issued on so-called "rabbi trusts" set up in connection with deferred compensation plans for executives. (See Holland & Knight's alert, "A Tribal Financial Executive's Guide to Deferred Per Capita Plans, Sept. 14, 2015.)
For more information on tribal tax matters, contact Kathleen Nilles.
2. Tribal Employers With Questions About the Affordable Care Act's New Reporting Requirements Should Seek Counsel
Applicable large employers have new reporting requirements under the Affordable Care Act (ACA). Generally speaking, an employer with 50 or more full-time employees, including full-time equivalent employees during the prior year, is considered an applicable large employer.
By March 31, 2016, such employers were required to use the new IRS Form 1095-C to furnish information to each of their full-time employees about the healthcare coverage they offer. Additionally, by June 30, 2016, employers must file these forms with the IRS electronically. Employers that are permitted to file with the IRS on paper must file by May 31, 2016.
Tribal employers are working to comply with the new ACA reporting requirements, but there continues to be uncertainty in implementation. Each employer has unique circumstances such as the benefits it offers employees, its business structure and software capabilities. Understanding how the requirements apply to a specific tribal employer may require advice of trained legal counsel.
Additionally, the U.S. Department of Treasury will host a conference call at 3 p.m. ET on May 13, 2016, to engage tribal leaders and their representatives on the employer shared responsibility mandate of the ACA.
For more information on ACA compliance, contact Nicole Elliott.
3. Obama Administration Continues to Focus on the Development of Energy Projects on Tribal Lands
The Obama Administration remains committed to supporting economic development on tribal lands. With declining oil prices and an increased U.S. commitment to mitigating the effects of climate change, the administration is turning its attention towards renewable energy projects on tribal lands.
The Department of Energy recently announced a $9 million investment in 16 facility and community scale clean energy and energy efficiency projects on tribal lands. Additionally, after years of no appropriated funds due to sequestration, the Department of Interior's Office of Indian Energy and Economic Development (IEED) is able to invest in conventional and renewable technologies in Indian Country, including all types of mineral development projects. IEED further supports tribal utility formation, uniform commercial code development and the establishment of requisite joint powers agreements under the Tribal Energy Development Capacity (TEDC) program. A Notice of Funding that provides details on how to apply for these IEED grants is expected soon.