Federal Taxation

EXECUTIVE SUMMARY

• Tribal Governments- Federally Recognized Indian Tribes

Federally recognized Indian tribes are not subject to federal income taxation. Income earned by the tribe is not subject to income tax, regardless of whether the business activity is inside or outside of Indian-owned lands.

See Rev. Rul. 67-284, 1967-2 CB 55, stating that the income tax statutes do not tax Indian tribes with the tribe not being a taxable entity.

The Bureau of Indian Affairs publishes a list of Federally recognized tribes periodically in the Federal Register.

• Tribal Governments- Federally Chartered Tribal Corporations

Federally chartered tribal corporations organized under the Indian Reorganization Act of 1934 (IRA), Section 17, are not subject to federal income taxation. Income earned by the tribe is not subject to income tax, regardless of whether the business activity is inside or outside of Indian-owned lands.

See Rev. Rul 81-295, 1981-2 CB 15, stating that a federally chartered Indian tribal corporation has the same tax status as the tribe and is not taxable. Affirmed in Rev. Rul. 94-16, 1994-1 CB 19. 

• Tribal Governments- State Chartered Tribal Corporations

State Chartered tribal corporations are subject to federal income taxation. Income earned by the tribe is subject to income tax, regardless of whether the business activity is inside or outside of Indian-owned lands.

See Rev. Rul. 94-16, 1994-1 CB 19, stating that a tribal corporation organized under state law is not the same as a tribal corporation organized under IRA Section 17.

• Individual Tribal members

Exemption of federal income taxes on individual Indians must be based on a treaty or act of Congress as the Internal Revenue Code does not specifically exempt individual Indians from payment of federal income tax.

See Squire v. Capoeman, 351 US 1 (1956). Also United States v. Anderson, 625 F2d 910, cert. denied. 450 US 920 (1980).

General welfare payments from the tribe may not be subject to federal income tax if based on need unless the payments are made pro rata to all tribal members. Such payments to all tribal members may be evidence that such payments are not based on need.  See the January 2007 ITG Newsletter for any region for an explanation of the taxability or nontaxability of "general welfare payments."

NOTE: See section on "Indian Gaming" for specific rules regarding distribution of net revenues from gaming.