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S. HRG. 112–674

NEW TAX BURDENS ON TRIBAL SELF–

DETERMINATION

HEARING

BEFORE THE

COMMITTEE ON INDIAN AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

JUNE 14, 2012

Printed for the use of the Committee on Indian Affairs

(

(II)

COMMITTEE ON INDIAN AFFAIRS 

DANIEL K. AKAKA, Hawaii, Chairman 

JOHN BARRASSO, Wyoming, Vice Chairman 

DANIEL K. INOUYE, Hawaii 

KENT CONRAD, North Dakota 

TIM JOHNSON, South Dakota 

MARIA CANTWELL, Washington 

JON TESTER, Montana 

TOM UDALL, New Mexico 

AL FRANKEN, Minnesota 

JOHN MCCAIN, Arizona 

LISA MURKOWSKI, Alaska 

JOHN HOEVEN, North Dakota 

MIKE CRAPO, Idaho 

MIKE JOHANNS, Nebraska 

LORETTA A. TUELL, Majority Staff Director and Chief Counsel 

DAVID A. MULLON JR., Minority Staff Director and Chief Counsel 

(III)

C O N T E N T S 

Page 

Hearing held on June 14, 2012 ............................................................................... 1

Statement of Senator Akaka ................................................................................... 1 

Statement of Senator Barrasso ............................................................................... 2

Statement of Senator Johnson ................................................................................ 2

Statement of Senator Udall .................................................................................... 3

WITNESSES

Jacobs, Christie J., Director, Office of Indian Tribal Governments, Internal 

Revenue Service, U.S. Department of the Treasury ......................................... 38

Prepared statement .......................................................................................... 39

Klein, Aaron, Deputy Assistant Secretary, Office of Economic Policy, U.S. 

Department of the Treasury ................................................................................ 32

Prepared statement .......................................................................................... 34

Lomax, William, President, Native American Finance Officers Association ...... 54

Prepared statement .......................................................................................... 56

Malerba, Hon. Lynn, Chief, Mohegan Tribe; on Behalf of the United South 

and Eastern Tribes, Inc. ...................................................................................... 47

Prepared statement .......................................................................................... 50

Sanchey-Yallup, Hon. Athena, Executive Secretary, Confederated Tribes and 

Bands of the Yakama Nation Tribal Council ..................................................... 23

Prepared statement .......................................................................................... 24

Steele, Hon. John Yellow Bird, President, Oglala Sioux Tribe ............................ 4

Prepared statement .......................................................................................... 6

APPENDIX

Dillon, Sr., Herman, Tribal Council Chairman, Puyallup Tribe of Indians, 

prepared statement .............................................................................................. 69

Mendoza, Hon. Gregory, Governor, Gila River Indian Community, prepared 

statement .............................................................................................................. 73

National Congress of American Indians (NCAI), prepared statement ................ 79

(1)

NEW TAX BURDENS ON TRIBAL SELF–

DETERMINATION 

THURSDAY, JUNE 14, 2012

U.S. SENATE, COMMITTEE ON INDIAN AFFAIRS, Washington, DC. 

The Committee met, pursuant to notice, at 2:15 p.m. in room 

628, Dirksen Senate Office Building, Hon. Daniel K. Akaka,

Chairman of the Committee, presiding. 

OPENING STATEMENT OF HON. DANIEL K. AKAKA,

U.S. SENATOR FROM HAWAII 

The CHAIRMAN. The Committee will come to order. 

We say aloha to all of you and welcome to this hearing on New 

Tax Burdens on Tribal Determination. 

Federal Indian policy is rooted in the United States Constitution, 

in its treaties and its Federal statutes, and in these documents and 

in administrative actions the Federal Government has always acknowledged the unique status of Indian tribes on government-togovernment basis. We can all agree that Indian tribes and Indian 

people have given much to this Country, in land, in every war since 

the inception of this Country, and in culture. Tribes have never 

been opposed to contributing to the well-being of the Country or 

doing their fair share, so long as the unique status of sovereigns 

is acknowledge. 

Today we are holding a hearing on taxation of Tribal governments and individual Tribal members to ensure that the government-to-government relationship is upheld by every branch of the 

Government. 

During this Congress, the Committee has heard from many 

tribes that are concerned with recent efforts by the Internal Revenue Service to tax important Tribal governmental benefits provided for the general welfare of their citizens, a cultural practice 

at the core of Tribal identity. Today tribes provide a wide range of 

these programs, including funeral assistance, elder care, education 

assistance, and many of the social services. 

The ability of tribes to provide for the general welfare of their 

citizens is truly critical to the self-determination of Tribal governments. This is especially important given that one out of every four 

Native people in the U.S. lives in poverty. 

Where the Federal Government has fallen behind in its trust responsibility to tribes, tribes have done their best to fill in the gaps. 

This Committee has spoken in strong support of the efforts of the 

2

Department of the Interior to settle longstanding trust suits. However, we have heard from tribes who are concerned that distribution of those trust settlements to Tribal members may now be subject to taxation, in sharp contrast to prior policy and Federal statute. 

Tribes have raised these concerns during consultations with the 

Treasury Department and the Internal Revenue Service. I am looking forward to a productive discussion on this issue and welcome 

any recommendations on moving forward in a positive way. 

The Office of Indian Tribal Governments within the Internal 

Revenue Service was created to enhance the relationship between 

the IRS and Tribal governments. You can see the mission statement of that office displayed here before you today. It is this side. 

Today we will hear from the Treasury and the IRS regarding 

their efforts and to hear about their recent consultations. We will 

also hear from Tribal leaders who have been directly impacted by 

IRS policies and from national organizations who have been involved in the Tribal tax initiatives. 

The record for this hearing will remain open for two weeks from 

today for comments from all parties. 

Senator Barrasso, as the Vice Chairman, will now present his 

opening statement. 

STATEMENT OF HON. JOHN BARRASSO,

U.S. SENATOR FROM WYOMING 

Senator BARRASSO. Thank you very much, Mr. Chairman. As you 

advised, I took a look at the mission of the IRS Office of Tribal 

Government, and you see the words partnership, opportunities, respectfully, cooperatively, and that is what we are talking about 

with self-determination here, Mr. Chairman. So I want to thank 

you for holding the hearing. I am going to keep my opening statement brief so we can proceed to the witnesses. 

Last December, the Committee received testimony from Indian 

tribes about the effects of taxation on Indian reservations, and then 

on May 15th of this year the Finance Committee held a hearing in 

which it addressed, in part, the Tribal taxation issue. So this hearing, I think, hopefully, will build, as you have said, upon past hearings, and to that end we will hear from tribes on how recent IRS 

actions have affected their communities. We will also hear from the 

Department of Treasury and the Internal Revenue Service on these 

and other proposed actions for Indian Country. 

So I welcome the witnesses, look forward to the testimony, and 

thank you, Mr. Chairman, for your leadership. 

The CHAIRMAN. Thank you very much, Mr. Vice Chairman. 

Senator Tim Johnson, your opening statement, please. 

STATEMENT OF HON. TIM JOHNSON,

U.S. SENATOR FROM SOUTH DAKOTA 

Senator JOHNSON. Good afternoon. Thank you, Mr. Chairman, for 

holding this hearing. I first would like to welcome Mr. Klein from 

our second panel. Welcome, Mr. Klein. I wanted to take time to 

thank you for all your work with my staff at the Banking Committee. 

3

I would also like to give a special welcome to a good friend, President Steele, from the Oglala Sioux tribe, for his attendance and 

testimony today. Welcome, President Steele. It is good to see you. 

As you know, Mr. Chairman, this issue has significant effects on 

the tribes and Tribal members of my home State. In South Dakota, 

we have nine Indian tribes. Unfortunately, some of these tribes are 

located in the poorest counties in the entire U.S. Many of the families on these reservations do not have steady incomes and, from 

time to time, require assistance from our Tribal governments, from 

heating assistance to burial assistance, to pow wow prizes, our 

Tribal members rely heavily on their governments. 

While I understand that the Internal Revenue Service has a mission and there should always be accountability for Federal funds, 

we should not be focusing attention on the Nation’s poorest individuals. Rather, we should be using our treaty and trust responsibility 

to look for ways to assist our tribes to become more self-sustaining 

and to provide them the tools to determine their own path forward. 

I look forward to the testimony today and it is my hope that we 

can find some solutions today to alleviate the burden put on our 

poor tribes and Tribal members. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you very much, Senator Johnson. 

Senator Tom Udall, your opening statement. 

STATEMENT OF HON. TOM UDALL,

U.S. SENATOR FROM NEW MEXICO 

Senator UDALL. Thank you, Mr. Chairman, very much, and 

thanks to co-member Senator Barrasso for moving forward with 

this very important hearing. Our discussion today regarding the 

general welfare exclusion application to Tribal government programs is an important one as we work to improve economic conditions in Indian Country. 

The title of the hearing is very formal, but the problem we are 

here to discuss goes to the very heart of Tribal self-government and 

self-determination. The Federal Government and all of its arms 

must interact with the tribes as the sovereign nations that they 

are, and with all of the respect that that implies. I am especially 

concerned that Tribal programs to improve housing conditions, provide training and educational opportunities, and to preserve traditional customs could be viewed as a way to skirt taxation of per 

capita payments. 

Working through the application of tax law is never an easy 

thing, but I hope that our efforts today will help make the process 

easier to navigate for tribes and ensure that all parties are working 

together effectively. 

Look forward to hearing the testimony of the witnesses and, Mr. 

Chairman, thank you once again for focusing on this issue. 

The CHAIRMAN. Thank you very much, Senator Udall. 

With that, I welcome our witnesses. I appreciate that you have 

all traveled to be here with us today and look forward to hearing 

your testimony on this very important matter. 

I ask that you limit your testimony to five minutes. Your full 

written testimony will be included in the record. 

4

Serving on our first panel is The Honorable John Yellow Bird 

Steele, who is President of Oglala Sioux Tribe in Pine Ridge, South 

Dakota; and the Honorable Athena Sanchey-Yallup, Secretary of 

the Tribal Council for the Confederated Tribes and Bands of the 

Yakama Nation in Toppenish, Washington. 

President Steele, will you please proceed with your testimony? 

STATEMENT OF HON. JOHN YELLOW BIRD STEELE, 

PRESIDENT, OGLALA SIOUX TRIBE 

Mr. STEELE. I thank you, Senator Akaka, Senator Barrasso, the 

other members of the Committee. 

I have supplied you with a written testimony, and I would say 

that on the back of this written testimony I supplied a resolution 

from what is called the Great Plains Tribal Chairmen’s Association, 

and the Great Plains Tribal Chairmen’s Association, of which I am 

the Vice President, Great Plains Tribal Chairmen’s Association 

calls upon the United States to seek legislation to correct the Internal Revenue and the Treasury’s efforts right now. So that is where 

I will be coming from, is asking yourselves to possibly do legislation 

for us to straighten this out. 

From the Oglala Sioux tribe, one of my Tribal presidents tells me 

that an IRS person went to his reservation, and when he told him 

he had a treaty, he told him he can read his treaty in prison. These 

field people need to be more educated. They represent the United 

States Government. 

Now, I think to myself, these immigrants come over from across 

the sea to get away from King George’s tax and his, what were 

those prisons he had over there, debtor’s prisons, and they come 

here and want to put a Tribal leader in their debtor’s prison; what 

they were getting away from overseas to come over here to this 

great land? It sounds a little crazy to me. That is what he said to 

that Tribal president. 

And to you, Senators, honorable Senators, I do not blame you, 

but we pay every tax there is to pay of the Federal Government 

from our reservation except for the land tax, which the Federal 

Government holds in trust for us. We don’t mind paying your taxes; 

it means we are getting money from somewhere. But we would pay 

more taxes if you were to give back the stolen lands of the sacred 

Black Hills that the United States Government unilaterally stole in 

1877, and confirmed in 1980 by the United States Supreme Court. 

We would pay the Government more taxes if you give back that 

land you stole. 

But as it is now, on the reservations in South Dakota, we number number one, number two, number three, number seven, poorest 

in the whole United States in the 2010 census. Everybody sitting 

in this room does not or cannot empathize with an individual living 

on Pine Ridge. Where is your next meal coming from? How do you 

get some gas money to take baby to the hospital because he has 

an earache? Mother has cancer; she needs to get to an appointment 

in Rapid City. Father-in-law died. To give him a traditional wake, 

like our ancestors did, it costs money now. There is Federal law 

saying you have to be embalmed, put six feet under; and they usually stay up with the body for anywhere from two to three nights. 

5

Go to the tribe, get help for gas money. Go to the Tribe to get 

help for the funeral. That funeral, it has run the Tribal government 

quite a bit of money here, just this year, to the tune of over 

$400,000; about $3,200 per individual funeral. If we give a 1099 for 

that, can you imagine, next year, IRS coming to that person and 

saying you owe us $1,000? Where is that individual going to get 

$1,000 when he can’t get enough gas money to go to the hospital 

with his young one? 

Senators, my daughter raised four children with no running 

water, with the freezing weather, two-inch walls on a trailer that 

was donated because some State upgraded their codes and they donated it to us free. 

IRS is sitting out there waiting to tax, and they are making the 

Tribe the middleman with giving a 1099 to those individuals. They 

do not understand that we have a treaty with the United States 

Government that was ratified by two-thirds of the Senate, that 

falls under the Constitution of the United States, Article VI, supreme law of the land. We are very proud of our sovereignty. Contrary to Hicks vs. Nevada, the Supreme Court of the State of South 

Dakota says State police cannot go onto reservations. I have an 

order from FCC saying we have regulatory authority over the airwaves over Pine Ridge. We own all the taxes there. 

IRS come in to do this, treating us like an organization; doesn’t 

recognize our sovereignty; taking a big chip off of our sovereignty; 

ordering us to help them tax our own Tribal members who can’t 

afford it. This, Senators, is unconscionable. Maybe our treaties are 

old. Maybe the Constitution is old. They don’t want to recognize 

our self-determination, our sovereignty; a sovereign within a sovereign. 

The CHAIRMAN. President Steele, will you please summarize your 

statement? 

Mr. STEELE. I have spoken. I will answer questions. Thank you. 

[The prepared statement of Mr. Steele follows:]

6

PREPARED STATEMENT OF HON. JOHN YELLOW BIRD STEELE, PRESIDENT, OGLALA

SIOUX TRIBE


614a1.eps
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614a2.eps

his brother would t.ake in the family and care for them. If he needed help, the whole 

community would help them. If1ribal elders needed food or aid, the YOllngpeople would 

help them. That is our tradition-we care for all of cur people. As our great lender Crazy 

Horse said, "We preferred our own way of living, and we were no expen~c to the 

government." 

Our outlook is not so different from the rest of America. Wh~n President Bush and 

Senator Kennedy reached an agreeme.tll on Educmion, Congress enacted a law that says, "No 

child loft behind." AJllong our Lakota people, when wcpa5s Jaws 10 bcticronr community, we 

say, "No one left behind." 

Historically, the United Stal(!S visited Jllany injustices upon our people. 1n 1854, when a 

stray cow left behind by Moiliion settlers on th~ road to Utah was found by a Mnkolljou Lakota 

man, named Riga Forehead. tmvellingfrom tho North, he brought ilto hisrclatives among the 

Sicangu Lakota. They ate it for dinner. The next day, a U.S. Annyplatoon led by Lieuterumt 

Grattan came to the Lakota camp and confronted Chief Conquering Bear, demanding sunender 

of the man. The Chief explained that High Forehead hod trovcUcd on, but Chief Conquering 

Bear then offered three horse:; to replace-the cow. LI. Grattan and his men opened fire, killing 

the Chief. The Chief's people defended themselves and killed Grattan and his Hi men. The 

TIC:>:! year, President Piercc Stlnt Geecral Harney and 600 men on a pWlitive e:<pedition to punish 

ourpeoplc for defeoding ourselvcs. AI \lIe BaUie of Ash Hollow, Harney and hlsmen surrounded! 

sleeping village with cavalryaud eaunons and killed 86 of our men, women and children, who had 

nothing to do with the Grattan Affair. 

In 1866, the United Stales sent onL a treaty delegation to FortLaromie to negotiate a 

peace trcaLy, but W11ih:thc trcatydelegation was meetingwith the chiefs, the Anny came with a 

column ormen, horses and caMons 10 build fults in ollr Powder River Country. ChicfRed 

Cloud said, "The Great Father sends us presents and wants TIS to se11 him the road," Red Cloud 

said. "Bullhe While Chicfgoe5 with soldiers to stealthc mad bdore the lndinns say yes orno." 

That began Red Clond's WM 10 save Ihe Powder River Country, and ill the end, the Unitod 

States abandoned its forls and sent out a WalY delegation. 

In ourSiouxNanon Treaty 0[1863, western South Dakota induding the BlnckHills was 

recognized as our pennancn! homeland, we fCServed 44 million acres in Nebraska, Wyoming and 

Montaua as "nlleeded hidillll territory," and we also reserved our hunting grounds in Nebraska 

and KllIlSas. Under the 18G8 Treaty. the United Stales recosnized our nrigirnl1 rights \0 selfgovernment. 

In Ex Parle Crow Dog, 109 UB. 556 (1883), the Supreme Court hold that the United 

States did not bave euthorilY to tryCrow Dog for lhemurder ofSpottcd Tail, a well recognized 

Sioilngu L;lkolll. Chief, becau5e Iho treaty reserved crimes by ooe Imlian against unotherto the 

tribaljustlCll system. The Supreme Court eKplained: 

TIN pledge 10 secure to these people, with whom fhe United States was 

cOlllmeting as adisunet political body, an orderly government, by appropriate 
8


614a3.eps

le~slntion therennerto be [Turned and enacted, neeessarilyimplies, having regard 

to all the circumstances attending the tr.msaetion, that among the arts ofcivilized 

life, which itwas tho veryPUlJlose ofall these arrangements to introduce and 

natl1rnlize amonll them, was the highesl and best ofall,-that ofself-govenunent, 

the regtliation bytllemselvcs of their own domestic affuirs, the Jru\intenance of 

order and peace among lheirown members hy the administration of tile iT own 

laws nnd customs. 

Yet, the United States violated the treaty. Just II. few years after !he treaty was signed, 

Gcnernl Shennan sent out the Custer expedition 10 search for gold in the Black Hills. Later, he 

ordered \IS to leave our hl11ds, which were protecled under the 1868 Treaty. When our pCllple 

stood by our rights, PresidCllt Graot seot out Custer, Crook and Terry with separate anncd 

columns, leading to the Battle oftbe Rosebud ~J\d the Battle oflhe Little Big Horn. After we 

won the battles, the United St.atesscnt out more annies and ourpoople were hunted in our own 

lands. We still have relatives who urc war refugees in Canada. 

Wr. knelV!hr. value ofthe Bl!!Ck.Hi!1s, our sacred place nnd the Center of the Lakota 

Univorse, The gold mine lllmcd Ollt to be the largesl and most productive in tile Western 

Hemhphcn::, \.Villi billions of dollars in gold mined. The theft ofthe gold mine and :rm11ions uf 

neres ofland left our people in poverty. As an elder, Chief Red Cloud reflccted that the U.S. 

Governnlilllt "made us many promises, bul they only kept onc. They promised to take ourland 

and they took it" 

We suffcrmauy hardships \0 remain together as our Oglala Lflkotn Nation. Shannon 

County on our Pine Ridge Reservation is the 3m pooresl county in America, measured by per 

eapita ioeomc. Over 47"h of our people live below the poverty lino. Our Lnkota relatives on the 

Cheyenne River SiollX Reservation in Zicbneh County, South Dnkota live in the poorest county 

in Amcnic:l. Our L~kot:l rel~tives on the Rosebud SiollX Reservation in Todd County, SouLh 

Dakota live in the 2nd poorest county in America. When our Lakota and Dakota relatives on the 

Standing Rock Sioux Reservation counties arc counted, 5 ofthe 10 pooresl counties in America 

are located on our Sioux Reservations that were originally part ofllle Great Siom: Nalion under 

the 1868 Treaty. 

In our treaties,. we ceded millions of acres ofland to Ihe United States in exchange for 

lrealypromises, edur:ation, hr:alth care, housing, and economic development. The basic pledge is 

th~t the United States would help us make our peunilm:nl homes ou the rese)"\'aliOIlS to be livable 

homes. Yet, those treaty promises hl'lve not been fulfilled. 

ChiefRc:d Cloud said, "I am poor ••• but I am the Chief ofa Nalion. We do net want 

riches butwe do want 10 [min our children right Riches would do \IS no good. We could not take 

them with 113 to the otherworld." Tollay, ulthoogh our people are poor, we are proud und we 

=d OnOUT Treaties. We call upon the United States to respect ourTn.'lllies, aspmofthc Supreme 

tuw orUm Land. 

Tn short, the 1868 Treaty sets apm our land lOr our "absolute and IIlldlsturbed use" as a 

permanent home und rccognizt:s our right 10 self-government. Under Ex Parle Crow Dog 
9


614a4.eps

(J883), our trealies reserve "the highest ,md best runn ofgovernment" to oUfpeopJe, selfgOWlrnmelll. Today, we rely on our original sovereign authority to provide mr our p~ople as II 

Native Nation. 

Under Feckral Jaw, !here is no repeal of II prior law by implication. Our treaties are lhe 

Pederal laws thaI deal most specifically with our people. When the United States Conk'T~s~ 

passes n genem1law thnt would interfere wilh our trcaties if the laws were not harmonized, those 

laws must be read together with our treaties to preserve our righl3lo self-government. 

Since th~ United Stales has not fullyuphe\d its treaty obligations to assist our people willi 

education, henlth care and other government services, we, as a tnbal government, mllSl do 

everytlling we can to better our tribal COlllTImnity. The IRS violatcs our treaties when it seeks to 

tax the basic government services that our tribll1 govenunent provides to ourcitizCllS. 

IRS Imeifertmce with Tribal Self-Govermllellt 

Indian tribes nre sovereigngovornments that pre-date llie fonlU!tiWl ofllie United Slates. 

Indian tribes are the original American democracies. Our right to self-determination as 

indigClmus peoples must be protected under int~rnatioIlllI human rights laws, and indeed, the 

Constitution ofthe United States reeagcizes the oripnal and continuing sUltUS of Indian tribes as 

indigenous soverdgns, implicitly and explicitly. 

The Apportionm.ent Clause e.'>ciuucs "Indians not taxed" from Apportionment of 

Congruss and from the per c2pita laXation originally levied by the slates to fund the United Slates 

government in its formative period. Our people wcre originally not taxed by the states or the 

United States because they were citizens of our own tnonl nations. AOer almost a ocntury of 

treaty-making and more than 370 treaties, tbe 14th Amendment affinned the Constitution's 

original provisions; fust, by treating mbo1 members as citizens aflndian nations, nO! the 

United States, in the Citizenship Clause and second, by rcaffinning the status of"Jndinns not 

taxed" in the Apportionment Clause (which was amended to. do away with the constitutional 

reference to slavery). 

The 14'" Amendment's Citizenship Clause provides: ''All per50115 hom or naturolized in 

the Ullited Stares, (lnd sf/bjllet to th"jurisriiertOIl thereof, are cWzem· of the Ullited Srates mul 

of the Stale wherein they reside. ~ In Elk 1'. Wilkins, 112 U.S. 94 (1884), the Supreme Court 

held that the Citizenship Cluusedid not automatically make tribal eiti7.ens become U.S. eitizells.2 

Tho COllrt explained: 

I Tho Constitution oflno United Slate; ,ccognizcslndian tri;,~ as so. .. ,..,igns, with uuthority 10 eUler inl<) Tre.ti .. 

and condllct intemMiun.l ..,l.tions io llic T~ty CI~\tS~. By tb~ >ulhmily ofthc Supremacy Clausll, OUI S;OIlX 

Nation Treaties ."" ".n or"Supromc Lawoflbe Land." 1"Ilc Apportionment Clause excludes "lndlans I>Dl ta~od: 

.from mN.!ion and "I'portiorunont ofCo;,gress. 

, "Sollator Jacob HOWllrd ofOb;o, the ... tho, orlb. Citizensltip Clause, defended the ,~w langllage llgoinst the 

charg.l.hut it 1V,,,,ld make IOlll13n. citi:zeos of!h: United StoleS. Howard assured .kc-ptios ~"'1 'Indi.ns bom within 

!be limits oftho Unitod St,res, oDd who maintain their m1>al ,..,hlio,"" on: not, in Ibc so,,,. 0 fthis amendmcn~ brim 

snbj<>Cl to thejurudiction of the United Stntes.' Senator Lymon Trumbull, Cl"irmoll ofth. Son'.te Judtdory 

Connnil1oc, supportro Howard, coll1e,dins thot ',nbject 10 'bejurisdiotion thercof' IUMnt 'nOl owing .Uellu.ru:e to 
10


614a5.eps

Under fhecon~:iM;1'm ~fthe UnitOO. StBt.es,;\\.'l ;trigiul\lly d.ablished, "Jndia!1~.tI<lt 

taxed" werll tlltdutlcd from thcpcrsons U~CNq!i.lg to whose numbers 

rep\'CS';mM!;h~ 004 dil(t":el ta>;es "'''l:tl ilppo11.lQneil (Il!!m\g the :;,;wrnl *~~s; l!lld M.9g'<lS~ md Mol (f.'lc,-c.\ied the power \(l ~gllWe ;::on1l'!lil..."Ci,'. willi tlre Inmw. 

tr'~~ mm ilie rocmt:..:rn mere!.l-£; whmw,yW\1n Ot wi':hm;l!:'Ie b<P.mdmics .;.-fnue 

~ftflJ: -Sfal.('$ Clffu" Union. Th.e L"l'j;~ ~ beml.rwitbin :!leterriWriai !l~'& of 

tire Unlled Smtes, were nal,strict!:y 'f~g, iJ:,rcigH'Si~ but fuey-wcre af,~ 

UaUolIg, dl1itioot !.-"t'>litioal communities, witb whom Ibe United Slatcs'migl'J; ami 

habitu~Jly did. <l1l!~1, ~s they thought ;(h, eith.er 'lhrollgh treaties m,,~e by the 

presiden1. ~r.(t (,IIUJI,:t, or thr()\lgh acts of cnngN~s In lhe ordinary j'"l'Jll5 i1f 

legislatiou, Th<l U)embers oftho,se trib~ owed immeiliatea!legiance to Ibtltr 

S<.:verallri!lCII, all'l were not pal1 of the pc<lpk (1f'th~ lirited States. Tlv:<ywerefu \I. 

dependent o:Q."Jdition, a liW.., "r pnpil~ge. r=~ lhatflf a ward 10- ni~ 

8lI:l.o-niom.. fudllll$ ::rrui their property. cx~ .from tJXl1\ioB ~ytre;r,y or ~};l of 

trw't-l$!ed S!;:.w<\ "'auld run be w;C'd by M1 SIllt<!. &'lll<';u -ams -m =y.'IS~ cfiC 

l!<.>{ Jpply l>:!> Indkms-. u:W---hSoW e;q;,~Sll'i w to <\l!.\:rrlysa:r.ib aa r[llWu<m w 

irrci.l.u!" tbe1n..~ b.\..itan~ lx-m "~l1in th" U:nilorllM limits ofth<: l.)1li\:e:l Smt-"'S, 

W.w-J>{I,,-S of; ~llil Owlng immcdi'lllel'l:fugill!\C'l1!O-, (lneoftlu: lmlia.. tti~.\t {ml 

-alien tho-U!lJl c\~ndcn! power,) olthnughltt a geographical senso;: born:ln the 

Urr:t~ Slatrw, M'CllQ more "born in tae. trntkd States 3lld suttiect 10 t~e 

jurisdlctio1l1her~~i;," within the meaning IlttM flr~t sootion of the fo=m'ith 

ameudmmt, ~@ Ibe cbildre;l ofsubj= ehny fureign Jovemme.'1t bom withlu 

!he domain of:lwt. !!pvernmenl, or the enJl1Rn boJ;ll witlu!!: the United S[111<% Qf 

lIITl~(lfS ~\, W<W ptiMic lIlinislc~ ()ffurcigu mrtiom, TIlts l'i::W is oc-ruim!e<'i 

bylhe $$CQnd se.mou ot\he m'i~m<fh ~11".t~\lt, whic-~ rw>Vidcs llmt 

'~:nU!Il1l$sl1a11be~l0n00illWl\g'ilc!le'Rflll~;.£wr&lJgromci; 

~.:ti.ve numb~ ootm'Jng tte-wilolcnumbCl." of-pill':SOiJi> ill =h :,.t;rt" 

~Jfu" ind!lIl!l not taxed: _lsdfuns nnl tmwl ='rtin "-'<!"Jw.d imm ill\') 

eour.t, fo~ thc ;!lI,I5o:m that they arc ncl-c.ili;;ms. 

TIle United Sf9.I~ h1l!l, since tile first dllYli oftM Republic, recognized tl1dillll nib~s as 

native-llations, under t..~)jjS protec1ior.. See AnicitZ! qfConjiJd,mtioll, Art, VI (17tH); Tfl;l:'lty 

with the DclllWm:~ Nfltiuu. 1'178. As a result, India! trlhe<: ar~ recoJ • .'cized as govCJ'!lm~~'l, flQt 

taxable onti!!es nuder the lntemal ReY{)nue Code.. SwUe..<!,;t1k,!'OApaco)G Trl~ >I. )::III$, ";It 

U,s.. ~45 (1973)... The 1"'dbal C"Il"lt:mm≪ Tax S!<ltuS Acl, 25 U,S.C. =--n!n, l$,(l to)leelion 

of our govEiffiliWl'l stat$.. 

A!tl>.:JIlgh Indian trib-...", V'l'C.renotml'.:ie eiful~ns l~y fue 14<l> Ame!!dmtn~'!: C\lf~ 

Ci1lUSe, -C~$..?!(:led l"arly ifl \he Z¢'O:mmry to ~orP.::r J;!tb:e;,s1;ip Oll Am~ [w.1i!1n!l. In 

1924, under the Tllc1i~ CitiX<!fl$11ipAct. non-citi~ti Ini.li'llls 'Ivere made U.s. citiun~: 

~n}'body e!<c.,.lubjOd.la tb~ ~~~1(: jurisdl:tion ofUnil.d SlQllI$! rndi~I~, he co!!cluded, weN nol ',!\l.lj(:l11 

"H'te jt:rlsd""-l<m' ~r!1!; VtJ~ Sl~!". "~,, ..... Ih~y "",,,,hB~ti~'U'.::-----el'<:ll ifunly-p:nfu.t oJIll>'i~~.llO"~t.llb.clr 

tnoes. TIl .... ["'to n:qui!'l)lll"n(il W=~f for United S~\1:. ~l:h"~lSblpi !w;n o:r~.t>u"oH:.ed 1n "'"' lJ1,,;(:4.%'IO' oml 

'iUbjecl ID itoj",;'dl<:ll""," Slltte(, ~'1v~,g C,"IizL""" Qmg!>e!.I\. C-~h!J~oh;p. Md ~ M""'IiNg"JI'-'~ pl}<,~,~~ 

,~"~{l\>r.. 17.:mU). 
11


614a6.eps

Thar all mm citizen Indialls born withiJr the t«rriloriailimilS of lire Unlled 

States be, ami 1"8)' are hereby. declamd 10 hi! ciriwlls aflhe United States: 

Prol'iriftd Tlwr the grmlling "fsuch cil(;:;elr:l1lip shall "Q/ in allY mallller ill/pair 

or otTrc/1II!sc affect llie right of allY InrIirm(o (ribal or ather propr:rty." 

Act ofJune 2, 1924, Public Law 68-175. The Indinn Citizenship Act was noLiuteudcd to disturb 

trlbal citi7.enship orlherights of individual Indiansto tribal property or lands. TIle IRS should 

Iherefororecogniztl thaI the Iudian Citi2;CllSllip Actcxempts tribal government benefits 10 tribal 

members from taxatiou. 

Accordingly, the Supremc Court has held t.lat individual Indian income that is derivcd 

from trust lands is uot subject to income laxation. See Squire v. CapQ«fJlWI, 351 U.S. 1 (1956). 

Taken togother, the Constitution, trealies, and statutes onhc United States make clear that our 

lribal cilizens should nO! be taxed bylhc Feden:tl Government, our Trustee, based upon tribnl 

govemlUenl programs or services derived from mba: truSI prop~r!y, designed to promote the gone",1 

welfilre of tribal citizens, o[ designed to make onrrescrvationslivabJe as "permanent homes." 

lnitsreguiations, the IRS explains that individtlal Indians, though gcncrallysubjectlo 

Federal income taxation, should not be taxed upon: 

22.41.1.6 (10-14-2011) Nontaxable In~om .... of Tribal Members 

1.) The [llllowing ilems are specifically exclilded frllID the taxable iucome of individual 

tribal membew: 

Income directly derived by the Indiarl allottee ftomresnicted allotted land that is 

held in trust by the United Slaies Govcmment, 

Income derived from a fishing rights-related activity that is exempt under IRC 

section 7873, 

Income that is exempt undertrell.ty or statule, and 

Income received from land claim settlements andjudgmenls pursuant 10 25 

U.S.C.1407. 

We believe that (he IRS has recognized the right principle-Federal tax laws are IHlI 

inlendcd to interfere with tribal self-government or treaty rights. Yet, the IRS docs not 

apparently understand th~t tribal government programs WId services are the essenw of tribal sclrgovenuncnl because mba! self-government is oruyrcalizcd through tribal govcrrunent action on 

behalf of ils citizens. 

Because of Ibis failure of vision, tbe IRS has become amenacing, interfering and 

overwhelming bureaucracy in Indian Cannily. Them.8 app3lUntlyhas an unspoken plan to audit 

c:ach and every Indian tribe in Ihe country in a hanssing mnuner1hat negales Indian ~o~rciguty 

and interferes with our re!aliouship with our tribal members. Will any tribal member Vilmt to 
12


614a7.eps

work with tribal government when the IRS hands them a laX bill any tim(llhuy receive 

government services orparticipatc in government progrnms? 

The IRS has sent an incrcdiblyburdensomelmdil form 10 ourOglalaSioux tribal 

gov!lnlment, which sooks rccords of 

.. Payments to employees, Council Meml:ars, tribal membclO, including expense 

reimbLllOcmenl, distn"butions from sami!lS revenu(;, fiing,e benefits, bonuses, end 

accountable plan documentation. 

.. Petty C~sh records. 

.. Gifts and loans to tribal members and/or (lmployccs willI related documents. 

.. Health care, educational bcndits, lcgal aiviceirepresentntion, utility assistance, housing 

assistance, r=-cational activities provided on behalfoftn"bal members and employ.;:es. 

.. Pow_wow prb.cs and related (ribnl contcst prizes. 

.. All b:mk records. credit card statements. expCllse receipts, and tribal govcmmentprogr.un 

plans. 

This is what we would call a fishing C{;pcdition. 'nlere is nothing that s~ys that the Oglala 

Siollx Tribe has nol complied with thc IRS. but the IRS is imposing a burden, a IrcmendmlS 

burden, en us. That administrative burden interferes with eurself_governance. 

In 2009,just as Congresswaspreparing to pass the ObamaHcalth Care Plan. the IRS wm; 

seeking to tax health care b~!l(lfits provided bytribnl governments 10 tribal m~mbcrs. Federal 

ompJoyee 1:x:nefits were not taxed Velcnm's b..'"Ilefits were not taxed. The Indian Health Service 

prosrnms were orA. tnxed. Federal prisoner's health Garc benefits were not taxed. State employee 

health rore ben6fits wcre not taxed. State citizeo's health care benefits were not taxed. Medicare, 

McdieRid, and children's health care bcnellts were no! taxed. Yet, the IRS wanted to tax tribal 

government health care. Congress rejected tll!ll, cnacting Ii law that says the IRS may not t!IX 

health caru b~""fil.o> ;IISUrlIllCC, or can: provided bytnboJ govemmonl. 10 tribal mcmb~m <lI1d their 

dependents, 

The IRS explains the meaning of Section \39(d) eflhe PalientProtcction nnd Affordable 

Health Care Act: 

Section 139D provides, in general, that grOIiS income doesnol incluclethc valueofany 

qualified Indian health care benefit. Section 139D defines the term "qualified rnclian 

health care bcncfit"lo mean: 
13


614a8.eps

anyheallh service orbBJIoot provkled orpurchascd, directly or indireo;tly, by the 

Indian Healtll Service (IHS) through a grant to, or conh,lct or compnctwith, an 

Indian tribe or tribal organization, or lhrough n Ihird_p:my program funded by the 

lHS; 

medical CllrC provided or purchased by, or amounts to reimburse for medical 

earc provided by, an Indian tribe or tribal organization for, or to, n member of 

an Indian tribe, including a SpOU5B or depcmdent of the member; 

coverage under accident or health insurance (or an =gcmcnt having the 

effect ofnoc:ldent or health insurance), or an accident or health plan, 

provided by an Indian tribe or tribal oreanization fur medical care to am~mber 

ofan wdian tribo::, including a sponse or dependent of the member, and 

any other medical care provided by an Indian tribe ortribnl organization that 

supplements, replaces, or substitutes for n pTCIgram or service relatiDg to 

medical care provided by the Federnl governmenlto Indian tribes or their 

members. 

"Frequently Asked Questions (FAQs) about new Section 139D," ms Website. I 

mention this to show thaI the IRS docs not even foliow Congress's guidance when there is 

a clear mandate to stop tnxing tribal government health care, health inSllrBnce and medical 

assistance programs-the IRS included an audit of tribal health programs in its notice, 

Whieh we ",-ere recently asked to answer! 

The IRS is now asking Indian tribes throughout the country to submitjustifiealions 

for not taxing tribal government programs for child earo::, cld(:t care, edncation, housjng, 

heating assistance, burial assisi3llce, and cultural llCIivitics, suoh as pow-wows nnd tribnl 

celebrations. We bolie.ve that the IRS is employing a discriminatory double standard For 

cliample, the United Slates provides housing to the President, the White House nnd Camp 

Dnvid, etc. Is the President taxed for his housing benefits? No. 

Yet, the ms wRnts to andit housing benefits, such as surplus FEMA trailers provided 

10 tribal members, who have no access 10 a real house. My daughter'S family lives in a hous", 

with no running water-they have to use an outhouse for sanitntion. OW' people are found 

by Ihe Census Bureau to be the poorest people in the country, with 47.3% of Oil! people 

Hving below the poverty line. 

We do not mean to suggest that the President should be taxed for living in Ihe White 

House. We support tho President and the Congress, and the United States has good reason 

for nott:o:ing the President's housing benefits. Naturally, we have good reasons for seeking 

FEMA trailers for our people, who otherwise would not have a horns.. Similarly, the United 

Stotes hos good reasons for providing for the President's travel expenses aboard Air Force 

One, Marine Ono::, in Hmousincs, etc. Those are nol taxed. We have good reasoos for 

pTCIviding per diem payments to our Tribal Council Representatives. We should 001 be 
14


614a9.eps

harassed about providing fOI our Tribal Council because it is our governing body. centrol to 

our tn::aty_protected original, inherent rights to sdf-govemment. 

For iI/lother example, Indian trib&; often have burial programs to assist om tribal 

citi~ens. In the P2l>t, Native Nations gathered to help our communities nnd families send 

their loved ones on Ihejoumey to the spirit world. Today, [ndian lribes honor that tradition 

by assisting with bnrials and, typicolly, Tribal Leaders wit! makc strong efforts to attend 

fnnerals of tribal citi7.ens. Also, it is importmt for tribal elders and ceremowallcadcrs to 

attend and participate in the funeral events. The United Slates should not interfere with our 

cultural and community traditions, whether it acts through the IRS or any olher agency. Yet, 

the IRS wants to review tribal government burial assistance progrnms. Who would Ille IRS 

tax: The deceased husband and fallmr? Or the grieving widow lU1d children? 

The Unitcd States pays furVeterau funerals at a price that may exceed $15,000. Yet, 

thc lRS docs not seek 10 tax the Veterans Of their families bec~use tho Unitcd Statcs hilS a very 

good reason for providing the funeral assistance. We do not ~ucstion the U.S. Veteran's 

Affairs poliey--in fact, we agree witll it and support it. All we esk is for the IRS to provide 

us with the Srulla courtesy to tribal citizens when we provide tribal burial assistance. 

Churches provide funeral ~sjstancc to parishioners. Is the IRS seeking to l!IX the 

church or its members for the food service that they provide to support families burying their 

reiatives'lis the IRS seeking to tax church members for tht> chlll"ch plots that may be provided 

in the church yard? No. 

Indian tribes arc singled out by the IRS for discriminatory t~ treatment due to the 1RS's 

curious and short-sighted foeus on 1ndian tribes. 

The Indian Self-Delennillation Policy M~allJates Respectfor Indian SOl'creignty 

President Fran."din D. Roosevelt initiated a policy of respect for tribal selt-govtmlment 

in the Indian Reorgani2ation Act. Although we went through a terrible period under the 50_ 

calilil Tcnnination Policy in the 19508, led by Senator Arthur Watkins from Utah, 

President Eisenhower called for Public Law 280 to be amended to require tribal consent 

to state assumptions ofjurisdiclion in Indian Country_ 

Presidents Kennedy and Johnson turned away from the Ternlmation Policy and began 

thc Indiau Sclf-Determination Policy. President Johnson included Indian tribes in tbe War 

on Poverty, establishing a Cabinet level workine group on Indian self-dc!cnninMion and 

economic assistance. President Johnson sigued the Indian Ch'il Rights Act into law, securing 

ba~ic civil rights for tribal citi"ens and requiring tribal consent to any further slate 

a.sumption ofjurisdiction under Public Law 280. 

President Nixon brought forth the Indian Self-Determin!!l:ion aud Education 

Assistance Act and officially repudiated the Termination Policy in 0 Special Mess~g" to 

Congress supporting Indian Self-Determination. President Reagan snpported tribal 

economic development, self_determination and self-sufficiency and songht to (:Ilt the 
15


614a10.eps

bureaucratic red-tape that has historically bct:n imposed on Indinn tribes. He iniliat~d the 

Fodornl tribnl govlmllllenHo-govemment relations policy. President Reagan alEo signed the 

Indian Gaming Regut:ltory Act into law. President George H.W. Bu~h continued Pre5i~lent 

Reagan's policies. 

President Clinton issued Executive Order 13175 (2000), Con3llltation Ii.Ild 

Collaboration with Indian Tribal Governments, to respect Indian sovereignty, self_government 

and self- determination. Accordingly, the EXl':(lutive Order explains: "The United States 

recognizes the right oflndiil!l tribes to self-govemmcnt and supports tribal sovereignty and 

self-dctcnniuation." The Executive Order states furthW" Ibat: 

OurNatiOOl, under the law of the United Stales, in accordance with trenties, 

statutes, Exccntive Orders, andjudicial decisions, h05 recl)grUzcd the right or 

Indian tribes to self-government. As domestic dcpClldent llations, Indian tuoes 

exercise inherent sovereign powers over their members and territory. TIle United 

States continues to work witb Indian tribes on a govcmment-to-governmcnt basis 

10 address issuCl! concerning Indian tribal self-government, tribal trust reSOUf(:CS, 

and Indian tribal treaty and other riEhIs. 

Both President George W. BushandPrcsident Oblllllahavereaffirmed Executive Order 13175. 

The Executive Ordcrprovides direction to Federal agendes 011 agcncyrulemaking: 

(a) Agencies shall rcsp~et Tndian tribal self-government and sovereignty, honor tribal 

treaty and otherrigbls. and strive to moot the responsibilities that nrise from Ihe 

unique lcpl relationship between the Federal Governmmt and Indian tribal 

governments .... 

(e) When undei1akingto fonnulnte and implement policies that have tribal implications, 

agencies shull: 

(1) enoournge Indian tribes to develop their 0\V1\ policies 10 achieve program 

nbjectives; 

(2) where pl)cible, dofer to Indian tribes to establish standards; and 

(3) in determining whctlierto establish Federal standards, consult with tribal officials 

as to the need for Federal standards and any alternatives that wonld limit the 

scope of Federal standards or otherwise preserve the prerogatives and nutb.ority of 

Indiantribcs. 

In Sllill, tbe Department ofilia Trusury and !he IRS arc directed by the President to "prescrve 

the prerogatives and authority of Indian tribes." 

In general, treaties protect trib31 self_government and tbe courts construe suooeqllcnt 

stalut~s us not impacting tribal self-government unless Congress has evinced an express intention 

lo do 00. Tn'bal government provision of progr&n5 amI services is proteeted as :m aspeet of self-
16


614a11.eps

govcmment by the Indian Gaming Regulatory Act, which mandates the provision ohuch 

services prior to payment of any per capita payments to individuw mernbcrs.IGRA makes the 

percapita payments taxable, drawing a clear distillc~on from tribal government programs and 

senrices, whieh nre net taxllble. 25 U.S.C. soo.17J(). 

The IRS should respect the traditionw areas ofiribalself-governmcnt, induding: 

Housing. Wars, non-Indian encroaclunent and Indian treaties limited aboriginallrihal 

homelancl~, typically making it nccessary f~r native peoples to abandon traditional 

housing ~.!1d adopt American-style housin!): to daul with dilTeu::nt climate couditions. 

Recognizing thM Indian tribes have typically been relegated to remote and often 

uneconomic reservations, theIRS should acb!owJedge that Indian tribes as governments 

must provide assistancc to tribal citizens in fue Ilrea ofhousing in ~ordancc with 

reasonable standards of American housing to make our reservations livable homelands. 

1111s 15 ¥lu!.lly impofiant 10 the gcnerut welfure ofNallY~ N~lion5 and tribal <;01lJIILUllili>;<;.J 

Edn~ation. The United States destroyed traditional Native American lireways by 

limiting our territory, killing the buffnlo, t!!king our hunting, fishing and fanning areas, 

taking our n~tnral reSQun:es and taking our lands for numerous Federal purposesincluding non.lndian homesteading, park lmds, forost lands, national grass lands, 

wilderness preserves ~nd mililill1' bases, amOllg other things. The treaties promised 

education in return forhugetakings oflands [Ifld the United SlatCs n3S11ot fulfilkd those 

promises. More recent smlllles establish new pledges to promote the education of tribal 

childrell,. youth and adults. Accordingly, it is the polkyofthe United Slates to promote 

edurotion. When tribal governments provid~ education services through tribal cellegcs 

and universities or grants and scholarships te attend state or local colleges and 

univen;ities, the United States should rccognlze that tribal governments are providing for 

the general wclfureoftnoal citizens. Ourtribd educ:ational scrviccs should not be 

subject 10 Ia>:ation bylhe United States. 

Child Care and Elder Care. The United Slates provide~ ehild care through programs 

such as Headstart and those nrc not taxable. The IRS sbould recogni;,:e that Indian tribes 

have unique traditions of child carc, wherc fue communi.tywns typically involved in 

providing assistance to raise Indian children in accordancc with lntliao culture. A3 !lIe 

Indian Child Welfare Act acknowledges, In:lian children are the most precious resource 

oflndian tribes and due to <I history oflaking Indistl children away from family homes 

through bollrding scbools am! ro=~ u.doption, lndi"" I.ri~s JlQad to ""sist Indinn children 

in growing up in a nurturing environment. Elders are wneraled in Indian h.".<1ition and 

provide the critical repository ofeu1tuIe, lnngMge and religion fur Indian oodetics, WllO 

rely on ouror.d tradilions. Accordingly, tribal governments tmditionallyprovide care for 

elders, such as hot meals, access to education programs, heating a5sisU!nce and small 

• 'l'ypi.ally, IDdiaD tIlb"" lI'o"i~~ A~jun.t ""rvi, .. Ie m .. ~c reserv.l!on< liveable homes: for .rib,l ,itiz""" .s 

llt1l'islonod in tre.1tios, <lan~e5 •• nd c~>X3lIivc crrd"",. Fer <:><atOpic, many tulies provide ndjuncI bMlinl: "~ist;!r.,~ 10 

d~t with frct,.inC cold dlmateS. ",'"tor 10 ... i.t in making homes live,bl .. er ",,\wI .nd sanit:nion services to malt< 

reservation londs h.bltabl", 11> ... pmgnll". .bouW ~ol be inlafered with by !he Feaernl Gov,rnrrtem. 
17


614a12.eps

subsistence payments. Tribal government progrnm ehoices should be respected. even 

though they may not preciac1y mirror Federal progr;uns. and should not be subject to 

troIation by the United Status. 

Cultural Programs. Tribal govemmcnls must foster tribal cultures because ournalivt: 

cultur(ls areuniqu(l and have a great value 00 Native Nations and tribal communities. The 

United States overa period of generations hallspcnt billions of dollars to strip ns orollr 

cultures Illrough unconstitutional reli&ions prostllytizing, olltlawing ollr wligions, 

forbidding our children to speak our languages, forcible SCPIlIlrtiOLl of our children from 

our flLll1ilics, and pr0trnms to replace nntive cultures with ~ AmericlUl" culture. None of 

these efforts were taxed by the IRS. Nor should the rn.s tax tnual cultural programs. 

Congress h!!!5 cvinced II. policy to promote native cultures and languages through the 

American Indian Rcligious Freedom Act, the NativeAmerican Graves Repatriation Act, 

native language acts, and the establishment of the National Museum of the American 

Indian. The IRS would not tax a field trip to WlIShington, D.C. to go 10 theNMAI. It mllSt 

not tax lrips 10 pow-wows, tribal gathering5 and celebrations, trips to historic sites, or 

trips to neighboring Indian tribes. 

There are many otherprogrnms that Indian tribes provide to tribal members thnt are traditional 

and cullural in nature. 

Tile IRS Genernl Welfare Doc/rille R,ll'iew 

Dneto numerous complaints liulll Indian tribesuround thecol1ntry, the IRS hl!Srcqucstcd 

comments on its GencTilI Welfare Doctrine and thc trlual government programs that may qualify 

fur e:wlusion from incClme under its provisions. Yel, \'IC do not trust tho IRS to recognize tribal 

rights be<:ause the JRS has minimized tribal government rights. When one Tribal Leader raised 

objections to IRS intrusion based upon tribal treaty rights, he was told, ''YOll call read your 

treaties in prison, if you like. n 

The Constitution is clear; Indian treaties have tIle force of law. There is no rep~al oflaw 

by implication, so our treaties arc still in force on our Indian reservntionlmtds. Congress seeks 

to promote a belter community life on mdian rescrvations byprovidingprognlms for: 

• Children-Headstart, Healthy Start. Youth programs, Boys & Girls Clubs. 

• Educntion-Pre-School, Elementary, S(:I;IJniliny, POiit-Sc<:ondary, Technical Schools, 

Seholarsllip programs, amongolhcrs. 

• Culturc---Native Americau Gravcs Protection and Repatriation Act, Native Languages 

Act, National Museum of the Am~riCllll Indian Act, American Indian Religious Freedom 

Act. 

• Elderly-Older Americans Act Native American Program. 

• Ecooomic DevelopmenL-sJ3Alndian Prog!lllUS, Commerce MBDA, BIA Office of 

Energy nnll Economic Development, usnA RU~. 

• Healtlt Care-IHS 

• Housing-Native American Housing and Sclf-Detennination Act HUD, FHA. 

• Transportation-BIA Roads, USDOT Native American Highways Progrant. 
18


614a13.eps

.. lusrlce--COPS. Tribal Jails, Tnbi1.\ CoUI1s. 

Tho prohlem is thilt the Federal Govcmm!'intl1cver appropriates enouzh moneylo carry oul lhl; 

1 .. ",lablc mandates. 

Therefore, the IRS should say 10 I1self, if the Fooem! Government is doing 311 of Ihese 

pr-ogntnS to proml'lt'l better reservation. eommunity fife in aeeord911C¢ wit.'1 bdian tre:ules rutd 

fuiling d>.!o to lrnm~ilS\lrllb;~ =d ~ imposSbly limited funding, U',en lndian mOOs should do 

whateWt they can to u~!ler thcir C{lmmunitNs. Congres< should enaa a simple stmightlbnvllrd 

statutory provi:don 10 rerrn:;dy the ms mistlikl'.s; 

WheN a tribal gOVCrHntr!nlprogram is ricsigllcd to betier tribal C(lhllllllllity life 

and mtlke an/mlian reservatio/l "livable" as a peFm(lnelli k(Jme/oF tribal CitiUIIS, 

t[lI!11 jt is ill the "grtHcral wclfW'e" u/tr.e VlliterI Stutes bi!cause it/lllt/lf!rS fhi! 

Federaf trust responsibility and tritUlJ' pledges to Imlian trim. Benefits/rom slIch 

tribal go~ernJlleul proxrams rue mn sllbJecl to tuxmion. Indum illt!bltU!deril'cdfrom 

tribal trust or indil'idllal Indian !fllstproperly, land vr reSOIIf('eS is IIDI subject 10 

tDxalivn. 

A1tet'.Jativdy. trroru governments will medmore detailed ieglslalicn to :protect tribal self. 

government, Ileaty righl8, the undisturbed I.lSU and cccupancy cf our reservations as "permanent 

homes." Specific legi5!ation should iocludcthe following elemenls: 

Findings. The United Slates has entered mto hundreds oftrcaties with Indian tribes, 

which gJ.!!lrllIltec Inoru scM-government. mOOllands tIS pentlanent homelands, and 

estab1isha Foderal trust to protect moo! property. 

]lIe United Sigll$ mu.sl net lID: W.cOlllll deri'red ilimllribal or individual Indiau trust 

property artn]!;! land. 

The \Juited States- enwur2gl!S tribal self-governmcm and triblll se!f-sufficieooy. so the 

Federal agendes should not interfere with tribal government efforts to providl; tribal. 

government programs and sctvices to tribal members. 

The \Jnited States should not burden Tribal Executives or Tribal Legislative Councils 

wilh ta'lation for lribalperdiem, expenses and stipends because that burdens tn'bal selfgovernment. 

Spe~ificall'J. tbe [olklwing tribal. g<lvcmmentpregnIm$ should not be butdened or t;!Xod 

by the IRS: 

.. Child Care. The United SI:l.\tes tm\Iguizes tlmt our children ru.e Out most prociousI=urce nnillhem are muuy Federal progrums, so triba! goverruuent cllild care 

programs should bc c;(cIudcd from taxation. 
19


614a14.eps

• Elder- Car-c. OW" elders hold the cultural knowledge and history of our people. 

We must support them in their lalm-yearn bccaw;e they are ourpast, present and 

provide the traditional base for our future. 

• Education. The United States promised in our treaties to provide cducatloJ], 

instead our~hildren were ripped away from parents and r!illli!y support to go to 

government boardingschoolll rar.from home. Theywerc stripped oflanguage and 

culture and returned home as slIlIngers. AI; we seek to educate our children and 

redress these historical wrongs, the IR.S should not burden us with taxes for 

services that fue Federal Government pledged to provide. 

• Housing, OUrpeopie have suffered substandardhollSing formany generations in 

our alternating freezing winter cold (sometimes 20 degrees b",]ow :-.cro) and high 

summer heat (sometimes over lID degrees). Tribal governments must bo ablo to 

provide de-=eIl! housing for our people, mcluding ulility assislanee, insulation and 

home repairs, without Federal taxation of these es;sentici government services. 

• Police, Firc ProtectioD, lind Transportation, Public safety is a public gootl, 

including poliee and fire protection, anti transportation. Because we have 

inadequate medical facilities on our reservation, we ollen have to medevllC 

patients ant to Rapid City or other regional centers. We need Lo support lheir 

families to tmvel with them to help in these crises. Police and firemen 

oometimes arc first responders to accidents :md medical emergencies. The rn.s 

should not burden these programs. 

This more spooific legislation should follow the guidelines set forth in 26 U.S.c. section 

13!)D, Indian Health Cru:cBcnefits, enacted to slop the IRS from taxing Indian health care and 

health insurance.4 

• 26 U.S.c. Sec. 139D.lndian Health em:. ]lenofilS. 

(~) Gone",l nll' 

Excep! n, nihorwise provided in tl,u. =liIIo, gtIlii. inccmo dceos WI in<:lude the value chny qUlhfiod Indian health 

o"robonefu. 

(b) Q""lifi,d Indi~n hcal!h ",ro benefit 

"or plUJIO.' •• of !his i""~on, ~,e tenn '·qu.\iO.d Indi.n health care bcru:lil" mO.Il.-

(I) .... y heollh .orvice or ben.fi! proviood ~r l'u!C/I=d, directly Or indirectly, by die h,dia" Health Sonoice lhrough a 

gGlnt 10 or" OQ<ltrecl or '"<I'pad with :m Indi.n tribe"" tnbal mgimizalio", or ibrough u ibird·p.rtypmer;tm fundoD 

by the llIdianHeJlllJ Service, 

(2) m,,~ic.I,~ pNviCodor pU!cllasw by, or .mounls to rcimlnm" [or .",,11 m,dico.l oore pIQ'l,i<kd lly, an Indian 

lrib,-or 1ribd,,<g<lll~tion rOt, or l~, a m,mbor of~n lndilntrib., inclwling~ ''pOuseor depenil.mof.""oll. 

member, 

(3) covellW' und~r occidont or "'~l!h hU\I1':l!l<e (or In IImIngcmcn! h.viD~ t1:o 6IT".Cl or .,ddt!otor h,.1lth 

iJlSUrllo:c), or"n Reddent 0< IIt.lm pl.n, prm".rlc:d by <III Indian tnw or lribcl OIgIInizalioo for rno:ii"l calC la D 

member ohn Indim tttbe, in:]udc n spougc or d"l'ondcn( of5llCh a membor, aud 

(4) any other medical care provided by on lnm.n (rib~ or tribal OI\lonm:.tiou that supplemenls, ropl.oos, or :rub,litulo, fot. P"'8l"'''' or .eMoe <el.ting 10 mei!ical <::Ire rMvilio<l by the r"elk",l govemnwll(1o Tndlln tribes or member:s ofsuch a tn"bc. 

(c) Dofmiti<JDJl 

Forpmpag,g aHhis .<:chOIl--
20


614a15.eps

The GreatPlains TnbnI Chairman's Assomru:ion and the National Congress of .American 

Indi:ms have passed resolutions calling for such legislation (GPTCA attached), and we request 

your support to enact the legislati(lli. Sl(Ip the IRS from I.VJ"OlIg[ully interrering with lrib~l solfgovernment, lreatyrights, lrust lands andresource:s, and Indian homelands. 

Conclusioll 

The IRS lles embarked on audits of Indian tribes lhat we believe are very discriminatory. 

These audits seek 10 idcn!ify tribal govenunellt programs that arc providing government services 

10 tribal members and 10 assess [hem as income to be subject to Federol taxation. We do not 

believe that the same audits are being oonducted on Fedeml, State and local governments or 

fureign.natioDli. The IRS should halt this discriminatory auditing of Indian Country. 

Consislent with.lhe Constitution, treaties, statules, mul executive orders ofilia United 

Slates, the IRS should dwer to Indian tribal governments providing tribal government services 

10 tribal citizens. The IRS should recognize that Indian ttibes as gcJvemm!:llts have lonll sought 

to promote 11m health and vitality of Native Nations and mbal communities, including tribal 

languages, culnu:es and religions. Treaties, statutes, and executive orders establish indigenous 

homelands, where tribal ~If-govcmment is protected. The IRS shonld not interfere with Indian 

tribes' govcmmcntal programs and services designed to provide a decent way oflife for tribal 

citizens, espccillllywhen sueh progroms lli\d sClVices supplement Federal programs, where the 

United States' treaty promises and trust responsibility dnties an: underfunded or lacking. 

Congress must enact a new law to put the IRS haek on track. The legislation can be 

simple 3nd straightfonvard: The ms should noL lax lribal government progrnms that nre 

intended. to make-our lntIian reservations livable homes foronrtribal eiti:t:ens. Alternatively, our 

essential tribal government programs can be spelled out and prolected in a manner similar 10 

tribal health eare nml hellllh insurance. 

On bcllalfofthe Oglala Sioux Tribe and the Great Plains Tribal Chainnan's Assodmion, 

I respeclfullyrequest that you support logislation La direct the IRS not 10 interfere with nibal 

(l)h)(\iOlllribe 

The tern, "1IIdi'lIuilJ..- has !he ""aning. givon such ",rm by ,ection 45Aj£ill 

(2)Tribal o~anl:<tttion 

The 'onTI "trib>1 ntganl",lion"lru !be mC3lliJlggivensuoh!enn by soction 4(1) oIlhe Indian Sctf_Detonmllatlon and 

Educolinn A";mlnco A<:t. 

(l)Medic.l car. 

The tenn "medical =c" h .. tho ""m~ .,.;uning .. wholl used in section 213. 

(4)Aeoidont orho,uth insunmco; "~idc:nt orh •• ld, plan 

The lenni ''accidont orhcalth i=" and "accldent orhealth plan" hl"" th ... mo IIlI'3l1ing"" whon used ~, 

Sl"<:liolll(}S. 

(S)D"Pondont 

Tho tl:rm "dependent" ha:5 the meanicg given "u<:lt lerm by Sl:e~()j' 152, det.f1uilled witlloulICg(lrd to SUb'~Cli_ 

(b)[I), (b)(2), ""d (d)(l)(B) Ih.<cof. 

(d) D<:nial ofdo.bk bem:fit 

Subseclinn (n) 51ml1 nol apply to me 'lIlDuntof:my qualiflCd Indian health can: b=lit .. ,.hieh U uot includible in YO"" mcome cfth. bendiclary of such \>en.fit undorany other provision ofthio chapt." or to th\": lI./lIoullt of any such 

benefit for wbtoh a doduclion is aUowed to ""cb benci"iciary undcranyothcr PIovision ofilli' c~t"" 
21


614a16.eps

sdf~, treaty ri.ghts, tmslllmds oInd ~ and the absohrn: ami undisttubod,..., <>f 

OUr Indian ,.,9I\I'VaUons as p!On'IlanonL homes. Federallaw requm lIS much, b\.Tl the IRS :efu\les: 

10 listw. As Chief Red Cloud said, "'11wy kmlde us many pronlise.l. LOOIC than 1 can rem~, 

but tbcy kqIt onI.y <me; they promisI:d II) t$:e our land., and they did." 

PICOlSII act...,... Ouruoed i. utl;l!Ilt:JhW; you fbryour Ihoughtful cmsidmItioq (lftbi.'l 

importmIl S"'"""1ltJI<mt-tI:>-g<>vemment ro.t~ fur a.'ISiBtanoo. 

."tI~(hm~nt 

"TO ~IJNQl! Q)j~ ~.!I1J§,.AGHffMm1SANR~~~!1TJ\lf iiRIlffi!:mtJEt> !JIi~ 10 HOmll': OJl!!.TI!WlIR 

AND .AGRHM,iI,Tgjl¥.'WJNG AND DES1STJ!!!;i HjW I~~ ~FFORT5 ro Tax aDS !~ll\I.\.1.(ilOV'RNMENT PROGMM$ 

AND SERVICES "to :tI!~Clm<NS WflICIlIN~fIlj pUR TRIBAL G9\1EBNM.~~ELA"I10NSHJP WIT!i.Q!I.!l 

TRiBAl C!TIZEN$~J.9M1-l!I§.gUR HOMEU\ND5 ANJllll.(I).$TiS OUB RIGHiTO n!BlI.\JIi~Hipll~BNMENI 

WI'!Bl8\S, Ttl,., ~~ ~~ 1'riha\ C"w.""IlmIl'SCMlMlf<m: :Sf'TCII.)15 ~ ~nM a",~ C~~1n altd 

""'.merM "y W 1$.'rw'Ril:1l lerlhm !"<f""t.:xl NM1.o>;s ~~ by~ ""l!I\ til!> UnK~rl~ that 

'*' ;.·.illh.., tbaSf!$tF!!!ilft;:~.wr.cl",,';e i>"lIffiW .:>trl1\Lw .~;=' 

WHEREAS, Tht! ~i'!I; PlaIJW TrihalC-",Jr",ar{~ Aoornt,loo was mJmed ttli'J"'Mi1\'e ,he common l!"ltEri!!'ttrl'thll: 

Sovelllign TribE!'; a~d Nat;IQns and their membel"l1 "ft~e Glllat PlaTns lIej;l(>n \IIhi~h I;Omprl;es the S:.!E' of 

North D8kot~, 5O~lh tL~k{l!~ Nebraska; and 

WHEREAS, In~'i'l~ lWIJRNflHoYerelgn that p"~~ltill~ U"nitl!dStates, with pttonndtf6aty protected rim/li~ 

ttl self.,goveml1Wrt ~nd t.l ml' lMli~Ill<:<u!~< ~(I<l 

WR..~~ ti.i'< !);"!1'!SlI\tlt\m cl 1<';" u,.l\ed ~ t!!r~ lilac ,re;';l.\J. O>~ ~', ~ 

~jO~"!J_.;mi,,,,,, M" ~t, l1'.\."Qgrn;.5:>!l!~~!l mWf; cl"!m®mT~ ~;~ 

na1:l<m>estot;li~b!lIi:p(wt~1.heUn~~;m~ 

WHEREAS, 1'l!t!1ffiIl Atl~"cies have a r""Pon:;1bllltv to re'l'ect the letter ~nd ~plrfl Qi the United 5r.>tl!!> 

Constttution, Trmltl ..... , CLllTent Federat taws, Md e,.ElOOItv~ Orders, rejl~fdjl'\!; rita Fe~~ral Govemment'~ 

rel:ationshlp 1 .... I1h Trl~al iJil)vemfFlI'nt<; and 

WH~AS, O'.!f ~l'Vat\Qn> <I1'"e: part ill tm>: (!rl~~S\ 1W\me!;m!! of (lin"" F"WIl~ aml !1111.W- ""'!,~dl!l"I1'" ;3\'1, \\~ 

Mve h~ :;;Ii«~,,1<'g tJ) ~ oor "~~,. ~ld: tc, nl;..MtermmMlop. an1i ~ffiti!ml;"l ~ tl1e 

di!""""WJ~ ~{;li"1l?~~.;snsffi1h:i!<1.!I"·rl'mu.'%~ 

WH£IU;4.S, ,t.e Uf!l..~d Sica"," !II1dertook <!!iOn\, t."",:mt ,j~!igatl<l1lS h &~~ f{l, tb~ ~,;"""" of !lMdl"\"Ws crf 

milUcn£ of a::fes 01 tlll'lQ. yet the Fede",1 GdV~l'fIrnen! has fallen fM" $I1wt ill me~tlng theses ,olertm 

obligation,; aod .. 
22


614a17.eps

WliEit[AS, Through our !ra~tleE, agrwrmmls, alld e~wtive orders, 1m. lJIlited Statt's rar;()g1li,~d and 

~mrmed OU[ Inh~"'nt fight; ill sslf-govemmeot and "orre$~on<linsly, IlmLled the 'CCIl'; of FedEr.1 officials to 

our res"rvotlml, In Ins ~bs~n"" of our c"ns~nt; at1d 

WH~ReAS, Aft€r m~nv I"'al"$ T,;iIes in Indian c:Juntry h\'a tnstlwtml "nlgram" to ""'~W~ 1!llVem=rllai 

benefjts tc thelrTrtb,,1 clti,ijns; <loci 

WHElltAS, IMamo! Reverrn~ Sl>Nlc~ I. ~udlling the benefits jlW\'ld..J to Indhlldual ,libal eltlzens by &,aif 

Tribal GOVl!ITlt(lllllt; a~d 

WHEItEAS, the II>t~rnal Revenue- ServicE is violating our treaty rights 10 tb~ absolute and uIKII.tur\l;1d !.l,e ilnd 

occupam:y of our re,*,MlIons~. pBrm~n~nt hornelandsand I, Interfering with Iha gO'll'lmmentDl r~latlcnshlp 

b~eEn ourTrtllal GOlIe1"nmMts ~nd Irlb,l dti>em; ~nd 

WHEtEAS, The filS disorimlltato:ry approach to the auditing of Indi;in tr;o"" is a s~\!ari! probli1:\Tl glven th<1 ioct 

th.rt: \h~ 5 <rf the W pDarer;t e<Junl1es In the COUltry .re Witllio ow Indian reSl'ruatkm' In South 30d North 

Dakota; an<! 

WH~RIiAS, The Intem~ Re1!<!nue COoe Sectio~ 61 ~Iall's that, ~r:ep! ~\ otllB"IIIise pmvfded, groos Income 

Im:iu:ms 1111 irlrome from whatl!var 'OUIU! derlwd, "nd tr-.e irrtemal Rell<!nUe Servi"--i! End 'Mder;;1 w~rt:< have 

consistently held that payments made under slmflar ,00.,1 ben~jjt rroer.ms for the promotion cf ganerai 

welfare are not Includable in gross lnC(>me; ~nd 

WHE1l~AS, the Gen8!'ii1 Welf;,r.: npctrlll~ prllv,rk; a """,rrum I~w {w ~t"ll<tW'flntwpretatlo;l by Implitalion) 

exclu~km for gcM"mment social welfare pmgrams, the. test Is based on l'6tts and clrwm'rtantes (or" il'.5 

~~nt's P2=<l2j value judgme~tl 3M :s difficult t~ a"p1Vi 3fld 

WnERI'AS, The Gen"",IWeifilre DoctriM as app,ed by the illS intern.reswtth treew rights, ,elf"gol'l!mment, 

and the abSC':ute and undlstllrbed lI~e a,~d ottl.lp,m<:y of Ollf hcmel~w;l"arnl d;scrlml~ L"O taIlOr ofhdErai 

Snd state Pl'o;1ram~ end ~gi!m5t trlil~1 go~~mmen~ P"'Ilr;lIT'S ~"".w u",on (h~ non·~ldlan VlIi~e Jlld~m~m,- of 

IRS agenb; and 

WHEREAS, Statutory Ia!lg'.lage i~ nwcied in "'dfy th~t g<Nammenrn! benefits provrded !ly Indian trlWl 

gov<!mment!:forthelr m~mb~rs is notsul:Jjecttll ,,",me ta~atlcln; and 

WHrtU:'AS, kderol !egMatlo~ to alr.end the blew)l Ri!M!nue 'Code Is need<!<! "!hill IvOIlId d",lfy that 

8c,"'cmment;l! "eneflts pro~lded by an Indlen trill. ro ,Is ..... emhers is not rooJe,.""t to lm:"me UllIlItltm; a~d 

WliEREAli, Tll;~ le(%l~tion wclild npply to jJPV<mI",~r;tel be:l1efltl' pr..,\Ii<fed after the d~ 01 ena::\:rMMt. It .ais<I 

inclUdes lan~uaga t(l II'<lh!blt thll ms or the court; from as'iUmlr>g ~r tnfemflg that ben~ftts provi4!(( by!ndian 

tribes that arl;< not withitl.he =p~ of the bill were tD",ble prior t<l the legislation's effective d~re; and 
23

The CHAIRMAN. Thank you very much, President Steele, for your 

testimony. 

Ms. SANCHEY-YALLUP. would you please proceed with your statement? 

STATEMENT OF HON. ATHENA SANCHEY–YALLUP,

EXECUTIVE SECRETARY, CONFEDERATED TRIBES AND 

BANDS OF THE YAKAMA NATION TRIBAL COUNCIL 

Ms. SANCHEY-YALLUP. Good afternoon, members of the Committee, honorable Committee. My name is Athena Sanchey-Yallup. 

I am a member of the Confederated Tribes and Bands of the 

Yakama Nation. I am currently the executive secretary for my 

Tribal council. 

I am here today to request assistance from this Committee because the IRS is attempting to enforce a tax on Yakama Nation per 

capita distributions of trust resources. We request the Committee 

to confirm and clarify its intent not to tax trust resources and trust 


614a18.eps
24

per capita payments, and we request that you support our efforts 

to compel the IRS to consult with the Yakama Nation on a government-to-government basis before taking any enforcement action. I 

make these requests and address this Committee on behalf of my 

10,400 members of the Yakama Nation. 

In 1855, the Yakama Nation signed a treaty with the United 

States Government. This Congress ratified the treaty with the 

Yakama in 1859. The United States Constitution recognizes the 

Yakama treaty as the supreme law of the land. We hold our treaty 

sacred in words that cannot be conveyed. My people ceded over 10 

million acres to the United States in exchange for promises for the 

1.4 million acre reservation we reserved for the exclusive use and 

benefit of the Yakama people. 

The Yakamas were further promised that our annuities would be 

free from burdens. Today, I was humbled to actually witness the 

original treaty of my Tribe that was done in 1855. It is really emotional for me to sit here, two hours later after seeing that and try 

to understand what my ancestors did for me to sit here today; what 

they had to witness, what they had to go through, and what they 

actually reserved for my Tribal members of 10,400 today. 

Within that, we know we have the right for all trust resources 

to be reserved for the exclusive use of my Tribal members. Today, 

the IRS threatens to breach those sacred promises to my people. 

For the first time in our history, the IRS seeks to audit and tax 

each of Yakama’s 10,400 Tribal members’ trust lands distributed to 

them as annuities on a per capita basis from sale of our timber 

trust lands. Most of our members currently today, as you stated 

earlier, live in poverty; they receive only a few hundred dollars per 

year from the dwindling timber sales on the Yakama lands. What 

the IRS is now attempting to do is extraordinary; overreaching action that is contrary to the expressed intent of this Congress and 

the promise of the Treaty of 1855. 

Based on the Per Capita Act and the Treaty of 1855, the BIA has 

distributed trust per capita distributions to my members for decades and done so without tax consequences, and the Yakama Nation had the right to assume those responsibilities under the supervision and control of the BIA per the Per Capita Act, and also the 

distributions were nontaxable. However, today, IRS is asserting 

they are. I have provided you a copy of the United States Solicitor’s 

1957 opinion that was addressed to my Tribe regarding the BIA position on the timber sale proceeds for trust per capita. We have relied on this representation from the Federal Government for decades. 

In knowing that I am running out of time, Mr. Chairman, I have 

written a full testimony of all of the issues that the Yakama Nation 

has regarding the IRS’s assumed ability to tax trust per capita to 

my members. Thank you. 

[The prepared statement of Ms. Sanchey-Yallup follows:]

PREPARED STATEMENT OF HON. ATHENA SANCHEY-YALLUP, EXECUTIVE SECRETARY, 

CONFEDERATED TRIBES AND BANDS OF THE YAKAMA NATION TRIBAL COUNCIL

Chairman Akaka, distinguished members of the Committee, it is with humble 

gratitude but with a troubled heart that I testify on the subject of ‘‘New Tax Burdens on Tribal Self-Determination.’’

25

My name is Athena Sanchey-Yallup. I am an enrolled member of the Confederated Tribes and Bands of the Yakama Nation, and the Executive Secretary of the 

Yakama Nation Tribal Council. I am here today on behalf of Chairman Harry 

Smiskin, who was unable to appear before you today due to medical reasons. I have 

travelled from my homelands here to bring to your attention how the Internal Revenue Service has violated longstanding federal law establishing the tax exempt nature of tribal trust timber property and related proceeds of the Yakama Nation. I 

am here today to ask you for intercession between the IRS and the Yakama people. 

I am here to discuss how all of Indian Country are under attack by the IRS in the 

form of taxation on trust distributions to tribal members. 

The real threat to the Yakama Nation began in the last year and a half when 

the IRS began auditing and seeking to tax per capita distributions of trust funds 

to each of Yakama’s 10,400 tribal members for the first time in the history of this 

Nation. This is an extraordinary action that is contrary to Congress’ express intent 

to exempt trust resources and trust funds from federal tax. It is contrary to our 

Treaty of 1855. 

We request assistance from this Committee. We believe Congress and this Committee have clearly stated that trust resources are to be preserved for individual Indians, and in that regard, that their trust per capita payments are exempt from tax. 

The IRS is attempting to force a tax on trust lands and resources. We request the 

Committee confirm and clarify its intent not to tax trust resources and trust per 

capita payments. Second, we request that you support our efforts to compel the IRS 

to consult with the Yakama Nation, on a government to government basis, before 

taking any enforcement actions based on this new policy and practice of the IRS to 

tax trust per capita payments. 

We respectfully submit the following statement supporting the position that this 

new federal tax burden is without precedent, without support of federal law, and 

in violation of the Yakama Treaty of 1855. 

I. Yakama Nation’s 1855 Treaty was Intended to Protect Tribal Trust

Resources from Federal Taxation 

In order for me to speak on behalf of my people, I want to share with this Committee the background of the Yakama Nation and the Treaty of 1855 (12 Stat. 951). 

Since time immemorial, the lands of the Yakama people extended in all directions 

along the Cascade Mountain Range to the Columbia River and beyond. The ancestors of today’s Yakamas were of different tribes and bands: The Palouse, Pisquose, 

Yakama, Wenatchapam, Klinquit, Oche Chotes, Kow way saye ee, Sk’in-pah, Kahmiltpah, Klickitat, Wish ham , See ap Cat, Li ay was and Shyiks. In recognition 

of the original 14 Treaty signers, a Tribal Council of 14 leaders is elected by enrolled Yakamas by the raising of their right hand. As an elected leader, I am bound 

to uphold the laws of my people, protect the Reservation, and honor the Treaty of 

1855. 

The Yakama Nation Reservation comprises 1.37 million acres reserved for our use 

by the Treaty of 1855. Last week, we celebrated the 157th anniversary of our Treaty’s signing. We hold our Treaty sacred, in ways that words cannot convey. That 

is because my People ceded over 10 million acres to the United States pursuant to 

that Treaty. In exchange, we were promised that the 10 million acres we ceded reserved for us the ‘‘exclusive use and benefit’’ of the 1.37 million acres on the 

Yakama Nation Reservation. The Ninth Circuit interpreted this clause as reserving 

to the Yakamas the right to the benefits of their trust lands free from the imposition 

of federal income taxes. Hoptowit v. Commissioner, 709 F.2d 564, 566 (9th Cir. 

1983). Further, the Yakamas understood that they would suffer no injury—including the form of taxation today—pursuant to various provisions within the Treaty, 

including, but not limited to, the use of the resources set aside for Yakamas, annuities and the saw mill. Today, the IRS threatens to breach those sacred promises 

to my People in direct contradiction of judicial precedent and decades of IRS policy. 

The Yakama Nation has some of the best timber in the United States. That is 

why we negotiated in our Treaty that the United States would provide us a sawmill, 

which the Federal Government did not adequately provide. Still, Yakama Nation 

has been involved with timber harvesting and selling for decades. The BIA has always told us that the proceeds from trust land timber sales are legally required to 

be held in trust by the BIA for Yakama members. The BIA has also told us that 

those proceeds are not subject to taxation. I have provided you a copy of the United 

States Solicitor’s 1957 opinion on this issue. We have relied on this representation 

from the BIA for decades. We have relied on the federal government’s Treaty promise that our trust lands and resources would be for our exclusive use and benefit. 

In all this time the IRS never tried to tax those trust distributions, until today. 

I ask you, the esteemed members of this Committee, to ask the IRS: Why, after 

26

1 ‘‘Under the provisions of the treaty and established principles applicable to land reservations 

created for the benefit of the Indian tribes, the Indians are beneficial owners of the land and 

the timber standing upon it and of the proceeds of their sale, subject to the plenary power of 

control by the United States, to be exercised for the benefit and protection of the Indians.’’ 

United States v. Algoma Lumber Co., 305 U.S. 415, 420 (1939); see also 25 U.S.C. § 196; United 

States v. Mitchell, 445 U.S. 535 (1980). There exists a detailed set of regulations that govern 

the harvesting and sale of tribal timber. Among the stated objectives of the regulations is the 

‘‘development of Indian forests by the Indian people for the purpose of promoting self-sustaining 

communities, to the end that the Indians may receive from their own property not only the 

stumpage value, but also the benefit of whatever profit it is capable of yielding and whatever 

labor the Indians are qualified to perform.’’ 25 CFR § 141.3 (a)(3) (1979). Congress thus sought 

to provide for harvesting timber ‘‘in such a manner as to conserve the interests of the people 

on the reservations, namely, the Indians.’’ 45 Cong. Rec. 6087 (1910) (remarks of Rep. Saunders). 2Pursuant to the Per Capita Act, the Yakama Nation assumed the responsibility for issuing 

the per capita checks to tribal members from the trust funds sometime in the mid-1980s. 

more than 50 years, are tribal trust land distributions now taxable? What has 

caused the IRS to suddenly take the hostile position against the Yakama Nation 

and other tribes that tribal trust land timber distributions are taxable? There have 

been no new laws by Congress or amendments to the Per Capita Act. 

In negotiating the Treaty of 1855, the Yakamas never expected, understood or intended the federal government to impose burdens on our tribal trust resources. We 

would have never ceded nearly all of our aboriginal land had we understood that 

we would be asked to give 1⁄3 of the modest earnings from trust resources to the 

government in the form of a taxes. We urge the Committee to scrutinize where the 

federal trustee has been allowed to benefit from a trust under its own fiduciary administration to Indian Tribes. 

II. Federal Law Protects Timber Trust Per Capita Payments from Tax 

Tribal members have always been the intended beneficiaries of the timber trust 

resources, by operation of both federal law and the Treaty of 1855. 1 Consistent with 

this understanding, the BIA (then later the Office of Special Trustee or ‘‘OST’’) regularly distributed the timber revenues to the tribal members on a per capita basis 

from trust resources (‘‘trust per capita payments’’). 2 The BIA and OST never considered the trust per capita payments to be subject to federal tax and never did any 

tax reporting (e.g., Forms 1099 to tribal members). In fact, in 1957 the Solicitor for 

the BIA issued an opinion addressing specifically this issue with the IRS (Bureau 

of Internal Revenue, at that time). The Solicitor concluded that the IRS’ reliance on 

the Squire v. Capoeman decision as a basis for taxing distributions of timber trust 

revenues to members was misplaced, and that the right to per capita payments is 

a recognition of communal individual interests and the United States holds the 

property in trust for the individual members. The Solicitor further concluded that 

applying trust funds to taxation is a violation of the 1855 Treaty that reserves to 

the Indians rights in property for which the funds have been substituted. The Solicitor’s opinion was in direct response to the IRS’ assertion that trust per capitas to 

Yakamas are subject to federal tax. 

In 1983 this Congress confirmed that per capita distributions of monies held in 

trust are not subject to federal tax with the passage of the ‘‘Per Capita Act.’’ The 

‘‘Per Capita Act,’’ as set forth in 25 U.S.C. 117a–117c, explicitly excludes Tribal per 

capita distributions from federal taxation. The tax exemption for trust distributions 

is provided in § 117b(a) entitled ‘‘Previous contracted obligations; tax exemption,’’ 

which states that any distribution made under the Act, including distributions pursuant to § 117a, is subject to the provisions of 25 U.S.C. 1407. Section 1407 states 

that none of the funds that are distributed per capita or held in trust pursuant to 

a plan approved under the provisions of this Act shall be subject to Federal or State 

income taxes. Therefore, the plain language of the Per Capita Act exempts any per 

capita distribution made from trust funds to tribal members from Federal income 

taxes. Note that 1957 Solicitor opinion, referred to earlier, was circulated among the 

Congressional committees at the time of their deliberations on the Per Capita Act 

and relied upon by Congress regarding the tax-exempt nature of the trust funds. 

The legislative history of the Per Capita Act further supports the conclusion that 

Congress intended to exempt all per capita payments from trust funds. Congress 

has consistently described the purpose of the tax exemption clause of 25 U.S.C. 

§ 117b(a) in later legislation as exempting tribal trust per capita distributions. For 

instance, when identifying the specific exceptions to taxation of Indians, Congress 

stated:

One exception to this general rule is the exclusion from income provided for income received by Indians from the exercise of certain fishing rights guaranteed 

27

3 Consistent with the above statement of Congressional intent, all federal and state agencies 

(HHS, SSA, BIA, Legal Services Corporation, et. al.) have interpreted the Per Capita Act to require them not to count per capita payments from timber revenues held in trust as an asset 

or resource. See e.g., External Opinion #99–17, Legal Services Corporation; SSA 20 CFR Part 

416, 59 FR 8536; HUD, 55 FR 29905. While these agency determinations do not address the 

tax exemption, their interpretation of the purpose of the Per Capita Act to extend the provisions 

of 25 U.S.C. § 1407 to funds derived from tribal trust resources confirms that the purpose of 

incorporating 25 U.S.C. 1407 in the Per Capita Act was not just to safeguard the terms and 

purposes of the Act of October 19, 1973 as the Commissioner contends. 

by treaties, Federal Statute or Executive order (sec. 7873). See also 25 U.S.C. 

sections 1401–1407 (funds appropriated in satisfaction of a judgment of the 

United States Court of Federal Claims in favor of an Indian tribe which are 

then distributed per capita to tribal members pursuant to a plan approved by 

the Secretary of Interior are exempt from Federal income taxes); 25 U.S.C. section 117b(a) (per capita distributions made to tribal members from Indian trust 

fund revenues are exempt from tax if the Secretary of the Interior approves of 

such distributions).

(emphasis added). 104 H. Rept. 350, 104th Congress; 1st Session, Balanced 

Budget Act of 1995.

Furthermore, the same § 1407 exclusion language has been interpreted to govern 

per capita trust distributions to tribal members in regards to resource exclusion for 

the purpose of determining eligibility for public benefits. If the language of § 1407 

can be used under the Per Capita Act to determine public benefit eligibility, it does 

not follow that the other provisions of § 1407 do not apply to per capita trust distributions in the same way. The resource exclusion language of 25 U.S.C. § 1407 

must be read in parity with the tax exemption language of that clause. When describing the purpose of the Per Capita Act,

Congress stated:

Prior to the enactment of the Tribal Per Capita Distribution Act (P.L. 98–64), 

only per capita payments of Indian judgment funds (and purchases made with 

an interest and investment income accrued thereon) were excluded from consideration as income or resources for purposes of determining the extent of eligibility for assistance under the Social Security Act or for Federal or federallyassisted programs. (Indian Judgment Funds Distribution Act, P.L. 93–134, as 

amended by P.L. 97–458). The Tribal Per Capita Distribution Act (P.L. 98–64) 

extended this treatment to tribal per capita distributions of funds derived from 

tribal trust resources.

[emphasis added]. 102 S. Rpt. 214, Bill S. 754.

While this particular legislative history addresses itself only to increasing the resource exclusion part of 25 U.S.C. § 1407, it clearly demonstrates Congress’ intent 

that the Per Capita Act extend the provisions of 25 U.S.C. § 1407 to funds derived 

from tribal trust resources. 3 It is contrary to Congressional intent to suggest that 

the tax exemption language of 25 U.S.C. § 1407 is meant to apply only to judgment 

funds, but that the resource exclusion part of that clause applies to any funds held 

in trust. 

Accordingly, Yakama Nation, other federally-recognized tribes, the BIA, and OST 

all believe Congress’ intent has been clearly expressed to protect trust funds from 

tax; and further yet, that Yakama’s treaty protects those funds from tax. Yet, the 

Yakama Nation today faces an assault on their tribal trust resources and their 

members’ pro rata share revenues derived from those trust resources. The IRS is 

now asking Yakama Nation tribal leaders, such as myself, to divulge the names of 

the 10,400 plus tribal members in order to audit and tax them on their share of 

trust funds. This is an overreaching action in light of Congress’ express intent to 

safeguard these trust funds from federal tax. It is also an overreaching act by the 

IRS in light of decades of IRS acquiescence in the non-taxation of these trust per 

capita payments. 

III. Past IRS Practices and Treatment of Trust Per Capitas 

The IRS has never before taxed trust per capita payments made to the Yakama 

Nation tribal members. The Yakama Nation, and prior to that the OST, have been 

making trust per capita payments for generations. The IRS has previously taken no 

formal position, as they do now, that these payments are subject to federal tax. The 

IRS has had consistent contact with the Yakama Nation over the last fifty-plus 

years, and has conducted tax compliance reviews of the Yakama Nation reporting 

obligations. At no time did the IRS mention that the Yakama Nation should be reVerDate 0ct 09 2002 11:06 Jan 11, 2013 Jkt 077806 PO 00000 Frm 00031 Fmt 6633 Sfmt 6621 S:\DOCS\77806.TXT JACK
28

porting the trust per capita payments as taxable distributions to tribal members. 

At no time has the IRS provided any education or outreach to tribes generally to 

inform them of the IRS position that trust per capita payments are taxable. Indeed, 

the IRS seems now to be changing its view of the issue. Previously, the IRS publicized its position on this issue at its website stating that per capita distributions 

are exempt from federal income tax ‘‘when there are distributions from trust principal and income held by the Secretary of Interior.’’ The IRS recently removed this 

tax-exempt instruction from the website. 

More significantly, as I explained earlier, the Solicitor issued his opinion in 1957 

in direct response to an inquiry by the IRS concerning the Yakama Nation per capita payments specifically. The IRS never proceeded to tax the Yakama Nation per 

capita payments after that 1957 inquiry. The Yakama Nation has relied on the IRS’ 

apparent acquiescence in the non-taxable status of trust per capita payment since 

that 1957 opinion. We have always understood that a legal decision was made many 

years ago that trust per capita payments are not subject to tax. The IRS must certainly be estopped from changing policy established and relied upon by Tribes 

throughout the country for more than half a century. 

Adding insult to injury, IRS has ignored our requests for consultation on the matter. The IRS’ new position on this issue is a radical change in policy and practice 

that directly impacts the Yakama Nation, but IRS refuses to enter into a government-to-government consultation with us as is required under Executive Order 

13175, its own agency rules and federal law. We have repeatedly asked for meaningful governmentto- government consultation to understand why there has been such 

a significant change in IRS policy and practice. The IRS has simply demanded an 

audit, provided us their legal arguments for taxation and denied our requests for 

consultation. The IRS’ actions directly violate the spirit and letter of the President’s 

consultation policy and no further enforcement action on their part is warranted 

without prior consultation. 

Thank you for the opportunity to testify before this Committee and your willingness to consider the burdens the IRS is causing Indian Country by auditing and taxing tribal trust land and resource distributions. Thank you also for hearing the 

Yakamas call for help and recognition of the Treaty of 1855.

The CHAIRMAN. Thank you very much, Ms. Sanchey-Yallup. 

President Steele, can you describe the impact IRS audits on general welfare programs have on the ability of the Tribes to carry out 

their governmental functions and provide for Tribal members? 

Mr. STEELE. Chairman Akaka, it is going to take a lot of my 

staff’s time to gather all the documents. The IRS wants all the documents. It seems like they are on a fishing expedition to find out 

just what we spend our money on, and this is not only to impact 

my working staff, who are very limited because of the funds that 

the Tribe has to do additional work, but it is going to impact, like 

Gentlewoman Yallup says here, the traditional life of my people because the money we handle is their money. 

We are not unlike the Federal Government; we handle the people’s money, and when they have a need, we care for the whole 

community. You passed a law, No Child Left Behind. We have an 

unwritten law, No One Left Behind. So when they are in need, we 

help them out. 

It is going to be detrimental to both our culture, our traditions, 

and be an additional burden on Tribal government, a burden I 

don’t know if we can handle without putting some more people on. 

The CHAIRMAN. Thank you, Mr. President. 

Ms. Sanchey-Yallup. the Yakama Nation is undergoing an IRS 

audit in per capita distributions of trust funds to Tribal members. 

Do you see this type of audit as a change in policy by the IRS? 

And, if so, what type of notification did tribes receive regarding 

this change in policy? 

Ms. SANCHEY-YALLUP. Thank you, Mr. Chairman. Again, in the 

oral report I reference a 1957 opinion, as well as in my written 

29

statement, and the question regarding is this a change by IRS, I 

would have to say yes. Also, before BIA did administer their distribution of trust per capita, which was assumed by the Yakama 

Nation government, again, by our right, they were non-exempt, 

they were not taxable. 

However, IRS did change somewhere and on the IRS website it 

did have a notation for the frequently asked questions as we go out 

there and look at it. The trust distribution is non-taxable. On the 

website of November 18th, 2011, it said that. Later on in the IRS 

frequently asked questions, again, regarding the issue of distribution, April 3rd, 2012, the trust distribution was removed, again, 

without any change in law; again, without any true honest government-to-government consultation to the Yakama Nation. 

The CHAIRMAN. Thank you. 

President Steele, culture and tradition are vital to our Native 

communities. 

Mr. STEELE. Yes, sir. 

The CHAIRMAN. And preserving culture is a critical component of 

self-determination. Can you elaborate on the effect that taxation of 

traditional Tribal cultural activities has on the Tribe and its Tribal 

members? 

Mr. STEELE. Yes, Senator. The people would have to give up their 

traditional method of letting their loved one go to the spirit world 

and staying up with them two or three nights physically and feeding all the attendees to what we call wakes. That is a cost and that 

will probably the interrupted, the traditional way we let the loved 

ones go to the spirit world. 

Secondly, I don’t know if our Tribal members would want to take 

back to school clothes from us. A child does not want to go to school 

if he doesn’t have a new tee-shirt and some new tennis shoes, a 

pair of pants, and the parents know that that child needs to go to 

school to get breakfast and dinner or lunch. And you try to get that 

child in that classroom on the first day, and for that child to go to 

that classroom on the first day, he is going to want at least something to wear that is good. So we give them back to school clothes 

money. That is not traditional, but it is something that would impact the children going to school. 

Other things are our powwows. IRS wants to tax a person if he 

wins any monetary value as a prize; give him a 1099. This is overextending, in our belief, IRS’s authority. They are acting more on 

value judgment than any law. That is why we request legislation, 

possibly, to straighten IRS up. They just don’t know what—they 

are treating us like an organization. 

The CHAIRMAN. Thank you very much, President Steele. 

Senator Johnson, for your questions, please. 

Senator JOHNSON. Welcome, President Steele. Can you share 

with the Committee some examples of the types of assistance that 

the Tribe has provided? 

Mr. STEELE. Senator, the IRS hasn’t been to Pine Ridge yet. We 

got their letter that they are coming, and they want us to put these 

certain documents together, and it is all of our banking documents 

plus a lot of our expenditures in different areas. But we give, like 

I said, funeral expenses, back to school clothes. We give energy assistance. 

30

We fix houses, Senator. And they want us to put a value on how 

much that lumber costs to patch a hole in the roof or the floor or 

put a little shingling on. They want us to put a value on that and 

give that person a 1099. Our weather gets quite cold in South Dakota and some of the homes just have wood heat, they don’t have 

furnaces, so it is imperative that the Tribe help them out with energy assistance in either buying a pickup load of wood, helping to 

pay a light bill or buy some propane. And 1099s to all of these people, Senator? It is so much needed. They ask for a little food. We 

give them a 1099 with the food? This kind of stuff, Senator, is, to 

me, the next year, where are those people going to find the money 

to pay IRS? 

Senator, I am sorry, but we are about 89 percent unemployed on 

Pine Ridge. About 40 percent live under the poverty level. It is difficult. 

Senator JOHNSON. In the past, have you provided drinking water 

to any individual Natives who wouldn’t otherwise have water? 

Mr. STEELE. Yes, Senator, and we did it through either the Tribe 

before, then the real water program, where we hauled water to 

their homes. That was quite an expense. I don’t know if IRS would 

want to tax the expense of giving water to homes to wash their 

faces and cook their dinners, but you know we still haul water to 

people’s homes. 

Senator JOHNSON. I am aware of that. President Steele, can you 

provide examples of how IRS auditing has limited or slowed economic development in Pine Ridge potentially? 

Mr. STEELE. Well, Senator, we haven’t had the audit, as I said, 

yet. We got the letter telling us to put all these documents together 

for them so they can come down and audit us. They have been up 

to Cheyenne River, they have been to Crow Creek, they have been 

to Sisson Wapton. They are making their rounds. They have letters 

to ourselves, up to Turtle Mountain, down to Winnebago that they 

are coming in and they want us to put these certain documents together. 

It hasn’t impacted us that they are there yet, but we are getting 

prepared for them to come in, and, Senators, it is just that they are 

intruding upon our sovereignty and they are attacking the poorest 

of the poor. When I look on TV and see whether or not the millionaires should receive any tax, and they are down there wanting to 

give 1099s to people who are just so poor. 

Senator JOHNSON. Ms. Sanchey-Yallup, you stated that the IRS 

were not able to help the Yakama Nation in understanding its new 

status of trust per capita payments. How can the IRS improve its 

government-to-government relations? 

Ms. SANCHEY-YALLUP. Thank you, Mr. Chairman, if I may. For 

IRS to improve their relationships with the Yakama Nation, they 

truly have to have a government-to-government relationship with 

us. As Mr. John Yellow Bird Steele has stated, we received a letter. 

An audit letter is not consultation. President Obama has Executive 

Order 13175 for all Federal agencies to communicate on a government-to-government level with all tribes. I consider a letter not a 

government-to-government consultation. The Yakama Nation has 

requested a formal government-to-government consultation with 

31

IRS. Again, we did not receive that. And, truly, they should have 

a government-to-government consultation on my lands, at Yakama. 

Senator JOHNSON. Is it your position that the IRS should come 

to face-to-face conversations with you about how they want to tax 

you and when that tax begins? 

Ms. SANCHEY-YALLUP. Mr. Chairman, if I may, government-togovernment consultation, to me, is face-to-face. Even though it is 

technology today, emails and all the other means of media, government-to-government is sitting down with my 14 elected officials 

and having a discussion. Again, my trust resources are not taxable. 

That was retained in my treaty with all exclusive rights within the 

1.4 million acres of land, to me, as a Yakama member, and all 

10,400 members, that is what we hold as trust resources to us. 

And, again, we ceded over 10 million acres of my territory of Washington to the United States Government so that trust will stay 

Yakama Nation trust, non-taxable. 

Senator JOHNSON. My time has expired. Thank you. 

Ms. SANCHEY-YALLUP. Thank you. 

The CHAIRMAN. Senator Udall, your questions. 

Senator UDALL. Just to follow up on Senator Johnson’s question. 

Has there been any consultation at all with the IRS on the issues 

that you made the initial request? 

Ms. SANCHEY-YALLUP. Mr. Chairman, if I may, their assumed 

consultation to me as a Tribal leader for the Yakama Nation is a 

letter. 

Senator UDALL. Yes. And that is it? 

Ms. SANCHEY-YALLUP. That is it. 

Senator UDALL. That is all you have received? 

Ms. SANCHEY-YALLUP. I am sorry to interrupt you. 

Senator UDALL. No, please go ahead. 

Ms. SANCHEY-YALLUP. After we received that, then they showed 

up and said we want to review the documents. We did not allow 

that type of situation to happen, and, again, consultation to the 

Yakama Nation is truly a face-to-face, sit-down discussion with the 

14 elected Tribal council of the Yakama Nation. 

Senator UDALL. And you have requested that, but haven’t received that as of this date? 

Ms. SANCHEY-YALLUP. Mr. Chairman, if I may answer, yes. A 

true and honest consultation with the Yakama Nation. 

Senator UDALL. And that hasn’t occurred. 

Ms. SANCHEY-YALLUP. No, it has not. 

Senator UDALL. Okay. Thank you very much for your testimony. 

Thank you, Mr. Chairman. I don’t have additional questions. 

The CHAIRMAN. Thank you, Senator Udall. 

Let me ask one question to Ms. Sanchey-Yallup. The Department 

of the Interior and Department of Justice are currently engaged in 

an historic effort to settle longstanding trust management lawsuits. 

Do you think current efforts by the IRS to tax per capita trust payments will affect these settlements moving forward? 

Ms. SANCHEY-YALLUP. Thank you, Mr. Chairman. Yes, it will affect the trust per capita going forward. And I know we are not here 

to speak about that trust mismanagement issue, but we feel that 

is truly inconsistent with the treaty right of the Yakama Nation 

and it damages the Yakama Nation in ways that you cannot really 

32

document or speak of if they choose to continue forward with assuming that is taxable. 

And, again, we sit here as a treaty Tribe and we are asking for 

this Committee’s assistance to compel IRS to understand my trust 

resources that were not truly given, but we are borrowing from 

Mother Earth, that it is the Yakama Nation’s way of honoring and 

being trustworthy to Mother Earth by the trust resources and the 

payments to the Yakama members are non-taxable. And there has 

been no change in law and there has been no government-to-government consultation with the Tribe of the Yakama Nation. 

The CHAIRMAN. Thank you very much. 

Are there any further questions? Senator Johnson? 

Senator JOHNSON. I have one more question for President Steele. 

So far this year, can you estimate how much the Tribe has provided in welfare assistance? 

Mr. STEELE. Yes, sir. All welfare assistance I think has cost the 

Tribe over $1 million. And, Senators, we do get some money from 

Venezuela through Joe Kennedy for energy assistance, and it 

passes through the Tribal ledgers, and IRS will probably tax them 

for that too. 

Senator JOHNSON. I have no further questions. 

The CHAIRMAN. Thank you. 

Well, I want to thank this panel very much for your testimony, 

as well as your responses, and want to thank you for highlighting 

some of the problems that we have. So I want to thank you very 

much and thank you for coming to this hearing. 

Mr. STEELE. We thank you, honorable Senators. 

Ms. SANCHEY-YALLUP. Thank you, Chairman. 

The CHAIRMAN. Now I would like to call the next panel. 

Mr. Aaron Klein, Deputy Assistant Secretary for Economic Policy 

Coordination at the Department of Treasury; and Ms. Christie Jacobs, Director for the Office of Indian Tribal Governments at the 

Internal Revenue Service. 

Mr. Klein, thank you for being here. Will you please proceed with 

your testimony? 

STATEMENT OF AARON KLEIN, DEPUTY ASSISTANT

SECRETARY, OFFICE OF ECONOMIC POLICY, U.S.

DEPARTMENT OF THE TREASURY 

Mr. KLEIN. Thank you very much, Chairman Akaka, Vice Chairman Barrasso, Senator Johnson, Senator Udall. Thank you very 

much other members of the Committee and the staff. It is an honor 

and a privilege to be here testifying before this Committee in the 

United States Senate today. 

I am going to focus on the Treasury Department’s Tribal Consultation program and discuss our most recent consultation efforts 

to clarify and improve the application of the general welfare doctrine. 

In 2000, President Clinton signed Executive Order 13175, which 

requires all Executive Branch departments and agencies to engage 

in Tribal consultation and to establish a single point of contact for 

Tribal consultation, a position I hold at the Treasury Department. 

In November 2009, President Obama issued a memorandum to 

all agencies and departments requesting that agencies be actively 

33

engaged in Tribal consultation, that they review and consider revising their Tribal consultation policies, and that they consult with 

Tribal governments as they do so. 

During those initial conversations with Treasury, Tribal leaders 

raised three key issues: first, they asked for a better process for improved Tribal consultation and enhanced dialogue going forward. 

Tribal leaders raised concerns about various tax code issues, some 

of which you have heard today, and in this context they frequently 

raised concerns about the application of the general welfare doctrine. Finally, tribes raised a number of issues regarding their access to capital for economic development. 

Treasury took these comments to heart. We have engaged in a 

series of meaningful actions in response to Tribal leaders concerns, 

and I would like to update the Committee on our work. 

Treasury took a series of steps to enhance our Tribal consultation 

process. Tribal consultation must take place from an understanding 

that conversations between the Federal Government and Tribal 

governments are conducted on a government-to-government basis, 

which is predicated on a mutual understanding and respect for 

Tribal sovereignty, as you well articulated, Mr. Chairman, and the 

witnesses before me. 

We share that opinion. We share that factual belief and we have 

tried to create a strong consultation process predicated on that. We 

have tried to open up lines of communication in both directions. We 

have set up several institutional structures to improve our communication effort, leveraging technology, as well as making sure that 

we are in frequent contact with Tribal leaders and organizations 

both in Washington and in Indian Country. 

During the course of our consultation efforts, Tribal leaders repeatedly raised concerns regarding whether certain payments or 

benefits provided by the Tribe to members are excludable from taxable income under the general welfare doctrine. This exclusion governs the types and kinds of benefits that tribes can provide to their 

members without creating a taxable event. To be clear, it does not 

govern what benefits a Tribe can provide its members. Tribes are 

free to provide benefits on whatever basis they see fit, subject to 

other provisions of law. What this exclusion does govern is whether 

the provision of such a benefit constitutes taxable income on the 

part of the recipient. 

Treasury and the IRS listened to and considered the requests of 

Tribal leaders for increased clarity on the application of the general 

welfare doctrine. We agreed to begin a consultation process dedicated exclusively to this question. Treasury and IRS have held a 

series of joint consultation meetings with Tribal leaders. We invited 

comments concerning the application of the general welfare exclusion to Indian Tribal government programs. I am pleased to report 

to the Committee that we received over 85 comments from tribes 

and Tribal leaders on this issue. 

Through our review of the written comments, our direct consultation efforts, and our own internal analysis, it is clear to us that additional guidance and clarity on the general welfare doctrine is 

warranted. Treasury and the IRS have now publicly committed to 

issue new written guidance on this subject. In doing so, we will reVerDate 0ct 09 2002 11:06 Jan 11, 2013 Jkt 077806 PO 00000 Frm 00037 Fmt 6633 Sfmt 6601 S:\DOCS\77806.TXT JACK
34

main mindful of the comments and positions thoughtfully articulated by tribes and Tribal leaders. 

Another critical issue raised repeatedly by tribes and Tribal leaders is their access to capital. Treasury is actively engaged in trying 

to address this issue. The Native American CDFI Program, or 

NACA, focuses exclusively on establishing and growing CDFIs in 

American Indian, Alaskan Native, and Native Hawaiian communities. I believe the NACA program represents one of the most successful programs in promoting access to capital in Indian Country. 

As an economist, I like to measure the success of a program by 

its demand. Certified Native CDFIs have grown by almost 40 percent since just 2009 and have increased fivefold since 2001. Clearly, the demand is there. I would especially like to thank Chairman 

Akaka, members of the Indian Affairs Committee, especially Banking Committee Chairman Johnson, and others for their strong support for the NACA program. 

Treasury has also worked with tribes to improve their access to 

the capital markets. As many of you are aware, under current law, 

tribes have a more limited authority to issue tax-exempt municipal 

debt than States and localities. Many tribes have argued against 

this policy on a variety of grounds. The Recovery Act responded to 

these concerns by granting Treasury the authority to allocate $2 

billion of Tribal Economic Development Bonds to Tribal governments. 

The Act also required Treasury to study the program on the 

issues surrounding tribes’ ability to issue tax-exempt debt. We consulted as our first step in this process, received 27 written comments for the record. We took those to heart, we thought through 

the issue, and we submitted our report to Congress last year. 

Treasury’s conclusion that Congress should generally adopt the 

State or local government standard for tax-exempt government 

bonds on a permanent basis for Tribal governments was broadly 

consistent with the comments we received throughout consultation. 

In conclusion, Treasury really remains deeply committed to 

working with tribes and Tribal leaders throughout our consultation 

process. In my view, our consultation on the general welfare doctrine is a perfect example of the process working at its best. Tribal 

leaders raised this issue to Treasury in general consultation, we 

did our own internal analysis and listened to what they were saying, we decided to engage in a specific consultation on this issue, 

and we have engaged in a very thoughtful, respectful, and valuable 

dialogue which will culminate in new published guidance to try and 

improve the administrability in fairness to the tax code, while providing tribes and Tribal members greater certainty for compliance. 

That concludes my testimony, and I look forward to answering 

any questions you may have. 

[The prepared statement of Mr. Klein follows:]

PREPARED STATEMENT OF AARON KLEIN, DEPUTY ASSISTANT SECRETARY, OFFICE OF

ECONOMIC POLICY, U.S. DEPARTMENT OF THE TREASURY

Introduction 

Good afternoon, Chairman Akaka, Vice Chairman Barrasso, and members of the 

Committee. I appreciate the opportunity to testify before you on the Treasury Department’s Tribal Consultation program with a focus on our most recent consultaVerDate 0ct 09 2002 11:06 Jan 11, 2013 Jkt 077806 PO 00000 Frm 00038 Fmt 6633 Sfmt 6621 S:\DOCS\77806.TXT JACK
35

tion efforts to clarify and improve the application of the general welfare doctrine for 

Tribes for tax purposes. 

Tribal Consultation 

In 2000, President Clinton signed Executive Order 13175, which required all executive branch departments and agencies to engage in Tribal consultation on policies 

that have Tribal implications. EO 13175 also required each agency to establish a 

single Point of Contact for Tribal Consultation, a position I hold at the Treasury 

Department. In November 2009, President Obama issued a Memorandum to all 

agencies and departments requesting that agencies be actively engaged in Tribal 

consultation, that agencies review and consider revising their Tribal consultation 

policies, and that they consult with Tribal governments as they do so. 

During those initial conversations with Treasury, Tribal leaders raised three key 

issues. First, they asked for a better process for improved Tribal consultation and 

an enhanced dialogue going forward. Specifically, they stressed the importance of 

Tribal sovereignty and that true consultation can only take place with the understanding that the relationship between Tribes and the Federal government is a government-to-government relationship. Second, Tribal leaders raised concerns about 

various tax code issues related to Tribal governments, Tribal corporations, and Tribal members. Among the many tax issues highlighted by Tribal leaders, concerns 

about the application of the general welfare doctrine were the most frequently 

raised. Finally, Tribes raised a number of concerns regarding their access to capital 

for economic development. Within this area, issues relating to Tribal Economic Development Bonds as well as the Community Development Financial Institutions 

(CDFI) Fund’s Native American program were the two most significant. 

Treasury took the comments raised by Tribal leaders to heart. We have engaged 

in a series of meaningful actions in response to Tribal leaders’ concerns, and I would 

like to update the Committee on our work. 

Consultation Efforts 

Treasury has taken a series of steps to enhance our Tribal consultation process. 

First, Treasury developed an internal Tribal consultation process as required by the 

Presidential Memorandum. This process is in accordance with EO 13175 and has 

three main principles:

• The Treasury Department is committed to the establishment of a comprehensive consultation process leading to meaningful dialogue with Indian Tribes on 

Treasury policies that have implications for such Tribes, and in particular those 

regulations and legislative proposals that have a direct and identifiable economic impact on Indian Tribes or preempt Tribal law.

• Tribal consultation will assist Treasury’s development of policy, regulation, and 

legislative activities, as it will increase Treasury’s understanding of the issues 

and potential impact of activities on Tribes and American Indians and Alaskan 

Natives.

• The Treasury Department is committed to developing and issuing regulations 

and guidance in a timely and efficient manner.

Tribal consultation must take place from an understanding that conversations between the Federal Government and Tribal governments are conducted on a government-to-government basis, which is predicated on mutual understanding and respect for Tribal sovereignty. 

A strong consultation process requires open lines of communication in both directions. Tribal leaders need to be able to easily contact Treasury, whether to request 

a meeting, ask about a specific program, or submit their views on a particular issue. 

Treasury needs to be able to communicate with Tribal leaders in a clear, consistent, 

and transparent manner, and easily solicit Tribal views on policy issues. To accomplish these objectives, we have set up several institutional structures to improve our 

communication. First, we have created an email address for any Tribal leader to 

send a Tribal consultation request, Tribal.consult@Treasury.gov. Moreover, we have 

established a specific webpage dedicated to Tribal consultation which is regularly 

updated with the latest Tribal consultation requests, policy statements, and reports 

to Congress (http://www.treasury.gov/resource-center/economic-policy/tribal-policy/Pages/Tribal-Policy.aspx). We have also released our Tribal consultation plan so 

that any Tribe or interested party can see how Treasury is fulfilling our Tribal consultation requirement. 

Since adopting our new Tribal consultation process, Treasury has engaged in multiple consultation processes over a wide variety of issues, including Tribal Economic 

Development Bonds and the application of the general welfare doctrine. In addition, 

we have continued to hold general consultation and listening sessions to solicit input 

36

from Tribal leaders as well as to enable Tribal leaders to ask detailed questions directly to Treasury officials. 

Consultation can and must take place both in Washington, D.C. and in Indian 

country. I have engaged in consultation and listening sessions in South Dakota, Oregon, and Louisiana. Other Treasury officials have travelled across the country to 

conduct specific outreach efforts, including a series of conferences and events regarding access to capital, which were sponsored by the CDFI Fund along with the 

Federal Reserve Banks of Minneapolis and San Francisco and other federal agencies. My colleagues at the IRS have also regularly held consultation sessions across 

the country. 

Tribal leaders often raise issues that concern both Treasury and IRS. To best address these concerns, we have regularly held joint consultation sessions where Tribal leaders engage with senior officials from both Treasury and IRS simultaneously. 

This not only maximizes efficiency but also encourages a more collaborative process 

so that everyone is hearing and responding to all parties. 

General Welfare Doctrine 

During the course of our consultation efforts, Tribal leaders repeatedly raised concerns regarding whether certain payments or benefits provided by the Tribe to members are excludable from taxable income under the general welfare doctrine. This 

exclusion governs the types and kinds of benefits that Tribes can provide to their 

members without creating a taxable event. To be clear, it does not govern what benefits a Tribe can provide its members. Tribes are free to provide benefits on whatever basis they see fit, subject to other provisions of law. What this exclusion does 

govern is whether the provision of such a benefit constitutes taxable income on the 

part of the recipient. 

Treasury and IRS listened to and considered the requests of Tribal leaders for increased clarity on the application of the general welfare doctrine. We agreed to 

begin a consultation process dedicated exclusively to this issue late last year, holding our first consultation meeting on November 30, 2011, in conjunction with the 

President’s Tribal Nations summit. On March 8, 2012, we held another consultation 

session hosted by the National Congress of American Indians in conjunction with 

their annual conference. To provide an opportunity for direct dialogue for all Tribal 

leaders who were not able to make the earlier in-person consultation sessions, we 

also held a national phone call just two weeks ago on May 30, 2012. In all of these 

meetings, Treasury and IRS participated jointly, and while exact attendance figures 

are not known, it appears that approximately 300 people in total attended these 

events. 

Our Tribal consultation on this issue was not limited to just these in-person meetings. The IRS issued Notice 2011–94 on November 15, 2011, which invited comments concerning the application of the general welfare exclusion to Indian Tribal 

government programs. When various Tribal leaders requested additional time to 

submit comments, we accommodated their requests by extending the deadline by an 

additional 30 days. I am pleased to report that we have received over 65 comments 

from Tribes and Tribal leaders within the official comment period, and more than 

20 additional comments since then. 

Through our review of the written comments, our direct consultation efforts, and 

our own internal analysis, it is clear to us that additional guidance and clarity on 

the general welfare doctrine is warranted. Treasury and the IRS have now publicly 

committed to issue new written, published guidance on this subject. In doing so, we 

will remain mindful of the comments and positions thoughtfully articulated by 

Tribes and Tribal leaders during the consultation process. 

Access to Capital 

Access to capital is another critical concern raised repeatedly by Tribes and Tribal 

leaders. Treasury is actively engaged in helping Tribes access capital to grow their 

local economies. Within the CDFI Fund, a bureau of Treasury whose mission is to 

expand the capacity of financial institutions to provide credit, capital, and financial 

services to underserved populations and communities in the United States, the Native American CDFI Assistance Program (NACA) focuses exclusively on establishing 

and growing CDFIs in American Indian, Alaskan Native, and Native Hawaiian communities. I believe the NACA program represents one of the most successful programs in promoting access to capital in Indian Country. There are 70 certified Native American CDFIs in operation all around the country, hopefully serving many 

of the Tribes represented here today. As an economist, I like to measure the success 

of a program by demand. Certified Native CDFIs have grown by over 38 percent 

since 2009 and have increased five-fold since 2001, when there were just 14. Clearly 

37

there is demand among American Indians, Native Alaskans, and Native Hawaiians 

for CDFIs. 

We are trying to keep pace with demand for Native American CDFIs. In March 

of this year, Treasury announced the results from our most recent round of funding 

for the NACA program. There were 71 applicants for over $23 million in funds. This 

included 25 existing certified Native CDFIs that applied for more than $16 million 

in grants along with 46 potential new Native CDFIs, certified Native CDFIs, and 

Sponsoring Entities that applied for over $6 million in technical assistance grants. 

Over the lifetime of the NACA program, Treasury and CDFI have awarded over $57 

million to more than 250 applicants. 

Given its success, there is also strong support for the NACA program in Congress, 

and I would like to thank Chairman Akaka, members of the Indian Affairs Committee, especially Banking, Housing, and Urban Affairs Committee Chairman Johnson, and others for their continued strong support for the NACA program. This is 

program is one of the most powerful and effective tools to promote economic development and bring basic financial services into Indian Country, and we are committed 

to working with Tribes and Tribal leaders to ensure its continued success. 

Treasury has also worked with Tribes to help improve their access to the capital 

markets. As many of you are well aware, under current law Tribes have a more limited authority to issue tax-exempt municipal debt than states and localities. Many 

Tribes have argued against this policy on a variety of grounds, including that it has 

inhibited economic development, hampered Tribes’ access to the capital markets, 

and was unfair when compared to the broad authority granted to State and local 

governments. The American Recovery and Reinvestment Act (Recovery Act) responded to these concerns by granting Treasury the authority to allocate $2 billion 

of Tribal Economic Development Bonds (TEDBs) to Tribal governments. These allocations would grant Tribes the authority to issue tax-exempt debt for a wide range 

of projects that previously would not have qualified. Treasury acted quickly, allocating the funds in two different $1 billion tranches and giving awards to 134 applicants. 

Treasury was also given an opportunity in the Recovery Act to study the TEDB 

program and report back to Congress on both the program and, more broadly, on 

the issues surrounding Tribes’ ability to issue tax-exempt debt. Our first step in this 

process was to act in accordance with Executive Order 13175 and begin a consultation process with Tribes. Through that process we received written comments from 

27 Tribes, Tribal organizations, and interested parties from our open Notice in the 

Federal Register as well as many other comments and insights through various consultations. The input that we received through the consultation process proved invaluable as we sifted through the various policy options available. Broadly speaking, 

the comments indicated the strong desire to grant Tribal governments permanent 

and indefinite authority to issue tax-exempt debt similar to the authority enjoyed 

by state governments. 

Treasury submitted its congressional report on TEDBs in December 2011, in 

which we concluded:

‘‘For reasons of tax parity, fairness, flexibility, and administrability, the Department recommends that Congress adopt the State or local government standard 

for tax-exempt government bonds . . . on a permanent basis for purposes of Indian Tribal government eligibility to issue tax-exempt governmental bonds, 

without a bond volume cap.’’

That is we recommended that Congress make permanent the experiment begun 

in the Recovery Act and allow Tribal governments to have access to tax-exempt 

bonds on their own terms as consistent with the TEDB program. This conclusion 

is broadly consistent with the positions articulated by many Tribes and Tribal leaders. 

While Treasury has made this recommendation for parity on tax-exempt debt, it 

will not become law until Congress acts. In the meantime, TEDB allocations from 

the original $2 billion still exist and Treasury and the IRS are working to reallocate 

the existing authority. In that endeavor we have continued to seek Tribal input and 

hope to announce our plans for reallocation in the very near future. 

Conclusion 

Treasury remains committed to working with Tribes and Tribal leaders through 

our consultation process. In my view, our Tribal consultation on the general welfare 

doctrine is a perfect example of this process working at its best. Tribal leaders presented these issues to Treasury and IRS through general consultation and Treasury 

and IRS examined the issues and agreed to a more in-depth specific consultation, 

resulting in an extensive and highly productive dialogue. Consequently, the new 

38

guidance will improve the administrability and fairness of the tax code while providing Tribes and Tribal members greater certainty for compliance. That concludes 

my testimony, and I look forward to answering any questions you may have.

The CHAIRMAN. Thank you very much, Mr. Klein. 

Ms. Jacobs, will you please proceed with your statement? 

STATEMENT OF CHRISTIE J. JACOBS, DIRECTOR, OFFICE

OF INDIAN TRIBAL GOVERNMENTS, INTERNAL REVENUE

SERVICE, U.S. DEPARTMENT OF THE TREASURY 

Ms. JACOBS. Good afternoon, Chairman Akaka and members of 

the Committee. I appreciate the opportunity to be here this afternoon to discuss how the general welfare exclusion applies to Tribal 

programs. 

As I begin, I want to acknowledge that the United States has a 

unique government-to-government relationship with Indian tribes, 

as set forth in the Constitution of the United States, treaties, statutes, executive orders, and court decisions. The Office of Indian 

Tribal Governments within the Internal Revenue Service was created in response to requests by Tribal leaders. This office exists to 

facilitate the government-to-government relationship and to assist 

tribes in meeting their Federal tax obligations. 

The principal issue for discussion today is the general welfare exclusion. Tribes, like all governments, sponsor programs designed to 

support their members. To be very clear, whether this exclusion is 

or is not applied does not limit what benefits or social programs 

tribes can provide to their members. The question is whether payments made through those programs are excludable from the income of the recipient under the general welfare doctrine. 

There are two key tax concepts: first, Internal Revenue Code Section 61 provides that gross income includes all income from whatever source derived, unless a specific exception in the Code applies; 

second, the general welfare exclusion is a non-Code exception, an 

administrative exclusion that has developed in official IRS guidance and recognized by courts and Congress for more than 50 

years. 

Despite the statutory breadth of Section 61, the administrative 

rulings show that payments made by government units, Tribal or 

non-Tribal, can be excluded from a recipient’s gross income under 

the general welfare doctrine if the payments are: made under a 

government program; for the promotion of the general welfare 

based generally on individual, family, and other needs; and do not 

represent compensation for services. 

The IRS does not have, and never has had, a special program for 

examining Tribal government social welfare programs. The question may arise if the Tribe seeks a letter ruling about a specific 

program. It can also arise during an IRS review of a Tribal government’s tax reporting compliance. The Code requires all persons, including Indian Tribal governments, to report to the IRS certain 

payments of $600 or more. During an examination, records may 

show such payments to Tribal members requiring further inquiry 

as to whether the general welfare exclusion applies. If so, those 

payments do not need to be reported. 

The IRS always examines a program using the same threepronged analysis. Comments from the Tribal community have foVerDate 0ct 09 2002 11:06 Jan 11, 2013 Jkt 077806 PO 00000 Frm 00042 Fmt 6633 Sfmt 6601 S:\DOCS\77806.TXT JACK
39

cused on two of those prongs: whether the payments are being disbursed based upon the needs of the recipient and whether the payments constitute compensation received for services. 

While there are many Tribal and non-Tribal examples in administrative rulings, the difficulty has been that each application is 

fact-specific, and the historical and cultural context within the 

Tribal government environment adds a layer of complexity. 

In response to concerns raised by various tribes and Tribal leaders, the IRS issued Notice 2011–94 last November, inviting comments concerning the application of the general welfare exclusion 

to Indian Tribal government programs and beginning a specific 

consultation process with tribes on how to find a solution that addresses their concerns and improves clarity and consistency of the 

tax law. 

Since then, the IRS has received numerous, as you have heard, 

written comments from tribes and Tribal leaders, which we are 

currently reviewing, and the IRS and Treasury have engaged in 

multiple consultation sessions, such as in November during the 

White House Tribal Nations Conference, in March during the National Conference of American Indians annual meeting, and a national consultation session conducted through teleconference to facilitate participation. 

In addition, on June 6th, the Advisory Committee on Tax Exempt and Government Entities, which is made up of representatives from the public, including representatives of the Tribal community, issued a report on the General Welfare Doctrine as Applied 

to Indian Tribal Governments and Their Members. We are currently reviewing the recommendations of that report and we expect 

to continue receiving input as we move forward. 

The IRS plans to publish written guidance that will address 

issues and respond to concerns raised by tribes in their oral and 

written comments. Our intent is that this published guidance, 

along with improved internal coordination procedures, will provide 

increased clarity and consistency of the application of the general 

welfare doctrine. Tribal concerns are very important to us and we 

look forward to continuing to work with tribes on this item in the 

future. 

I am aware of the Administration’s commitment to strengthen 

and build the government-to-government relationship between the 

United States and Tribal Nations, and I appreciate the Committee’s interest in these matters. 

Thank you. This concludes my testimony, and I would be happy 

to answer any questions. 

[The prepared statement of Ms. Jacobs follows:]

PREPARED STATEMENT OF CHRISTIE J. JACOBS, DIRECTOR, OFFICE OF INDIAN TRIBAL

GOVERNMENTS, INTERNAL REVENUE SERVICE, U.S. DEPARTMENT OF THE TREASURY

Introduction 

Good afternoon, Chairman Akaka, Vice Chairman Barrasso, and members of the 

Committee. 

I appreciate the opportunity to be here this afternoon to discuss how the general 

welfare exclusion applies to tribal programs. 

At the opening of my testimony, I want to acknowledge that the United States 

has a unique government-to-government relationship with Indian tribes as set forth 

in the Constitution of the United States, treaties, statutes, executive orders, and 

40

court decisions. The Office of Indian Tribal Governments within the Internal Revenue Service (IRS) was created in response to requests by tribal leaders. This office 

exists to facilitate the government-to-government relationship and to assist tribes in 

meeting their Federal tax obligations. 

General Welfare Exclusion 

The principle issue for discussion today is the general welfare exclusion. Tribes, 

like all governments, sponsor social welfare programs designed to support their 

members. Of principal relevance to the IRS is whether payments made through 

those social welfare programs are taxable. To be very clear, whether this exclusion 

is or is not applied does not limit what benefits or social programs tribes can provide to their members. The question is whether the provision of those benefits is 

excludable from gross income under the general welfare doctrine. 

In order to provide context to this discussion I would like to briefly explain certain 

tax principles that apply to government social welfare programs, how the IRS has 

applied these principles in the past to tribal social welfare programs, and what the 

IRS is doing in order to address the concerns of the Indian tribal community on this 

topic. 

Brief Explanation of Tax Principles 

The two concepts relevant to this discussion are gross income and the IRS’s administrative general welfare exclusion from gross income. 

Section 61 of the Internal Revenue Code (Code) provides that gross income includes all income, from whatever source derived, unless a specific exception in the 

Code applies. This provision establishes the general rule that income will be taxed 

unless it is expressly excluded from taxation. 

The general welfare exclusion is, however, a non-Code exception. It is an administrative exclusion that has been developed in official IRS guidance and recognized 

by the courts and Congress over a fifty-five year period. See, e.g., Rev. Rul. 63–136, 

1963–2 C.B. 19; Graff v. Commissioner, 673 F.2d 784 (5th Cir. 1982), affg. per curiam 74 T.C. 743 (1980); Bailey v. Commissioner, 88 T.C. 1293 (1987). 

Some have expressed a concern that guidance on the general welfare exclusion 

lacks clarity because it is not found in the Code but in these other forms of administrative guidance and court decisions that stretch over five decades. 

It is clear that the exclusion can apply to payments made by governmental units, 

tribal or non-tribal. Although Code section 61 defines broadly the items that are included in gross income, the IRS has consistently concluded that payments made to 

individuals by governmental units, under legislatively provided social benefit programs, for the promotion of the general welfare, are not includible in a recipient’s 

gross income. See, e.g., Rev. Rul. 74–205, 1974–1 C.B. 20; Rev. Rul. 98–19, 1998–

1 C.B. 840. 

To qualify under the general welfare exclusion, payments must: (1) be made under 

a governmental program, (2) be for the promotion of general welfare (i.e., be based 

generally on individual, family or other needs), and (3) not represent compensation 

for services. 

I’d like to emphasize that the general welfare exclusion applies equally to general 

welfare program payments of all governments, tribal, federal, state, and local. 

Past Application of the Exclusion to Tribal Programs 

The IRS does not have and never has had a special program for examining tribal 

government social welfare programs. Historically, there were two primary ways that 

the IRS came to analyze tribal social welfare programs and whether payments made 

through these programs qualified for the general welfare exclusion. 

One way that the IRS may come to examine a tribal program is for the tribe to 

seek a letter ruling from the IRS on the tax implications of a certain program. The 

IRS has historically provided all governments, tribal and non-tribal, with the opportunity to seek a letter ruling to determine if a certain program qualifies for the general welfare exclusion. Some tribes have availed themselves of this process. However, the expense, time needed, and the limited reliance provided by a letter ruling 

may have discouraged tribes from seeking letter rulings for their programs. 

The second way tribal social programs may come under review is through an examination of a tribal government’s tax reporting compliance. The Code requires all 

persons, including Indian tribal governments, to report certain payments of $600 or 

more to the IRS. During an examination, a review of an Indian tribal government’s 

books and records may show payments of $600 or more to tribal members for social 

programs. These payments require further consideration, because payments to 

which the general welfare exclusion applies do not have to be reported. 

The IRS always examines a program using the same three prong analysis of the 

general welfare exclusion. There has not been significant concern voiced to us reVerDate 0ct 09 2002 11:06 Jan 11, 2013 Jkt 077806 PO 00000 Frm 00044 Fmt 6633 Sfmt 6621 S:\DOCS\77806.TXT JACK
41

garding the first prong of this analysis: whether payments are being made from a 

government fund or not. The comments we have received on the application of the 

general welfare exclusion within the tribal context have been on the second and 

third prongs of the analysis: whether the payments are being disbursed based upon 

the needs of the recipient and whether the payments constitute compensation received for services. 

For example, in one private letter ruling, a tribe provided certain educational assistance and benefit payments to its members who attended institutions of higher 

learning and vocational or occupational training. Most tribal members qualifying for 

assistance had an income below the national family median income level. In this 

instance, it was determined that the educational assistance payments were made to 

enhance educational opportunities for students from lower-income families and, 

therefore, were excluded from gross income because the payments were for the promotion of the general welfare. 

In another ruling, it was determined that payments to participants in a tribal program designed to train unemployed and underemployed residents in construction 

skills were excluded from income under the general welfare exclusion because the 

primary purpose was training, which is based on the need for additional skills to 

prepare for the job market, and was not a payment for the compensation of services. 

The difficulty in these examples and in applying the general welfare exclusion has 

been that each application is fact-specific and requires an independent analysis. The 

historical and cultural context within the tribal government context adds a layer of 

complexity to this analysis. Historically, tribes have expressed their concern to us 

that the IRS has not consistently applied the general welfare exclusion. 

The IRS Response to Tribal Concerns 

At various points, different tribes and tribal leaders have voiced concerns over the 

application of the exclusion provided under the general welfare doctrine. This issue 

came up through various levels of consultation and outreach with tribes and tribal 

leaders. 

In November, 2011, in response to these consultation sessions, various meetings 

and general outreach with tribes and tribal leaders, and internal IRS and Treasury 

discussions, the IRS issued Notice 2011–94, which invited comments concerning the 

application of the general welfare exclusion to Indian tribal government programs. 

The purpose of the Notice was to begin a specific consultation process with tribes 

on how to find a solution that addressed their concerns and improved clarity and 

consistency of the tax law. 

The IRS has received over 80 written comments from tribes and tribal leaders 

submitted in response to Notice 2011–94. We are still reviewing those comments as 

we consider the next step in this process. Additionally, the IRS and Treasury held 

a general welfare-specific consultation session in conjunction with the White House 

Tribal Nations Conference on November 30, 2011. It was attended by over one hundred tribal representatives. On March 8, 2012, Treasury and the IRS participated 

in a consultation session hosted by the National Congress of American Indians in 

conjunction with their annual conference and attended by approximately forty tribal 

representatives. On May 30, 2012, Treasury and IRS held a national phone forum 

that had over 150 participants. Recently, on June 6, 2012, the Advisory Committee 

on Tax Exempt and Government Entities, which is made up of representatives from 

the public including representatives of the tribal community, issued a report on the 

General Welfare Doctrine as Applied to Indian Tribal Governments and Their Members. We are currently reviewing the recommendations of the report and we expect 

to continue receiving comments as we move forward. 

The IRS plans to publish written guidance that will address issues raised by 

tribes in their comments. Our intent is that this published guidance, along with improved internal coordination procedures, will provide increased clarity and consistency of the application of the general welfare doctrine. In the process of doing so, 

we will respond to many of the concerns which we have heard through the written 

and in-person consultation sessions. Our goal is to publish guidance as soon as possible. Tribal concerns are very important to us and we look forward to working with 

tribes on this item in the future. 

This concludes my testimony and I would be happy to answer any questions you 

might have.

The CHAIRMAN. Thank you very much, Ms. Jacobs. 

Mr. Klein, the Treasury Department has been holding consultations on the application of the general welfare doctrine to Tribal 

42

governments. What will be the end product of those consultations 

and what is the time frame for publishing the end product? 

Mr. KLEIN. Thank you, Chairman Akaka. As was noted, we 

began this direct consultation last November on this specific issue 

and we have held several meetings. I think some of the milestones 

along the way here have been the 85 comments that have come in. 

We have stated, as the time frame going forward, that we are 

going to publish this written guidance. I don’t have an exact time 

as to when. There is an inherent tension, as you heard from witnesses in the first panel, as I am sure you have heard from others 

and as we have heard. These are real concerns about programs 

that are going on and affecting real people every day, so we want 

to address this as quickly as possible. 

On the other hand, engaging in consultation in this productive 

dialogue takes time in the back and forth. It takes time to go 

through the comments; it takes time to think through some of 

these complicated issues, because as we are setting their unique 

concerns that face Indian Country, but they are also precedent that 

would affect other governmental entities that fall under this. 

It would be my hope that we are able to balance those sets of 

competing interests and issue published guidance in the not too 

distant future. That being said, I don’t view that as an endpoint 

to the process; I view it as a continual process and a continual 

chance for enhanced dialogue on this, because these issues, given 

their complexity, will continue for quite some time. 

The CHAIRMAN. Can the Treasury keep the Committee informed 

of the programs on this that you are talking about? 

Mr. KLEIN. Absolutely, Mr. Chairman. 

The CHAIRMAN. Thank you. 

Ms. Jacobs, taxation of Tribal social programs or benefits interfere with a tribe’s ability to provide those benefits to its members. 

What do you say to someone like President Steele, who has testified that a tax bill to someone on his reservation may mean the difference between complying with an IRS payment or providing food 

stamps to their family? 

Ms. JACOBS. Thank you for that question, Mr. Chairman. During 

the consultation sessions that we have been having, we have heard 

these concerns from a variety of tribes, and part of the issue they 

have raised is consistency with these programs. We have now instituted better internal procedures. I have issued instructions to my 

field staff that they must coordinate all of these general welfare 

questions with our technical staff so that we can have a better communication and have a better effort at ensuring consistency in 

these matters. 

This is an issue for all governments because the general welfare 

exclusion applies equally to State and local governments, as it does 

to Tribal governments, as they all seek to take care of the welfare 

of their citizens and members. It is the same doctrine, and at times 

we say yes or no to a State or local government, as we may have 

to say yes or no to a Tribal government on their programs. I believe 

those governments share the same concerns about their citizens 

and we are cognizant of that and continue to listen to the tribes’ 

concerns as they raise their unique circumstances to us. 

The CHAIRMAN. Thank you. 

43

Mr. Klein, one of the major issues that the tribes have brought 

to my attention is that the field examiners are often unaware or 

dismissive of Tribal culture and the unique status of tribes as governments. What type of training do your examiners undergo prior 

to interacting with Tribal governments to ensure they are respectful of the unique cultural, social, and governmental status of 

tribes? 

Mr. KLEIN. Thank you, Chairman, for that question. You are absolutely right, the importance of first recognizing the governmentto-government nation and respect of sovereignty, as well as understanding the added layer of complexity that cultural programs provide for Tribal governments and their members is incredibly important. 

When we went out for this notice for comments, we actually specifically mentioned cultural programs as an area where we were 

seeking further understanding and information in terms of what 

benefits tribes provide, because in that area they are very different 

from other governments, and we need to respect and understand 

that is the purpose of the Tribe and we need to understand, as we 

go forward in this guidance process, how we can best provide that 

type of guidance for tribes for their cultures. 

In terms of the IRS training, I will turn, if you don’t mind, over 

to Ms. Jacobs for her office, since that is really under her responsibility. 

The CHAIRMAN. Thank you. 

Ms. JACOBS. Well, thank you, Mr. Chairman, for allowing me to 

add to Mr. Klein’s answer. 

When the Office of Indian Tribal Governments first came into existence around 12 years ago, we worked very closely with a variety 

of tribes from across the Country and ended up working directly 

with a Tribally owned entity to develop some training that not only 

focused on Indian law, but also on protocol training, cultural training in the general sense, not specific to the general welfare exclusion. All of our employees go through that training and are expected to have a knowledge of the tribes that they are assigned to 

assist in the field, and those training efforts continue to be ongoing 

and refined as we gain experience in working with the tribes from 

the Internal Revenue Service. 

The CHAIRMAN. Thank you very much. 

Senator Johnson, your questions. 

Senator JOHNSON. Ms. Jacobs, when did you first begin to demand 1099s? 

Ms. JACOBS. Senator, 1099 reporting has been in the tax code for 

a time that I cannot speak to. I could get back to you with the date 

that that started. In the general welfare area this comes up if a 

program is determined to result in a tax consequence to an individual, then a 1099 would be issued. It also comes up most generally in the employment tax context for vendors and that sort of 

payment. 

Senator JOHNSON. I was under the impression that 1099s were 

not required in Indian Country previously. 

Ms. JACOBS. Senator, I would be happy to provide your staff with 

a more detailed analysis of the 1099 requirements, but as I stated 

in my testimony, all persons, including Tribal governments, State 

44

and local governments, are required to file 1099s on the payments 

to which 1099s apply. 

Senator JOHNSON. They always have been? 

Ms. JACOBS. I would have to get back to you on that. 

Senator JOHNSON. Is there any other way you can imagine that 

you could avoid the 1099 situation? 

Ms. JACOBS. Senator, I believe that in these ongoing consultations on the general welfare doctrine, this is an issue we have been 

discussing. What are the understandings of the programs that are 

out there in Indian Country, what ways are the tribes administering them and how we can work with them on the administrative issues, as well as the delivery of the programs that they are 

engaged in. I think our ongoing dialogue with the tribes to explore 

those issues is something that we could then take into account as 

we move forward in developing some sort of published guidance so 

that we are all in a situation of further clarity and consistency in 

administering the tax law in this area. 

Senator JOHNSON. Is there any way you could arrive at the de 

minimis number in dealing with the amount spent? 

Ms. JACOBS. Thank you, Senator. That is also one of the concerns 

and issues that we have been discussing with the tribes through 

the consultation, and a concern that we will certainly take into account as we continue the dialogue on developing further guidance 

for both the tribes and other governments who are affected by the 

general welfare exclusion. 

Senator JOHNSON. I have no further questions. 

The CHAIRMAN. Thank you very much. 

Senator Udall, your questions, please. 

Senator UDALL. Thank you, Chairman Akaka. 

Ms. Jacobs, can you tell us the number of audits the IRS conducted of Indian tribes last year? 

Ms. JACOBS. Senator, thank you for that question. I do not have 

that sort of data available to me, but we would be happy to take 

your question back and get back to you with that. 

Senator UDALL. Okay. And I would also be interested in has the 

trend changed over the last five years. So those two answers to 

those questions. 

In your testimony you mentioned that tribes can avail themselves of a letter ruling to certify that a program qualifies for the 

general welfare exception. Approximately how many of these are 

requested annually, and has that number stayed relatively consistent over the last five years? Is that in the same category? 

Ms. JACOBS. Yes, Senator. The precise numbers would be in the 

same category, but may I explain a bit? The private letter program 

is something available to any government or any other company, 

individual through our chief counsel’s office, where you can present 

your situation and receive a ruling on those tax consequences. I am 

not sure whether the chief counsel’s office is able to delineate between one sort of government asking the questions versus another, 

so I am not sure if we will have those numbers. 

The other item I might mention is that when anyone comes in 

for a private letter ruling, they have the opportunity to withdraw 

that request if the answer we give them a preliminary answer and 

it is counter to their position. If it is negative, they can withdraw 

45

that request and it won’t be published. So it may also not be possible to completely give you the landscape, but we will do our best 

to describe those situations for you. 

Senator UDALL. Thank you. Your testimony cites two examples 

of where the general welfare exemption was applied to Tribal programs. Can you share an example of a program or tax event where 

the general welfare exemption was denied? 

Ms. JACOBS. Well, Senator, as I have said, one of the issues with 

the general welfare exception is that it is very fact-specific. It has 

developed over 50 years as a facts and circumstances test, and I 

think there is a lot of information and misinformation out there on 

some of the issues involved with governments and the general welfare exception. 

It is difficult to describe when a situation might be allowable 

versus not; often the facts appear to be very similar. For example, 

in a housing program, once one delves into whether the individuals 

actually have the benefits of ownership and are therefore able perhaps to have their house improved in a way that then allows them 

to sell that property and gain a benefit, versus a situation that 

might occur on Tribal trust land where an individual would not 

own the land and, therefore, not be able to sell it and have that 

benefit could be an example of where things look similar but might 

not be. 

Senator UDALL. Might not be. Let me ask about, and I am not 

asking for a ruling here because I understand it is fact-specific. 

There is a tradition in New Mexico of feast days, and this goes way 

back to the idea of the individual pueblo and households in the 

pueblo inviting everybody in. I mean, it is a very broad invitation. 

If you are within 100 miles or something, you decide you are going 

to go to the Jemez Pueblo or the Zuni Pueblo or something like 

that, and come to a feast day, when it is publicly announced. We 

have heard of an incident of a field agent issuing 1099s to Tribal 

members for distributions that pueblo governments give to heads 

of households to help offset feast day costs. 

The fee state, sometimes you can have anywhere from 50 to 100, 

200 people come through. The people that hold these feasts are of 

modest incomes, so the Tribe is trying to help them incur some of 

the costs, but also remain true to the tradition. So if you follow 

your example here, to qualify under the general welfare exclusion, 

payments must, number one, be made under a government program. I assume what the Tribe should do here is that if they had 

a program like this on feast days, that they would make it official 

through the council or something, and say there is a program for 

giving out money to support the feast days, and that makes it more 

credible, Mr. Klein seems to be nodding, that makes it more credible in terms of how the money is allocated. 

Then your second criteria is for the promotion of the general welfare, be based generally on the individual, family, or other needs, 

it would seem like it would qualify there, and not represent compensation for services. 

But it seems the key in this kind of situation is having a program in place where the money that goes from the Tribe to the individual to support the feast day is something that is recognized 

by the governing body and then it has a much better chance to 

46

make it into the general welfare exemption or exclusion. Would 

that be fair? Not asking you to make any ruling, but just knowing 

what the facts are there. 

Ms. JACOBS. Senator, obviously, I can’t speak to any particular 

situation, but these are exactly the sorts of things that we are appreciating in our consultation with the tribes, describing the reality 

of the situations to us so that we can work together to come up 

with guidance on those situations. 

Senator UDALL. Yes. And we really appreciate you doing that, because I think when you and Mr. Klein are in these consultations, 

that you sit down with the tribe, as some of the previous witnesses 

talked about, learn about their traditions, learn about the culture, 

learn what it is that they have done for hundreds of years, maybe 

thousands of years. 

Then I think you are better able to apply this particular exemption to their circumstances and situation, and give them some guidance. Just like I was talking about here, you know, it might make 

it a little stronger if you actually set up, under the governing body, 

a program so that monies that would flow would do for the following reasons. 

Mr. Klein, did you have a comment on that? 

Mr. KLEIN. I think that is exactly right, Senator. I think when 

there are established programs, especially those that have gone 

through, the Tribal government is a self-governing organization, 

and programs that have been adopted and ratified by Tribal council 

through that process clearly become a stronger program with respect to the general welfare doctrine. 

Senator UDALL. Thank you. 

Sorry for going over, Chairman Akaka, but I just wanted to focus 

in on that. Thank you very much. 

The CHAIRMAN. We will have another set of questions. 

Let me begin this second part here. 

Ms. Jacobs, can you tell the Committee, is the audit examination 

process the same for all government entities? Is there parity with 

the State and local governments? 

Ms. JACOBS. Well, thank you for that question, Mr. Chairman. I 

would say that all governments are subject to the verification of 

their reporting requirements. In all governments, generally the primary issue that we, the IRS have, relates to employment tax compliance. All governments, including Tribal governments, are employers and the rules about employment tax is generally the same 

for all of those governments, and that is generally what we would 

be looking at with them. So in that respect, other than the specific 

rules that are different for tribes and specific rules that might be 

different for States, the general process is the same, yes, sir. 

The CHAIRMAN. Now, to the panel, are you aware that the 

Obama Administration has made it a priority to settle longstanding 

trust cases? Tribes are now concerned that distribution of those 

settlements to individual Tribal members will be considered taxable income. This seems contrary to the Per Capita Act. Do you 

view distribution of these settlements as taxable income? And how 

do you reconcile the prior interpretations of the Per Capita Act? 

Mr. KLEIN. Chairman, to answer the first part of your question, 

yes, we are aware of the longstanding desire to settle these claims. 

47

We are aware and have become increasingly aware in a variety of 

venues about tribes’ concerns about the tax status of not just the 

settlement, but other income derived from Tribally trust land. 

I will defer to the expert on the panel on the tax status and nature of those things, but we have become aware and tribes are continuing to increasingly bring it to our attention. 

Ms. JACOBS. Mr. Chairman, yes, to echo Mr. Klein, we have, in 

various situations, consultation sessions, as well as individual inquiries, become more aware that tribes are concerned regarding the 

general landscape of the taxability of trust assets and distributions 

of those assets. Because of that concern, I think we are interested 

in starting a dialogue with the tribes so that we can fully understand their concerns and make sure that we have consistency in 

administering the rules that are related to those distributions. 

As has been raised, sometimes the statute allows exemption and 

sometimes it does not, and there has been no change in the law in 

that area, nor has there been a change in the policy in that area. 

So we would like to work together, Treasury and IRS, and obviously in consultation and collaboration with the tribes, as well as 

the Department of Interior, to ensure that we are administering as 

they come into being, the new settlements in the most effective 

manner and consistent with the law. 

The CHAIRMAN. Well, I want to thank both of you so much for 

your testimony and your responses, as well. Thank you for highlighting some of the concerns that there are. And let me finally say 

I want to commend you for working together on these issues, and 

hope you continue to do that, and also to be sure the tribes are consulted, as you are. I am glad to hear about your training programs, 

because that also adds to it. So, again, thank you very much. 

Mr. KLEIN. Thank you, Mr. Chairman. 

Ms. JACOBS. Thank you, Mr. Chairman. 

The CHAIRMAN. Let me invite the third panel to the witness 

table. Serving on the third panel is Ms. Lynn Malerba, Chief of the 

Mohegan Tribe on behalf of the United South and Eastern Tribes 

in Nashville, Tennessee; and Mr. William Lomax, President of the 

Native American Finance Officers Association in Washington, D.C. 

I want to welcome both of you to the hearing and ask Ms. 

Malerba to please proceed with your testimony. 

STATEMENT OF HON. LYNN MALERBA, CHIEF, MOHEGAN 

TRIBE; ON BEHALF OF THE UNITED SOUTH AND EASTERN 

TRIBES, INC. 

Ms. MALERBA. Thank you, Chairman Akaka and also to the other 

members of the Committee. I am sure that they will be reading 

this testimony, as well as to the staff here today. I am honored to 

be able to provide this testimony on behalf of the United South and 

Eastern Tribes, USET. 

USET has united with other respected Tribal organizations in 

the InterTribal Organization Tax Initiative to jointly address the 

tax policy priorities of tribes. One of the reasons the Initiative 

formed was due to widespread concern that the Internal Revenue 

Service examinations and audits of Tribal general welfare program 

benefits are being carried out in a manner that is incompatible 

48

with Federal law, treaties, trust responsibility, and the self-determination policy. 

As Chairwoman of the Tribal Self-Governance Advisory Committee, it has been my privilege to work with tribes on issues of 

self-governance throughout Indian Country and to have gained understanding for their goals for their communities. 

On behalf of USET and the members of the Initiative , I want 

to express our appreciation that you have called this oversight 

hearing. As you have heard from the Tribal panel today earlier, 

IRS field auditors with limited understanding of Indian law and 

policy, and the governing traditions of the specific Tribal communities they are evaluating, are conducting audits of tribes that have 

the effect of vetoing the legislative actions of Tribal governments 

and second-guessing the policy determinations of the U.S. Congress. 

USET Resolution 2012–35 calls for congressional investigation 

and oversight of IRS audit practices, and for suspension of audits 

until proper guidance is issued. Since November 2011, USET and 

Initiative members have participated in a consultation process with 

Treasury and IRS on the application of the general welfare exclusion to Tribal government program benefits. We have witnessed 

positive developments through dialogue with Treasury and IRS on 

the general welfare doctrine. We respect the enlightened comments 

of Mr. Aaron Klein and other Federal representatives in our March 

8th and May 30th dialogues to show that considerable growth and 

reflection since our first meeting. 

It would be highly unfortunate if unbridled IRS field audits and 

examinations undermine the collaborative spirit of dialogue and 

the important mutual understandings reached today between 

Treasury and tribes. Let me further explain the context of USET’s 

concerns. 

Tribes operate in unique context and face needs that are unlike 

those addressed by other governments’ general welfare programs. 

Throughout history, American Indian, Alaskan Native, and Hawaiian Native Tribal leaders have ensured the continued survival of 

their people against overwhelming odds. Each indigenous Nation in 

what is now known as the United States has long been recognized 

as a sovereign government with a unique history, culture, land 

base, and citizenry. Unlike State and local governments, Indian 

tribes are simply not just governmental entities; they are also communities of familial relations who hold property and resources 

communally. Their leaders have been charged with responsibility to 

maintain and foster culture and traditions. 

Tribal Nations have endured colonization, removal, termination, 

and other difficult periods in the United States history. The consequences of these policies have resulted in difficulties in maintaining traditional ways of life, poor health status, shortened life spans, 

limited educational opportunities, high unemployment, abject poverty, and inferior living conditions. Tribes are addressing these 

needs through general welfare programs tailored to the unique circumstances facing their communities pursuant to legislative action 

of their own Tribal governments. Tribal leaders work for the communal good of their people to address the present day impacts of 

49

failed Federal Indian policies. These responsibilities and programs 

represent core governmental activities of sovereign nations. 

In announcing United States support for the U.N. declaration on 

the rights of indigenous people, the Administration affirmed that 

the United States supports, protects, and promotes Tribal governmental authority over a broad range of internal and territorial affairs, including membership, culture, language, religion, education, 

information, social welfare, community and public safety, family relations, economic activities, land and resource management, environment, and entry by non-members, as well as ways and means 

for financing these autonomous governmental functions. 

Further education and training of IRS personnel is required as 

to these fundamental Federal policies and principles. The consultation process must facilitate greater understanding and Federal policy implementation consistent with the trust relationship and selfdetermination policy. 

The Initiative has called upon the IRS and Treasury to establish 

general welfare guidance in which the Service will defer to Tribal 

policy decisions as to the determination of need and exclude such 

program benefits from taxation. At this moment, even the existing 

general welfare framework has been interpreted extremely narrowly by the IRS in its Tribal audits. For instance, Tribal program 

benefits are deemed non-taxable only when interpreted extremely 

narrowly by the IRS in its Tribal audits. 

Indeed, Indian tribes are not interested in poverty-based models 

or providing general welfare assistance based on measurements of 

financial need. Means testing program models for program eligibility tend to create disincentives and divisions among Tribal members and reinforces stigmatization that Indian tribes are trying to 

counteract through their cultural, social, and governmental programs. 

The IRS has challenged benefits provided to Tribal cultural leaders who participate in activities that transmit Tribal culture as 

being taxable compensation for services provided. IRS has frequently initiated its audits on the presumption that Tribal general 

welfare benefits are actually disguised per capita payments from 

Tribal gaming revenues. IRS field auditors begin examinations 

with an over-bias and presumption of guilt until proven innocent. 

IGRA specifically authorizes gaming revenues to fund general welfare programs and limits taxations only to per capita distributions 

under a federally-approved revenue allocation plan. 

In spite of the controversy underlying these issues, USET perceives areas of agreement where general welfare guidance could 

issue in the very short term. It is imperative that the mutual understanding between tribes and Treasury and IRS extends to all 

levels, not just headquarters staff. 

This Committee has long recognized that Tribal Nations themselves are in the best position to determine how to provide for their 

people in the context of their unique histories and their unique 

needs. Guidance on the general welfare doctrine must respect those 

determinations and not interfere with Tribal efforts to address 

those needs. 

In conclusion, USET respectfully puts forward the following request to the Committee: affirm that IRS should defer Tribal deterVerDate 0ct 09 2002 11:06 Jan 11, 2013 Jkt 077806 PO 00000 Frm 00053 Fmt 6633 Sfmt 6601 S:\DOCS\77806.TXT JACK
50

minations of community need and establish the presumption of 

Tribal general welfare program benefits are to be excluded from 

the income of recipients; call for the suspension of IRS field audits 

until new guidance is issued; encourage issuance of partial guidance on Federal Tribal agreement items while further Tribal Federal dialogue continues; ensure that tribes have the opportunity to 

review the draft guidance before published; endorse the creation of 

a Treasury-IRS Tribal advisory committee; and remind Treasury 

and IRS that the published guidance must conform to the Federal 

trust responsibility and the self-determination policy. 

USET thanks this Committee to offer its testimony and looks forward to working with you in addressing these oversight issues. 

Thank you. 

[The prepared statement of Ms. Malerba follows:]

PREPARED STATEMENT OF HON. LYNN MALERBA, CHIEF, MOHEGAN TRIBE; ON

BEHALF OF THE UNITED SOUTH AND EASTERN TRIBES, INC. 

Introduction 

Chairman Akaka, Vice Chairman Barrasso and members of the Committee, I am 

honored to be able to provide this testimony on behalf of the United South and Eastern Tribes (USET). USET is an inter-tribal organization representing 26 federally 

recognized Tribes, including my tribe, the Mohegan Tribe. USET has united with 

the National Congress of American Indians (NCAI), the Native American Finance 

Officers Association (NAFOA), the Affiliated Tribes of Northwest Indians (ATNI), 

and the California Association of Tribal Governments (CATG) in the Intertribal Organization Tax Initiative (‘‘the Initiative’’) to jointly address the tax policy priorities 

of tribes. The Initiative formed in April 2011 in large part because of the widespread 

concern of tribes that Internal Revenue Service (IRS) examinations and audits of 

tribal general welfare program benefits are being carried out in a manner that is 

incompatible with federal law, treaties, the trust responsibility and the self-determination policy. 

Additionally, in my role as Chairwoman of the Tribal Self-Governance Advisory 

Committee, it has been my privilege to work with tribes on issues of self-governance 

throughout Indian Country and to have gained understanding of their goals for 

their communities. Self-Governance tribes dedicate their own resources to supplement federal funding for programs intended to benefit tribes and their members. 

Yet, in recent years, the IRS has increasingly sought to tax what were previously 

understood as non-taxable benefits provided by tribes to their members. 

On behalf of USET and the members of the Initiative, I want to express our appreciation that you have called this oversight hearing. As you have heard from the 

tribal panel earlier today, IRS field auditors—who may have limited understanding 

of applicable federal Indian law and policy and who have little or no knowledge of 

the governing traditions of the specific tribal communities they are evaluating—are 

conducting examinations and audits that have the effect or vetoing the legislative 

actions of tribal governments, second-guessing the policy determinations of the U.S. 

Congress and undermining principles of comity enshrined in U.S. Constitution. 

The oversight of this Committee is critical to ensure these agency excesses are 

curtailed and that policy is developed and executed in an equitable, transparent and 

consistent manner. 

While USET has witnessed some positive developments through dialogue with 

Treasury and IRS on the general welfare doctrine, overly-aggressive IRS audits continue to taint the atmosphere. It would be highly unfortunate if unbridled IRS field 

audits and examinations undermine the collaborative spirit of dialogue and the important mutual understandings reached to date between Treasury and the tribes. 

Let me further explain the context and USET’s concerns. 

Tribes Operate in Unique Contexts and Face Needs That are Unlike Those 

Addressed by Other Governments’ General Welfare Programs 

Throughout history, American Indian/Alaska Native Tribal leaders have endeavored to ensure the continued survival of their people. Each indigenous nation in 

what is now known as the United States has long been recognized as a sovereign 

government with a unique history, a unique culture, a unique land base and a 

unique citizenry. Unlike state and local governments, Indian tribes are not simply 

51

governmental entities; they are also communities of familial relations who hold 

property and resources communally and their leaders have been charged with responsibility to maintain and foster culture and traditions. 

The leaders of these nations work toward the communal good of their people, ensuring that the cultural, physical, social, educational, basic living and emotional 

needs of their communities are met to the best of their abilities. Each tribal leader 

is eminently responsible to its members and is held accountable for his/her ability 

to ensure the long term well-being and continued existence of their extended tribal 

family. 

Tribal nations have survived against overwhelming odds. They have endured colonization, removal, termination and other difficult periods in the United States history which in turn affected their communities. Indian Tribes and Alaska Natives 

have endured the consequences of these policies that have resulted in poor health 

status, shortened life spans, limited educational opportunities, high unemployment, 

abject poverty and inferior living conditions. Although some tribes have managed to 

generate significant revenues, this change has come about recently and is only beginning to address longstanding social needs. 

Tribes view their general welfare programs as supplemental to inadequate federal 

programs based in the trust responsibility or treaty rights, and that these rights belong to all tribal members. In general, Indian tribes are not interested in povertybased models of providing general welfare assistance based on measurements of financial need. Indeed, means-testing models for program eligibility tend to create 

disincentives and divisions among tribal members, and reinforce the stigmatization 

that Indian tribes are trying to counteract through their cultural, social and government programs. 

Tribes are addressing these needs through general welfare programs tailored to 

the unique circumstances facing their communities pursuant to legislative action of 

their governments. Tribal governments must address the need to keep traditional 

culture alive, the need to keep tribal languages alive, and the need to keep tribal 

religion and customs alive, as well as to assure effective programs to address health, 

education, unemployment, housing and other welfare needs. 

Guidance Applying the General Welfare Exclusion to Tribes Must Respect 

Tribal Community Needs and Provide for Deference to Tribal

Determinations 

The General Welfare Exclusion as applied by the IRS is an administrative doctrine that has evolved from rulings addressing state and local government benefit 

programs. State and local government relationships with their citizens are different 

from those of the tribal government and their members. Neither tribes nor individual tribal members should be penalized for providing general welfare benefits for 

a much wider range of ‘‘need’’ than citizens of a State or local government. 

The IRS has applied the general welfare exclusion to find that payments to individuals from a governmental welfare fund, under legislatively provided social benefit programs for promotion of the general welfare are excludable from the recipient’s gross income. According to the IRS, to qualify under the exclusion, the payments in question must: (1) be made under a governmental program; (2) be for the 

promotion of the general welfare (based on need); and (3) not represent compensation for services. 

The problems being addressed in the tribal-federal consultation on the general 

welfare exclusion are multi-dimensional. The existing general welfare framework in 

recent years has been interpreted extremely narrowly by the IRS in its tribal audits. 

For instance, tribal program benefits are deemed non-taxable only when ‘‘need’’ is 

based upon financial need established pursuant to income-based criteria. This new 

requirement of means-testing offends tribal leaders’ efforts to work for the common 

good of all, based upon tribally-determined needs that are may also be culturallyestablished or to implement programmatic commitments the federal government has 

failed to fulfill. 

The IRS has challenged the benefits provided to tribal cultural leaders who participate in activities that transmit tribal culture as being taxable compensation for 

services provided. For a tribal official to have to issue a form 1099 to a spiritual 

leader for the conduct of a traditional ceremony is not only burdensome, but also 

culturally offensive. The Service’s lack of flexibility in interpretation and outright 

misinterpretation call for published guidance built upon core principles of tribal sovereignty and tribal self-determination rather that narrow illustrations based upon 

the practices of state and local governments. 

USET and Initiative members have called on Treasury and the IRS to establish 

general welfare guidance in which the Service will defer to tribal policy decisions 

as to the determination of need. USET further embraces the recommendation issued 

52

last week by the Advisory Committee on Taxation (ACT) that general welfare guidance establish a presumption that tribally-established welfare programs that address tribal needs are not taxable to the recipient and do not require reporting by 

the tribe. We believe these principles of deference to tribes and the presumption of 

tax exclusion could be incorporated not only into the guidance that Treasury and 

the IRS will hopefully publish in the near future, but that could be immediately applied nationwide at all levels as a means to defuse tension with respect to ongoing 

audits even before formal guidance is published. The IRS can and must educate its 

field staff to implement IRS responsibilities in conformity with established policy, 

not based on uninformed or subjective impressions. 

Tribes have pointed out to Treasury and the IRS that built into these triballyadministered programs are internal controls for accountability grounded in tribal 

culture and pursuant to federal requirements. This direct and local accountability 

is also exercised by tribal governments and their members in carrying out their general welfare programs. Deference to tribal authority should be incorporated into the 

IRS and Treasury GWE guidance in recognition of the accountability mechanisms 

in place that are based on tribal community values, reciprocal responsibilities and 

programmatic objectives. Tribal representatives and tribal members understand and 

can identify when general welfare programs are not accomplishing their objectives. 

They can identify shortcomings or abuse with an immediacy that federal agents will 

never attain. The IRS and Treasury could recognize tribal systems for local accountability by expressly making reference to tribal internal controls as part of the general welfare exclusion guidance. 

Another alarming defect in the IRS interpretation of tribal general welfare programs is that the IRS has frequently initiated its audits on the presumption that 

tribal general welfare benefits are actually disguised per capita payments. Given 

this overt bias of the IRS field staff in these examinations, it appears absolutely 

necessary that the guidance contain explicit terms to convey that the Indian Gaming Regulatory Act (IGRA) expressly authorizes gaming revenues to be used by the 

tribal government for the general welfare of tribal members and that only the per 

capita distributions of gaming revenue under a federally-approved revenue allocation plan may be taxed. 

Further Tribal-Federal Dialogue is Needed, but Guidance Should Issue as 

Soon as Agreements Have Been Achieved 

In spite of deep controversy between the IRS and the tribes as to audits, USET 

has seen greater understanding arise from federal counterparts over the course of 

the three consultation sessions so far. We respect and appreciate the enlightened 

comments and perspectives expressed by Mr. Aaron Klein and other federal representatives in our March 8 and May 30 dialogues. The comments show a serious 

level of study, reflection and analysis from Treasury and the IRS since our first 

meeting in November 2011. While we may still have a long way to go to close gaps 

between tribal and federal perspective, USET and other members of the Initiative 

perceive areas of agreement where general welfare guidance could issue in the very 

short term. Prompt issuance of guidance on agreed-upon principles and approaches 

could eliminate areas of uncertainty, enhance trust between the Department and 

tribes and allow for focused federal-tribal dialogue to continue developing principles 

that will guide policy on the more complex issues. 

For USET and the other members of the Initiative it is imperative that mutual 

understanding between tribes and Treasury/IRS extends to all levels—not just the 

headquarters staff. What has been established through the consultation is a mutual 

understanding that, as currently implemented by the IRS field staff, tribes lack certainty as to whether elements of its general welfare program are taxable or not. 

Treasury and the IRS have expressed a commitment to work with tribes to establish 

guidance that provides for such certainty. 

Still problematic, however, is that IRS—at this moment—is auditing and examining tribal governments based on analyses that are incompatible with the longstanding understandings of the scope of the general welfare exclusion. As evident 

in the testimony from the tribal panel earlier today, provocative and unrestrained 

IRS examinations and audits threaten to contaminate what has otherwise been a 

positive and productive government-to-government dialogue. The Initiative has consistently requested suspension of these audits until guidance issues, but Treasury 

and IRS have alleged they lack authority to suspend the process. 

USET fails to see rationale in continuing to subject tribal governments to the expense of preparing and collecting extensive documentation for submission and review of tribal general welfare policies, when neither the tribes nor the agents have 

sufficient guidance that establishes what it is they are looking for. Furthermore, the 

combination of increased audits and insufficient IRS guidance recognizing the imVerDate 0ct 09 2002 11:06 Jan 11, 2013 Jkt 077806 PO 00000 Frm 00056 Fmt 6633 Sfmt 6621 S:\DOCS\77806.TXT JACK
53

portant role played by tribal programs under the general welfare doctrine is increasingly placing tribal governments in the position of having to cut back or eliminate 

needed programs in order to devote limited resources to defending those programs 

in audits. USET asks this Committee to call upon the IRS to suspend its audits 

until guidance issues. 

Consultation is Best Served When Tribes Review the Draft Guidance and 

Participate in Policy Development in a Sustained Manner 

Given well-founded concerns that the published Treasury/IRS guidance could narrowly limit tribal programs eligible for the general welfare exclusion only to tribal 

means-tested programs and that would tax benefits to members extended through 

educational, cultural ,or other tribal programs, tribes have called for the opportunity 

to review and comment on any draft guidance Treasury and the IRS produce. USET 

and the Initiative members view such opportunity to comment as integral to government-to-government consultation that ensures policies affecting Indian country take 

into account the needs of the tribal nations and their differences across the regions 

of the United States. 

This Committee has long recognized that tribal nations themselves are in the best 

position to determine how to provide for their people in the context of their unique 

histories and unique needs. Respecting the voice of tribes in determining federal 

policies has been observed consistently over the past forty years of federal Indian 

policy. In 1970, President Nixon stated:

‘‘Both as a matter of justice and as a matter of enlightened social policy, we 

must begin to act on the basis of what the Indians themselves have long been 

telling us. The time has come to break decisively with the past and to create 

the conditions for a new era in which the Indian future is determined by Indian 

acts and Indian decisions.’’

Richard Nixon, Special Message to Congress, July 8, 1970, Public Papers of the 

President of the United States (1970), p. 564 (emphasis added).

President Obama recently echoed these same themes:

‘‘History has shown that failure to include the voices of tribal officials in formulating policy affecting their communities has all too often led to undesirable 

and, at times, devastating and tragic results. By contrast, meaningful dialogue 

between Federal officials and tribal officials has greatly improved Federal policy 

toward Indian tribes. Consultation is a critical ingredient of a sound and productive Federal-tribal relationship.’’

President Obama, Memorandum on Implementing Tribal Consultation under 

Executive Order 13175 (Nov. 5, 2009).

Tribal leaders in the November 30, 2011, consultation with IRS stressed that simply convening one session of tribal discussion cannot sufficiently address the complex elements that comprise the tax implications of the general welfare activities of 

tribes. Ongoing dialogue is required. Treasury and the IRS have provided for a more 

enriching dialogue by participating in three discussions so far. While an improvement, further sustained interaction is needed for the government to understand and 

adequately reflect tribal views. The Initiative has proposed a Tribal Advisory Committee to serve as a forum for tribes and Treasury/IRS to discuss issues and proposals for changes to Treasury/IRS regulations, policies and procedures. Additionally 

the Advisory Committee on Taxation (ACT) has recommended that Treasury establish the position of Undersecretary for Tribal Affairs. 

USET requests that the Committee support these sustained consultation concepts. 

We further request that the Committee provide its own input to the consultation 

process to set forth the need that the published guidance must conform to the federal trust responsibility and the self-determination policy. The Committee’s resolution or statement affirming that these fundamental principles demand federal deference to tribal determinations of community need and a presumption that triballyestablished general welfare program benefits are to be excluded from the income of 

recipients. 

Conclusion 

USET thanks the Committee to offer its testimony and looks forward to working 

with you in addressing these oversight issues. I will gladly respond to your questions.

The CHAIRMAN. Thank you very much for your testimony. 

Mr. Lomax, will you please proceed with your testimony? 

54

STATEMENT OF WILLIAM LOMAX, PRESIDENT, NATIVE 

AMERICAN FINANCE OFFICERS ASSOCIATION 

Mr. LOMAX. Aloha, Chairman Akaka. 

The CHAIRMAN. Aloha. 

Mr. LOMAX. My name is William Lomax and I am a member of 

the Gitxsan Nation and President of NAFOA. At NAFOA we serve 

the interests of Indian Country by working on a wide range of tax, 

finance, and other economic policy. Rarely do we see tax issues generate so much united and widespread Tribal concern as this does. 

We firmly believe that the IRS, in carrying out its duties as a 

regulatory agency, is wrongly interpreting and enforcing the general welfare doctrine as it applies to Tribal governments. More recently, we believe the IRS has improperly shifted policy when it 

began to pursue taxing trusts and possibly settlement distributions 

to individuals. 

We understand the IRS has a difficult task when enforcing the 

tax code and collecting what may be owed to the Federal Government, but that is not what is at stake here today. At stake today 

is something much greater. The IRS is using the full force of its 

agency to interpret the validity of Tribal programs and aggressively 

deter, through enforcement, the establishment or expansion of 

much needed Tribal programs and, as a result, Tribal self-determination. 

Even more alarming from a Tribal perspective is that the IRS is 

making these determinations case-by-case, without integrating 

Federal Indian policy into their decisions. This has the effect of 

placing Tribal well-being, culture, and values in the hands of field 

agencies who routinely make these determinations, instead of duly 

elected Tribal leaders, Congress, and the Administration. 

A few brief examples to illustrate the point. First, when a Tribe 

funded a trip for their elders to cultural and historical sites, including to Native focused historic battlefields, parks, and sacred landmarks, an IRS agent determined the value of the trip to be taxable 

to the elders. I don’t recall anyone else ever receiving a 1099 for 

a field trip or for attending a church activity. 

In the second example, an IRS agent ruled that Tribal citizens 

who benefitted from government programs should be taxed on the 

part of the revenue that was generated from gaming proceeds. The 

same benefits funded from other revenue were considered exempt. 

This example shows the intent of the IRS to interpret the source 

of the revenues more relevant than the program itself. In addition, 

the agent ruled that the Tribe should have withheld taxes, which 

led to significant penalties. 

The IRS is quick to point out that these activities may still be 

carried out, they will just be subject to taxation. But the true deterrent lies in the enforcement effort and the uncertainty of what IRS 

may consider a taxable trigger. Five years ago and IRS commissioner testified to the fact that his agency had conducted 139 examinations during the past two years that focused specifically on 

the use of net gaming revenues. At that rate, all tribes in the lower 

48 would have been on track to have been examined by now. 

For 2011, Indian Tribal Government Work Plan states that one 

of its primary focus areas is reviewing the taxability of Tribal 

member distributions. Yet, in the IRS’s 2011 Work Plan for FedVerDate 0ct 09 2002 11:06 Jan 11, 2013 Jkt 077806 PO 00000 Frm 00058 Fmt 6633 Sfmt 6601 S:\DOCS\77806.TXT JACK
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eral, State, and local government, the taxability of benefits provided by State and local government is not even mentioned. 

The fact that Tribal governments are being examined at a high 

rate is not a simple matter for the tribes to deal with. An examination costs a Tribe a significant amount of scarce time and resources, especially when the agent’s objectives are unclear and 

open-ended. More costly for a Tribe is a ruling that a government 

should have withheld taxes. This action costs significant sums of 

money because penalties are proportionate to the number of beneficiaries. 

There are a number of other apprehensions that Congress and 

the Administration should have about the IRS approach and wisdom of using taxation as a deterrent for this purpose. First, many 

Tribal programs are making up for the prior adverse effects of centuries of attempted cultural assimilation and failed Federal policies. Second, it is difficult to imagine the revenue benefit to the IRS 

outweighing the harm done to Tribal governments through the creation of greater uncertainty, the increased expense on already 

strained governments, and the potential loss of cultural practices. 

Third, as this Committee knows, the practice clearly goes against 

congressional intent and overall administrative policy of honoring 

self-determination and fairness in taxation. And, finally, the extensive need in Indian Country for education, health care, housing, 

and other basic services, along with years of unmet and unfulfilled 

Federal obligations, it stands to reason that the Federal Government should be doing all it can to support and incent these programs, not deter them through taxation. 

In addition, the IRS has also embarked on a disturbing effort to 

tax per capita payments made to Tribal members from trust funds. 

Per capita payments from Tribal trust funds are specifically excluded from both Federal and State taxes under the Per Capita Act 

of 1983. Long before 1983, this tax exclusion existed in Federal law 

because it is derived from Indian treaties and the Federal trust responsibility. 

The IRS has the opportunity to do the right thing and honor Federal policy. When they issue guidance on general welfare, it should 

firmly support self-governance and Federal Indian policy. After the 

IRS announced formal comments on general welfare six months 

ago, they received about 90 comments and hundreds participated 

in the three consultations that they held. A report submitted by the 

IRS Advisory Committee on general welfare affirms and supports 

Tribal self-determination, greater inclusion by tribes on IRS policy 

decisions, and that Federal Tribal policy should be included in 

guidance. 

We are hopeful that the views expressed during this hearing, and 

Tribal comments in the IRS advisory report will be carried forward. 

In the absence of this, we strongly request Congress to act to uphold fairness and its Federal trust responsibility. 

In addition, we are calling on Congress to put an immediate end 

to the current aggressive IRS activities of determining Tribal welfare and taxing trusts and settlement assets until these issues are 

resolved. After all, these are internal administrative IRS decisions 

that can be reversed without a regulatory change, let alone a legislative fix. 

56

There is a saying in my Tribe that if you take a bucket of water 

out of the Skeena River, it keeps on flowing. The IRS in this case 

is not just reaching in to take a bucket of our resources; it is effectively changing the course of the river. 

Thank you, Chairman Akaka, for your time. 

[The prepared statement of Mr. Lomax follows:]

PREPARED STATEMENT OF WILLIAM LOMAX, PRESIDENT, NATIVE AMERICAN FINANCE

OFFICERS ASSOCIATION

NAFOA serves Indian Country by developing tribal financial capacity and building the essential partnerships necessary to advance tribal economic development. In 

addition, NAFOA serves tribal leadership and practitioners by supporting sound 

tax, finance, investment, banking, and economic policy. We are pleased to present 

testimony on one of the leading concerns of Indian Country—the Federal Government utilizing administrative tax policy to deter tribal self-determination and cultural preservation. 

In particular, our testimony will focus on the principal concerns that directly impact self-determination. The concern is how the Internal Revenue Service (IRS) is 

applying the General Welfare Doctrine as it applies to tribal governments, in sharp 

contrast to the principals of tribal sovereignty and self-determination and longstanding federal Indian policy; and, the concern that the IRS has shifted policy to 

begin taxing distributions from tribal trust assets and settlements. 

While guidance from the IRS is currently in progress, there is valid concern from 

tribal leadership based on direct agency contact with tribes and their members that 

the IRS may not move to fully support the unique status of tribes and the government-to-government relationship that exists between tribes and the Federal Government. If that status is not respected, it will impede the Federal Government’s trust 

responsibility, hard-fought treaty rights, and over a century of judicial, administrative, and congressional federal Indian policy, not to mention, the current Administration’s objectives of ensuring fairness in tax policy and application. NAFOA is requesting the Committee, in its oversight role:

1. Place a moratorium on any examinations of tribal general welfare programs 

until clear and consistent guidance or legislation is enacted.

2. Ensure sovereignty and federal policy, including self-determination, is upheld 

and supported in the creation of a general welfare doctrine for tribes.

3. Ensure tribal leader input, advisory committee input, and congressional intent be incorporated into the guidance document.

4. Ensure tribal leadership has the ample opportunity to review any formal or 

informal guidance prior to implementation and have meaningful input in this 

and other IRS policy that directly affects tribes.

5. End the abrupt change in IRS policy to begin taxing trust and settlement 

distributions to individuals.

6. Be prepared to step in with statutory language should the IRS’ final guidance 

fail to uphold the core tenants of federal Indian policy.

The General Welfare Doctrine 

The IRS generally begins with the presumption under Section 61 of the Internal 

Revenue Code which provides that, except as otherwise provided by law, gross income means all income from whatever source derived. Furthermore, the agency assumes that tribal income, not otherwise exempt, is includable in the gross income 

of the Indian tribal citizen when distributed or constructively received, unless excluded by a specific statute or treaty. 

Although the IRS Code under Section 61 is very broad, the IRS does exclude certain government services, payments, and benefits. At the start, a broad array of government services are typically excluded from income, including education, public 

safety, court system, social services, public works, health services, housing authority, parks and recreation, cultural resources, and museums. In addition, payments 

made by federal, state, local, and Indian tribal governments under a legislativelyprovided social benefit program for promotion of the general welfare receive a particular administrative exception to the general rule of broad income inclusion and 

would fall under the General Welfare Doctrine (GWD) or General Welfare Exclusion 

(GWE). 

57

This is a seemingly broad statement of exclusion for government payments that 

promote the general welfare of a government’s citizens. However, the IRS has further refined the circumstances to which the doctrine is limited. The IRS generally 

focuses on the following three factors when considering whether a payment is excluded pursuant to the General Welfare Doctrine: (1) was it made by a governmental unit?, (2) was it for the promotion of general welfare?, (3) were services rendered for such payment? 

The second requirement—that the payment be made to promote the general welfare—has received the most attention. In the past, the IRS has found a large variety 

of government programs to be for the promotion of general welfare. Programs that 

meet health needs, educational needs, job training needs, economic development 

needs, and several other needs were determined to be for the promotion of general 

welfare. For example, the IRS ruled that government provided health care benefits 

for the elderly, commonly known as Medicare benefits, were not taxable to recipients because the Medicare program furthered the social welfare objectives of the 

Federal Government. 

Disparate Treatment 

While the IRS strives to treat all governments the same, a review of the IRS’s 

2011 Work Plans indicates that some notable differences remain. The IRS’s 2011 Indian Tribal Government Work Plan states that one of its primary focus areas is reviewing the taxability of tribal member distributions. Yet, in the IRS’s 2011 Work 

Plan for Federal, State and Local Governments, the taxability of benefits provided 

by state and local governments is not even mentioned. 

Indian Tribal Governments may assert different priorities on values such as cultural preservation and use a different model for delivering their services, but the 

services provided are not any more numerous or altogether unlike in their overall 

objectives than those programs and services provided by state and local governments. 

What is different, however, is how the IRS has interpreted the validity of tribal 

programs and how they have aggressively enforced, and therefore, deterred the establishment or expansion of tribal programs; and as a result, tribal self-determination. And even more alarming, from a tribal perspective, is that the IRS is making 

these determinations without the full understanding, or at very least integrating, 

federal Indian policy into their determinations. This has the effect of placing tribal 

well-being, culture, and values in the hands of field agents who routinely make 

these determinations instead of with duly elected tribal leadership, Congress and 

the Administration. 

Two examples (among others received) illustrate this concern. First, when a tribe 

funded a trip for their elders to cultural and historic sites, including to an historic 

battlefield involving the ancestors of the tribal elders, an IRS agent determined the 

value of the trip to be taxable to the elders. A second example shows the intent of 

the IRS to focus on the source of the revenue rather than the program. An IRS 

agent ruled that the tribal members who benefitted from government programs 

should be taxed on the part of the revenue that was generated from gaming proceeds with the same benefits derived from other revenue considered exempt. In addition, the agent ruled that the tribe should have withheld taxes. 

The Indian Gaming and Regulatory Act (IGRA) requires withholding only when 

payments are made per capita from net gaming revenue and as approved by the Department of Interior in a filed Revenue Allocation Plan. In addition IGRA is clear 

that any other typical government or charitable use is allowable, including specifically authorizing net revenues from Class II and III gaming activities conducted by 

Indian tribes: (i) to fund tribal government operations or programs; (ii) to provide 

for the general welfare of the Indian tribe and its members; (iii) to promote tribal 

economic development; (iv) to donate to charitable organizations; or (v) to help fund 

operations of local government agencies. 

This interpretation that the source of revenue is suspect would be dismissed if it 

were only one agent’s interpretation that the revenue source of tribal governments 

is the determinant of taxability and withholding requirements. However, national 

and inter-tribal organizations have heard from enough tribal leaders to make an informed conclusion that tribes are being targeted for examinations at an extremely 

high and disproportionate rate. 

It appears the IRS Commissioner has taken a similar inequitable view that tribal 

government revenue is somehow more suspect than state revenue derived from the 

same source and used for similar purposes of general welfare. 

Five years ago Steven Miller, when testifying in front of the Committee on Finance stated, ‘‘To reduce the tax consequences to tribal members, some tribes have 

created mechanisms to classify what should be taxable per capita payments as genVerDate 0ct 09 2002 11:06 Jan 11, 2013 Jkt 077806 PO 00000 Frm 00061 Fmt 6633 Sfmt 6621 S:\DOCS\77806.TXT JACK
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eral welfare program payments, excludible from income, often through liberal interpretations of what constitutes a needs-based program. Others have created or invested in purported income deferral programs . . . . To address this problem we have engaged in educational and enforcement activities. We also initiated 139 examinations during the past two years that focused specifically on the use of net gaming revenues.’’

This statement clearly expresses the IRS view that federal Indian policy and tribal self-determination are nothing more than ‘‘liberal interpretations of what constitutes a needs-based’’ program and something to be shut down. And, possibly more 

troubling, a clear effort on behalf of the IRS to use significant agency resources to 

enforce this view and deter tribes from utilizing tribal revenue for the benefit of 

their citizens by conducting 139 examinations in two years. At that rate and at that 

time, the IRS was on track to examine every tribal government in the lower 48 to 

ensure their view of federal Indian policy was carried out. 

It is worth noting states that conduct gaming activities to benefit schools, roads 

and shore up or augment general funds have not received the same scrutiny. 

The IRS and Treasury are quick to point out that these activities may still be carried out; they will just be subject to taxation. But the true deterrent lies in the entirety of the enforcement effort and the uncertainty of what IRS may consider a taxable trigger—uncertainty even surrounds programs that have been carried out in 

some form for generations such as funeral ceremonies and language preservation. 

The fact that tribes are being examined at a disproportionate and alarming rate 

is not a simple matter for tribes to deal with. An examination costs a tribe significant time and resources, especially when the agent’s objectives are unclear and open 

ended. More costly for a tribe is a ruling that a government should have withheld 

taxes. This action costs significant sums of money because penalties are proportionate to the number of beneficiaries. 

In addition to the costs associated with the agency’s actions, there are a number 

of other apprehensions about the IRS approach and wisdom of using taxation as a 

deterrent for tribal governments to advance the quality of life of their citizens and 

within their communities that should cause concern for Congress and the Administration. 

First, tribal programs are making up for the prior adverse effects of centuries of 

attempted cultural assimilation and failed federal policies. Second, it is difficult to 

imagine the revenue benefit to the IRS (as an agent of the Federal Government) 

outweighing the harm done to tribal governments through the creation of greater 

uncertainty, increased expenses on already strained governments, and the possible 

loss of cultural practices. And, finally, given the extensive need in Indian Country 

for education, health care, housing, and other basic services, along with years of 

unmet and unfulfilled federal obligations, it stands to reason that the Federal Government should be doing all it can to support and incent these programs and not 

deter them through taxation and through the administrative expenses required to 

implement and comply with new and undefined IRS standards. 

Congressional Intent 

It is the last concern that caused this very Committee to use its oversight role 

to ensure federal Indian policy was considered valid criteria for carrying out the 

General Welfare Doctrine. 

The Committee on Indian Affairs held an oversight hearing during the previous 

Congress in September of 2009. Shortly after, in an affirmation of support for tribal 

general welfare programs, Congress acted to support the exclusion from income the 

value of health care benefits provided by tribal governments to their citizens under 

the Affordable Care Act. In addition to actively addressing the issue in the Affordable Care Act, this Committee, during this Congress, moved to place language in 

the Early and Secondary Education Act draft that would exclude from income the 

value of education and cultural programs and services provided by tribal governments to its members. 

During the 2009 Committee on Indian Affairs hearing entitled ‘‘Oversight Hearing 

to Examine the Federal Tax Treatment of Health Care Benefits Provided by Tribal 

Governments to their Citizens,’’ tribal leaders expressed offense at the idea that the 

Federal Government would provide a disincentive for tribes to provide health benefits to their members since they were providing a service that the Federal Government failed to deliver. In addition, taxing health benefits was also counter-intuitive 

at best for the Federal Government since tribes relieved the Federal Government 

of an expense and obligation when participants were removed from an already 

strained Indian Health Services (IHS) system. 

During the same hearing, leadership voiced their concern that excluding health 

care benefits may lead to the IRS incorrectly concluding that all other general welVerDate 0ct 09 2002 11:06 Jan 11, 2013 Jkt 077806 PO 00000 Frm 00062 Fmt 6633 Sfmt 6621 S:\DOCS\77806.TXT JACK
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fare programs specifically not excluded by law would then be open to challenge. To 

remedy the IRS from taking an aggressive approach of targeting other general welfare benefits, tribal leaders recommended that Congress include ‘‘no inference’’ language in the law and in report language, and that Congress continue to insert its 

oversight role. 

Although no inference language was included in the law, it did little to dissuade 

IRS field agents from examining—through audits and information requests—general 

welfare programs implemented by tribes formally through legislatively established 

programs or informally through traditional practices. Tribal leaders’ concerns were 

well justified, and in hindsight, they may have underestimated how aggressively the 

IRS would pursue tribal general welfare programs relative to other state and local 

government programs during the period since the hearing. 

Since the passage of the tribal health care exclusion in the Affordable Care Act, 

most tribes still struggle to navigate the federal health care system administered 

through IHS. And, those few tribes that have experienced continued economic success have continued to administer their own programs to improve the quality of life 

for their citizens. There has not been a rush by tribal governments to provide health 

care benefits after the legislation was passed. This is because tribal leaders, vested 

with responsibility of making sound long-term decisions, have weighed the legacy 

costs and economic factors in the same manner as other government leaders and 

have made determinations that fit their respective tribe’s priorities and long-term 

obligations. 

This practical experience should have gone a long way in informing the Internal 

Revenue Service decision to subsequently focus on other general welfare benefits 

provided by tribal leadership. 

As mentioned before, Congress, in the Indian Gaming Regulatory Act (IGRA), provided clear intent that any distributions made from net gaming revenues on an approved per capita basis would be subject to federal taxation with tribes carrying the 

responsibility of reporting. Conversely, Congress was silent on taxing net revenue 

retained for clearly governmental or social purposes including net revenue used: (i) 

to fund tribal government operations or programs; (ii) to provide for the general welfare of the Indian tribe and its members; (iii) to promote tribal economic development; (iv) to donate to charitable organizations; or (v) to help fund operations of 

local government agencies. 

IRS Outreach and IRS Opportunity for Tribal Inclusion 

NAFOA is requesting that prior congressional intent and the attributes of two recent works developed from IRS outreach be considered in the development of guidance. The first is the joint comments provided by the Tribal Tax Working Group in 

response to IRS Notice 2011–94 which called for input for the development of guidance on the general welfare exclusion as it applies to Indian tribal governments and 

their social welfare programs benefitting tribal members. The second is from the Advisory Committee on Tax Exempt and Government Entities (ACT) report entitled 

‘‘Indian Tribal Governments: Report on the General Welfare Doctrine as Applied to 

Indian Tribal Governments and Their Members.’’

The IRS announced, in IRS Notice 2011–94, the formal request for comments on 

the General Welfare Doctrine as it applies to tribal government programs on November 15, 2011. Shortly after, the IRS hosted its first consultation on the issue on 

November 30, 2011. The consultation coincided with the President’s tribal leader 

meeting. Subsequently, the IRS hosted a second consultation, also in Washington, 

DC in March and just a few weeks ago hosted a phone consultation that was heavily 

attended. The initial deadline for comments was extended from February 13, 2012 

to March 14, 2012. However, the IRS continued to encourage comments after the 

deadline leading up to the phone consultation. Almost ninety comments were received on the issue. 

Joint comments were developed in response to IRS Notice 2011–94 which called 

for input for the development of guidance on the general welfare exclusion as it applies to Indian tribal governments and their social welfare programs benefitting 

tribal members. These comments were developed by the Tribal Tax Working Group. 

(The Tribal Tax Working Group includes the broad-reaching coalition of NAFOA, the 

National Congress of American Indians (NCAI), United South and Eastern Tribes 

(USET), California Association of Tribal Governments (CATG), and the Affiliated 

Tribes of the Northwest (ATNI) among others formed to address what tribal leaders 

are calling one of the most recent and one of the more serious affronts to tribal sovereignty, taxation issues.)

While NAFOA and the Tribal Tax Working Group do not represent all tribes, the 

following are what we consider common tribal considerations learned from the consultations, input, and outreach on the issue.

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*The information referred to has been retained in Committee files.

• Please see attached Joint Comments for Notice 2011–94 for the complete comments. * 

• Please see the report in its entirety at http://www.irs.gov/pub/irs-tege/

tegelactlrpt11.pdf].

The joint comments emphasized: Deference to tribal leadership and self-governance in carrying out tribal programs based on their respective community need and 

values; The inclusion of federal Indian policy; consistency in terms, concepts, and 

process; Needs should be based on tribal considerations; Exclusion of any program 

that supplements federal trust responsibility; and, Privacy of information. 

These constructive comments, carefully weighed by tribal leadership, carry forward the current expectations of self-determination, federal policy, and the roots of 

protecting sovereignty. 

In addition to the tribally-generated comments, the Advisory Committee on Tax 

Exempt and Government Entities (ACT), submitted its annual report and presented 

its findings last week on June 6, 2012. The ACT consists of three appointed members charged with engaging with and reporting to the IRS on a timely issue that 

is important to the IRS and their respective constituents. This year the issue was 

to add insight into whether payments made by the tribal government to its members under a tribal program designed to promote the general welfare of the tribal 

citizens is includable in the income of those recipients. 

The ACT report is a comprehensive assessment that includes the history of the 

general welfare doctrine, the doctrine’s exclusions, the doctrine’s prior application 

for tribes, tribal views on the doctrine, and two very significant findings. The first 

finding is that there is a clear case for modifying the general welfare exception. The 

second finding specifically calls for clear methods for greater deference to tribal governments along with greater tribal involvement. 

Both tribal leadership, in their comments, and the advisors in the IRS ACT report 

reached substantially similar conclusions in regard to taxation of tribal benefits 

used to advance general welfare. However, the Act Report calls for much more substantial tribal inclusion in the decisionmaking process. This inclusion calls for consultation, even in informal decisions that result in a policy change, a high-level appointment in Treasury to serve as a resource and ensure federal Indian policy is 

considered, and the formation of an external advisory group. 

Both the joint comments and the ACT Report findings are summarized in the Appendix. 

While Congress should do its best to immediately remedy the impacts of recent 

IRS actions regarding the General Welfare Doctrine as it applies to tribal governments; the Committee should also work toward fulfilling the longer-term recommendations made in the ACT Report. Having an advisory committee in place, a 

high-level appointee, or carrying out consultation when the agency’s decisions impact tribes would have likely negated the latest IRS efforts to begin taxing revenue 

derived from tribal trust assets such as timber and other resources. 

Taxation of Tribal Trust and Settlements 

In addition to deterring self-determination, the IRS has embarked on a disquieting effort to tax per capita payments made to tribal members from trust funds. 

Per capita payments from tribal trust funds are specifically excluded from both federal and state taxes under the Per Capita Act of 1983. Long before 1983, this tax 

exclusion existed in federal law because it is derived from Indian treaties and the 

federal trust responsibility. 

Besides being supported by federal treaties and law, the Administration, through 

the Department of Interior, at least since the 1950’s, has made per capita payments 

from tribal trust funds and has not reported them as income for federal tax purposes. They have also vigorously defended their tax exempt status. The Interior regulations at 25 C.F.R. 115 were revised in 2000 and continued to provide procedures 

for making these payments without provision for tax reporting. 

The Obama Administration is currently engaged in a historic effort to settle a significant number of lawsuits brought by Indian tribes for mismanagement of tribal 

trust funds. Many of the tribes settling these lawsuits are considering the payment 

of some portion of the settlement funds in per capita payments to tribal members. 

The IRS change in policy on the taxability of these payments is salt on a wound 

created by historic and unprecedented unfair dealing by the United States. The settlements attempt to make tribes and their citizens whole from fraudulent activities 

perpetuated by the Federal Government. Does the Federal Government really want 

to tax, in any manner, a settlement based on their own historic transgression? 

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Conclusion 

The Internal Revenue Service (IRS) interpretation of the application of the general welfare doctrine and taxing trust assets and settlements has far-reaching impacts on tribal sovereignty. So far, the IRS has used the authority of the agency 

as a deterrent to tribal efforts to improve the quality of life for all citizens through 

methods appropriate for each respective tribe. They have also shown their intent of 

continuing to target tribal governments and ignoring long-standing federal policy by 

reaching in to tax settlements and trust assets. 

All of these actions clearly call for Congress to oversee an agency that has not 

been accountable and acted independently of Administrative and congressional intent. The result of this IRS effort has been to cause confusion, place a strain on already limited personnel and financial resources, and, to have tribes once again feeling as if their cultural practices are under scrutiny. 

The IRS has the opportunity to use the authority of the agency to incent such 

activity. When they issue guidance, it should firmly support self-governance and federal Indian policy. 

We are hopeful that the views expressed during this hearing, in tribal comments, 

and in the ACT Report will be carried forward. In the absence of this, we strongly 

request Congress to act to uphold fairness and its federal trust responsibility. In addition, we are calling on Congress to put an immediate end to the current aggressive 

IRS activities of determining tribal welfare and taxing trust and settlement assets 

until these issues are resolved. After all, these are internal administrative IRS decisions that can be reversed without a regulatory change, let alone a legislative fix. 

APPENDIX

The major provisions of the Joint Comments provided by the Tribal Tax Working 

Group in response to IRS Notice 2011–94 and the Advisory Committee on Tax Exempt and Government Entities (ACT) report entitled ‘‘Indian Tribal Governments: 

Report on the General Welfare Doctrine as Applied to Indian Tribal Governments 

and Their Members.’’

Joint Comments Provided by the Tribal Tax Working Group in Response 

to IRS Notice 2011–94

1. Honor Tribal Sovereignty, the Federal Trust Responsibility, and Deference to Tribal Self-Government 

Any guidance the IRS develops on the application of the general welfare exclusion 

to benefits provided by tribal governments to their members must take into account 

the backdrop of inherent tribal sovereignty, federal treaties and the trust responsibility, tribal history and social and economic conditions, the federal policy of tribal 

self-determination, as well as tribal authority for program administration under the 

Indian Self-Determination and Education Assistance Act and numerous other laws 

establishing a mechanism for tribal administration of federal programs (housing, 

child care, elder care, family services). These laws cover a broad range of federal 

program and services that have been consistently underfunded and understaffed. 

The resource pool is finite; tribes compete for these funds annually, and tribes that 

supplement or supplant federal funding are working. 

2. Developing Substantive Guidance Consistent with Federal Indian Law and Policy 

General Statement of Doctrine—The general welfare doctrine has been described 

in various forms of guidance over the years. Not all forms describe it alike, and 

some emphasize different elements. To promote tax compliance and allow tribes 

greater predictability in structuring their programs, we urge IRS and Treasury to 

adopt the following statement of the doctrine:

• The general welfare exclusion (as applied to Indian tribes and their programs) 

provides for the exclusion of payments that are (1) paid by or on behalf of an 

Indian tribe (2) under a social benefit program, that is based on either needs 

of the Indian community as a whole or upon the needs of individual recipients 

(which need not be financial in nature), and (3) that are not compensation for 

services or per capita payments.

Given the recent tendency by some IRS auditors in the field to interpret the doctrine narrowly by focusing largely on individual income determinations, it is critical 

to recognize non-financial needs in the guidance itself. The guidance should expressly affirm that the doctrine recognizes that the needs criteria can be both individual and community-based. 

62

3. Consistency and Certainty in Key Definitions and Concepts 

Even in cases where there is general agreement between tribes and IRS auditors 

on the GWE itself, there is often disagreement on how key terms and definitions 

within the doctrine are to be construed. We urge IRS and Treasury to adopt key 

definitions that are sufficient to promote tax compliance yet flexible enough to accommodate the broad range of tribal services impacted by the doctrine. For example:

a. Community needs should reflect that certain programs are so important to 

self-determination and the preservation of culture and tradition that they 

may qualify for general welfare protection regardless of individual financial 

need. Without limitation, these may include education, housing, health care, 

maintenance of language and traditions, and promotion of the tribal community’s financial well-being and long term goals. In doing so, the guidance 

would respect that each tribal government, through its own policy setting 

process, is best situated to determine the needs of the tribe and its members 

and the policy solutions.

b. Social benefit should be defined with reference to a goal or goals established 

by the tribal council or governing body of each tribe. Each tribe has its own 

checks and balances in place for the approval of programs and those processes should be given deference in IRS field audits, even where the particular 

tribal program does not have a federal or state counterpart. IRS agents cannot substitute their personal judgment for decisions that are made pursuant 

to a political process and form of government recognized by treaties, Congressional acts and Presidential executive orders spanning more than a century 

of tribal-federal relations. The guidance must recognize the Federal Government’s interests and responsibility to support tribal programs designed to 

provide for the well-being of their members and to ensure the continuance 

of tribal cultures in accordance with the priorities of each tribal government. 

There must be deference to programs that emerge and are implemented pursuant to this concept, even if those programs do not have a federal or state 

counterpart.

c. Income guidelines used to establish individual financial need, when required, 

should not be dictated with reference to specific federal or state statistics 

(such as median income or poverty thresholds). While tribal governments may 

look to state and federal income guidelines as a starting point, GWE guidance 

should ultimately defer to the political process within each tribe. When required, income guidelines should be recognized as a ‘‘safe harbor’’ only, with 

the ability of tribal governments to consider the individual facts and circumstances of each recipient (e.g., income far above the median, for example, 

may still be insufficient to address a catastrophic loss or displacement caused 

by a hurricane, fire or flood).

d. Compensation for services used to disqualify a payment from exclusion under 

the GWE should not apply to bona fide programs with community service 

ties. For example, tribal governments should be able to condition tax free 

educational assistance on a commitment by the recipient to serve the tribal 

community for a period of time during or after completion of course work in 

professions needed within the community. Tribal governments should be able 

to establish summer youth leadership programs that offer tax free food, housing and transportation to young members who develop a sense of community, 

for example, by mending fences, repairing reservation homes, cleaning trash 

from the roads or doing other tasks that teach responsibility and citizenship. 

In recent years, some IRS examining agents have construed tribal activities 

such as service on cultural preservation boards and summer youth work program offering nominal stipends or benefits as ‘‘employment.’’

e. Per capita payments should be limited to amounts designated as per capita 

payments under a federally approved revenue allocation plan in accordance 

with the Indian Gaming Regulatory Act (IGRA). Recipients of per capita payments are not restricted on how those funds are spent. In recent audits, however, some IRS agents have attempted to reclassify social welfare payments 

and in-kind benefits as taxable IGRA per capita distributions subject to tax 

and withholding under Section 3402(r) of the Code. The GWE guidance 

should confirm that IRS will respect the IGRA revenue allocation plan designations, and that payments made under a bona fide social benefit program 

are not per capita payments even if the benefits are provided on a community-wide or tribal-wide basis. A tribal government should be able to implement education or housing assistance, for example, on a universal basis without triggering per capita reclassification.

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f. Deference to tribal determinations of community needs is a key concept for 

tribal leadership, but IRS officials have suggested in discussions that some 

standards are needed to prevent abuses. In the discussion, a suggestion was 

made that a narrative standard could be developed that would defer to tribes 

to develop programs consistent with their own social and/or community 

needs, except where the programs are ‘‘lavish or extravagant under the circumstances,’’ a standard that applies to deduction of business expenses. We 

would encourage further discussion of this concept. The concept offers a guiding principle for general deference to tribal decisions, but there is some skepticism among tribal leaders that IRS agents have sufficient understanding of 

tribal circumstances, such as cultural programs and cultural travel.

4. Means Testing 

As noted above, a recurring theme from discussions with tribal leaders is the need 

to dispel the notion that the GWE applies only to programs that are individually 

means tested. IRS guidance on the GWE should expressly acknowledge the right of 

tribal governments to provide community-based programs that are not means-tested, and programs that are based on non-financial needs. 

5. Programs that Implement and Supplement Federal Responsibilities 

The Federal Government, as a result of its treaty obligations and trust responsibility, has committed to providing education, housing, clean water and many other 

basic needs for Indian people. Through a conscientious shift in policy in recent decades, the Federal Government has encouraged the tribes themselves to provide for 

such needs in partnership with the Federal Government and, increasingly in recent 

years, instead of the Federal Government. Taxing benefits from tribes that would 

not be taxed if provided under a federal program is counterproductive to this government-to-government partnership. 

6. Privacy/Information Sharing 

The guidance should recognize that tribal governments are a partner in the goal 

of tax compliance and there should be a ‘‘government-to-government’’ level of deference in the scope of review that the IRS undertakes with regard to tribal general 

welfare issues. 

Advisory Committee on Tax Exempt and Government Entities (ACT) report 

entitled ‘‘Indian Tribal Governments: Report on the General Welfare 

Doctrine as Applied to Indian Tribal Governments and Their Members.’’

1. The Case for Modification of the General Welfare Exclusion as Applied to Indians 

To resolve the General Welfare Exclusion issue, it may be appropriate to develop 

a general welfare exemption that applies specifically to tribal governments and their 

individual members. The U.S. has committed to protecting tribes as separate 

sovereigns. One expression of that commitment is the rule that federal laws should 

not be interpreted to invade upon a tribe’s internal affairs—i.e., in this instance, its 

determination of general welfare needs of its members. Naturally, when the IRS asserts that a tribal government’s distribution of cash or in-kind benefits is not made 

to promote general welfare of its members, this is perceived as a federal intrusion 

into the internal affairs of a sovereign tribe. On the other hand, the IRS is tasked 

with enforcing the federal tax laws, which entails seemingly intrusive audits to determine the form and substance of a transaction for tax purposes. Accordingly, there 

is cause to develop an administrative tax exemption that takes into account the 

unique circumstances of tribes and their sovereign authority over internal affairs, 

while at the same time promoting effective tax administration. 

It is in the best interests of both the tribes and the IRS to seek a more cost-efficient and predictable means of testing tribal general welfare programs for tax exemption. Tribes require a predictable test or safe harbor for establishing their programs to maximize tax exemption and tax-favored opportunities. 

2. Methods for Tribal Deference & Inclusion Going Forward 

ACT made three recommendations for meaningful tribal inclusion and included 

justifications for the following:

a. Create a Rebuttable Presumption in Favor of Tribal General Welfare Programs

The ACT submits that it is important for Treasury to explore avenues for addressing the issue in a proactive manner, and to reduce the necessity of audits. 

The process must also achieve some certainty, while at the same time providing 

flexibility for tribes. There is, of course, an advance ruling process that can be 

64

implemented. But, this can be quite costly for tribes. Instead, the ACT suggests 

that Treasury (in consultation with tribes) explore the development of a process 

which permits tribes to take affirmative steps to develop their general welfare 

programs in a way that will provide either a safe-harbor or rebuttable presumption to shift the burden of proof to the IRS to establish that the particular tribal 

program has not met the General Welfare Exclusion.

b. Modify IRS Approach to ‘‘Disguised’’ or ‘‘Deemed’’ Per Capita Payments under 

IGRA

The ACT further submits that a review and modification of the IRS application 

of Code Section 3402(r) withholding requirement, as it relates to general welfare 

payments, is necessary. In that regard, the ACT submits that it is improper and 

contrary to the intent of IGRA to re-characterize a general welfare program distribution as a deemed per capita subject to tax withholding under Code Section 

3402(r). Such a presumption is likely to vitiate the Revenue Allocation Plan 

that has been approved by the BIA, particularly when the tribe has already distributed the total allocable percentage of per capita payments under its Revenue 

Allocation Plan for the year. To suggest that any distributions above that allocable per capita percentage are deemed per capitas subject to Code Section 

3402(r), would arguably violate the Revenue Allocation Plan limits on per capita 

payments. It is the exclusive jurisdiction of the Bureau of Indian Affairs to determine allowable per capita uses of gaming revenue; IRS re-characterization of 

program uses of net gaming revenue obviates BIA’s exclusive jurisdiction.

c. Develop a Treasury Level Advisory Committee/Undersecretary of American Indian Alaska Native Affairs/Tribal Consultation Policy Amendment

The United States has a unique legal and political relationship with Indian tribal governments, established through and confirmed by the Constitution of the 

United States, treaties, statutes, executive orders, and judicial decisions. In recognition of that special relationship, pursuant to Executive Order 13175 of November 6, 2000, executive departments and agencies are charged with engaging 

in regular and meaningful consultation and collaboration with tribal officials in 

the development of federal policies that have tribal implications, and are responsible for strengthening the government-to-government relationship between 

the United States and Indian tribes. 

The Treasury/IRS STAC purpose would be to seek consensus, exchange views, 

share information, provide advice and/or recommendations; or facilitate any 

other interaction related to intergovernmental responsibilities or administration 

of Treasury/IRS programs, including those that arise implicitly under policy or 

rule, or explicitly under statute, regulation, or Executive Order. This purpose 

will be accomplished through forums, meetings, and conversations between federal officials and elected tribal leaders in their official capacity (or their designated employees or national associations with authority to act on their behalf). 

The Undersecretary for Tribal Affairs office should be established to serve as 

the official point of contact for tribes, tribal governments, and tribal organizations wishing to access the Department of the Treasury. The Tribal Affairs office, to be effective, must be established within the immediate Office of the Secretary, report directly to the Secretary, and be the Departments’ lead office for 

tribal consultation in accordance with Executive Order 13175—Consultation 

and Coordination with Indian Tribal Governments.

The CHAIRMAN. Thank you very much, Mr. Lomax. 

Ms. Malerba, the tax initiative that you set to help to form to address tax issues in Indian Country is a relatively new group? 

Ms. MALERBA. It is a new group. 

The CHAIRMAN. What changes have you seen at the IRS that 

made formation of this group necessary? 

Ms. MALERBA. Well, I think Tribal governments have struggled 

to provide for their people, and now that we finally are able to provide for our people, I think that the IRS hasn’t really known how 

to deal with us, necessarily; and I know that that is why the office 

was instituted. 

But I think that what we have seen is there has been kind of 

tax policy applied inconsistently and also that court decisions also 

65

have been inconsistent. So the tax initiative group got together to 

provide some good feedback to really talk about these issues and 

to work with the Treasury and IRS on the topic, because there is 

not a one-size-fits-all in Indian Country, as you know; the regions 

are very different, the tribes are very different, everyone has a different history. 

So we have taken it upon ourselves to try to start working 

through these issues and educate the governmental partners that 

we have to make sure that there is fairness throughout Indian 

Country and that tribes are given the benefit of the doubt. And if 

you go back to the Marshall trilogy, it was that laws and regulations should be interpreted in the manner most favorable to the 

tribes, and we are not sure that is necessarily happening all the 

time. 

The CHAIRMAN. Thank you. 

Mr. Lomax, in your testimony, you called on Congress to step in 

to put an immediate end to the IRS activities surrounding examinations of the general welfare doctrine and trust distributions until 

certainty in application exists. Is it your view that statutory language is needed, or can this be achieved administratively? 

Mr. LOMAX. Thank you for the question, Chairman Akaka. We 

believe that the best case for this is to be resolved administratively, 

but we are waiting to see whether or not it will be. There are a 

number of issues around that that we see. We think the IRS has 

a great opportunity to work with Tribal leaders on this issue; however, we haven’t seen that kind of work, from our experience, happening. 

It was mentioned earlier in testimony today that tribes have the 

opportunity to, for example, get a private letter ruling. I think 

tribes look at that as actually a veiled attack on sovereignty, because that puts the IRS, then, in the position of being the arbiter 

of whether or not any particular Tribal program has validity or 

whether it should be taxed. That, from Tribal perspective, we believe is very much the wrong way to be going. Tribal Nations 

shouldn’t have to be seeking a private letter ruling to find out 

whether or not they can go on a field trip with their elders. 

We believe that oversight is necessary from the Committee, and 

in the event that oversight does not bring the IRS into compliance, 

we believe that, then, legislation should be sought. 

The CHAIRMAN. Thank you. 

Ms. Malerba, in your testimony you recommend that the IRS 

defer to Tribal policy and determining need in certain applications 

of the general welfare doctrine. Given Treasury’s concern and concerns about treating all taxpayers the same, do you think it is practical for Treasury to defer to each Tribe on this issue? 

Ms. MALERBA. Thank you for your question, Chairman. Perhaps 

I am a little biased, having been the chairwoman of the Tribal 

Council in my previous role, but I don’t believe that tribes should 

be treated like State and local governments. Tribes are different. 

Tribes are families; they are about communal good. They have experienced so much devastation that they are now in the process of 

rebuilding their communities. And all of the programs that the 

tribes are administering are in the absence of funding for Federal 

66

Government programs, so tribes are assuming the responsibility of 

Federal Governments. 

Tribes are very personal and they are up close and personal, and 

Tribal leaders are very accountable to their citizens. They know 

best what their citizens need, because if they aren’t aware what 

their citizens need, their citizens are going to make it known to 

them. And they are very, very careful about developing the programs that are in the best interest of their people. They know best. 

It is government at the local level and it is the best government 

that you can have. 

The CHAIRMAN. Thank you. 

Mr. Lomax, the IRS has indicated that its treatment of tribes 

under the general welfare doctrine is the same as its treatment of 

States and other local governments. In your testimony you indicate 

tribes are being singled out. Can you elaborate on that? 

Mr. LOMAX. Thank you for the question, Mr. Chairman. 

Yes, absolutely. As I mentioned in testimony, it is very clear that 

the IRS is treating tribes quite differently in this manner. As I 

mentioned, the work plan for Tribal governments shows that the 

IRS is very intent on focusing on Tribal governments. Yet, when 

they look at the work plan for Federal, State, and local governments, taxability of benefits provided by State and local governments is not mentioned. So that is one thing. 

But there are just too many stories from tribes right now. Tribes 

are very used to and see very clearly when they are getting different treatment, from years of experience, and we are just hearing 

too many stores from tribes about how the enforcement is arbitrary 

and increasing from the IRS on the general welfare type exclusion. 

We have seen tribes coming together in an almost unprecedented 

way to form this organization that Chief Malerba was discussing. 

We heard from Commissioner Miller, actually stating that in an 

examination five years ago he has already examined 139 tribes. I 

would be curious to know if they had examined 139 State and local 

governments during that same time frame. I think the answer 

would clearly be no. I don’t have anything to base that on, but I 

would be surprised if that were the case. So when you think about 

how tribes are being treated vis-a-vis the State and local governments, I think it is very clear that they are being treated quite differently. 

The CHAIRMAN. Well, thank you very much for your testimony 

and your responses. This has been helpful to us as we continue to 

look into this. Looking forward to even organizations like yours 

working together in trying to deal with some of the concerns of the 

tribes. But I want to say thank you. Thank you so much for being 

here. Mahalo to all of our witnesses as well. This has been a very 

informative discussion for the Committee. 

As the IRS and Department of Treasury move forward on this 

issue, I would like to stress again the importance of the unique 

government-to-government and trust relationship between Native 

Nations and the Federal Government. The Federal Government 

owes a legal duty to tribes to respect their sovereignty and self-determination, especially in the area of taxation. 

As part of the strong history of treaties and legal relationships, 

the Federal Government is legally bound to provide health, eduVerDate 0ct 09 2002 11:06 Jan 11, 2013 Jkt 077806 PO 00000 Frm 00070 Fmt 6633 Sfmt 6601 S:\DOCS\77806.TXT JACK
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cation, and other services to tribes and their citizens; however, 

Federal assistance will never be enough to meet the serious need 

in Native communities. That is why we must support, not hinder, 

Tribal self-determination programs that fill in the gaps where the 

Federal Government has fallen behind in its trust responsibility. 

We need to be aware of that and continue to try to work together 

on these concerns. 

I am encouraged that the agencies have taken steps to build a 

relationship with tribes and urge that dialogue to continue so that 

better understanding of Tribal government can occur. 

I would like to again thank all of our witnesses for traveling here 

today. I would also like to remind you that our hearing record will 

be open for two weeks after today for you to submit further comments. We look forward to that as we continue to deal with the 

concerns that we all have. 

So mahalo. Thank you very much and much aloha to all of you. 

This hearing is adjourned. 

Mr. LOMAX. Thank you, Chairman Akaka. 

Ms. MALERBA. Thank you. 

[Whereupon, at 4:00 p.m., the Committee was adjourned.] 

(69)

APPENDIX

PREPARED STATEMENT OF HERMAN DILLON, SR., TRIBAL COUNCIL CHAIRMAN, 

PUYALLUP TRIBE OF INDIANS

I. Introduction 

As Chairman of the Puyallup Tribal Council, the elected governing body of the 

Puyallup Tribe of Indians, I am pleased to submit this testimony for the record. We 

appreciate very much the opportunity to present our testimony regarding the impact 

of the Internal Revenue Service (IRS) policies and actions on Tribal Self-Determination. In particular, I would like to discuss the Tribe’s experience with the IRS’s application of the general welfare exclusion doctrine. 

II. The Puyallup Tribe 

The Puyallup Tribe of Indians is a federally recognized Tribe located in Pierce 

County, Washington along the shores of Commencement Bay, a large inlet of Puget 

Sound. The Puyallup Tribe is a signatory to the Treaty of Medicine Creek, 10 Stat. 

1132. Under this Treaty, the Tribe reserved the lands for its Reservation, which was 

established by two subsequent Executive Orders. Executive Order of Jan. 20, 1857; 

Executive Order of Sep. 6, 1873. Over the next fifty years, notwithstanding the establishment of the Tribe’s Reservation, the Tribe lost ownership of most of the land 

within its Reservation as a result of Acts of Congress authorizing allotment and sale 

of reservation land, court decisions and other private and federal actions. See H.R. 

Rep. No. 101–57, at 3 (1989). With the enactment of the Indian Reorganization Act, 

25 U.S.C. § § 461–479, the Tribe adopted a constitution and organized its Tribal 

government, which then set out to restore the Tribal land base and develop programs to better serve its tribal members. 

In 1983, a federal court confirmed the Tribe’s title to the bed of the Puyallup 

River and adjacent exposed lands, including lands within the Port of Tacoma. Puyallup Tribe v. Port of Tacoma, 717 F.2d 1251 (9th Cir. 1983). This decision gave rise 

to an historic Settlement Agreement between the Tribe, the City of Tacoma, the 

Port of Tacoma, the State of Washington and the Federal Government which Congress enacted into law. Puyallup Tribe of Indians Settlement Act of 1989, Public Law 

101–41, 25 U.S.C. § § 1773-et seq. (1989). The Settlement Act restored to the Tribe 

nearly 1,000 acres of land, including lands within the Port of Tacoma. In addition, 

the Act included a provision recognizing the right of the Puyallup Tribe to engage 

in foreign trade consistent with Federal law, notwithstanding a provision of the 

Treaty of Medicine Creek which prohibits such trade. 25 U.S.C. § 1773f(b). 

Today, the Puyallup Reservation consists of approximately 28 square miles in 

Pierce County, Washington, and includes the cities of Tacoma and Fife. The Tribe 

has a membership of more than 4,000 people. Since the Settlement Act, the Tribe 

regained title to more than 2,000 acres of trust land within the Reservation, including 200 acres of land in the Port of Tacoma. In 2008, the Tribe entered into an 

Agreement with SSA Containers for the development of a new international container terminal facility that, when fully constructed, will be the largest in the Pacific Northwest. As a result of this Agreement and the Settlement Act’s recognition 

of the Tribe’s right to engage in international trade, the Puyallup Tribe anticipates 

developing relationships with international trade partners in the Pacific Rim and 

around the world. 

Because the City of Tacoma was a primary Indian relocation destination for the 

federal government in the 1940s and 1950s, the Tribe also provides services to the 

more than 25,000 Native Americans from over 355 federally recognized Tribes and 

Alaskan Villages who now call the territory of the Puyallup Tribe home. These services include law enforcement services, elder services, health care services, a school 

system, and other educational services. The Tribe was one of the first Tribes in the 

United States to enter into a Self-Determination Act contract to assume the operation of a federal health care program on a reservation. This Clinic is now one of 

the most utilized tribal clinics in the Country. 

70

III. Self-Determination And The Trust Obligation 

The IRS must implement the Self-Determination policy and the corresponding federal trust obligation, which are the bedrock of the government-to-government relationship between Tribes and the federal government. The Service must do more 

than superficially acknowledge these foundational principles, but rather it must give 

them effect in every aspect of its relationship with Tribes. Thus, whether it is the 

development of policy, the drafting of guidance, the publication of a rule, an investigation; or an enforcement action, the IRS approach to a matter involving a Tribe 

must reflect that it is dealing with a government to which it has a unique trust obligation. 

The federal Self-Determination policy is at the heart of the federal policy governing Indian affairs overall. The policy recognizes and supports tribal self-government. Since the earliest days of the Republic, federal law has recognized that tribes 

are sovereign entities with the power of self-government. In Cherokee Nation v. 

Georgia, 30 U.S. (5 Pet.) 1 (1831), the Supreme Court held that an Indian tribe is 

a ‘‘distinct political society.capable of managing its own affairs and governing itself.’’ 

Id. at 16. In Worcester v. Georgia, 31,US. (6 Pet.) 515 (1832), Chief justice Marshall, 

writing for the Court, held that Indian Tribes are distinct, independent political 

communities, ‘‘having territorial boundaries, within which their authority [of selfgovernment] is exclusive . . .’’ Id. at 557. By entering their treaties, the Court held, 

tribes did not ‘‘surrender [their] independence-[their] right to self-government . . .’’ 

Id. at 561. 

The Self-Determination policy has guided the federal government’s relationship 

with tribes since 1970 when President Nixon announced in a special message to 

Congress:

It is long past time that the Indian policies of the federal government began 

to recognize and build upon the capacities and insights of the Indian people. 

Both as a matter of Justice and as a matter of enlightened social policy, we 

must begin to act on the basis of what the Indians themselves have long been 

telling us. The time has come to break decisively with the past and to create 

the conditions for new era in which the Indian future is determined by Indian 

acts and Indian decisions.

Richard Nixon, Special Message to the Congress on Indian Affairs, 213 Pub. Papers 564 (July 8, 1970). Indian Self-Determination is the foundation of modern legislation involving Indian affairs including the Indian Self-Determination and Education Assistance Act, 25 U.S.C.§ 450 et seq., and the Indian Trial Governmental 

Tax Status Act, 26 U.S.C.§ 7871; see also Rev. Rul. 86–44, 1986–1 C.B. 376; Rev. 

Proc. 86–17, 1981–1 C.B. 550. 

The Supreme Court has also repeatedly ‘‘recognized the distinctive obligations of 

trust incumbent upon the Government in its dealing with these dependent and 

sometimes exploited people.’’ Seminole Nation v. United States, 316 U.S. 286, 296 

(1942) (citations omitted), as well as reaffirmed the ‘‘undisputed existence of a general trust relationship between the United States and the Indian people,’’ United 

States v. Mitchell, 463 U.S. 206, 225 (1983). The trust relationship is also the basis 

of the well-established rule that Congress will not be presumed to have abridged 

Indian treaty or property rights absent a clear express of intent, e.g. United States 

v. Dion, 476 U.S. 734, 738–40 (1986). These principles are fully acknowledged in the 

IRS’s consultation policy implementing the Executive Order 13175. 

The importance of embracing and fully implementing these principles is no more 

evident than in the IRS’s application of the general welfare exclusion doctrine with 

regard to Tribal programs and services provided for the benefit of tribal members 

and the community at large. Under the general welfare exclusion doctrine, the IRS 

does not require that payments received by an individual under certain government 

social benefit programs be included in the calculation of income for tax purposes. 

However, as discussed in detail below, while the IRS has applied this exclusion to 

some benefits provided by tribal governments, it has not applied it to others, despite 

the similarities of the program to state and federal programs. Nor has the IRS consistently applied this policy through the prism that is the Self-Determination policy 

and the federal government’s unique obligations to Tribes. This greatly impacts the 

Puyallup Tribe’s ability to exercise our governmental responsibility to meet the 

needs of our members. 

IV. General Welfare Exclusion Doctrine 

The Puyallup Tribe has a number of assistance programs. We provide support to 

people for a wide variety of needs, including housing, medical care, funeral arrangements, emergency survival and safety issues, education, youth programs, and small 

business programs. The Tribe also has programs and initiatives intended to preVerDate 0ct 09 2002 11:06 Jan 11, 2013 Jkt 077806 PO 00000 Frm 00074 Fmt 6601 Sfmt 6621 S:\DOCS\77806.TXT JACK
71

serve and pass on the Tribe’s unique culture. The goal of all of these programs, as 

with any governmental program, is to improve the overall health and status of the 

community and its citizenry. Yet, in many instances the IRS considers the assistance provided pursuant to these Tribal programs to be taxable income for the tribal 

member beneficiaries. 

The IRS’s treatment of many of the Tribal programs is inconsistent with its treatment of not only federal programs but state programs as well. States and municipalities provide a number of programs and services that are available to all citizens 

without respect to financial means or other individual needs testing, such as public 

education, recreation programs, support for foster parents and other children’s programs, concerts, parks, libraries, museums, and similar community services, programs and events. The IRS does not seek to audit and investigate cities or states 

providing these benefits because these are public benefits that are not directed to 

specific individuals, and IRS treats them as nontaxable. Likewise, benefits provided 

through similar tribal programs, particularly education and cultural programs, 

which are focused on community needs and benefits, rather than individual circumstances, should be excluded from income without any individual needs assessment. 

Of particular concern to the Puyallup Tribe is the treatment of cultural programs, 

which are directed to the needs and interest of the community as a whole, rather 

than the benefit of any individual. Such cultural programs may include language 

instruction; youth camps with cultural focus, support for attendance at culturally related youth, elder and other tribal or inter-tribal events, which provide a means of 

teaching and preserving tribal culture. 

One example of the IRS overreach in this area involves our annual Tribal powwows. These kinds of events have existed for generations where a Tribe invites 

other Tribes and people from other regions to come together and celebrate with 

songs and dances. There have always been competitions associated with these 

events. Our traditional stories tell us that these competitions are the reasons there 

is daylight and night; why human beings have dominion over animals; and why blue 

jay hops. 

There was once a period in history when it was illegal for our people to practice 

these celebrations. See http://rclinton.files.wordpress.com/2007/11/code-of-indianoffenses.pdf. Yet, notwithstanding the fear of prosecution, these songs and dances 

were preserved. Now it is the federal policy to support, foster and encourage these 

songs and dances as a part of the federal trust obligation and the government-togovernment relationship. American Indian Religious Freedom Act, 42 U.S.C. § 1996 

; Native American Graves Protection and Repatriation Act, 25 U.S.C. § § 3001 et 

seq.; and the Native American Languages Act, 25 U.S.C. § § 2901 et seq. Today, instead of the prizes of daylight and dominion that the Creator awarded our ancestors, our competitions now only have monetary prizes to award. In our view, when 

we entered into our treaty with the United States we preserved our right to continue to exercise our way of life free from unnecessary intrusion of the federal government, and just as federal law exempts from taxation income earned from treaty 

fishing, so too should it exempt any income earned from treaty-protected cultural 

activities. See 26 U.S.C. § 7873. 

However, that is not the case. Instead, the Tribe’s accounting department must 

be present at every pow-wow and issue a 1099 form to any person receiving a prize 

or other remuneration during the pow-wow. While the Puyallup Tribe may have the 

resources to undertake this effort, it is a substantial burden on the Tribe and causes 

a great deal of hardship for the pow-wow dancers who have never before had to consider the prizes from their cultural activities as income on their taxes. This activity 

is not their job and the awards are not intended to compensate them for their dancing. Rather these awards are to provide support to dancers for coming to the event 

and to celebrate the very best of those who seek to preserve our culture. In some 

instances, the awards are only sufficient to cover the expenses of traveling to attend 

the pow-wow. Consequently, for some dancers, a prize means they are negatively 

impacted, because as a result of attending and getting the prize, they are out of 

pocket not only the expense of going to the pow-wow, but they now owe the IRS 

money. The implementation of the law in this manner is inconsistent with the Tribal Self-Determination policy and the federal trust obligation to tribal governments. 

Instead, the IRS should allow Tribe’s latitude in the design and execution of their 

tribal cultural programs and activities. 

Finally, the heart of the Indian Self-Determination and Education Assistance Act 

(ISDA) is the provisions of the Act that encourage and support Tribal governments 

stepping into the shoes of the federal government to carry-out federal programs. 

This principle has been embraced not only with specific programs operated pursuant 

to ISDA contracts and compacts, but other programs like housing, child care and 

72

economic development. In this regard, there should be a blanket exception for assistance provided by a Tribal program that is carried out pursuant to the requirements 

of a federal program, regardless of whether those programs are done pursuant to 

an ISDA contract or compact or whether those programs are supplemented by tribal 

governments. It is well documented that programs intended to benefit Tribes and 

Indian people are woefully underfunded. See The U.S. Commission on Civil Rights, 

A Quiet Crisis: Federal Funding and Unmet Needs in Indian Country (2003) (‘‘A 

Quiet Crisis’’). Thus, that a Tribe can operate and fully fund these programs should 

not be the basis for the IRS treating the benefits differently than when a state or 

the federal government operating these federal programs. 

For example, the Tribe operates and receives funding pursuant to the Child Care 

Development Block Program. 42 U.S.C. § 618. The Tribe is able to expand this program to serve more people, and because of this the IRS considers taxable the child 

care assistance that we provide our Tribal member parents. This has a harsh impact 

on the Tribal member because the payments are made directly to providers and 

thus, the Tribal member does not have any additional income to pay the assessed 

tax. 

The goal of this program is to provide assistance to parents to enter the workforce 

or get an education, which is consistent with the CCDBG program. The fact that 

the Tribe can assist more of its citizens than the federal government mandates does 

not make this assistance income to the member. Rather it is simply a governmental 

decision as to the best allocation of our limited resources. The federal government 

has the ability to mandate the expansion of services beyond the poorest of the poor. 

See e.g. P.L. 111–3, 123 Stat. 28, 42 U.S.C. § 1397bb(a)(b) (authorized the expansion 

of the federal Children’s Health Insurance Program). So too must Tribes have the 

ability to mandate that our programs provide services beyond the poorest of its citizenry. Tribes more than any other governments understand when you extend a 

hand out to pull a person up, not only does that person rise, but the entire community rises with her. The IRS should not undermine a Tribe’s effort to extend the 

hand to pull up its community, as this is the truest fulfillment of the self-determination policy. 

Another example is the Tribe’s education assistance program. The Tribe provides 

assistance for post-secondary and graduate degrees, which includes not only tuition 

assistance, but also living expenses for the eligible students. In our view, federal law 

should not tax support provided to a tribal member under a program whose purpose 

is to help with basic living expenses while the recipient pursues his/her education. 

The Tribe has made the governmental decision that this is the best way to address 

the identified need of the effects of historically inadequate educational opportunities 

and achievement. 

Relatedly, the IRS’s consideration of general welfare exclusion relies heavily on 

individual need. We submit that in order to support Tribal Self-Determination the 

IRS must consider need in the broader context of the entire Tribal community. In 

our view, the determination of need for general welfare exclusion purposes must recognize the historical damage done to tribal economies, cultures and identities, the 

chronic poverty and unemployment many tribes have experienced, and the remote 

and marginal lands upon which many tribes were forced to locate and maintain 

their communities. The U.S. Commission on Civil Rights concluded in A Quiet Crisis

that:

In exchange for land and in compensation for forced removal from their original 

homelands, the government promised through laws, treaties, and pledges to 

support and protect Native Americans. However, funding for programs associated with those promises has fallen short, and Native peoples continue to suffer 

the consequences of a discriminatory history. Federal efforts to raise Native 

American living conditions to the standards of others have long been in motion, 

but Native Americans still suffer higher rates of poverty, poor educational 

achievement, substandard housing, and higher rates of disease and illness. Native Americans continue to rank at or near the bottom of nearly every social, 

health, and economic indicator.

Id. at ix.

Even Tribes that have developed successful gaming, natural resource or other industries continue to confront substantial economic, educational and other deficits resulting from historical scars. A few years of success cannot erase the social problems 

resulting from many decades of historical wrongs, discrimination and economic and 

social disruption. Unfortunately, the federal government has not lived up to its obligation to provide resources and other assistance to tribes to meet these challenges. 

The Civil Rights Commission further concluded:

73

there persists a large deficit in funding Native American programs that needs 

to be paid to eliminate the backlog of unmet Native American needs, an essential predicate to raising their standards of living to that of other Americans. Native Americans living on tribal lands do not have access to the same services 

and programs available to other Americans, even though the government has 

a binding trust obligation to provide them.

Id.

Any attempt to define need for purposes of tribal general welfare programs only 

by current income tests misses the big picture of the tribal experience, and the deep 

and severe problems that remain as part of that legacy. This is particularly so for 

segments of the tribal population such as elders who have suffered through severe 

social and financial problems throughout most of their lives, and in some tribal communities are only beginning to have personal resources to address their needs. In 

our view, the taxation of these assistance payments is counterproductive. As taxing 

the payments reduces the Tribe’s ability to assist its members and others in the Indian community, which in turn results in a greater burden on federal and state programs to provide the assistance the Tribal program would provide in the absence 

of taxation. 

V. Conclusion 

The Puyallup Tribe has worked with the IRS with regard to a number of programs and has reached a resolution on some aspects, like gifts presented to cultural 

leaders, emergency housing assistance, and tuition assistance, that we are pleased 

with. For this we want to commend the IRS. However, as we discussed above, we 

believe there are still areas where the IRS must take a broader view of the intent 

and benefits of a Tribal program. Thus, we urge that the agency and the Congress 

strive to maintain the elements of the process and the legal standards that have 

created a positive working relationship between our Tribe and the IRS, while fixing 

the problems that result from the ambiguity and uncertainty that exist in the standards under which the general welfare exclusion is currently applied. 

PREPARED STATEMENT OF HON. GREGORY MENDOZA, GOVERNOR, GILA RIVER INDIAN

COMMUNITY


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74


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displ,lralc, and pO:lSibly \li(;crlmhl~lnry, pmclk~ of tfirgcti~g Irib,,1 gQvmnmcnt.~ lIS Clpp=d to our 

i\law, coonty. and municipal rO\I~tcrparls. 

Au t:Xroljl13 of O,is 'JbpmlUc [reoUlll:ilt of !rJbul gooremm!lll!li il; lh~ Tnlcmul Re.venue 

~rvfce's recent i!eterminallon ~rdl!lg 1M cla~HJC:\Uol' of !l:HIJl'hern of \1il:ml boord~, 

llGm."Bitt~estmd Cflm:ni:;siom. Unlike 00. I:i~!~ county, an(1 municipal ~eqmr'.s, the !mernal 

Revenue ServlCjlc has made lite &''Crrni:llltkm lha! lribl:l rnc:mbers l'ien-ing Iln tribn! lnJards, 

cnmmiuccs and llG,!l:tn!$Si!)us ~houh:l be cl~:;s!fied as -crnploy~us mine.: Ihun Jndepen~e~t 

COntmctors. Lik~ other trihsl governments, tbe lnn,Wotanding policy and pOlt:hce of the 

COmmullily bas b~en to treal guch persons as ind~pelld~nt cuulrnctors. This position is 

COll5istent with Treasury Regulation, Section 31.3401(0)-1 regarding directors oJ ~'OrpOI'lUlon~. 

This regulation states, in tile rcie\'an! pHrt. that "u \lirlXlor oe a corporation in his r.apncit}' n~ ~ucll 

is not an employee of' the <:orparalion." Tilus, under fc(kntllnw. directors of n ~.QI'Pfml.tion ~fe 

c1!1S:litled ~s independent cnr:.trnctms. Thi~ should 1I1tio !lold tme for memlJ<:IS of tril>.11 boards, 

C01lUU,tlee!l, and LI),-"llmi';Sklns. 

The Intema! RtwCImC Sentle.;,'s r,cw position hOlS significant implicaliorn; for !nlxd 

governments, tTP.Jal <lIIoorpri%B, and <Zfiiucs mul illQ:"e trlb(ll memb&s strrVing on :l\01>e bOl\rd~, 

cL'mmittees and commissions. \ViiI! this change ill pnlir.y, tribal govemmcll!s wiil b~ required 10 

withhold taxes for those po.~itions, where in the pilS! no withholding wns requIred siuCQ those 

~ositions were coRSi(kred (,,) be indtlpendent contraclol'.~. Similnrly. in the nC>lHrib:tl COU1CXI 

~omp~rnblc board, committee and commissioru; p~itiOll11 are classiried lIS ind~penctcnt 

COlllrd~lors. This ch::mgl\ in poUc:y Ims only'colllc 10 IIghllbr many trib-dl gov~rnl1lenl~ ~s 1I result 

of the Internal ~vcnu/: Servico's 3gg.l'cssiveaudit campaigllim-geling tribal govcrruuenll>. 

m\,M lhe bmnd ~::Opc of t1re.>e audit in~jglltiotls" t;ibB] g=rncn!S ~rc- required to 

e~penil gignifiCfillt re.'lrn".rces, including m<my jlfofc!>.~ion~! ~nd ru~mm::y man·OOuls, j'l),jl<)nding@ 

t'ile jntem,,1 R" ... cn1ic S=·ice's ~g;gressi"c !ilIdi! cul1!plllgn. Tb....."'ie a\ldit ill\'estigution~ billxlme 

even more tmubl,n§ when ~miroed WiUI the b:l~kclrop or {he internul R<'lWllLltt Service's 

reSlrictive illterprct!ltio~ or rJ)C Gcncral Welfare Do~trin~, ils reversal of policy regnrdhlS the 

cl~ssificntion of mcmherr. of trill:ll committees nlld bo~(1j!l, ~nd what nppean; to b~ ~(I Mforl 10 

ullilaIGmlly ov~r1um the U.S. Supreme Court's deci!ilon in Sljllil'e vs. CopoeuuJ/l nml subjecI 

iucama ooiwd from lrllS( a~Sl:ts 10 t!l)1alion. ' 

General WeiiflTl! DDClrine mid tila Federal Tmst Responsibility 

The G!!Il'IDll Wclr8H~ tmc,rillc lms dl:velopw aver tmre <I~ -<\II aeminiMmlivll excJilSil)j) 

promulgaleci through ir;tcl'nul RCV'.lJHlC Scrvice guidallce dOCUtnelliS, Whlell lms b~en ~ccilgnw.,d 

by the -courls. This (!D~!I'jne Ims been al'l)1icd to trillal, ~till", counly, and rnunicipn! !v:w~;nnwnt 

programs providing S¢clQI oonNit progmms for thc promotion of Ihe general w~lfure, To qu~lif~ 

for Ihis ro;~IU5ion, the Gen~rul Welfare paymenls flIU~L (.I) be made under a gOl'emmcnt prosr.lm; 

(2) be for th promotion or the general wc1fmc; and (3) 1I<,lt represenl oompcllsation for ~cryjcus 

rendered. 
75


614b3.eps

Of particular lXInccrn (0 our Community in tl~lllhe Inlernal Revenue Sorvicu i~ Inking a 

vety restrictive position when determining whether a trfu;JL governmental ge1\eml welfare 

progmm/pllj'ment to; "fOf the promotion of the g!lIKlTll! we!f!\I'C," The lntemlll Re\'cnu:e Scn'ioo 

h~.~ U1ken I~ PGsi:inn Ln31 in o.:tfer fill: II g1!llCl"rJ: wulflU'"C progr~[IJ to .sillisfy ilii.~ prong of Ire 

e;:ciuciw: rest iE must be n progmrn ;n,,,w ~'fi "fir.anclal nClXl" Imd !~e:; El. IriM! govemmwt 10 

"'PPIy II "me~..s lesl"~;) dctermiue digihllity fur Inc, LrUml pll.-.g.rum. While ~:ying!l. "fimmcial 

means tesC mEj' W apptOprlme fur certain "ibnl govemm:mt.ll pI:{!grnms, l! is ilJ(;tlm~!11 onlhe 

l~termd Revenue SClv!ce to modera:e liS review oftrilm! gencrnl welfare progl1\lllS in ligb! of the 

Federnl govcrnment'~ trusl responsibility to Indinn lribes. The Federal govCnlnl~nt's unique 

truSE responsibility to IndIan tribes differentiates the rulnlionsbip of lhe Fcdeml gowrnm~nl and 

all of ill; Departmenlll and ~c.cJ1cics, including lhe [lIr~l'l1ll\ Revenue Service, from II, 1~lnliQllSllip 

With Slate, counly, nnd mUllicipul govBmm,mlS. In ~.x!\ffiin!ng whether II lribal gOl'~rnlllenwl 

~n~.rnl welfare progrom is for Ibe promoGon nr generllJ welf~re., the Intern;!\ Revenue Service 

should coll!iidcr tll.\"l purpos:: of tbe prawnm oml If lhe V.:rllOli\J of Ihe progrtllll Is Ie provide 

benefits. to lribal :mmtors that lire culturally uppropriute, OO(!!l:Sl'i 'l&)");lcmic()f 5Qdelal need, cr 

wpplemeru mntkquJle fuderal progrnms gromlIl<:r\ in HIe F'ill!£ml gcvernm~.n!'lI Irus1: 

respon'il:L-h'ily Ie In:liM tl'il::llS 0> ill !reai)" trICD!h~ pwgmm sl\Ol.lld qU;ilil'y ~lJI' the exclE!-'<km. It is 

otlr belief that the InlcrntlJ Revw.\te Service :should clefill' to 111';001 go\'eNnT!C!lt'g d~lcrminali(!n 

of need. 

Unfortllnate!y, tI)e)'!': are only two WII)'S in which a tribal govcrnn1~nl t"'1lf1 ob!;!!n a 

delermin.1ticn on whe.thilr .1 lriba.l gcncrJI ,vclfare pl't"lgrllm salisfie::; the Oeneral Welfare 

~xclusion test. The fi!lil\ WlIy is for a lrilxll gIlvCUI(l'Qnl b;\ apply for lind receive u l'ril'~lc te!1er 

ruling fur 11m prog;tll'n. Our Community h!l1l ~ucccssruJ1)' oblllirn:d a privJlc lellu( ruling for O1!r 

llilskillntilll HUU5mg Il)lprove:.ll¢l!t Pn:lgmin whercOy ""c. om'e \reen lIble 10 provide b:l']l;ing 

heneHlS to our ().mll\lut>ity members to llt:dres:; Ollr eriuC'.u s!tort~ of Slife JW.rl affcrcillble 

hom~s fo, OIJ[ m<:mNHS. 'T'b~ pro=s of ~irJng ll. priyal~ letl>.::r n..iing:is !rwg, bure~l1Cm!ic.. 

!llld vuy c;{pe.estV(\, 1t h not a proC"~% to b~ underlakon ligl:i.\ly arnl many lrfunl s:m:mm~ls 

lnek adequlU!l ro.~lItCCS to pursue n privllte letter rt.ilinjl:. In addition t\llhe delays l\n;;! ~c of 

obtaining n pfiV'lle leuer ruling, tbe ruling, once iHu~tl, only applies 10 Ihe pnn!tular progmm 

referenced in the nppUcatloll <,md if there are cJmlr.w-:~ to Ihe p(ogr.nm, a new pri"uW IUUer ruling 

I\lay be required. For m\18L tribal governmellls, Ortly a t'ew'tribuL geneml welfare pr(j!ll'lUllS would 

warmll! lhe commjtmel1~ of resources, til1je, and fundjn!f~o .[i'u/sue and obtain n private letter 

rliling from 1I1e InLcnml Revenue Service. ! . 

The Sllcood wny II ttibaI gov(>rnlIxml cnn oblrun II del:e=inallO!l on whether :l tIi!):;I 

general w.>lfa('g progrnm AAtisfics the Generel Welfare =kSIOfi teCS! is ~o be lwdi(ed. Ra!il;!(" 

llW.n im;llr tIm considcoble ~n!e \'If oi:>b.ifring il prjva!u\ctltl ruling, moot trltml !',(l\>;;rnmenls 

choose to "Olltlr.ue 10 ollministcr general wclfa;e p.'1>grlnns f<)~ their mcmbershir:s unlil su"h!!me 

as they arc the subject Dfun audit. The outcome \If the audit is dri .... en largely 'Jy the field agl!l1ls 

intcrpretatkln of Ihe phmso ~ror lhe promolhm or Ihe geneml welfare~ and in m(l~t Goges, the 

3gcnL~ are taking tlle pOSition tlml 3 finan~i(\1 !'(l.\1IU1S Ee~1 should be applied by the trib.11 

~v(trnment in delcrn1j)l!~[!; whether n triha! member qualifies for Ihe progmm. Nowhere In the 

mIdi! P!o=s is the fleW allent required 1O consider lito: Fedora! goyernment's tn!3t responsibility 

and whether lllC benditll confurrc.d in the genom! welfare program are <Xlrnp;I[""Jhk> t(l Olhef 

&dent! prcgmms proV:!ded 10 l~d\tm tribes pll>S.uanl to the tIllS, respol!EwIlit)'. 
76


614b4.eps

If It Is dete!TI1ined by u field agenL that a tribal ~ncml welfare prognnn does not sati,fy 

the GCllowl W""lfaro e):clu~ion. there are conseqnMccs fur the trlbnl government for its fui!urc to 

issue n 1099 form nnd reporting payments of over $600 !O lribnl membC!3 and COJlSeljtreUCf!S to 

the benefit redpient who [.'1 alilikeIihood did"no! repcll1lhe bendit as inOOlllC in their lax returns. 

Such n result L~ I)'.mitlvt: for I.be p:ogram ~nclicil\ry, as well tl~ the tribal governmenl. 

We would liJ..'e 10 thonk )'Ou Mr. Ctmirnmn ar.ci Ih"" ol.bcr di~tillguisb~t1 lncmwlli of lire 

Committee for your eflorts to Include language in lbe Affordable Care Act which excluded lhe 

value of any qualified health care benefit tTom tl:e !\~dpk!ll's gross inc()me" This effort camc 

none too soon, ItS u number of tribal govemmlll1ts w.;:rc reporting Internal ReI'MlUe Service 

enforcement efforts boing inilln(ed llgIlillSt trib31 members who wero reccivi\'g belllth care 

b~nefits [rom their tribul lJ;()veTnmen~~. We bclie'ie that in similar circumstances. where a tribal 

government is develDpJng ~ general welfare pro.gram wllere the benefits cvnf~rred arc 

Ctktlp:1rable to, nnd S'~l'plcmcnl> other programs provj~bJ 10 lmll:m lribe;; pursuant to the l[lnU 

resprlllsibUily,!I.lose progmmsshould qualify for tbe General We!f1\rc exclusion. 

We unilirsm,ld thUllh::. In!ezmli "RC\'c:mlll Service and the Du;lartmcnt of th~ TrcuSlIfY am 

engaged in ccnsuHation with tribot! gowrnm~[J\S lCgnrding clarifications !o the Ocncr~1 Welfare 

c",clusioll. We. ar~ hOpdl.l1 lhllt this con~ul1ution proccss will result in a Furthor guidance that 

ro~p~cls the Fedeml gllllCl"llmcnl's lrusl rcspol:sibilily, provide~ slll1icient cinrity (0 lrib,d 

governments so thai they can develop and lnilor .9ln(\r~1 welfme programs to satisfy lhn gcocrnl 

welfare exclusion, and elimlnales the IalituiJe cxw::ised by Internal Revenue Scrvic~" ficld agents 

in unnecessarily restricting the !).cncml welfale e~dl!sion to lhe dcllimc)lI of rtibnI !lll\,llrumelll~ 

~nd their members" : 

Any guidall!::e propMed fOf Lie Gcnemi Welf<lm cXelus!on fur lrib~1 govcrnmelllni ~wer~ 

'I'olfnre prog<fmlS should provide brow r~lesurlcal Ill,du.';;QOS wiilloul the roqJliremem of n 

financial me:llls leSl fm i"lssistancc provided 10 lril)al eldCI"5, educlliomtl assistance III t,,\xii 

members, burial nsslstancc Inr tribal mcmbl'l"S, \Iud other benc!il<; provided by 1he tribal 

government based on th~ Indian tribe's traditions unci culture. l)lese exclusions should take inlo 

account t~ federal government's trusl rdponsibillLy, Iii>;: Tndiari tribe's history Gild social and 

economic conditions. T~erefore. we recommend thnt thQ guidnnC\": for lite tribal !jtlfWr!11 welfare 

eXclusion ~pply 10 gelleral welfare prognmls lh~\ are bAAed on overall lrillal community nr.eds or 

upon the individual need of the tribnl m~mbCT mtd where such need dDe:; not need to be fillanci~l 

iu nature. 

Tax Status ofRevefmes Del'il'ed from Trust Reso!frces 

We are deeply wncernct! regaruing re",'I)1 o.f[(,,!s of the lntern~l Revenue Service to 

n~"~e~s toxes 00 revenues derived from tru~lil.~$CIS, il1cluding per capita payments from trlbaltrust 

funch;. This practice is comrnry to longstanding legal principles articulated by lh~ Supreme 

Coun in Squire v"~" C(lPOtflJUIII and by the CongreSg in the enactment of the Per Curib Act of 

1983. It is alanuing thul these longstanding legal (l1"il1ciples cnn be overturned by the lmernul 

R"'v~nu~ Survice by adllliuistmlive fiM. This lroub!in£ del'eioplltcnt is occurring as rnany tribal 

governments are sellling their trust mismlUl'1'!'''.\tIIC1lL claims Egain,<;t the United S!ah1~. If this 
77


614b5.eps

practice is nol ended, many lrib:]! members lI'iII be r~C6d lI'ith the prospect of tJ1C Federal 

government, through the internal Revenue Service, lUxing then] for per capita P'lymcnt5 from a 

dnmogc nv,'fIro for the Fecteml gavel'oment"s mislll~rmg<!mcnt of the tribe's trust ac~ounI5, Such 

a result is pm[O'Jndly disturbing ior aU lri~llc:lders across Indian Country. 

~1r. Chairmao" we reqllest that !Ilis Cmllmi1ler. oonsid~ !cgi!IJatj(?'; conflrmillg the 

jongsll!nciing lcglll prioeiplcs of Squire I'S, Crrpvem~1! mmlM J'er Cupita Act of 1983 which hold 

that revenues derived from Irust n.<:setS, including \Xlf capit;\ payments from InD.,] tn~~t funds arc 

not subject to tm.:ation, 

Elimtirate ReSlrictiomI 011 tribal Tax-Exempt BomlAlltJwrfly 

would Ekc :0 thltflk yeu, Mr, Chnirmnn J.llld Ihe tlistingui'lhed memM{S of this 

Committee fer your moo work on th~ Am<:rR:;m Reoovery lmd Reinvestment /\0\ which provided 

$2 Billion in bOllding mllhority for tribcl govcn:mcms te lsSI:C tilx-cxemp! l.'(lldS for economic 

de.'clopr.lCl1t projects. MoreovCf, the legislation ol;min:l\cd the "cF;M:!llial grrvenunenlaj function" 

restriction tim! /1M prcvillm;ly Emiled L'lll 'Ivi!il)' 0: t.r]l)g! governnrenL~ 10 issue lroo:,oxe!nl'l debt 

under thc IndimJ Triblll 1'~x Sl.>llus Acl, Th~ Am~rJr.~n Reoov~ry lind Reinvostmcnt A-ct hn~ 

placed tribal govi.'rnmcnt5 on equal fOOling with nur sln!e, county, and municipnl oo\tnlelJlarL~ for 

purposes of issuing I~X-CXGmpl debt for economic dcvulopmcnt p'urposc~. As ~ trib~1 

government thol ha~ utlli~ed the new bonding ,"uthority under Ihe American Recovery and 

R~investment Act, we would encourage, this COIJlOlillc('.. 10 work with the S~tIIltr. Finance 

Committee 10 p~~nenUy eliminate the: "e~'Sential govcrnmcutnl fmletion" limitation and to 

jn!:ren~ the amount of tax"eXcDlllt deb. a,tri\ml penlmcnl. em issttc, W~ ooli<::vc 1I»It Iribnl 

governments <;:all make uS\) of tilis new bond uulhority 10 Ul'.cerlllke ~ ra:ng.~ cf economic 

dcvelopmcn: project;;, li,ke oor Community, :!.\\d to address longstanding. problems wuh t!it: 

reservation h~nltl1e:lre d~ivery system by utilizing bond financing to canslruct Ulllbululory care 

CCrolcIs, s..!cilled nursing: and long-term cnri,l filcililins, dl!lllul clinics, dinlysls ccnte!s, and ether 

badly needed be.,lth fadlitie!>. We bcJi~ve thi, ~ulhorlty could help resolve the severe fitcilily 

backlog of the Indian Hcaltl] Service, by nuth~rjzing Irlb:11 govcrnrnents 10 flnnnce health 

facilities mther thall rcleg.1ting tribes to wnit putiuntly in line for their fudlity to o;:rocp lip the 

Indian Heallh Service Priority list, 

ExteTld IndiWl Empfoymenr alld Accelera!edDepreciatioll/or Business 

Property ol/indian Reul'w/'lwa Tax Credits 

Mr, Clmirman, we !cspectIuUy request that this Comm;\l:!(! work with tile S~l1l\'e F'innm::c 

Committee to rencw and extend the jnllian Employment Tnx Credit ilnd tho Accelcmt~d 

Depreciation for Business Pmp~rty on lntiinn RcoelY'.Ition nUt Credit in the !lllcrnul Rel'~nuc 

Service Code, In our e(furls to altmct businesst:S til reJocmc (0 OUf rc;ervntion, we find thm the 

Incremental benefits provide~ by the eUlploymeot U>x credll und accelemted deprcdatiM help~ 

attract businesses to relo~le to Ollf re,crvntion. Unfortunately, given Ihr. hi~tory or this 

provision in (he Code. Iribnl gOVl!rnment, arc L'Omtrtutly working til ensure that these Inx credits 

are inclurle{j in larger lax legislation so Ilm\ {lie}, do nollapse. As we sit here loWlY, these tIL'; 
78


614b6.eps

credits have lapsed and we ~re faced with an unl:~rtl1ill \u!Ut1} and cannot provide tho n~Cll.\sary 

3S~uronC[!l; to businesses int~resll;d in relocating to oor Community. We would rol.'(lm'11~l\d that 

thcl\ll m)': credits be made ~nn~lNlnt 10 help mldro~s llw significant hmdles c<')n!ronl1ng lribal 

iiOWollllllCllffi lii)::;i:i..g to. promote e~OfIomic devclopmem on their !eSCl'Vllti01lS. 

Conclusfou 

In conclusion. w~ would ask this Commil1~e l(l ~ssist trillal governments 10 ~1I1;ure !.hat 

till; fntemal Revenue Service: develops clem "dmini$((',J,(jvc guidance regarding lh~ nppllcatinn of 

,he General Welfare CJ(c\usioll to trihal gencml wclfQrij programs which feflecl~ ~lld le~pects: tile 

Federal government's trust respOmiibilily to Indian lribllS and nccords detcrcnce to lribnl 

!:'lIWcmmclll's dclllrmiMtklU of IIcc(L We woui,j also req~tl5! loot 1m Commiltee 00ll~ider 

legi~lnlinll that (l) CQnft'ITU~ t!u:. Iong;lllllding JeWl primlipl;:s ",r Slji,ire .. s. C.'lptJC!)lfIll 11IId the 

.f'e.t O!pita Au of 1983 which hold tha! re.yenu;:s derived .fI'WI Irus< a",'!e~~, including Pl'I; <:lllh'la 

payments ['9JTl1·1nonl !nlSl fundS Mi:: ll:.{:~ul>j-~C! to t~x1'lEon; {Z) pmmlnenlly cHmhll'll::S lhe 

"e5!;enti~1 governmental function" limitation and incrc~S\$lhc mnmmtoftax-eiftlru;)t dt:;bI:l trllml 

gOVernment can i5SU~; Imcl (3) renews and makes pGfUlUnnn{ Ihe lndillO Employmel'!.t Till.: Credit 

nnd 1116 Accelrualed Deprc.ciallon for Business Properl)' on Indilln Reserv'Jlion T-~)( C(..,(lil. 

! would like to tlmnk you Mr. Chairman Cdr till of your efrorts on behalf or IIlOhll) tribes 

lind for holding this impo\'tullt hearing. 
79

PREPARED STATEMENT OF THE NATIONAL CONGRESS OF AMERICAN INDIANS (NCAI)


614c1.eps

On behalfofthe National Congre~s of American Indians (NeAl), thank you for the opportunity 

to submit this testimony regarding the Committee'~ Oversight Hearing, "New Tox Burdens on 

Tribal Self_Determination." 

In 2005, the [RS began nn nggresslve oampaign to audit every Indian tribal government in the 

eountry and impose inequitable tal( treatment 011 Indian tribes. In this effort, lhe IRS has 

frequently undermined lon~standing pdnolplBo oftribalsovereignty, tribal.elf-gowmmcnl and 

the federa!lr\lst responsibility, and fuiled to respect the role of tribal governments und~r (he U.s. 

Constitution and the plain Innguage offooeml statutes. NCAI urges Congress to (l.'Lereise its 

oversight to reign in these abuses of federal authority. 

Discrimination in Tribal Audits 

There arc over 80,000 locaillovernment entities in the United States and only a small fraction are 

ever audited by the IRS. In contrast, Ihe IRS is an a campaign to ~udit (Ivery Indian tribal 

gov~rnment. In a 2007 letter to the Senate Finance Cnmmittee, the IRS indicated that they had 

completed 139 aullits in the previous two years. IRS budget documents show the completion of 

another 40 tribal audits per year in subsequent yean;. Although the IRS refuses to share data, 

these numbers indicate lhe IRS has audited 259 tribes through 20 11. and new audits arc taking 

place in 2012. To put Ihis in perspective, there are only 336 tribes in the lower48. (229 Indian 

tribes arc in Alaska where there is very 1I:11e tribal revenue.) To put this in even greater 

perspective, the NlGC reports that there me only 240 Indian tribes conducting gaming iu the 

United Slates. The IRS has audIted 77% of the tribes in the lowcr48, aru:I they have audited 

100% ofthe tribes with nny signlficnnt source of revenue. Thi~ i. a discriminatory praotice, "" 

the IRS is not auditing anywhere near this percentage of state and local governments. 

The remaind~r oflhis testimony will higblightseveral examples of how the IRS' Office of Indian 

Tribal Governments has discriminated against tribal sovereignty: 

Trill;]! Tax Exempt Boud Market DcstrO'.·cd by IRS 

First, the IRS interpretcd the "essential government function" tost for tax exempt bonds to 

~xclnde any revenuc generating activity, wen when state and local governments routinely 

generate revenue frolll identical projects financed with government bonds. Tile legislative 

history mrthe l"ribnl Tn.-.: Status Act specifically include.s revenue generating activities snell as 
80


614c2.eps

hotels and lodges. The ms decided arbitrarily, and counter to the opinion of qualified bond 

counsel, that tribal gol'emme!lts alone arc prohibited from generating revenue. 

IJlrcfigroulld 

While tribes may issue tax-exempt bonds und~r the IRC, the policies surrounding tribal bond 

issuances have mnde tax-exempt financing a rarity in Indian Country. As is, § 7871 of Ihe mc 

(the section pertaining to tribal Issuance of tax-exempt bands) limits tribal tax-exempt financing 

to projects where "substantially all of the proce~ds" arc "used in the exercise of any essential 

government function,,,l The manner in which this section has be~n interpreted ha~ not ooen 

generous to tribal governments. 

In 2006, the Intemal Revenue Service ("IRS") issued an Advanced Notice of Proposed 

Rulemaking ("ANPR"), which a!temptcd to define an "essential government function." It 

proposed that an activity constituted an "essential government [unction" when: 

• there are numerous state and local governments with general taxing powers that have 

been conducting the activity and financing it \Vith ta~-excmpt government bonds; 

• stale and loealllovernmenls with general taxing powers have be~ conducting the activity 

and financing it with ta~"e)(empt govemmentul bonds for many years; a11d 

the ac/iviry is not a CfJmmerclaf or industrial actil'ity.~ 

The third factor of this definition effectively negates many of the instances for which the first 

two, standing alone, apply. 

For e:>:ample, as noted in II June 2010 Report on the ImpI~mcntation of Tribal Economic 

Development Bonds submitted by the Advisory Committee on Tax Exempt and Government 

Entilil:S (,'ACr'), states and local governments routinely finance projects using tax-exempt 

bonds which retain a commercial or industrial component (e.g., ''hotels, convention centers, 

stadiums, rae~traeks and llolfClOurses',).l The ANPR has yet to make it to the actual rulcmnking 

phase; i.e., regulations have not been propo~ed, Nevertheless, IRS rulings since then seem to 

apply this standard to tribnl projects. The result is that the "essential government function" 

analysis continues to hinder any realistic advancement in the area oftnx-e;o.;empt bond i~suanoo 

by tribal governments. 

A provision championed by the Senate Finance CommIttee in the American Recovery and 

Reinvestment Aet (ARRA) authorized $2 billion in boud authority for a new category of bonds 

for Indian tribes, known as "Tribal Economic Development C'TED") Bonds." Such TED Bonds 

• .... ero intended to provide tribes wilh more tlcxibilityto use tax-e:-:empt financing than is 

allow~ble under the current "essential governmental function" standards as noted above. The 

'CMIHellat2b U.S.C. §1~7t(")(t). 

, Annou"cemem l006-59, 2()()6..2 c.B. 388., REG. 1187S8·aG, 7l1'.d. Reg, 43474 (emph • .<is.ddcd). 

, Indian Tribal Go\'enmmnl<: Rapor! njtha Impkmonlulian ~fTrlb~1 EcOJJamic D<'WJlapm"m lJands Utttkc rho 

Anwrkan Recol'~ry m<d /IIlim"'.<lmeni Act Dj201J9, Acivi,Ul')' Committee on T"~ Exempt and GOl'emrnont Untiti.,,-, 

~p 15, Juna 9. 2010. 
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TED rules are still subject to other restrictions that require financed projects to be located on 

Indian res~rvations and that prohibit the financing orgaming racilities. 

The ARRA provision also required Treasury to do II study ofthe effects orthe new bonding 

authority, and to recommend to Congress whether it should "eliminate or otbenvi5e modifY" the 

essential governmental function standard for Indian tribal bond financing. That Treasury study is 

now complete and was delivered to the Chainnan and Ranking member of this Committee on 

December 19, 2011. 

The core recommtmdation of(h", Treasury study is (bat Congress should adopt the samc standnrd 

for tribal government bonds as applicsto governmental bonds issued by State and local 

governments. In other words, Ihe Treasury Department !"e(:ommends repealing the "essential 

governmental function" standard for Indian tribal governmental bond financing. 111e TrC35ury 

lo:tudy explains Ihal il is mnking this reoommendation "[f]or reasons of tax parity, fairness, 

flexibility, and adminlstrabiIity .... " 

In short, Ihe IRS gutted the mark!ll for triballllX exempt bonds without reason, and prevented 

tribal governments fiom using one ofthe most basic economic development 10015 that is 

available to every other governm~nt in the United Slates. Now, tribes are left to push for a 

legislative fix in the halls ofCongrcss fur this restrictive policy to be amended. 

General Welrarc Doctrine 1J~ed In De.~troy Tribal Health and Edu~ation Programs 

The seoond discriminatory practice appears in IRS audits oftribal government£. Tbe IRS hus 

generally interpreted tribal government programs ror tribnl citizens as an unlawful distribution or 

per capita payments. 

Starting in approximately 2004, the IRS began a special audit rocus on tribal government 

programs providing: in-kind benefits to tribul members. As a result ofthat initiative, the IRS 

began focusing on tribal government programs, including: the following: 

Health Care Programs 

Educational Progrums 

Housing Programs (including preparation of reservation home sites for building, housing 

improvement, oonstruclion, down payment ossistllnce, ood maintenancelrepairs) 

Looo Programs 

Emergency Assistance 

Cultural Events!llld Cornmltnity Activities (c.g., powwows) 

Culwrul Trovel 

Elder Programs (including meHls, social events und utility assistance) 

Legal Aid 

Recreation and sporting events 

Landlicaping and grounds maIntenance 
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The underlying premi~e I)fthese IRS examinations apPC"fS to be that Indian tribal gO'W:lTIments 

are paying out taxable incom(l (whether in cash or in kind) to or on behalfoftrlbal members. The 

IRS is auditing the tribal governments buscd 011 the premise that they (as payors) have 

obligations 10 report s!l~1! payn;ents to the IRS (and the pa}'ees) by issuing 1099s, and, in certain. 

ea.~es, to also witllhold tax on s\l<~h pa}TllCnK 

In a June 28, 2007 to Senator Charles Grassley, Steven Miller, the Ii:en IRS CommissIoner for 

Til:';. Exempt and OI)\'Cmmemal Entities, made the following statements under the heading 

"Tribal Per Capita Payments": 

Und~"lh~ Indian Gaming Regula/Dry Act, 11J1'GnuilSjhmi tribal gaming call lie 

usedfor sererollJUlhorired P1II"POses, includilll:jimriing tribal gOYflrllll1lmt 

opiJmlirms. pnJl'iriingjitr Iltll gft!l8mJ welfare of the Mbe, and makil!gper capi/a 

pt1ym1:!nls to trIbfll members. Per capita dlslribwio.~ a,"" sui:>jeo! {I) r"der-o/ 

mcomfl UZX, and (he Issller »Ilist reporl fh~ distribution Qr, Fern. }099. 

To red!lC6 Ihe lax conseqllenccs 10 trIbal m~mbl.'lf", Ilome tribes have cl'ftated 

I1U!chanisms to classify willa Ilhordd be taxable per capita pa)ll1Wlts as general 

welfare program p(I),lIIelrtll, f!Xr:fUllible/r(J1ll1irCOllle, oftelilltrough liOeral 

interprctatil)RS of what colUiti.tllJes a "lIeed.~.baS(!.d" program. Olirers h(H'II 

createa or illV(!slcd ill purported inccme deferral programs ... , 

To address Ihl .. proMemwe lim'!! engaged in f!;(hrcatimmi and erifi;rCl!ment 

ac!ivilres, We a!30 initialed 139 uamillati~ns durIng the PiIS(~ j'l!I1rs that 

for:used specifically Olt flJe lIS/! ojlle! guNfing rewmu~. 

Further, the IRS Indian TrIbal Governments (LTG) Work Plan for FY 2i'J09 (posted on the IRS 

website at www.ir:s.gov/lrlbcs)madethe following st;ttement about its Gaming.R~.venur. 

enforcement initiative: 

The GamIng InirialilX! commenced by [he office of Indfcm Tribal Governmcnl.l ill 

FY2005 will ClJlItil1Uf! ill(o FY2009. Continuing dl$oussions wilh [h~ Chairman of 

thc NatioJJal ilIdiall Gaming Comlllissi(JIJ tndicalll ;/Jeirexlremc interest in 

emml'fng (li(lt frib{W t:lpproprimely ,,,,e gamihg revcml~s, am! propcrly accmml fvr 

:'111::1; u.~ 8l'/J!'fI they have limrted f!vcrs/ght if (hm i!ill1ll', it /alk upOllllut IRS UI 

enElIre that informaium reponing TequiTelllefttsllF" mid with regard 10 the 

expfl1ditufC IJ/lw:h revenues, With Indian gaming now slirpassing$26 bl!lian in 

gl'oliS I'<Iwlluejor 20U7. and c.-pecled 10 grow by over $2 billionperyear, (lUI' 

role andre.qJOl1.fihilllles wIlT continue to rtXpfl!U!. /VII plan 10 de'lOte 6 F'fEs /0 (Mil 

fnilfa/fre. alld our =minalion goal includes 40 rf!turnsfrollllhls fllflfatiVf'. " 

In testimony at a S¢pl~~llber 18, 2{l09 henring before the Senate Committee on Indian AfThirs on 

tbe IRS trcatmcntoftribfJ governnrent ilealth programs, Sarah Halllngrml, lht': CUrrent IRS 
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614c5.eps

CommiS5ion~r forTa>: F ..;l(empt and Governmental Entities, denied that the agency was targeting 

[ndian tribal governments or t11nl it had ony special program to examine tribal health programs. 

Ra:l:er, Commissioner Ingram contenood that ;'the issue ofllie taxability of medical benefits Hlld 

health insurance caVil-rage = nrise!rom time to lime in th~ normal courrel;lfan audit as we look 

lit whether a trib~ or IIny other type of go"",mmUlI or employe!, is fOllowing l.lppropriate 

infcrmatior. reportingllml .... ithholding practice.~ us it w:lministers lis various progra.rru;/' 

More rcc~ntly, on November 15, 2011, th~ IRS llIIllounced tbat it would be reexamining the 

applicability ofl11e general welfare exclusion as applied to tribal government programs. Indian 

tribes have been asked to :rnbmlt written comments to tho IRS describing theirprogrilms, 

particularly the followIng. 

Cultural (for exa.mpie, programs involving tCUI'Sofsitcs that a.oe hiswricaily significant 

10 II tribe; language preservation progroms; community rec~C<\tb[ml progtlmlS; cultural 

and scc!al events); 

Education (for a:\:mlIplc, pro~s provirling tutors or suppiies to prh""nory and secondary 

scha{ll1;tudent~; job retraining programs fur aduhs); 

Eld~,· pmgrams (for example, programs providing hooting asswtanec or menl~); and 

Housing (for example, programs providing housing on lind otrlhe n::scrvatinn, with 

income limits different from tho~e of the United Stales Department ofHousinS and 

Urban Development), 

See IRS Netice ZOll·9<\ at hl!p~ll\' .. ww.irs.gov/publirs-dropltJ-11-94.pdf. As Q result ofthis 

re<:rnt 2o:i.ministra,ive rocu!>. many tribal !CIlde~ arc coocemed that IRS m!dits of mba I programs 

are likely ro illcrwse, along witl! potential Inx withholG.lng and repon:ng burdens Imp'lSd on 

tribal gDV<.lrnffienlS, 

Notwithstanding IRS stntenlents to the <:ontrary, NeAl belleves that the [RS actions m auditing 

lribal govcrnmenL~ Ol1lhelr soclnl welfare and otler governmental programs are clearlY nat 

comparable to IRS treatment ofstatc and local gowrnments. There is no evidence that any 

similar-audit initiative cxims for stllt~ und loeul government programs. In addition to he<lring 

testimony rrom the fRS at this hearing, NCAI wtuld Uke to invit\l t.le Senate Committee on 

!!ldiUl". Affair.; lind Its stdfm req'JeS. tbat t!:e IRS make available. to Coogress. in n detailed 

rep<lrt, the nt/mber of examinations, and the f:JeilS of those exHro.!na'lons, wbieh aro. condllCted on 

tribal gOv=1mental Prob'!llIm!. 

As Is, Indian tribes are united iu the belief that the IRS is micromanaging the j"lwgrnms and 

services they OlIn providll to their members. This has cuu~ed uprollT duoughout Indi .. n CuunLry, 

and the Tre~5ury Deptlrlmcnt is currently developin!:! gu!dance to assist in preventing furlhcr 

damage to lrib~l programs-
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Taxation of Trust a.II.IL.1:~ ResoUI"('e!l 

U;]til recently it wns possib!eto believe that the IRS was only misg(licic!l in its dea1i(tg.~ witlt 

tribeS", a:Jo.! that ~w regulations or ~I]idu!lcc miGht fix tr.e problem. But this year the IRS has 

shOWIl tbe d~ptfui ofits bias in a new attacK()1I tk federal trust re~poll5ibHity. Income that is 

derived directly from Indian trust land, sllch 3S illcome"from farming O£t!mher, has never been 

subjected to fcdc:al taxatiOil. Reserved triballar.ds are the results oftr(l!ltics and IlnT«:ments 

where Indian tribes traded the millions of square miIeslhal make up the United States and in 

return received a promis~ to forever hold the reservoo lands in trust lIS a homcland for Indian 

people. The treaties nevoc cQun\onanccd that the Unlted Stale~ would get billions of acres o[ 

ceded land, and then come back to take athir!l of the illcome derived from reserved tribal lands. 

This propoo:.:d eh~nge in poHcyvioJ.:rtes federul1aw, tribal troaty rights, and the federal tm!>!: 

!:csponsiliility. further, It tl!rll3ten~ to unoormiM the pellding lribal trnst fund ser.lemen!5 that 

fhe Obama Admillistralio:m has W{lrkcd so diligently to achieve. Tne timing "flile ms effort - t\l 

attempt til chll!lgll tm: law reganlillg taxability ofu"J.;St funds at precisely the lime whclllhe 

United States is finally making partial oompens~tioo for many-decades oflrust fimds 

mismanagemenl- raises the implication ofuofair dealing. We urge that the IRS Ce.1~'" i!~ ~fTorts 

to collecl taxcs 00 distributions from tribal trust funds. nod that the Departments of Treasury and 

InteriO£ CIlgage in eOnolllbltiQn to address tbis attempted chango;: in policy. Plea.le:lee our 

attaclred letters on thw topic. 

Background 

in l1lc<mt years the ms hilS in!dated a brood auG!, Clmlpaign against an !n<linn tribal 

governments. Indian tribes have objected to tt.c discriminalory naturevfthe filldltCllmplign, and 

havequestiomlrl the approach that the IRS hIlS tu·(en with issues such a:> lribal tax l*cmpt bonds 

and the application of the Ocn~ml Welfare Doctrine. Mo~t recently, !.he IRS has emhnrked on an 

eVCJllllon: I.Ji~lu,.l!I!lg drOIt to tM pcr capita paymc"t$ mnclc to tribat member:; from tru!i\ funds. 

Per capita paym~nts from triballms! funds arc spedficatlyexohtdoo from both iCderaJ and sttl~ 

taxes nndertl1e P~r CapitaAcl ofl!lSJ, 25 U.S.C. 117a_! 17c.. Long before 1983, this tn;.: 

excluskm existed in federal law OOCllllS\l it is derived from Indian treaties and the federal trust 

responsib1lity. The~e are five pri::.ciple scur<:e~ ,"Ohis longstanding legal doctrine. 

1. Indian TreMWs lllld the Federal TrlstRespolIslbility 

First, under the Indian treaties, Indian tribes eeded millions ofucres orland to which tbey held 

Utle - worth untold tril1ioll~ 10 tbe United States. In return, certain lands were reS';:.fVed fur the 

tribes, generally witb langllag,c sucb as "[or the exclusive use and bendit" ofth" tribe".,r band of 

Indians. Tribal lands are held in trust or reslrict~d stntns by the United States [orlhe benefit of 

the tribes, and Mve never been subject to propCKy taxes or taxes on tbe income deriv!)d from 
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those lands. It is impossible to conccive (hat the signatories ofindian treaties understood that the 

United Slales would tax revenues derived from Indian trust lands. 

2. Sljuire v. Capoemlln and the 1957lnwrior Solititor's Opinion 

Second, the tax exempt status ofrndian mIst funds was confirmed in the Supreme Court decision 

of Squire v. CapDeman in 1956. In 1957. the rRS attempted to lax Interior's payment of par 

c~pita dislribulions of tribal trust Hinds derived from timber on the Yakama Reservation. In the 

attaohed Soli1::itor's Opinion, the Interior Solicitor's office concluded: 

To apply those trust funds, or a portioll thereof, by tuxation for the benefit oflhe United 

States, in lieu of applying such funds for the benefit of the tribal memb~r~ who arc the 

communal owners ofsueh fnnds in trust for them by the tribe, which is an instrumentality 

of the Federal Government, would, In my opinion, violate the provisions ofthe treaty 

reserving to the Indian rights in property for which Ih~ funds have bc~n substituted. In 

th~ words of the Supreme Court in the Caooeman case quoting from the Attorney 

Genern!'~ opinion in a situation where there was no statutory basis for exemption "it is 

lIot lightly to be assumed that Congress intended to tax the ward for the benelil of the 

guardian." 

[n 1957, in tile Illee of opposition from the Secretary ofInterior, the Bure~u of Internal Revenue 

retr~ated from its clTorts to tax per capita payments oftriba! trust ftmds. 

3. Per Capita Act of 1983 

Third, in 1983, Indian tribes requested that Congress provide authority to mako per capilli 

payments oftrilxtl trust funds directly from tribal accounts, rather than from the fedenll trust 

ae<:ount. This authority was provided in the Per Capita Act, which repealed an earlier slatutc 

requiring that such payments be made by an offieer of the United States. (Congressional 

Committee reports attached.) In the Act, Congress confirmed the continuing tax exemption of 

these trust fund payments by slating that such paymcnts arc subject to 25 U.S.C. 1407, titled 

"Tax Exemption; Resources Exemption LImitation," which provides in pertinenl part: 

None oflhe fnnds which - (I) arc distributed per capita or held in trust pursuant to a plan 

approved under the provisions of this chapter , .. includinJ;l: all interest accrued ou such 

funds during any period in which such funds nre held in a minor's tmst, including all 

interest and investment income accrued thereon while such funds are so held in trust, 

shun be subject to Federal or State income taxes .... (empha5i5 added). 

TheIRS contends thallhis explicit e.wmption from taxation is "ronnd nbouf' and "obtuse" 

beClluse Congress nsed a cross·reference to another statute. If this were a principle ofSlaLutory 

interpretation, a significant portion of the United States Code would be rendered usel~ss. 
86

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Instead, the most fundamental principle of construction is that stamtc:s must be interpreted 

according their plain meaning. Here, the language artax exemption is unambiguous. 

4. IndIan Gaming Regulatory' Act aod Per Capita Payments 

Fourth, the Indian Gaming Regul31(lry Act of 1988 provided that per capita payments nom 

Indian gaming are taxable and Indian tribes must withhold federal taxes nom such payments. 

This provision oflGRA was provided 00 distinguish gnming per capita payments nom trust per 

capita payments. Both Senate {Report 99-4-93, p. 15} and House (Report 99·188) reports contain 

the following statement: 

[subsection (b) of Section II ofHRI920] further states that, if the funds are used to 

mak~ per capila payments 10 tribal members, such payments will be ~ubjcctlo Federal 

taxation. II is not intended that this be lhe case irany ofsllch revenue is taken into trust 

by the United States, in which case the provisions of the Act of August2, 1983 (97 Stnt. 

365) [the Per Capltn Act] would be applicable. 

'j hL~ statement indicates tllat in 19l!5,just three years after its passage, Congress construed the 

Per CnpilaAcl 10 exempt from taxation all percapitapaymrmts derived from Inlst funds. 

5. Longstanding Administrative Practice 

Fifth, !lfId finally, since at least the 1950's the Department of Interior has made per capita 

payments from tribal trust funds, has not reported them as income for federal tax purposes, and 

has vigorously defended their tax exempt 3talus. Th~ Interior regulations at 25 C.F.R. 115 Were 

revised in 2000 and continued to provide procedures for making \hes<:: payments without 

provision for tax reporting. Many federal and state aseneics (HHS, SSA, B1A, Legal Services 

Corporlllion, eL al.) have interpreted the Per Capita Act to require them not to count per capita 

payments held In trust as an assel or resource. (See, c.g., SSA (20 CFR Part 415, 59 FR 8536); 

HUD, 55 foR 29905.) These agency regulations interpret thc Pcr Cnpita Act uniformly to extend 

the provisions of25 U,S.C. 1407 to fund~ &rived from lriballrllst resources. The IRS Ims 

conducted tax compliance reviel\fS with many Indian tribes over the decades, and we know of no 

time other than 1957 when the issue was raised. Previously, the rRS publicized its position on 

this issue at ils website stating thllt per capita distributions are exempt from federal income tax 

"when there am distributions from trust principal lind income held by the Secretary oflnterior." 

TIle IRS recently removed this instruction from its website. 

COlicIusioll 

Federal agencies have a responsibility to respect Ihe Italu~ orlndi~n trib>tl govcrnmc:n\1; ulI\ler Ihe 

U.S. Constitution, treaties, and the federal laws passed by Congress under its authority over 

Indian arrair~. The m.S has chosen 00 disregard Ihis responsibility, and Instead is using its 

authorities to conduct an audit cxpedition against every Indian tribe in the country and 

undermine tribnl governmeats through exceedingly narrow and myopic interpretations of 

longstanding federa!laws and legal doctrines. NCAIthanks Congress for their oversight and 

vigorous action to address our concerns on these critically important issues.