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PER CAPITA ACT AND FEDERAL 

TREATMENT OF TRUST PER 

CAPITA DISTRIBUTIONS 

OVERSIGHT HEARING 

BEFORE THE

SUBCOMMITTEE ON INDIAN AND 

ALASKA NATIVE AFFAIRS 

OF THE

COMMITTEE ON NATURAL RESOURCES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

Friday, September 14, 2012 

Serial No. 112–130 

Printed for the use of the Committee on Natural Resources 

( 

Available via the World Wide Web: http://www.fdsys.gov 

or 

Committee address: http://naturalresources.house.gov 
(II) 

COMMITTEE ON NATURAL RESOURCES 

DOC HASTINGS, WA, Chairman 

EDWARD J. MARKEY, MA, Ranking Democratic Member 

Don Young, AK 

John J. Duncan, Jr., TN 

Louie Gohmert, TX 

Rob Bishop, UT 

Doug Lamborn, CO 

Robert J. Wittman, VA 

Paul C. Broun, GA 

John Fleming, LA 

Mike Coffman, CO 

Tom McClintock, CA 

Glenn Thompson, PA 

Jeff Denham, CA 

Dan Benishek, MI 

David Rivera, FL 

Jeff Duncan, SC 

Scott R. Tipton, CO 

Paul A. Gosar, AZ 

Rau ́l R. Labrador, ID 

Kristi L. Noem, SD 

Steve Southerland, II, FL 

Bill Flores, TX 

Andy Harris, MD 

Jeffrey M. Landry, LA 

Jon Runyan, NJ 

Bill Johnson, OH 

Mark E. Amodei, NV 

Dale E. Kildee, MI 

Peter A. DeFazio, OR 

Eni F. H. Faleomavaega, AS 

Frank Pallone, Jr., NJ 

Grace F. Napolitano, CA 

Rush D. Holt, NJ 

Rau ́l M. Grijalva, AZ 

Madeleine Z. Bordallo, GU 

Jim Costa, CA 

Dan Boren, OK 

Gregorio Kilili Camacho Sablan, CNMI 

Martin Heinrich, NM 

Ben Ray Luja ́n, NM 

Betty Sutton, OH 

Niki Tsongas, MA 

Pedro R. Pierluisi, PR 

John Garamendi, CA 

Colleen W. Hanabusa, HI 

Paul Tonko, NY 

Vacancy 

Todd Young, Chief of Staff 

Lisa Pittman, Chief Counsel 

Jeffrey Duncan, Democratic Staff Director 

David Watkins, Democratic Chief Counsel 

SUBCOMMITTEE ON INDIAN AND ALASKA NATIVE AFFAIRS 

DON YOUNG, AK, Chairman 

BEN RAY LUJA ́ N, NM, Ranking Democratic Member 

Tom McClintock, CA 

Jeff Denham, CA 

Dan Benishek, MI 

Paul A. Gosar, AZ 

Rau ́l R. Labrador, ID 

Kristi L. Noem, SD 

Doc Hastings, WA, ex officio 

Dale E. Kildee, MI 

Eni F. H. Faleomavaega, AS 

Colleen W. Hanabusa, HI 

Rau ́l M. Grijalva, AZ 

Edward J. Markey, MA, ex officio 
(III) 

CONTENTS 

Page 

Hearing held on Friday, September 14, 2012 ........................................................ 1 

Statement of Members: 

Hastings, Hon. Doc, a Representative in Congress from the State of 

Washington .................................................................................................... 7 

Prepared statement of ............................................................................... 8 

Luja ́n, Hon. Ben Ray, a Representative in Congress from the State of 

New Mexico ................................................................................................... 3 

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

Young, Hon. Don, the Representative in Congress for the State of Alaska 1 

Prepared statement of ............................................................................... 2 

Statement of Witnesses: 

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

Internal Revenue Service, U.S. Department of the Treasury ................... 9 

Prepared statement of ............................................................................... 10 

Response to questions submitted for the record ..................................... 12 

Sanchey Yallup, Hon. Athena, Executive Secretary, The Confederated 

Tribes and Bands of the Yakama Nation .................................................... 13 

Prepared statement of ............................................................................... 15 

Memo to the Bureau of Indian Affairs from the Office of the Regional 

Solicitor, dated May 1, 1957 ................................................................. 20 

Sirois, Hon. John E., Chairman, The Confederated Tribes of the Colville 

Reservation .................................................................................................... 28 

Prepared statement of ............................................................................... 29 

Suppah, Hon. Ron, Vice Chairman, Tribal Council of the Confederated 

Tribes of the Warm Springs Reservation of Oregon .................................. 24 

Prepared statement of ............................................................................... 26 

Additional materials supplied: 

National Congress of American Indians, Resolution LNK–12–010 

submitted for the record by The Honorable Ben Ray Luja ́n ..................... 4 

ITG FAQ Answer #2 submitted for the record by The Honorable Ben 

Ray Luja ́n ...................................................................................................... 6 

(1) 

OVERSIGHT HEARING ON ‘‘PER CAPITA ACT 

AND FEDERAL TREATMENT OF TRUST PER 

CAPITA DISTRIBUTIONS.’’ 

Friday, September 14, 2012 

U.S. House of Representatives 

Subcommittee on Indian and Alaska Native Affairs 

Committee on Natural Resources 

Washington, D.C. 

The Subcommittee met, pursuant to call, at 11:00 a.m., in Room 

1324, Longworth House Office Building, Hon. Don Young [Chairman of the Subcommittee] presiding. 

Present: Representatives Young, Noem, Hastings (ex officio), 

Luja ́n, Kildee, Hanabusa. 

STATEMENT OF THE HON. DON YOUNG, A REPRESENTATIVE 

IN CONGRESS FROM THE STATE OF ALASKA 

Mr. YOUNG. The Committee will come to order. I note that a 

quorum is present. 

The Subcommittee on Indian and Alaska Native Affairs is meeting today to hear testimony on the Per Capita Act and Federal 

Treatment of Trust Per Capita Distributions. 

Under Committee rule 4 of opening statements of Members, the 

Chairman, myself, the Ranking Member, or whoever sits in for 

him, we will ask unanimous consent to include the other Members’ 

opening statements if submitted to the clerk by today. 

Today, the Subcommittee will review the Federal Government’s 

controversial tax treatment of nongaming per capita payments distributed by Indian tribes to their enrolled members. Gaming revenues are governed by the Indian Gaming Regulatory Act of 1988 

and are not an issue in this hearing. Under a historical precedent 

case law and a law known as the Per Capita Act, per capita payments for tribes to their members are nontaxable if the funds are 

taken from the accounts held in trust by the Department of the Interior. These funds in turn are derived from the development of 

natural resources on lands held in trust for tribes, among other 

sources. 

To be clear, per capita payments are not government handouts. 

They are benefits that belong to Indians secured under terms negotiated in treaty and statute whereby tribes ceded tens of millions 

of acres of land to the United States. It would be a grave injustice 

to tax revenues originating from lands held for the exclusive use 
2 

and benefit of American Indians who secured their property at 

great cost. 

Today’s hearing was called when the Committee learned that 

several tribes received troubling notices from the IRS. The IRS notified the tribes that enrolled members receiving per capita payments from tribes’ trust accounts were taxable. The taxability of 

such benefits appears to be unprecedented. It drastically affects the 

special terms of statutes of recognized tribes, a matter of which 

this Committee has jurisdiction. 

At the same time that tribes are wrestling with this new unauthorized tax liability, the IRS last week issued a public notice declaring that per capita payments from the private accounts of 55 

tribes are not taxable. These are tribes that recently settled their 

trust mismanagement lawsuits with the Obama Administration, a 

settlement proceeding called the Settlement Proposal of the Obama 

Administration, or SPOA. 

While the United States should not tax tribal settlement funds, 

the IRS guidance regarding SPOA funds is most curious. It is clear 

that the Per Capita Act protects tribal funds from taxation when 

they are in trust accounts. It does not protect funds held in private 

nontrust accounts. This begs a question: Why would the IRS tax 

tribal payments derived from trust resources when granting tax relief for payments derived from nontrust accounts? This, to me, 

makes no sense; and it creates the perception that something political has occurred in the Department of the Treasury; and that 

would be very, very unfortunate. 

I maintain that none of the funds I have described should be taxable, but the IRS must explain why it thinks certain trust payments are taxable while the private ones are not. The Committee 

is interested in ensuring that congressional intent is correct and 

followed under the Per Capita Act. 

I look forward to hearing from my witnesses, and now I will recognize my late Ranking Member for an opening statement. 

[The prepared statement of Mr. Young follows:] 

Statement of The Honorable Don Young, Chairman, 

Subcommittee on Indian and Alaska Native Affairs 

Today the Subcommittee will review the Federal government’s controversial tax 

treatment of non-gaming per capita payments distributed by Indian tribes to their 

enrolled members. Gaming revenues are governed by the Indian Gaming Regulatory 

Act of 1988 and are not at issue in this hearing. 

Under historical precedent, case law, and a statute known as the Per Capita Act, 

per capita payments from tribes to their members are not taxable if the funds are 

taken from accounts held in trust by the Department of the Interior. These funds 

in turn are derived from the development of natural resources on lands held in trust 

for tribes, among other sources. 

To be clear, these per capita payments are not government hand-outs. They are 

benefits that belong to Indians, secured under terms negotiated in treaty and statute whereby tribes ceded tens of millions of acres of land to the United States. 

It would be a grave injustice to tax revenues originating from lands held for the 

exclusive use and benefit of American Indians, who secured their property at a great 

cost. 

Today’s hearing was called when the Committee learned that several tribes received troubling notices from the IRS. The IRS notified the tribes that enrolled 

members receiving per capita payments from the tribes’ trust accounts are taxable. 

The taxability of such benefits appears to be unprecedented. It drastically affects 

the special status of recognized tribes, a matter over which this Committee has jurisdiction. 
3 

At the same time that tribes are wrestling with this new, unauthorized tax liability, the IRS last week issued a public notice declaring that per capita payments 

from the private accounts of 55 tribes are not taxable. These are tribes that recently 

settled their trust mismanagement lawsuits with the Obama Administration, a settlement process called the Settlement Proposal to the Obama Administration, or 

‘‘SPOA.’’ 

While the United States should not tax tribal settlement funds, the IRS guidance 

regarding SPOA funds is most curious. 

It is clear that the Per Capita Act protects tribal funds from taxation when they’re 

in trust accounts. It does not protect funds held in private, non-trust accounts. 

This begs a question: Why would the IRS tax tribal payments derived from trust 

resources, while granting tax relief for payments derived from non-trust accounts? 

This makes no sense, and it creates the perception that something political has 

occurred in the Department of the Treasury. 

I believe that none of the funds I’ve described should be taxable, but the IRS must 

explain why it thinks certain trust payments are taxable while the private ones are 

not. I look forward to hearing more about these issues from our witnesses today, 

and hope to explore solutions to ensure the Per Capita Act is implemented as intended by Congress. 

STATEMENT OF THE HON. BEN RAY LUJA ́ N, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW MEXICO 

Mr. LUJA ́ N. Thank you very much, Mr. Chairman. 

Tribal governments, like State and local entities, are not subject 

to Federal taxation. Tribal trust lands reserved for the beneficial 

use of Indian tribes by the United States are similarly not subject 

to Federal taxation. 

The tax-exempt status of tribes and their trust land is grounded 

in Indian treaties and the trust responsibility, but individual 

Indians are taxed on their personal incomes subject to limited exceptions. For decades, the IRS has treated income derived from 

natural resources on tribal trust land which is then distributed on 

a per capita basis from trust accounts as immune from Federal taxation. 

Tribal leadership, however, has recently reported an increase in 

efforts by the IRS to tax per capita payments made to tribal members from trust funds derived from trust resources, despite what 

tribes argue is clear statutory authority under the Per Capita Act 

to prohibit treatment of such funds as taxable income. 

The National Congress of American Indians passed a resolution 

rejecting the IRS’ alleged efforts and urging the IRS and the Department of the Treasury to cease these efforts immediately. And, 

Mr. Chairman, I would ask for unanimous consent to enter the National Congress of American Indian Resolution LNK–12–010 into 

the record. 

Mr. YOUNG. Without objection, so ordered. 

Mr. LUJA ́ N. Thank you, Mr. Chairman. 

[The National Congress of American Indian Resolution 

LNK–12–010 follows:] 
4 
5 

Mr. LUJA ́ N. I am pleased that the IRS has been called to testify 

today to answer questions about taxation of per capita income derived from such resources for the record; and I would like to hear 

exactly how it treats per capita income derived from trust resources 

and, if there has been a change in its practice, the legal basis upon 

which it is basing such practice. 

I am concerned that the IRS is not communicating with Indian 

country as effectively as it should and that tribal tax policies are 

not being conveyed with uniformity and that this is contributing to 

ambiguity in the field. 

Let me be clear: As a matter of Federal Indian tax policy based 

on over a century of treaties, respect for tribal sovereignty and empowerment of tribe self-determination, funds derived from trust resources that are distributed on a per capita basis to individual 

Indians cannot and should not be subject to Federal tax. If the IRS 

is engaged or intends to engage in efforts to tax per capita distributions, as our tribal witnesses today will testify, it should cease such 

efforts immediately. 

Also, I understand the IRS has issued guidance that clarifies 

that per capita payments from settlement of tribal trust cases be-
6 

tween the United States and 55 tribes are not subject to Federal 

taxation. This guidance is most welcome. It is now beyond dispute 

that these payments should be tax exempt as they originated as 

damages in part as a result of the Federal Government’s mismanagement of tribal trust accounts. 

This hearing will inform us as legislators in Congress about 

whether the Per Capita Act should be clarified to make express 

that per capita income derived from trust resources and issued 

from tribal accounts is not subject to Federal taxation. 

I look forward to the testimony, and I yield back. 

[The prepared statement of Mr. Luja ́n follows:] 

Statement of The Honorable Ben R. Luja ́n, Ranking Member, 

Subcommittee on Indian and Alaska Native Affairs 

Thank you, Mr. Chairman. 

Tribal governments, like state and local entities, are not subject to federal taxation. Tribal trust lands, reserved for the beneficial use of Indian tribes by the 

United States, are similarly not subject to federal taxation. The tax exempt status 

of tribes and their trust lands is grounded in Indian treaties and the trust responsibility. But individual Indians are taxed on their personal income subject to limited 

exceptions. 

For decades, the IRS has treated income derived from natural resources on tribal 

trust land, which is then distributed on a per capita basis from trust accounts, as 

immune from federal taxation. 

Tribal leadership, however, has recently reported an increase in efforts by the IRS 

to tax per capita payments made to tribal members from trust funds derived from 

trust resources, despite what tribes argue is clear statutory authority under the Per 

Capita Act to prohibit treatment of such funds as taxable income. 

The National Congress of American Indians passed a resolution rejecting the IRS’ 

alleged efforts and urging the IRS and the Department of the Treasury to cease 

these efforts immediately. 

I’m pleased that the IRS has been called to testify today to answer questions 

about taxation of per capita income derived from trust resources for the record. I’d 

like to hear exactly how it treats per capita income derived from trust resources 

and, if there has been a change in its practice, the legal basis on which it is basing 

such practice. 

I’m concerned that the IRS is not communicating with Indian country as effectively as it should, and that tribal tax policies are not being conveyed with uniformity and that this is contributing to ambiguity in the field. 

Let me be clear: as a matter of federal Indian tax policy based on over a century 

of treaties, respect for tribal sovereignty, and empowerment of tribal self-determination, funds derived from trust resources that are distributed on a per capita basis 

to individual Indians cannot and should not be subject to federal tax. If the IRS has 

engaged, or intends to engage, in efforts to tax per capita distributions, as our tribal 

witnesses today will testify, it should cease such efforts immediately. 

Also, I understand the IRS has issued guidance that clarifies that per capita payments from settlements of tribal trust cases between the United States and 55 

tribes are not subject to federal taxation. This guidance is most welcome. It is now 

beyond dispute that these payments should be tax exempt, as they originated as 

damages in part as a result of the federal government’s mismanagement of tribal 

trust accounts. 

This hearing will inform us as legislators in Congress about whether the Per Capita Act should be clarified to make express that per capita income derived from trust 

resources and issued from tribal accounts is not subject to federal taxation. I look 

forward to the testimony. 

I yield back. 

Question submitted to the IRS by The Honorable Ben Ray Luja ́n 

ITG FAQ Answer #2: Are any Per Capita Distributions exempt from Federal 

income taxation? 

Yes, when distributions are received resulting from a land claims settlement and 

judgment, and also when there are distributions of trust principal and income held 

by the Secretary of the Interior. 
7 

Mr. YOUNG. I thank the gentleman. 

I will now recognize the Chairman of the full Committee, Doc 

Hastings. 

STATEMENT OF THE HON. DOC HASTINGS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WASHINGTON 

Mr. HASTINGS. Thank you very much, Mr. Chairman, and thank 

you for scheduling this hearing. 

I want to welcome all three of the tribal witnesses who flew in 

here from the great Pacific Northwest to be with us today. Two of 

the witnesses, Executive Secretary Athena Sanchey Yallup and 

Chairman John Sirois, are representing the Yakama Nation and 

the Colville tribes respectively, and both of these tribes are located 

in eastern Washington. One of them is fully within my district, and 

the other is partially in my district. 

This hearing is needed to clarify ambiguous, potentially conflicting policies of the Obama Administration relating to the Federal Government’s income tax treatment of certain payments made 

by tribes to their enrolled members. It is my understanding that, 

for at least the last 50 years, distributions of per capita payments 

to enrolled tribal members have been considered nontaxable if 

those payments are derived from accounts held in trust by the Department of the Interior. These are accounts for funds from the development of tribes’ trust resources, such as timber specifically in 

my area and from judgments and claims that are deposited. 

However, the IRS has notified several tribes that members receiving per capita payment sourced from trust timber resources are 

now taxable, while the IRS has just issued a new notice declaring 

that certain per capita payments made by 55 tribes from funds in 

private accounts are not taxable. These funds in these accounts are 

derived from a recent tribal trust lawsuit settlement with the 

Obama Administration. The discrepancy in the treatment of these 

payments is a source of great uncertainty to tribes everywhere, 

particularly those actively engaged in forest management, a vital 

activity in the Pacific Northwest. 

The IRS policy potentially exposes many impoverished Indian 

people in Washington State to new, unexpected tax liabilities at a 

time of high unemployment and rising energy prices. And the policy seems to turn long-standing Federal principles of Indian law on 

its head. Namely, lands reserved for Indian tribes under treaties, 

acts of Congress, and Executive Orders are meant for the exclusive 

use and for the benefit of tribes. 

In addition, inconsistent and unclear government tax policies always result in economic uncertainty. In the middle of a recession, 

the last thing the tribes need while trying to serve their members 

is more uncertainty with respect to the tax treatment of tribal revenues. So I appreciate very much the Subcommittee holding this 

hearing. 

This was brought to my attention by a casual remark made by 

one tribal member recently, and we looked into it and found this 

is indeed serious. 

I appreciate the Chairman and Ranking Member holding this 

hearing. 

[The prepared statement of Mr. Hastings follows:] 
8 

Statement of The Honorable Doc Hastings, Chairman, 

Committee on Natural Resources 

Thank you, Chairman Young, for scheduling this hearing. I welcome all three tribal witnesses who flew here from the Pacific Northwest to be with us today. Two of 

the witnesses—Executive Secretary Athena Sanchey Yallup and Chairman John 

Sirois are here representing the Yakama Nation and the Colville Tribes, respectively. 

Both of these tribes are located in Eastern Washington, which is an area that I 

have the honor and privilege to represent. 

Mr. Chairman, this hearing is needed to clarify ambiguous and potentially conflicting policies of the Obama Administration relating to the federal government’s 

income tax treatment of certain payments made by tribes to their enrolled members. 

It is my understanding that for at least the last 50 years, distributions of per capita payments to enrolled tribal members have been considered non-taxable if those 

payments are derived from accounts held in trust by the Department of the Interior. 

These are accounts where funds from the development of a tribe’s trust resources— 

such as timber—and from judgments and claims are deposited. However, the IRS 

has notified several tribes that members receiving per capita payments sourced from 

trust timber resources are now taxable. 

Meanwhile, the IRS has just issued a new notice declaring that certain per capita 

payments made by 55 tribes from funds in private accounts are not taxable. The 

funds in these accounts are derived from a recent tribal trust lawsuit settlement 

with the Obama Administration. 

The discrepancy in the treatment of these payments is a source of great uncertainty to tribes everywhere, particularly those actively engaged in forest management, a vital activity in the Pacific Northwest sustaining thousands of jobs and driving the economies of many small towns. 

The IRS’s policy potentially exposes many impoverished Indian people in Washington State to new, unexpected tax liabilities in a time of high unemployment and 

rising energy prices. And the policy seems to turn long-standing federal principles 

of Indian law on their head. Namely, lands reserved for Indian tribes under treaties, 

Acts of Congress, and Executive Orders are meant for the exclusive use and benefit 

of tribes. 

In addition, inconsistent or unclear government tax policy always results in economic uncertainty. In the middle of a recession, the last thing that tribes need while 

trying to serve their members is more uncertainty with respect to the tax treatment 

of their tribal revenues. 

I appreciate the Subcommittee clearing the air on this important issue, and look 

forward to hearing ideas for a resolution. 

Mr. YOUNG. I thank the gentleman. 

I will now call the witnesses to the table. 

Christie Jacobs, Director of the Office of Indian Tribal Governments, Internal Revenue Service; Athena Sanchey Yallup, Executive Secretary, the Confederated Tribes and Bands of the Yakama 

Nation; Ron Suppah, Vice Chairman, Tribal Council of the Confederated Tribes of the Warm Springs Reservation of Oregon; and 

John Sirois, Chairman of the Confederated Tribes of the Colville 

Reservation. 

Please take your seats. You are already there. 

I hope you know that your opening statements are 5 minutes. 

Watch the clock in front of you; and if you are doing a great job, 

I may let you go a minute over. But, if not, I am going to shut you 

off anyway. 

The microphones are run by a button in front of you. Make sure 

you push it. 

And I am sure you know what the timing lights do. 

So we will now recognize the first witness, Christie Jacobs from 

Internal Revenue Service. 

You are recognized, Christie. 
9 

STATEMENT OF CHRISTIE J. JACOBS, DIRECTOR, OFFICE OF 

INDIAN TRIBAL GOVERNMENTS, INTERNAL REVENUE 

SERVICE, U.S. DEPARTMENT OF THE TREASURY 

Ms. JACOBS. Good morning, Chairman Young, Ranking Member 

Luja ́n, and members of the Subcommittee. I appreciate the opportunity to be here this morning to discuss the taxation of per capita 

payments made by tribes to their members from proceeds of certain 

settlements or assets held in trust. 

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 court decisions. 

The Office of Indian Tribal Governments within the Internal 

Revenue Service was created in response to a request by tribal 

leaders. The office exists to facilitate the government-to-government relationship and to assist tribes in meeting their Federal tax 

obligations. 

There are two distinct but related issues for discussion today: 

first, per capita payments made by tribes to their members from 

proceeds of certain settlements of tribal trust cases between the 

United States and those Indian tribes; and, second, per capita payments made by tribes to their members from resources held in 

trust by the United States. 

In order to provide context to this discussion, I would like to 

briefly explain the legal principles involved. Section 61 of the Internal Revenue Code, which defines gross income, and the Per Capita 

Act found in title 25 are both relevant to this discussion. 

Section 61(a) of the Internal Revenue Code provides that, except 

as otherwise provided by law, gross income means all income from 

whatever source derived unless a specific exception in the Code applies. Tribal members are citizens of the United States and are 

subject to payment of income taxes unless an express exception, 

like a statute or treaty applies. The Federal courts have applied 

this rule to per capita distributions from trust assets and found 

them subject to tax. However, those cases have not considered the 

application of the Per Capita Act. 

The Per Capita Act, which is codified in title 25, provides authority to Indian tribes to make per capita payments to their members 

out of tribal trust revenue. Under the Per Capita Act, funds held 

in trust by the Secretary of the Interior for an Indian tribe that are 

distributed per capita to members of that tribe may be distributed 

either by the Secretary of the Interior or at the request of the governing body of the tribe and subject to approval by the Secretary 

of the Interior and the tribe. 

The Per Capita Act provides that funds distributed under that 

Act are subject to the provisions of section 1407 of the Indian Tribal Judgment Funds Use or Distribution Act. The funds described 

in that section, and all interest and investment income accrued on 

the funds while held in trust, are not subject to Federal income 

taxes. 

Recently, the United States entered into settlement agreements 

with Federally recognized Indian tribes resolving litigation in 

which the tribes allege that the Department of the Interior and the 

Department of the Treasury mismanaged monetary assets and nat-
10 

ural resources the United States holds in trust for the benefit of 

the tribes. Upon receipt of the settlement proceeds, the tribes will 

dismiss their claims with prejudice. 

The United States foresees the possibility of entering into additional similar agreements in the future with other tribal trust litigants. 

On September 6, 2012, Treasury and the IRS published Notice 

2012–60. The notice concluded that the per capita payments described above are excluded from the tribal members’ gross income. 

Prior to issuing this notice, pursuant to Executive Order 13175, 

we engaged in direct consultation as requested by several tribes 

and tribal organizations. These consultations and conversations 

were extremely useful in preparing the notice. 

The notice applies only to per capita payments from proceeds of 

the settlements that are described in the notice and upon which we 

engaged in consultation with the affected tribes. The issue of per 

capita distributions from trust assets is outside the scope of the notice, but, as stated in the notice, this issue may be addressed in future guidance after further consultation. 

This concludes my testimony this morning, and I would be happy 

to answer any questions you might have. 

Mr. YOUNG. Thank you, Ms. Jacobs. I appreciate that. 

[The prepared statement of Ms. Jacobs follows:] 

Statement of Christie J. Jacobs, Director, 

Office of Indian Tribal Governments, Internal Revenue Service 

Introduction 

Good morning, Chairman Young, Ranking Member Luja ́n, and members of the 

Subcommittee. 

I appreciate the opportunity to be here this morning to discuss the taxation of per 

capita payments made by tribes to their tribal members from proceeds of certain 

settlements or assets held in trust. 

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 

court decisions. The Office of Indian Tribal Governments within the Internal Revenue Service (IRS) was created in response to requests by tribal leaders. The office 

exists to facilitate government-to-government interactions and to assist tribes in 

meeting their Federal tax obligations. 

The Principal Issues 

There are two distinct, but related, issues for discussion today: (1) per capita payments made by tribes to their members from proceeds of certain settlements of tribal trust cases between the United States and those Indian tribes, and (2) per capita 

payments made by tribes to their members from resources held in trust by the 

United States. 

In order to provide context to this discussion, I would like to briefly explain the 

legal principles involved. 

Brief Explanation of Legal Principles 

Section 61(a) of the Internal Revenue Code, which defines gross income, and the 

Per Capita Act (25 U.S.C. § 117a, et. seq.) are both relevant to this discussion. 

Section 61(a) of the Internal Revenue Code provides that, except as otherwise provided by law, gross income is defined as all income from whatever source derived. 

Under § 61, Congress intends to tax all gains and ‘‘undeniable accessions to wealth, 

clearly realized,[] over which taxpayers have complete dominion.’’ Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955). Indians are citizens subject to the payment of income taxes. Squire v. Capoeman, 351 U.S. 1, 6 (1956). An exemption from 

the payment of taxes ‘‘should be clearly expressed.’’ Id. 

Unless an express exception—like a statute, treaty or agreement—applies, the 

general rule is that gross income is all income from whatever source derived. The 

Federal courts have applied this rule to per capita distributions from a tribe to its 
11 

members from trust assets and found them subject to tax. See, e.g., Tonasket v. 

C.I.R., T.C. Memo. 1985–365. However, these cases have not considered the application of the Per Capita Act. 

The Per Capita Act, codified in 25 U.S.C. §§ 117a through 117c, provides authority 

to Indian tribes to make per capita payments to Indians out of tribal trust funds. 

Under the Per Capita Act, funds held in trust by the Secretary of the Interior for 

an Indian tribe that are to be distributed per capita to members of that tribe may 

be distributed by either the Secretary of the Interior or, at the request of the governing body of the tribe and subject to the approval of the Secretary of the Interior, 

the tribe. 

The Per Capita Act provides, in 25 U.S.C. § 117b(a), that funds distributed under 

that Act are subject to the provisions of 25 U.S.C. § 1407 of the Indian Tribal Judgment Funds Use or Distribution Act. Under § 1407, the funds described in that section, and all interest and investment income accrued on the funds while held in 

trust, are not subject to federal income taxes. 

Per Capita Payments from Settlement Proceeds—Notice 2012–60 

Recently, the United States has entered into settlement agreements—and foresees 

the possibility of entering into additional similar agreements in the future with 

other tribal trust litigants—with federally recognized Indian tribes resolving litigation in which the tribes allege that the Department of the Interior and the Department of the Treasury (Treasury) mismanaged monetary assets and natural resources the United States holds in trust for the benefit of the tribes. Upon receipt 

of the settlement proceeds, the tribes will dismiss their claims with prejudice. 

On September 6, 2012, Treasury and the IRS published Notice 2012–60. The notice concluded that the per capita payments described above are excluded from the 

tribal members’ gross incomes. 

The notice applies to per capita payments made from agreements settling trust 

mismanagement claims. The notice states that ’’other per capita payments made by 

the Secretary of the Interior or Indian tribes to members of Indian tribes[,]’’are ‘‘outside the scope of this notice and may be addressed in future guidance.’’ 

Prior to issuing this notice, we engaged in direct consultation as requested by several tribes and other affiliated organizations and in the spirit of Executive Order 

13175. These consultations and conversations were extremely useful in preparing 

the notice. 

Per Capita Payments from Trust Resources 

The notice applies only to per capita payments from proceeds of the settlements 

that are described in the notice and upon which we engaged in consultation with 

affected tribes. The issue of per capita distributions from trust assets is outside the 

scope of the notice, but as stated in the notice, this issue may be addressed in future 

guidance after further consultation. 

This concludes my testimony this morning. I would be happy to answer any questions you might have. 

[The response to questions submitted for the record by 

Ms. Jacobs follows:] 
12 
13 

Mr. YOUNG. Athena, please, Secretary of the Confederated Tribes 

and Bands of the Yakama. 

STATEMENT OF THE HON. ATHENA SANCHEY YALLUP, 

EXECUTIVE SECRETARY, THE CONFEDERATED TRIBES AND 

BANDS OF THE YAKAMA NATION 

Ms. SANCHEY YALLUP. Shix mayfski [speaking in native 

language]. 
14 

Good morning, Chairman Young and members of the Subcommittee. I am honored to be here. I am Athena Sanchey Yallup. 

I am the Executive Secretary for the Yakama Nation, and I would 

like to thank you for this opportunity to testify on behalf of the Per 

Capita Act and Federal Treatment of Trust Per Capita Distributions. 

I also request that my oral and written testimony be made part 

of the record on behalf of the Yakama Nation. 

Mr. YOUNG. Without objection. 

Ms. SANCHEY YALLUP. The Yakama Nation negotiated the treaty 

of 1855 with the U.S. Government with the understanding that the 

rights bestowed to our treaty would be upheld by the supreme laws 

of the land. I have traveled from the land of my people and ancestors to bring your attention to the Internal Revenue Service’s attempt to tax per capita distributions of the Yakama Nation trust 

resources. This is a serious issue that is potentially another broken 

promise of our treaty with the United States, and we cannot sit 

idly by and tolerate the treatment of the Internal Revenue Service. 

The action of attacking trust resources is unprecedented and is 

not supported by Federal law. The Per Capita Act clearly states per 

capita distribution of trust funds are not taxable, and the new IRS 

Notice 2012–60 states mismanagement trust funds are not taxable 

funds either. We know trust resources, funds, or per capita distributions managed properly or mismanaged are not taxable. 

Today we still continue this fight, and we need to maintain for 

our future generations the benefit of our sacred ancestors that our 

trust per capitas are not taxable. We know that the Yakama Nation Reservation and its trust resources are for the exclusive benefit of the Yakama people and not the IRS or any other part of the 

United States. 

We were moved from our homelands along the Columbia River 

so that goods could be provided to the world. We understand that 

dams were built on the Columbia River and its tributaries to enhance the quality of life for the Northwest people. We understand 

housing was built during World War II, but it relocated our people 

from their homes, polluted our waters and fish, and kept us from 

our ancestral lands. 

We understand that the United States has tried to keep our best 

interest through the trust responsibility, but yet we are sitting 

here today again to retain and restore our trust responsibility and 

our rights. 

The Yakama people have adopted and survived many of the policies imposed on them from the United States, such as an allotment 

act, boarding schools, and terminations. My people and I will not 

dishonor the sacrifices of many; and I, as a tribal leader, must 

speak and stand up for the treaty rights and ask why does the U.S. 

and its agencies and staff continue to want more of what we have, 

what my leadership has fought for and maintained through litigation since the time of my treaty. 

We strive to be the strongest tribal nation that adequately serves 

its people. When will the United States—now specifically the IRS— 

have enough of what the Yakamas have before they are satisfied? 

I see my people going without work. I see alcoholism, drug abuse, 

and suicide affecting my people and question the government’s ade-
15 

quate health care. I see the IRS attempting to take more from the 

tribes that have given up so much already. 

Our government tries to fill the voids from the lack of services 

from their Federal Government and create economic development, 

and our tribal governments respect our land and honor the air and 

water. We reinvest our resources to right the wrongs. We are true 

stewards of this land. 

Maybe the United States should give us back the public lands in 

my ceded area. I am sure my people are capable of maintaining the 

lands of the Yakama Nation. 

Again, the IRS’ continued attempt to tax the Yakama trust resources is appalling and disgraceful. My trust resources are not 

taxable. With respect and honor, I request that the Subcommittee 

reaffirm Congress’ intent that the per capita distributions of trust 

resources are not taxable and demand the IRS and the Department 

of the Treasury consult with tribes, as required by Executive Order 

13175. 

Thank you for the time and the opportunity to testify before this 

Subcommittee. 

Mr. YOUNG. Thank you. 

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

Statement of Athena Sanchey Yallup, Executive Secretary of the 

Confederated Tribes and Bands of the Yakama Nation 

Shix mayfski. Chairman Young, honored Subcommittee members, I would like to 

thank you for the opportunity to testify regarding the ‘‘Per Capita Act and Federal 

Treatment of Trust Per Capita Distributions.’’ I ask that my oral and written testimonies be placed on the record on behalf of the enrolled members of the Confederated Tribes and Bands of the Yakama Nation. 

My name is Athena Sanchey Yallup, and I serve as the Executive Secretary of 

the Yakama Nation Tribal Council. I have lived on the Yakama Reservation—where 

my ancestors have lived since time immemorial—for my entire life. I have worked 

for my tribal government for more than 25 years, and have served my people as an 

elected official since 2006. Today, I have travelled from the land of my people to 

speak on behalf of the 10,400 enrolled members of the Yakama Nation to bring to 

your attention the Internal Revenue Service’s (‘‘IRS’’) attempts to tax per capita distributions of the Yakama Nation’s trust resources. This is a serious issue that affects every single Yakama member, and every Tribe with a reservation that attempts to provide for its own people. Given the gravity of this issue for the Yakama 

Nation and Indian Country, we request your assistance by (1) reaffirming Congress’ 

intent that per capita distributions of trust resources are not taxable, and (2) facilitating consultation between the IRS and the Yakama Nation. 

I respectfully submit the following statement supporting the Yakama Nation’s position that this new federal tax burden is without precedent, without foundation in 

federal law, contrary to the federal trust responsibility, and in violation of the 

Yakama Treaty of 1855. 

BACKGROUND ON YAKAMA NATION AND ITS TRUST RESOURCES 

The creation stories of the Tribes and Bands that were brought together under 

the Treaty of 1855 speak of the creation of the Yakama People within what is now 

the ceded and reservation lands of the Yakama Nation. Anthropological data supports these stories, dating our ancestors’ presence on our lands back more than 

14,000 years. Our people have lived off of these sacred lands for millennia, and were 

nourished by the same resources that the Yakama people cultivate and utilize 

today. Our lands, our resources, and our people have been connected spiritually and 

physically throughout history unlike any relationship understood by Western Civilization. 

In 1855, the Palouse, Piquose, Yakama, Wenatchapam, Klinquit, Oche Chotes, 

Kow way saye ee, Sk’in-pah, Kah-miltpah, Klickitat, Wish ham, See ap cat, Li ay 

was, and Shyik Indians came together to negotiate a treaty with Territorial Governor Isaac Stevens as representative of the United States. Our ancestors gave up 

nearly 10 million acres of land to protect our way of life, including our hunting and 
16 

fishing rights off reservation, and the right to the ‘exclusive use and benefit’ of our 

reservation lands. These reserved rights were memorialized in the Treaty of 1855, 

which outlines the rights that my People granted to the United States, and those 

that were retained for ourselves. Before the Treaty of 1855, the Confederated Tribes 

and Bands exercised our exclusive right to the use and benefit of our lands. The 

Treaty of 1855 explicitly protected that exclusive right so that future Yakamas could 

continue using and benefitting from the Yakama lands. Congress has not acted to 

divest the Yakama Nation of that right. Now, in what is a blatant attack on the 

sovereignty of the Yakama Nation, the IRS is attempting to do what Congress has 

not, by divesting the Yakama Nation of our right to the exclusive use and benefit 

of our lands. 

On June 29, 2010, the IRS sent a letter to Chairman Harry Smiskin announcing 

an audit of the Yakama Nation for fiscal year 2008. Although the Yakama Nation 

defended all IRS tax matters, the audit has subsequently been expanded to include 

fiscal years 2009, 2010, and 2011 with respect to the Yakama Nation trust per capita distributions. This audit represents yet another attempt by the United States 

Government to tax our per capita distributions of our trust resources. Originally, 

the United States Department of the Interior (‘‘DOI’’) issued an opinion to the IRS 

in 1957, which clearly states that distributions of our trust resources are not to be 

taxed. From 1957 to 1983, when the Per Capita Act was passed, the Bureau of Indian Affairs (‘‘BIA’’) made distributions of our trust resources to our members without any tax consequence. In all these years that the federal government administered trust distributions, no tax forms were given to the Yakama people. From 1983 

until 2010, the Yakama Nation made per capita distributions of trust resources 

under authority of the Per Capita Act without tax consequence to our members— 

just as our trustee did for over 20 years. The IRS even stated on its website that 

such distributions were not taxable as recently as November 2011. There have been 

no changes in the law. There have been no changes in Congressional policy. We are 

struggling to understand why the IRS has decided to directly contradict such explicit legislation and established federal policy. 

The trust resources that the IRS claims to be taxable income are derived from 

forest management activities within the Yakama reservation, which provide essential benefits to the Yakama Nation and its people. These activities employ more 

than 500 enrolled Yakama members each year, the proceeds of which support the 

Tribal Government and members through semi-annual per capita distributions. 

These distributions are never more than a few hundred dollars, but this amount 

helps our members pay for basic necessities such as food, clothing, and electricity. 

These practices are in line with the Federal Government’s Indian policy of self-determination, which is meant to help the Yakama Nation provide for and support 

itself with limited federal assistance and interference. We are using our resources 

to provide basic governmental services, jobs, and economic security for our members. 

This is what self-determination looks like. But, we cannot hope to realize self-sufficiency when the Federal Government seeks to find new ways to hinder our progress 

at every turn. Our ancestors protected the lands of the Yakama People for our exclusive use and benefit, and we will not dishonor them by allowing the IRS to disregard the Treaty of 1855 by reaching into our protected forests to take our timber 

in the form of a tax. 

Therefore, we ask that this Subcommittee acknowledge the rights reserved to the 

Yakama Nation in the Treaty of 1855 by reaffirming its intention that our trust resources are exempt from federal taxation, and by compelling the IRS to consult with 

the Yakama Nation on a government-to-government basis regarding this dramatic 

shift in federal policy. 

PER CAPITA ACT 

The Per Capita Act, which is the Congressional authority the Yakamas (and other 

Tribes) rely upon, was passed in 1983 to provide a legal mechanism for Indian 

Tribe’s to assume responsibility for distributing their trust resources to tribal members. In practice, the legislation merely changed the name of the issuing agency on 

the per capita check from the ‘Federal Government’ to the ‘Indian Tribe’. But, in 

doing so, the Federal Government reaffirmed its position that such distributions of 

trust resources are not taxable. The IRS seems blind to this position, despite the 

explicit language of the Per Capita Act and its legislative history, which support our 

position that the Yakama Nation’s per capita distributions of trust resources are not 

taxable. 

The explicit language of the Per Capita Act states that per capita distributions 

of trust resources under the Per Capita Act are not taxable. Specifically, 25 U.S.C. 

§ 117a provides that the Per Capita Act governs per capita distributions of resources 

held in trust by the Federal Government on behalf of Tribes. Section 117b, which 
17 

is entitled ‘‘Previous contracted obligations; tax exemption,’’ states that distributions 

made under the Act, including distributions made pursuant to § 117a, are 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 or State taxes. 

The legislative history of the Per Capita Act further supports our position 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 from 

taxation. For instance, when identifying the specific exceptions to taxation for 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 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. Clearly, Congress understands § 117b to exempt per capita distributions 

of trust funds from federal taxation. 

Given such explicit statutory language, and such a clear expression of Congress’ 

legislative intent, we are left to conclude that the IRS’s attempts to tax our trust 

resources are simply a disingenuous money grab that our People can ill afford to 

handle in this economic climate. Again we ask that you reaffirm Congress’ position 

that our trust resources are not taxable, and urge the IRS to consult with the 

Yakama Nation on a government-to-government basis to explain their harmful and 

unprecedented actions. 

TRUST RESOURCE MISMANAGEMENT SETTLEMENTS 

On September 6, 2012, the IRS issued Notice 2012–60 entitled ‘‘Per Capita Payments from Proceeds of Settlements of Indian Tribal Trust Cases.’’ This Notice expressly excluded all per capita payments of trust funds derived from United StatesTribal resource mismanagement settlements, but failed to extend this tax exclusion 

to the per capita distributions of trust resources. Apparently, the Department of the 

Treasury thought that Notice 2012–60 resolved the trust resources issue in its entirety, making this Oversight Hearing moot. Although the IRS Notice appropriately 

does not tax settlements related to trust resource mismanagement, its analysis does 

not reach its logical conclusion: that per capita distributions of trust resources are 

not taxable. 

Notice 2012–60 cites to the 25 U.S.C. § 1407’s cross-reference in the Per Capita 

Act stating that ‘‘funds distributed under 25 U.S.C. § 117a are subject to the provisions of 25 U.S.C. § 1407.’’ The IRS is using the Per Capita Act to justify its position 

that trust mismanagement settlement funds distributed per capita are not taxable. 

Where we fail to follow the IRS’s analysis is where it doesn’t extend this reasoning 

to our trust resources. Why is the Yakama Nation going to enjoy tax-free distributions of timber revenues earned 25 years ago, but not enjoy tax-free distributions 

of timber extracted today? The law has not changed. The trees being cut today are 

no different than the trees cut for the last 75 years. 

Adding to our confusion is the IRS’s reliance on the ‘origin of the claim’ doctrine. 

The origin of the claim doctrine traces the settlement recovery back to the source 

of the claim to determine its tax status. In this case, the source is ‘‘mismanaged 

trust accounts, lands, and natural resources . . . the United States holds in trust 

for the benefit of the tribes.’’ The only word in that sentence that distinguishes the 

trust resources at issue in our case from trust resources covered by the trust settlements is ‘mismanaged’. To follow this difference to its logical conclusion, if the 

Yakama Nation were to continue to have its trust resources mismanaged by the 

United States, our trust resources would not be taxable. But, if our trust resources 

are not mismanaged by the United States, our resources are taxable. Such a proposition is so absurd that I am embarrassed to have to present it to this Subcommittee, but here we are. 

To resolve this dispute once and for all, we request that this Subcommittee reaffirm Congress’ intent to exclude our per capita distributions of trust resources from 
18 

tax, and to push the IRS and the Department of Treasury to consult with the 

Yakama Nation on a government-to-government basis. 

RESOURCE EXCLUSION FOR FEDERAL BENEFITS DETERMINATION 

The impact of the IRS’s policy change is not limited in its impact to the final 

amount of taxable income on our members’ tax filings. Rather, this policy change 

will directly affect our members’ eligibility for the federal benefits that they rely 

upon so heavily. Following the Per Capita Act, federal agencies responsible for establishing an American citizen’s income for the purposes of determining federal benefits issued regulations excluding per capita distributions of trust resources from income. In essence, the agencies determined that such tax-exempt income should also 

be exempted from federal income determinations. The IRS’s new policy would force 

the Department of Interior, Department of Health and Human Services, Department of Housing and Urban Development, Social Security Administration, Department of Education, and the Department of Agriculture to start counting per capita 

distributions of trust resources as income. Such a change in policy is not supported 

by congressional intent, and would have an extremely detrimental effect on the 

Yakama People. 

First, following the passage of the Per Capita Act in 1983, Congress stated that 

per capita distributions of trust resources should not be counted as income for the 

purpose of determining eligibility for federal benefits. In particular, Congress interpreted 25 U.S.C. § 1407’s tax exclusion language to exclude per capita distributions 

of trust resources from income determinations for federal benefits as well. 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 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. Not only does this language represent evidence of Congress’ intent to extend the tax exemption language of § 1407 

to trust funds; further, it extends the income exemption language from § 1407 to per 

capita distributions of trust funds. The language could not be any clearer. 

Second, this Subcommittee should take a moment to consider the implications of 

the IRS’s new policy—that trust resources should be taxable, and therefore includable as income for federal benefit determinations—on the Yakama Nation and its 

People. The Yakama People are rich in our traditions and our culture, but we are 

financially destitute. Our people are forced to make decisions that the more fortunate among us will never have to make. Should you pay for heat during the winter, 

or warm winter clothes? Should you buy food for your family, or medicine for your 

sick? Now the IRS wants us to answer yet another question. Should Yakama members take their per capita distribution and risk losing their federal benefits, or keep 

their federal benefits and reject their per capita distribution? Our trust resources 

are protected by federal Treaty, federal law, and federal common law. The IRS’ policy change does not promote self-determination and perversely requires poor tribal 

members to pass on tribal resources to avoid taxation. The IRS’ policy change also 

corrupts the trustee relationship by profiting from trust resources of the beneficiary. 

We are forced by the blatant attacks of the IRS to ask that this Subcommittee 

provide yet another statement that our trust resources are not taxable, and are not 

to be included in income determinations for federal benefits. What more can the 

Yakama Nation do to ensure that the Federal Government leaves our trust resources alone! 

CONSULTATION 

Adding insult to injury, the Yakama Nation has requested, in writing, government-to-government consultations from the Department of Treasury and the IRS on 

their changed taxation policies regarding per capita distributions of trust resources, 

and neither Agency has so much as answered our requests. When the Yakama Nation was asked to speak before the Senate Committee on Indian Affairs on June 14, 

2012, I sat before Chairman Akaka and the esteemed members of the Committee— 

on the same panel with the IRS and Treasury—and we again requested consultation 

with the IRS and Treasury. Again, we heard nothing. In July 2012, the Yakama Nation requested consultation with the Department of Treasury, the Department of the 

Interior, Senators, Congressman, and the President of the United States. Chairman 

Young and Congressman Hastings quickly acted to set up a hearing before this Sub-
19 

committee—for which we are extremely grateful—but we have yet to receive a response from the agencies responsible for creating such uncertainty for our People. 

The Federal Government owes a trust responsibility to Tribes that contemplates 

consultation, and President Obama memorialized that duty in Executive Order 

13175. 

Executive Order 13175, reaffirmed by President Barack Obama on November 5, 

2009, requires federal agencies to consult on a government-to-government basis with 

Indian Tribes on matters that have tribal implications. The term ‘tribal implications’ 

includes policy actions that have substantial direct effects on an Indian Tribe. 

Should IRS’s interpretation of the Per Capita Act become accepted federal policy, 

there will be direct and immediate effects on my People. The taxation of our timber 

trust resources, which are protected by the inherent sovereignty of the Yakama Nation, the Treaty of 1855, and federal law, would require our members to further decrease their standard of living. Furthermore, the Treaty of 1855 guarantees the 

Yakama Nation the right to bring its grievances before the President of the United 

States, which my People have understood to be an explicit consultation right. Because the contemplated changes in IRS’s interpretation of the Per Capita Act will 

directly impact the Yakama Nation and the Yakama People, and under the Treaty 

of 1855, the Yakama Nation reiterates its request on the record for meaningful government-to-government consultation with the Department of Treasury and the IRS. 

We ask that this Subcommittee urge the IRS and the Department of Treasury to 

consult with the Yakama Nation on a government-to-government basis as is required by the Federal trust responsibility towards Indian Tribes, and Executive 

Order 13175. 

CONCLUSION 

Based upon the Treaty of 1855, the Per Capita Act of 1983, the language of IRS 

Notice 2012–60, and the historical treatment of the Yakama Nation’s trust resources, per capita distributions of our trust resources are not taxable. The Treaty 

of 1855 reserves to the Yakama People the right to the exclusive use and benefit 

of our lands, which does not contemplate the IRS taking 1⁄3 of every tree cut down 

on the Yakama Reservation in the form of a tax. The Per Capita Act’s express language and legislative history support our interpretation that per capita distributions 

of trust resources are not taxable. The IRS’s Notice 2012–60 uses the Per Capita 

Act to justify its conclusion that distributions from settlement funds meant to compensate Tribes for trust mismanagement are not taxable, but the same analysis is 

not extended to our trust funds because they don’t seem to be mismanaged? Such 

an analysis is absurd. Finally, the federal government and the Yakama Nation have 

been distributing per capita the Yakama Nation’s trust resources for nearly 75 years 

without taxing them. I must ask a simple question: why now? 

On behalf of the Yakama Nation, I respectfully request that this Subcommittee 

(1) reaffirm Congress’ intent that per capita distributions of trust resources are not 

taxable, and (2) to facilitate consultation between the IRS and the Yakama Nation. 

Thank you for giving the Yakama Nation a voice on this extremely important 

issue. 

Kwtanushash chitkwi. 

[A memo to the Bureau of Indian Affairs from the Office of the 

Regional Solicitor, dated May 1, 1957, follows:] 
20 
21 
22 
23 
24 

Mr. YOUNG. Ron Suppah. 

STATEMENT OF THE HON. RON SUPPAH, VICE CHAIRMAN, 

TRIBAL COUNCIL OF THE CONFEDERATED TRIBES OF THE 

WARM SPRINGS RESERVATION OF OREGON 

Mr. SUPPAH. Good morning, Chairman Young and honorable 

members of the Subcommittee. My name is Ron Suppah, and I am 

Vice Chairman of the Warm Springs Tribal Council in Oregon. 

Thank you for asking Warm Springs to share its recent experience 

with the Internal Revenue Service and its efforts to tax the very 

modest distribution of revenue made to our tribal members from 

tribal trust resources. 

Warm Springs is a timber tribe; and for nearly 60 years the tribe 

has made periodic and very small payments to our tribal members 

from the revenue, called stumpage, generated by the sale of timber 

from our reservation’s forests. Our reservation is 98 percent trust 

land. So the revenue from the sale of tribal timber, our principal 

trust resource, is paid to the Department of the Interior and held 

in a trust account for the benefit of the tribe. 

Payments from the tribe’s trust account go to all enrolled members in equal amounts and are, therefore, called per capita payments. While they are modest in size, 60 percent of the people living on the Warm Springs Reservation are unemployed. So these 

payments are very meaningful. 

The tribe has always regarded these trust per capita payments 

to our tribal members as nontaxable. Let me give you five clear 

reasons why: 

The first is our 1855 treaty with the U.S. Government where our 

tribe ceded 10 million acres of land worth untold trillions of dollars 

to the United States. In return, certain lands were reserved for our 

tribe with the language ‘‘for the exclusive use and benefit of the 
25 

tribe.’’ It is clear that our land and income directly from our land 

cannot be taxed by the United States. 

Second, the 1956 U.S. Supreme Court decision called Squire v. 

Capoeman ruled that timber stumpage payments made to a tribal 

member from these trust allotments were not subject to taxation. 

Third, a Department of the Interior Solicitor’s Office opinion the 

following year, 1957, concluded that the principle of Squire v. 

Capoeman applied to timber stumpage payments from the tribal 

trust timberlands, not just allotments. 

Fourth, Congress squarely protected the nontaxable nature of 

tribal trust per capita payments when it passed the Per Capita Act 

in 1983. Committee staff from that time tell us that they always 

regarded trust per capita payments as nontaxable. To enshrine 

that understanding, section two of the 1983 Per Capita Act makes 

crystal clear that trust per capita payments, even if made by the 

tribes rather than by the government, would remain tax exempt. 

Fifth, this matter is settled law to everyone except the IRS. 

Cohen’s Handbook of Indian Law, for example, states that trust per 

capita payments are nontaxable and cites the 1983 Per Capita Act. 

Imagine our surprise when the Internal Revenue office in Portland, Oregon, advised us in March of this year that the IRS now 

regarded our trust per capita payments as taxable. They asked for 

the names and addresses of all of our enrolled members, apparently so the IRS could audit their tax returns and claim additional 

tax owed on their Warm Springs trust per capita payments. Of 

course, we refused to provide that information. 

The IRS put their new position in writing. Let me quote the IRS 

April 20, 2012, letter to Warm Springs: ‘‘The IRS position is that 

per capita to members are taxable when they are sourced in timber 

revenues from unallotted tribal lands held in trust.’’ 

This is a reversal of nearly 60 years of IRS practice. We have 

been trying to consult with the Treasury Department, the Interior 

Department, the White House as well as the IRS. Initially, IRS and 

Treasury told us they could not consult with the tribes because we 

were under a tax examination or audit. However, we have joined 

with the National Congress of American Indians and have had 

some limited meetings with government officials, although the 

issue remains unresolved. 

Last week’s Treasury Department guidance on the tax status of 

recent settlements with tribes is a step in the right direction. In 

fact, Treasury relied on the 1983 Per Capita Act to conclude that 

per capita payments from the recent settlements were nontaxable. 

Let me quote the guidance language: ‘‘Consequently, for Federal 

income tax purposes, per capita payments that an Indian tribe 

makes from the tribe’s tribal trust case settlement proceeds are 

treated the same as per capita payments from funds held in trust 

by the Secretary of the Interior under the Per Capita Act.’’ 

This statement does everything but flat-out declare that trust per 

capita payments under the Per Capita Act, such as the Warm 

Springs tribal stumpage payments, are nontaxable. So why didn’t 

last week’s guidance clearly state that the Per Capita Act exempts 

from taxation all tribal trust per capita payments regardless of 

whether such payments are made by the tribes or by the govern-
26 

ment? As things now stand, however, the Warm Springs tribe’s 

disputes continue with the IRS, and this issue remains unresolved. 

Mr. Chairman, this Subcommittee is the legislative body that 

originated the Per Capita Act in 1983. We urge you to reaffirm 

your legislative intent and communicate it to the IRS. We believe 

such instructions to the IRS may very well resolve this matter once 

and for all. 

I thank you. 

Mr. YOUNG. I thank you, Ron. 

[The prepared statement of Mr. Suppah follows:] 

Statement of Ron Suppah, Vice Chairman, Tribal Council, 

Confederated Tribes of the Warm Springs Reservation of Oregon 

Good morning, Chairman Young and honorable members of the Subcommittee. 

My name is Ron Suppah, and I am Vice Chairman of the Warm Springs Tribal 

Council, which is the governing body of the Confederated Tribes of the Warm 

Springs Reservation of Oregon (‘‘Warm Springs’’ or the ‘‘Tribe’’). 

I am here today to testify regarding the recent experience of our Tribe with efforts 

by the Internal Revenue Service to tax the very modest distributions of revenue 

made to our tribal members from the utilization of our tribal trust resources. 

As background, you should know that Warm Springs is a timber tribe and for 

nearly sixty years the Tribe has made periodic and very small payments to our tribal members from the revenue—called stumpage—generated by the sale of timber 

from our Reservation’s forests. Our Reservation is 98 percent trust land, so the revenue from the sale of tribal timber, our principal trust resource, is paid to the Department of Interior and held in a trust account for the benefit of the Tribe. Payments from the Tribe’s trust account go to all enrolled members in equal amounts 

and are therefore called ‘‘per capita payments.’’ 

The Tribe has always regarded these trust per capita payments to our tribal 

members as non-taxable. In the 1956, a U.S. Supreme Court decision called Squire 

v. Capoeman ruled that timber stumpage payments made to a tribal member from 

his trust allotment were not subject to taxation. A Department of Interior Solicitor 

Office opinion the following year concluded that the principle of Squire v. Capoeman 

applied to timber stumpage payments from tribal trust timberlands, not just allotments. 

If there had been any uncertainty about the non-taxable nature of tribal trust per 

capita payments, Congress resolved the issue when it passed the Per Capita Act in 

1983 (Public Law 98–64, 25 U.S.C. §§ 117a–c). In fact, the House version of this legislation originated in this Committee. According to Frank Duchenaux, the now retired Committee counsel who drafted the 1983 legislation and Committee report 

(House Report 98–230), the purpose of the Act was to provide tribes with the option 

to make trust per capita payments directly to their members on tribal checks rather 

than continue to have the Bureau of Indian Affairs make the payments on Treasury 

Department checks. The Treasury checks had become a source of misunderstanding 

with many non-Indian businesses cashing the checks believing they represented a 

government ‘‘hand out’’, rather than the tribal members’ own money generated from 

the utilization of tribally owned trust resources. 

Mr. Duchenaux recently explained that he and Committee staff had always regarded trust per capita payments as non-taxable. However, he feared that allowing 

tribes to make the trust per capita payments themselves, rather than continuing to 

have the Government make the payments, might cause the IRS and state revenue 

agencies to question whether the payments were somehow now taxable. To guard 

against that mistaken interpretation, Mr. Duchenaux included language in Section 

2 of the 1983 Per Capita Act making it clear that trust per capita payments under 

the 1983 Act, even if made by the tribes rather than by the Government, would 

have the same tax exempt status as payments made under Section 1407 of the Indian Tribal Judgment Funds Use or Distribution Act (25 U.S.C. §§ 1401–1408). The 

cross-reference to the tax exemption for payments made under the other Indian legislation was intended to clarify that all trust per capita payments under the 1983 

Act were accorded the same treatment as distributions of Indian claims judgment 

and settlement funds. Importantly, the cross reference to Section 1407 also meant 

that trust per capita distributions under the Per Capita Act would not count as income or resources for determining eligibility for Social Security Act programs or 

other federally funded needs-based programs. 
27 

As I stated earlier, Warm Springs has long believed that the non-taxable nature 

of trust per capita payments was settled law. In fact, our Tribal Attorney showed 

us where the leading compilation of ‘‘black letter’’ Indian law, Cohen’s Handbook of 

Federal Indian Law, states that trust per capita payments are non-taxable and cites 

the 1983 Per Capita Act. So, we were very much surprised when the Internal Revenue Office in Portland, Oregon advised us in March of this year that the IRS now 

regarded our trust per capita payments as taxable. They asked for the names and 

addresses of all our enrolled members, apparently so the IRS could audit their tax 

returns and claim additional tax owned on their Warm Springs trust per capita payments. Of course, we have refused to provide this information. 

Since the IRS told us of their new position, which we believe is a reversal of nearly 60 years of IRS practice, we have been trying to consult with the Treasury Department, the Interior Department and the White House, as well as the IRS. Initially, IRS and Treasury told us they could not consult with the Tribe because we 

were under a tax ‘‘examination’’ or ‘‘audit’’. However, we have joined with the National Congress of American Indians and have had some limited meetings with Government officials, although the issue remains unresolved. 

As you know, last week the Treasury Department issued a Notice of guidance (Notice 2012–60) regarding the federal income tax treatment of ‘‘Per Capita Payments 

from Proceeds of Settlements of Indian Tribal Trust Cases’’. This guidance resolved 

an issue related to, but separate from, our trust per capita issue. The guidance 

made the welcome announcement that per capita payments from 55 recent tribal 

trust claims settlements were non-taxable, even though the payments were not 

made under the Indian Tribal Judgment Funds Use or Distribution Act and, in most 

cases, were not made from tribal trust accounts. 

Last week’s guidance is a step in the right direction, and the Notice contains language that is supportive of our interpretation of the 1983 Per Capita Act. In particular, we were happy to see that the Notice referred to the 1983 House Report 

on the Per Capita Act, ‘‘. . . which provides that per capita distributions of tribal 

trust revenue ‘shall be subject to the provisions of [25 U.S.C. § 1407] with respect 

to tax exemptions’ ’’. Our legal arguments to the IRS have pointed to the same language in the House Report to support our position that the Per Capita Act confirmed the tax exempt status of trust per capita payments under the Per Capita Act. 

We were also pleased to see that last week’s Notice of guidance relied on the 1983 

Per Capita Act to conclude that per capita payments from the recent settlements 

were non-taxable. Let me quote the Notice language: ‘‘Consequently, for federal income tax purposes, per capita payments that an Indian tribe makes from the tribe’s 

Tribal Trust case settlement proceeds are treated the same as per capita payments from funds held in trust by the Secretary of the Interior under [the 

Per Capita Act].’’ (Emphasis added). 

In our mind, this statement from last week’s guidance on the recent settlements 

does everything but flat out declare that trust per capita payments under the Per 

Capita Act, such as the Warm Springs tribal timber stumpage payments, are nontaxable. In fact, the guidance uses the same statutory cross reference technique as 

the Per Capita Act (which cross references Section 1407 of the Indian Tribal Judgment Funds Use or Distribution Act) to declare payments from the trust settlements 

as non-taxable. 

Our disappointment, however, is that last week’s guidance did not go far enough. 

In a section called ‘‘Limitation’’, the Notice of guidance declared that it ‘‘. . . applies 

only to per capita payments from proceeds on the Tribal Trust case settlements 

. . .’’ Our issue, which is the tax treatment of other per capita payments made by 

the Secretary of the Interior or Indian tribes to members of Indian tribes, is declared to be ‘‘. . . outside the scope of this notice . . .’’ 

Why didn’t last week’s guidance clearly state that the Per Capita Act exempts 

from taxation all tribal trust per capita payments, regardless of whether such payments are made by the tribes or by the Government? We don’t know. By failing to 

make such a statement, however, the guidance falls short. Accordingly, as things 

now stand, the Warm Springs Tribe’s dispute with the IRS continues and the issue 

remains unresolved. 

We urge this Subcommittee, as the legislative body that originated the Per Capita 

Act in 1983, to communicate to the IRS the Committee’s clear legislative intent in 

the 1983 Act to confirm the tax exempt status of trust per capita payments, made 

either by the tribes or by the Government. We believe such instruction to the IRS 

may very well resolve this matter once and for all. 

We appreciate this Subcommittee’s leadership in this specific matter and urge 

your continued leadership and consideration of other Indian tax matters such as: 

tribes’ ability to access tax-free financing on par with all other governmental entities; exemptions for tribes’ general welfare assistance to their members, and parity 
28 

for tribal pension programs; issues which Warm Springs the National Congress of 

American Indians are working to resolve. 

Thank you. 

Mr. YOUNG. John Sirois, please. 

STATEMENT OF THE HON. JOHN E. SIROIS, CHAIRMAN, THE 

CONFEDERATED TRIBES OF THE COLVILLE RESERVATION 

Mr. SIROIS. [speaking Okanagan Salish.] 

Good afternoon, Chairman Young—— 

Mr. YOUNG. Before you go on, both of you addressed me in your 

language. And I hope you said, ‘‘Good morning. Thank you for the 

hearing.’’ If you said something else, I have an interpreter behind 

me who is going to tell me what you said. But go ahead. 

Mr. SIROIS. Yes, Chairman. I said, ‘‘Good day and thank you for 

being here and listening to our hearts. Because we come here 

speaking from our hearts, sharing with you these things.’’ 

Mr. YOUNG. That makes me feel better. 

Mr. SIROIS. So my name is John Sirois. I am the Chairman of 

the Colville Business Council, the governing body of the Colville 

Indian Reservation. On behalf of the Colville tribes, I appreciate 

this opportunity to testify on the Per Capita Act and the Federal 

treatment of trust per capita distributions. 

Just to give you an idea about us, the Colville Reservation is located in North Central Washington, and it is about the size of the 

State of Delaware. About two-thirds of our reservation is covered 

in forested lands, commercial timberlands; and timber sales and 

forest products have traditionally been our primary source of employment and revenue to fund tribal governmental programs. 

About half of our 9,500 enrolled citizens live on or near the Colville 

Reservation. 

For decades, there has been a bright line that per capita distributions from funds held in tribal trust accounts are not taxable. 

The Colville tribes are concerned by reports that the IRS has called 

into question the Per Capita Act as a valid income tax exemption 

for per capita distributions from trust accounts. 

I have three key points I would like to make today. 

First, trust funds have always been treated as nontaxable. It has 

long been common knowledge in Indian country that the surest 

way to protect per capita distributions from taxation is to distribute the funds from a trust account. 

As my written testimony explains, the Per Capita Act on its face 

provides that per capita distributions from tribal trust accounts are 

tax exempt. Historically, the Colville tribes have made modest per 

capita distributions from our timber sales to our tribal citizens. We 

have always made sure that these were distributed from a tribal 

trust account. 

Other Federal agencies have also considered per capita distributions from tribal trust funds as tax exempt. Over the years, the 

Colville tribes have worked closely with the Office of Special Trustee to make sure that our trust resource revenues would be accepted 

in the tribal trust accounts. 

Second, Colville tribes negotiated to secure settlement funds in 

the trust. Colville was one of several dozen tribes to settle its trust 
29 

mismanagement claims against the United States this past spring. 

It was because of the Per Capita Act and the tax exempt treatment 

of trust per capitas that we insisted that funds from our trust settlement be held in trust. The United States did not want to keep 

any funds in trust because it did not want to be liable for mismanaging these funds in the future. We had to bargain for this provision because we knew that our tribal citizens would expect at least 

some of the settlement to be distributed per capita. We wanted to 

ensure that these funds would not be taxable. 

Let me be very clear: We made our intent to protect these funds 

from taxation painstakingly clear in our negotiations. All of the 

government lawyers involved understood this, and the government 

recognized that there was a tax value to the tribes—especially us— 

in having funds deposited into a trust account rather than a private account. 

The Treasury Department was a defendant in our case, and 

Treasury lawyers participated in our negotiations. After the settlements were publicly announced in April, it turned out that we were 

one of a very small number of settling tribes to negotiate to secure 

any settlement funds in the trust. 

As tribal communities around the country began learning about 

the tribe’s settlements and demanding per capita distributions, the 

tax status of the settlements took center stage at Treasury and the 

IRS. This led Treasury and the IRS to issue their September 6 notice. That notice treats settlement of per capita distributions from 

nontrust accounts the same as distributions from trust accounts. 

Third, Treasury and the IRS should issue new guidance on the 

Per Capita Act. Colville and other tribes have relied on the longstanding treatment of the Per Capita Act as a tax exemption for 

decades, as have other Federal agencies. And, as I have mentioned, 

even during our settlement negotiations the government recognized 

the tax value to tribes in having settlement funds deposited into 

trust accounts for per capita distributions. 

In closing, the Colville tribes believe that Treasury and the IRS 

should issue new guidance that the Per Capita Act provides a tax 

exemption for all per capita distributions from tribal trust accounts. If they do not consider the Per Capita Act a valid tax exemption for all per capita distributions from tribal trust accounts, 

this position simply cannot be reconciled with the September 6 notice. 

This concludes my testimony. 

[speaking Okanagan Salish.] 

At this time, I would be happy to answer any questions that the 

members of the Subcommittee may have. 

[The prepared statement of Mr. Sirois follows:] 

Statement of The Honorable John E. Sirois, Chairman, 

The Confederated Tribes of the Colville Reservation 

Good afternoon Chairman Young, Ranking Member Luja ́n, and members of the 

Subcommittee. On behalf of the Confederated Tribes of the Colville Reservation 

(‘‘Colville Tribes’’ or the ‘‘Tribes’’), I appreciate the opportunity to testify today on 

the Per Capita Act and on the federal treatment of trust per capita distributions. 

My name is John Sirois, and I am the Chairman of the Colville Business Council, 

which is the governing body of the Colville Tribes. 

For decades, there has existed a bright line—per capita distributions from funds 

held in tribal trust accounts are not taxable. The Colville Tribes is concerned by re-
30 

ports that the Internal Revenue Service (‘‘IRS’’) has called the Per Capita Act into 

question as a valid income tax exemption for per capita distributions from tribal 

trust accounts. We find this even more curious in light of the recent notice issued 

by the Treasury Department and the IRS that per capita distributions from the dozens of tribal trust settlements announced earlier this year are tax exempt, even if 

they were distributed from private, non-trust accounts. 

The Colville Tribes hopes that this hearing will provide some needed sunlight on 

this issue, and that Treasury and the IRS will issue new guidance that unequivocally states that the Per Capita Act constitutes an express tax exemption for all 

funds distributed per capita from tribal trust accounts. 

Background on the Colville Tribes 

Although now considered a single Indian tribe, the Confederated Tribes of the 

Colville Reservation is, as the name states, a confederation of 12 aboriginal tribes 

and bands from across eastern Washington State. The Colville Tribes has more than 

9,400 enrolled members, making it one of the largest Indian tribes in the Pacific 

Northwest. About half of the Colville Tribes’ members live on or near the Colville 

Reservation. 

The Colville Reservation encompasses more than 1.4 million acres, of which approximately 66 percent is commercial forest land. Although the Colville Tribes has 

diversified into several lines of business, it has traditionally relied on timber sales 

and its forest products industries as primary sources of employment and revenue 

to fund tribal government programs. 

The Colville Tribes owns a traditional sawmill, Colville Indian Precision Pine 

(‘‘CIPP’’), and a plywood manufacturing facility, Colville Indian Power and Veneer 

(‘‘CIPV’’). Both of these facilities are located in Omak, Washington. The downturn 

in the housing market forced the Colville Tribes to make the difficult decision to 

close CIPP in 2009 and CIPV in 2010 until market conditions improve. Closure of 

those facilities resulted in the loss of nearly 400 jobs, not including secondary jobs 

such as contract loggers and truck drivers that the facilities supported. These facilities remain closed. 

Prior to the market downturn, the Colville Tribes had been able to utilize revenue 

from its timber sales to provide tribal members with modest per capita payments. 

The Tribes typically made two distributions in August and December to coincide 

with the back-to-school and holiday seasons, respectively. 

The Per Capita Act and Historical Tax Treatment of Per Capita Distributions from Tribal Trust Accounts 

The Per Capita Act (25 U.S.C. §§ 117a–117c) was signed into law in 1983 and allows the Secretary of the Interior or Indian tribes to distribute per capita payments 

from tribal trust accounts. The Per Capita Act explicitly states that funds that are 

distributed from tribal trust funds under the Act are subject to one particular section (25 U.S.C. § 1407) of a separate federal law called the Indian Tribal Judgment 

Funds Use or Distribution Act (‘‘UDA’’). Section 1407 of the UDA provides that per 

capita distributions subject to the UDA are not subject to state or local taxation, 

and up to $2,000 is excluded from determining eligibility for certain federal or federally assisted programs. When read together, the Per Capita Act and the UDA operate to treat those funds distributed per capita from tribal trust accounts as tax exempt to the recipient. 

By its terms, the Per Capita Act applies only to funds distributed per capita from 

tribal trust accounts and does not extend any benefits or protection to funds distributed per capita by tribes from private, non-trust accounts. The Department of the 

Interior (‘‘DOI’’), through the Office of the Special Trustee (‘‘OST’’), will only accept 

certain funds for deposit into trust accounts under its regulations. Examples of 

funds that can be so deposited include proceeds from timber sales, payments from 

leases or other encumbrances of Indian land, and funds ‘‘derived directly’’ from trust 

lands or trust resources when paid directly the Secretary, among others. 

For decades, the IRS has not considered per capita distributions from tribal trust 

accounts as taxable income. Because of this historical treatment and the existence 

of the Per Capita Act, it has long been common knowledge in Indian country that 

the surest way to protect per capita distributions from federal taxation is to distribute funds only from tribal trust accounts. 

In the Colville Tribes’ experience, OST has been and is similarly cognizant of the 

federal tax treatment of funds distributed per capita from tribal trust accounts. The 

Colville Tribes has previously worked cooperatively with OST to demonstrate that 

certain tribal revenues could be deposited in trust under OST regulations. OST evaluates these requests carefully. For example, prior OST officials have informed the 

Colville Tribes that because the Indian Gaming Regulatory Act explicitly provides 
31 

that per capita distributions of gaming revenues are taxable, OST must be very 

careful to ensure that any funds accepted into trust do not include commingled gaming revenue. 

The SPOA Initiative and the Treasury Department’s Notice on Per Capita 

Distributions from the Tribal Trust Settlements 

Earlier this year, the Colville Tribes and several dozen other tribes resolved their 

trust accounting and trust mismanagement claims against the United States 

through an initiative commonly referred to as the ‘‘Settlement Proposal to the 

Obama Administration’’ (‘‘SPOA’’). On April 11, 2012, the Department of Justice 

publicly announced settlements with 41 tribes, including the Colville Tribes. Other 

tribes have reached settlements since then. The Colville Tribes’ $193 million settlement was the largest of the SPOA settlements. 

The United States took the position during the SPOA process that any payments 

to settling tribes must be deposited in private, non-trust accounts. The United 

States also wanted to prohibit DOI and Treasury from ever accepting settlement 

payments into trust accounts at a later date. The United States wanted these provisions to ensure that it would not be liable for mismanaging settlement funds in the 

future. 

The Colville Tribes had to negotiate to secure provisions in its settlement agreement to keep a portion of its settlement payment ($38.6 million) in a trust account 

instead of in a private, non-trust account as the United States wanted. The Colville 

Tribes bargained for this provision knowing that its tribal membership would expect 

at least some of the Tribes’ settlement to be distributed per capita and to shield 

those funds from federal taxation. Our representatives made these points clear during the negotiations, and the government lawyers acknowledged our rationale for 

doing so. Because the Department of Treasury was a defendant in the Tribes’ lawsuit, lawyers from Treasury participated in our negotiations as well. 

After the SPOA settlements were publicly announced on April 11, it turned out 

that the Colville Tribes was one of a very small number of settling tribes on that 

list to successfully negotiate to secure any settlement proceeds in a trust account. 

The other tribal settlements had settlement payments deposited into private accounts with the going-forward prohibition on DOI taking them into trust in the future. Of the tribes identified in the April 11 press release, the Colville Tribes’ $38.6 

million was the largest amount to be retained in trust. 

As tribal communities around the country began learning about their tribes’ settlements and began demanding per capita distributions, the tax status of the SPOA 

settlements seemed to take center stage at Treasury and the IRS. The focus on the 

settlement taxation issue diverted resources from other Indian-related issues, such 

as the IRS’s implementation of the Indian provisions of the Affordable Care Act of 

2010. All of this ultimately led Treasury and the IRS to issue Notice 2012–60, ‘‘Per 

Capita Payments from Proceeds of Settlements of Indian Tribal Trust Cases’’ (the 

‘‘Notice’’). 

The Notice acknowledges that most of the SPOA settlements directed the settlement funds to be deposited in private, non-trust accounts. The Notice proceeded, 

however, to state that all per capita payments from the SPOA settlements are treated for federal tax purposes ‘‘the same as per capita payments from funds held in 

trust by the Secretary of the Interior’’ under the Per Capita Act. Although the Notice is not precise on this point, the apparent rationale for this conclusion is that 

the SPOA settlements resolved claims of mismanagement of tribal trust resources. 

The Notice goes on to conclude that interest earned by SPOA settlement proceeds 

while in a private bank account is taxable income when distributed per capita. 

Treasury and the IRS Should Issue New Guidance on the Per Capita Act 

The tax-exempt treatment of per capita distributions from tribal trust accounts 

has always been a bright line in Indian country. In light of the issuance of the Notice, it would be an absurd result if per capita distributions of timber sale or other 

trust resource revenue from tribal trust accounts were now to be considered taxable 

income. Not only have the Colville Tribes and other tribes relied for decades on the 

longstanding treatment of the Per Capita Act as an exemption, but other federal 

agencies such as OST have also recognized this treatment as well. With the 

issuance of the Notice, Treasury and the IRS should take this opportunity to issue 

new guidance that the Per Capita Act provides a tax exemption for all per capita 

distributions from tribal trust accounts. 

To the extent that the IRS has questions or concerns about the types of revenue 

that OST accepts for deposit in trust, OST regulations provide clear guidance. In 

the Colville Tribes’ experience, OST is well-suited to evaluate these requests and 

has been doing so with the tax implications in mind for many years. 
32 

The Colville Tribes appreciates the Subcommittee’s consideration of this testimony. At this time I would be happy to answer any questions that members of the 

Subcommittee may have. 

Mr. YOUNG. I thank the panel. 

And this is one of the poor things about this body right now. We 

do have to go vote. And you are free to go have a cup of coffee, do 

whatever you want to do. We will be back here at about 12:25. 

I do apologize for that. I have no control over that. In the good 

old days, we had proxies, and we could have a good time. But we 

can’t do that anymore. We want to look good in the public’s eye. 

So I do apologize. 

And thank you for your testimony. All of it was good, excellent 

testimony. When we come back, we will finish questioning and continue our discussion and try to solve this problem. 

With that, we are now in recess until 12:25. 

[recess.] 

Mr. YOUNG. The Committee is out of recess. 

I recognize the Ranking Member, Mr. Luja ́n, for questions. 

Mr. LUJA ́ N. Thank you very much, Mr. Chairman. 

Ms. Jacobs, that tribal trust lands are not subject to taxation has 

been settled law for some time. Are trust lands and income derived 

from trust lands which tribes may distribute on a per capita basis 

to their members treated differently for tax purposes? 

Ms. JACOBS. Thank you for that question, Congressman. 

I believe that in this notice about the settlements is the first 

time that the Internal Revenue Service has spoken to the Per Capita Act, which would be the law you refer to that has been in effect 

for some time. And though the notice does not directly address the 

treatment of distributions—per capita distributions under the Per 

Capita Act to tribal members from tribal trust resources, I think 

the legal reasoning underpinning the particular notice we issued 

last week would support that those payments would not be includable as income. 

Mr. LUJA ́ N. For the record, what is the IRS’ practice on the tax 

treatment of per capita distributions from tribal trust incomes of 

income derived from natural resources? 

Ms. JACOBS. Well, Congressman, as I said, we—maybe I need to 

give a little background. It is not an issue that comes up very often 

for us, is my understanding. And, as I said, we have not issued any 

guidance since the Per Capita Act passed in 1983 particularly on 

that topic. So this is the first time we would have addressed that 

at all. 

Mr. LUJA ́ N. In its recent guidance on the tax-exempt status of 

settlement funds, the IRS relied on, I quote, ‘‘the source of funds 

and origins of claims principles in making its determination.’’ Following this logic, shouldn’t per capita income derived from trust resources be similarly tax exempt? 

Ms. JACOBS. Congressman, I think there are two different legal 

principles at work in those questions. For the settlements, we needed to look at the origin of the claim, because we were dealing with 

a settlement issue. For items that are placed in trust that are then 

distributed per capita pursuant to the Per Capita Act, that would 
33 

be really relying solely on the Per Capita Act and not an origin of 

a claim sort of doctrine. 

Mr. LUJA ́ N. Two things I think, Mr. Chairman. 

One, I will ask unanimous consent to submit into the record 

screen shots from the IRS’ website. 

[NOTE: The IRS website screen shots have been retained in the 

Committee’s official files.] 

Mr. LUJA ́ N. Ms. Jacobs, why is there a difference in policy from 

November 18, 2011, to April 3, 2012, which are when these screen 

shots were captured? 

The ITG fact answer and question area asked this question: ‘‘Are 

any per capita distributions exempt from Federal income taxation?’’ 

The IRS on their own answered that question and they stated on 

November 18, 2011, ‘‘Yes, when distributions are received resulting 

from a land claim settlement and judgment and also when there 

are distributions of trust principal and income held by the Secretary of the Interior,’’ which I agree with. 

What the screen shot now says is, ‘‘Yes, distributions of principal 

and interest made from land claim settlements or judgment funds 

that are held in trust by the Secretary of the Interior are not subject to taxation.’’ 

Why was that language taken out? 

Ms. JACOBS. Congressman, I am not aware of there being a 

change on the website. I can look into that. 

I do know there was an effort to simplify questions, and it may 

have been a general part of that. But there was no particular reason I am aware of that one question would have been changed. 

Mr. LUJA ́ N. So it seems to me that is why we are here today. It 

is not to simplify the question. It changes what is tax exempt and 

direction to constituencies. 

I guess also my follow-up questions are: Is there something that 

can be done administratively by the IRS to make it clear that these 

are tax-exempt dollars? Or is legislation needed? 

Ms. JACOBS. Congressman, I think we indicate in the notice that 

further guidance might be issued on the broader issue of income 

from tribal trust assets themselves versus the settlement context. 

We do have the legal reasoning in the notice, and I think it is possible to make some clarifying changes to things administratively 

through guidance as well as changes to the website. The problem 

with the website change is that it is not reliable guidance. We 

would want to do something that people can rely on. 

Mr. LUJA ́ N. And last, Mr. Chairman, if I may, as my time runs 

out, I would hope that if we can do that maybe we can also reissue 

a letter that went out to the Confederated Tribes of the Warm 

Springs Reservation of Oregon dated April 20, 2012, from Mr. Joe 

W. Kincaid in which the closing paragraph states: As noted 

throughout, the IRS position is that per capitas are taxable to 

members when they are sourced in timber revenues from 

unallotted tribal land held in trust. 

If we can do that administratively, I think that that will change 

the direction of what has happened with these tribes as well; and, 

Mr. Chairman, that sure would make things a lot easier, sir. 

Mr. YOUNG. I thank the gentleman. 

The gentlelady from Hawaii. 
34 

Ms. HANABUSA. Thank you, Mr. Chairman. 

Ms. Jacobs, in reading your testimony, I have to tell you I am 

somewhat confused. I am confused in that statement you made on 

page 3 where you were talking about the notice. And it says, 

‘‘Other per capita payments made by the Secretary of the Interior 

for Indian tribes to members of Indian tribes are outside the scope 

of the notice and may be addressed in further guidance.’’ So when 

that notice was made, what do you anticipate as being, one, outside 

the scope of the notice? Are there any examples you can give me? 

And, two, how do you intend to address it in further guidance? 

Ms. JACOBS. Sure. Thank you, Congresswoman, for that question. 

The notice is limited to the settlement context. So it was also a 

subject of extensive consultation with the tribes who are affected 

by the settlements. So we did not address the broader question of 

distributions by tribes from tribal trust assets through the Per 

Capita Act because that would affect a broader group of tribes. We 

would want to consult more broadly. So that would be one of the 

types of items not necessarily covered by this notice. 

In addition, we would probably seek to do that through a different form of guidance, which generally takes a longer period of 

time, something we call a revenue ruling or a revenue procedure. 

So those would be the types of payments that we would say were 

beyond the scope of the guidance. But, as I have said before, I believe that the legal underpinnings of the rationale of the notice 

would apply to the sort of payments we are talking about, per capita distributions pursuant to the Per Capita Act from tribal trust 

resources. 

Ms. HANABUSA. So am I understanding you correctly that, one, 

the fact that the asset is a trust asset—in other words, they are 

tribal assets but held in trust—at the point that the per capita distribution may be made that it does not mean that could not, I 

guess, rise to the level of a taxable event? That is something that 

you are still going to be looking at? Am I hearing you correctly? 

Ms. JACOBS. Congresswoman, I think that we are saying in the 

notice that the Per Capita Act—if we are talking about distributions of tribally held versus individually held—tribally held trust 

assets, those distributions are subject to the Per Capita Act and 

would not be taxable. There might be instances where tribes are 

using income from a trust asset and making a payment that is not 

a per capita payment under the Per Capita Act, so that conceivably 

could be something that would be taxable. But every case would be 

looked at separately for the facts relating to that. 

Ms. HANABUSA. So taking that discussion further, if, for example, 

an individual files a lawsuit and the settlement is reached—common language that we are using here—and as a result of that settlement it becomes ‘‘tribal assets’’—in other words, it doesn’t designate you in particular. This isn’t for Ms. Jacobs. This is for the 

tribe—that you believe, given this notice, I would assume then that 

would not lead to a taxable event for any kind of per capita distribution as a result of that settlement. Would I be correct in that 

assumption? 

Ms. JACOBS. Well, Congresswoman, if what we are talking about 

is the—we would have to look at what the origin of the claim was. 

And if the settlement was of a trust fund case, this notice indicates 
35 

that payments from those settlements are not subject to tax because of the nature of the origin of the claim. 

Ms. HANABUSA. So it almost seems like what this notice is saying 

to tribal members or to tribes themselves is do not bring anything 

in terms of an individual right but you must bring things in terms 

of—something that may enhance the concept of their Indian country interests that the Interior is going to administer as trust property. Because, other than that, we are going to tax you. 

Ms. JACOBS. Congresswoman, I don’t believe that is the intent of 

the notice. The notice did not address individual trust suits. Those 

would have to be considered separately. We addressed in the notice 

the tribal trust cases only and the tax consequences of those cases. 

Ms. HANABUSA. But by the caveat at the end that says this is all 

that this applies to, you are almost by innuendo telling them or 

telegraphing to the tribes that if it is brought in, in any other form 

other than for tribal assets, you stand the jeopardy or you stand 

the risk that it will give rise to a per capita tax issue. That would 

be the plain reading of this, wouldn’t it? 

Ms. JACOBS. Congresswoman, I believe other statutes would 

apply to individual Indian trust litigation. I do not believe we intended any more in the notice than to solely address these cases 

and the settlements from them. And that language limiting it is 

meant to indicate that this notice is limited to those cases which 

are listed at the end and for which we anticipate approximately 10 

to 11 more to be added to that list. 

Ms. HANABUSA. Of trust assets that will be exempt from taxation? 

Ms. JACOBS. Congresswoman, the addition to the list would be— 

there are approximately 11 more settlements that we expect that 

are similar to the 55 we list in the notice, and those would be exempt under the reasoning of this notice. 

Ms. HANABUSA. Mr. Chair, I will yield back. 

Mr. YOUNG. Thank you. And, if you wish, we will have a second 

round. 

Kristi, you are up. 

Mrs. NOEM. Thank you, Mr. Chairman. 

And to Director Jacobs, I just wanted to ask you for a little bit 

of clarification on some of that discussion that you had as well. But 

the notice that you are referring to, is that the Notice 2012–60? 

Ms. JACOBS. Yes. 

Mrs. NOEM. OK. The specific question I have is how that treats 

specific income that would come in from timber leases or grazing 

leases, income from a trust asset. What is your policy on taxing 

that type of income as it relates to tribes? 

Ms. JACOBS. Well, Congresswoman, as we have discussed, the notice itself does not directly address those sorts of payments. That 

is per capita payments under the Per Capita Act from tribal trust 

assets. But the legal analysis applied in the notice to the payments 

that are made through the settlement would, I believe, support a 

position that those payments would not be subject to tax. 

Mrs. NOEM. OK. So when you are looking at each of these instances, is there quite a bit of judgment that needs to be utilized 

in each individual specific case by the IRS when they are deciding 

whether to tax or not to tax this income type? 
36 

Ms. JACOBS. Well, Congresswoman, in the audit context, things 

do become very factual. So if we are speaking in terms of a specific 

matter, then, of course, we do look to see whether, in fact, it is 

something made under the Per Capita Act, for example, or to verify 

whatever the payment might be in a general context. If you take 

a deduction on your return, we would look at whether or not we 

have documentation for it, that sort of thing. 

So, in that way, it would be specific. But we do not have any specific effort to look for these payments or to bring this issue to bear, 

and I think we are trying to issue general guidance so that people 

can have more clarity on particularly these settlements. And, as we 

have indicated, we would need to do that in the future for the 

broader question. 

Mrs. NOEM. Some of your previous testimony that was given over 

on the Senate side, it appeared that some of the conversation was 

trying to get clarification on what the policy really was, that there 

was no new policy was what your testimony had said but yet there 

was never a clear definition of what the policy actually was. So if 

you wanted the opportunity to clarify what that would be today, I 

would certainly appreciate it. 

Ms. JACOBS. Well, thank you, Congresswoman. 

I think in the notice we are trying to indicate that we do want 

to consult further with tribes on the issue of the tax treatment of 

tribal trust assets, as referred to in the Per Capita Act. But the 

legal analysis in the notice would indicate that those are not subject to tax. I do think we need to have more conversations with the 

tribes. That is the legal analysis. 

Mrs. NOEM. Thank you. I appreciate that. 

With that, Mr. Chairman, I yield back. 

Mr. YOUNG. I thank the good lady. 

Mr. Luja ́n, would you like to pursue another question? 

Mr. LUJA ́ N. Mr. Chairman, thank you so much. 

Director, just a quick follow-up. I appreciate the line of questioning as well. I know the IRS will not comment on individual audits or pending actions. However, I would like to know why we are 

hearing reports from tribal leaders testifying today that IRS action 

in the field is not consistent with existing tax policy. 

Ms. JACOBS. Thank you very much for that question, Congressman. 

Let me confirm that I cannot speak to the existence of audits as 

well as any specific details of them. But perhaps it would be useful 

if I explain in my experience when guidance comes out what happens were there to be an open audit question. 

Normally what would happen on published guidance which is 

broadly applicable comes out, then any open audit that has that 

issue in it would be evaluated against the guidance; and the position taken in the audit would be brought in line with published position. So that process, as you can imagine, takes a little bit of 

time. The notice has come out only a week ago. So we are very 

early in it becoming public. In fact, it only was able to be posted 

on the website yesterday. So that is the normal process that would 

be evaluated and any audits brought in line with the position. 

Mr. LUJA ́ N. I appreciate that clarification, Director. I think that 

will help shed some light on what we are trying to accomplish here. 
37 

Thank you very much. We look forward to seeing that as well. And, 

again, any other letters or documents that may be resubmitted to 

some of the tribes—namely, the one that I cited from April 20 to 

the Confederated Tribes of the Warm Springs Reservation of Oregon. 

Thank you, Mr. Chairman. 

Mr. YOUNG. Does the gentlelady from Hawaii have some questions? 

Ms. HANABUSA. Yes, Mr. Chairman. 

As you know, there have been tribes that assume that they had, 

I guess, the status until the Carcieri decision came out. Have you 

looked at how that decision is going to affect the issue of when 

their ‘‘income’’ or distributions may be subject to the per capita 

tax? These are tribes that are post-recognized 1934. Have you 

looked at that? 

Ms. JACOBS. Thank you, Congresswoman. No, we have not looked 

at the effects of the Carcieri decision. 

Ms. HANABUSA. Do you expect that the Carcieri decision will 

have an impact on how the IRS views whether or not it will give 

rise to taxable income because of their status post-Carcieri? 

Ms. JACOBS. Congresswoman, I am simply just not prepared to 

answer that question. We have not looked at that and the effect of 

that at all. 

Ms. HANABUSA. Well, let me ask it this way: Has there been any 

consideration or concern on the part of the IRS that that particular 

decision may then change your interpretation of the per capita tax 

for those tribes who are post-1934? 

Ms. JACOBS. No, Congresswoman, I don’t believe that we at the 

IRS have looked at that issue and been concerned. But any of us 

who work in Indian country are generally concerned about the decision and are waiting to see how it will affect any of our agencies. 

Ms. HANABUSA. Has there been any attempt on the IRS’ part to 

differentiate as you issue notices to tribes that are not covered due 

to—well, let’s just say the the post-Carcieri decision tribes. 

Ms. JACOBS. No, Congresswoman. 

Ms. HANABUSA. So, right now, post-1934, a Carcieri decision tribe 

that may be affected by Carcieri is still going to have the benefit 

of the interpretation of this notice as to trust assets? 

Ms. JACOBS. Well, Congresswoman, the issue simply has not 

come up. So if that were an issue, we would have to obviously do 

a legal analysis of whether the decision did have any effect. We 

just have not had that issue. 

Ms. HANABUSA. So let me understand as simply as I can. So 

what this notice basically is now saying is that, for example, if interest income is derived from an asset like revenues from timber, 

that interest income, when it is then given to the members, that 

would give rise to a taxable event? 

Ms. JACOBS. No, Congresswoman. If we are talking about interest earned while the trust asset or the income from the trust asset 

is held in trust—— 

Ms. HANABUSA. Well, what if it is held in a bank account somewhere else? 

Ms. JACOBS. Well, if it is part of one of the settlements that the 

notice is on, I think the settlement makes it clear that once it is 
38 

in a private account the interest amounts would be taxable. And 

that is not a change. That has been the law for quite some time. 

Ms. HANABUSA. But if that interest amount is held in trust, basically would that be some interior account of some sort, that would 

not give rise to a taxable event when that is distributed? 

Ms. JACOBS. Yes, Congresswoman. If the interest is earned while 

the principal amount is held in trust, that interest is not subject 

to income tax. If the interest is earned while the amount is in a 

private account, then the answer is different. 

Ms. HANABUSA. Have you in this discussion looked at the amount 

or the interest rates? Is there a difference between what you would 

get if it is held in trust versus held in a private account? Is there 

a difference in that? 

Ms. JACOBS. Congresswoman, I do not have that information at 

all. We did not look and I do not know what the rates would be. 

Ms. HANABUSA. But definitely if it is held in trust it is not taxable; and if it is not held in trust and returning, say, twice the 

amount that you would have in trust, that would give rise to a taxable event? 

Ms. JACOBS. Yes, Congresswoman. That has been the settled position for some time. 

Ms. HANABUSA. Thank you. 

Thank you, Mr. Chairman. 

Mr. YOUNG. I thank the gentlelady. 

Athena, to your knowledge, what efforts has the IRS made to 

educate tribes about the taxability of per capita trust payments? 

Ms. SANCHEY YALLUP. Thank you, Chairman, for the question. 

The Yakama Nation has never been consulted on the issue of 

that. The Yakama Nation has received a letter stating that the IRS 

wanted to come and audit, and that is basically IRS’ understanding 

of consultation to the Yakama Nation. 

Mr. YOUNG. And, otherwise, they just notified you that they were 

going to audit you? 

Ms. SANCHEY YALLUP. Yes, that is the only thing. 

Mr. YOUNG. That is not proper consultation. 

Ms. SANCHEY YALLUP. No, that is not. 

Mr. YOUNG. In your opinion, has the IRS lived up to the President’s directive to implement Executive Order 13175 regarding the 

Federal agency’s consultation with Indian tribes? 

Ms. SANCHEY YALLUP. Thank you, Chairman, for that question. 

In the Yakama Nation’s opinion, IRS has not lived up to the 

proper Executive Order of consultation with the Confederated 

Tribes and Bands of the Yakama Nation. 

Mr. YOUNG. The letter you received, did it come from Washington, D.C., or from the local office? 

Ms. SANCHEY YALLUP. Chairman, it was received from the Portland office. 

Mr. YOUNG. From the Portland office. 

Ms. SANCHEY YALLUP. Yes. 

Mr. YOUNG. OK. 

All right. Ron, if these per capita trust payments are considered 

taxable income, what impact does it have on your membership eligibility for food stamps, Social Security, and other public assistance? 
39 

Mr. SUPPAH. Thank you for the question. 

Warm Springs, not unlike any other government, has to pay for 

certain services with revenues generated by our enterprises. It 

would have a terrible impact on our tribal membership if those revenues were determined to be taxable, because we are suffering 

from a very severe financial problem at home in our nation. 

Mr. YOUNG. OK. If the IRS doesn’t change its attitude—and I 

hate to ask this because it makes some lawyer some money—are 

you prepared to litigate? 

Mr. SUPPAH. I think in visiting with Colville and Yakama, Warm 

Springs had kind of laid out some steps. 

Number one, our hope is that if this Committee—which is the 

appropriate Committee to make a determination and decision to 

possibly resolve this—would do that today, that would be the greatest news that we could have. 

Second, if that were not to occur and we have to continue this 

battle in addressing this problem from Warm Springs, yes, we are 

preparing for litigation. 

Third, I think that if the Committee would somehow direct IRS 

to honor Executive Order 13175 and consult with the affected 

tribes that would be good. Because I think that, right now, we 

seem to be just poking each other in the eye, and nothing is being 

resolved. We are just kind of talking about each other from across 

the fence. 

Mr. YOUNG. OK. And, John, in your tribe’s settlement, the government agreed to deposit 20 percent of the settlement funds into 

a trust. I take it that is a settlement fund of a big lawsuit, is that 

correct? 

Mr. SIROIS. Yes, Mr. Chairman. 

Mr. YOUNG. OK. Now was there something you had to bargain 

for? Or how did this come about and what did you have to give up? 

Mr. SIROIS. Thank you, Mr. Chairman, for that question. 

In the negotiation process, it was basically clear that we had to 

negotiate for a portion of that settlement being put into trust; and 

all sides clearly knew that we had to bargain for that. Because, 

otherwise, the remainder of the settlement would be taxed, taxable 

income. And that was the assumption and the direction that the 

negotiation team had. 

Mr. YOUNG. Now let me clarify this. You settled—you are one of 

the 55 tribes. 

Mr. SIROIS. That is right. 

Mr. YOUNG. You are one of the few that took the 20 percent and 

put it into the trust—— 

Mr. SIROIS. That is right. 

Mr. YOUNG [continuing]. Because you thought that the remaining 

amount would be taxable income? 

Mr. SIROIS. That is correct. 

Mr. YOUNG. And with their directive they came out and said, 

that is not taxable income—that part of it. But any other income 

from resources that were the original treaty, the original concept 

of your reservation, your nation, was not to be taxable. 

Mr. SIROIS. That is correct. 

Mr. YOUNG. OK. Good. 
40 

All right. Christie, I am a little confused. Where did this idea 

come from? Which brainchild and what area of the Moon did they 

come from? 

Ms. JACOBS. Congressman, could you clarify which idea you are 

speaking of? 

Mr. YOUNG. The memos, this has never been done since 1983. 

Ms. JACOBS. The notice? 

Mr. YOUNG. The notice went out. But, see, I happen to think a 

pimple comes from eating too much candy. Someone ate too much 

candy. Now who and where did this come from? Did it come from 

the Oregon office? That is where the letter comes from. Did it come 

from Washington, D.C.? Do we have some little energetic individual 

who thinks, Oh, we will get those Indian tribes, and they have to 

pay their money? 

Ms. JACOBS. I apologize. Mr. Chairman, do you mean—— 

Mr. YOUNG. The idea, the memo. 

Ms. JACOBS. Do you mean the notice? 

Mr. YOUNG. Yeah, the notice. 

Ms. JACOBS. Notice 2012–60. 

Mr. YOUNG. I don’t care what it is. The one that came in 2011, 

2012. 

Ms. JACOBS. The notice that we published last week was a result 

of requests from tribes and tribal organizations that we clarify the 

treatment of the settlements. 

Mr. YOUNG. But they required that because there was a previous 

notice of identification that they would be audited. Is that correct? 

Ms. JACOBS. My understanding, Mr. Chairman, is that the tribes 

that requested clarification were concerned that our positions were 

not clear about what the tax treatment of settlement payments 

would be, both—— 

Mr. YOUNG. That was for the 55 tribes—— 

Ms. JACOBS. Yes, sir. 

Mr. YOUNG. But now we bring in the resources, moneys into a 

trust. How did that come up? 

Ms. JACOBS. Well, Mr. Chairman, as we discussed, I am unable 

to disclose any information about whether or not anyone may have 

had that as an issue in audit. Nor can I confirm the existence—— 

Mr. YOUNG. With all due respect to you, you can’t say it, but I 

will damn well subpoena somebody and find out about it. 

Ms. JACOBS. Right. 

Mr. YOUNG. Because what we are trying to do here is what is 

right. Not some government agency. These tribes worked all these 

years under the understanding that they would have a trust and 

when they distributed primarily interest from the capital of the 

trust to their members it would be nontaxable income. 

Now someone came up with a bright idea—and why, I don’t 

know. Because you think about the income of 90 percent of the 

tribes is below the minimum amount of taxation that they now 

have to declare which will affect food stamps and so on down the 

line. You have better things to do. 

Mr. LUJA ́ N. So the letter that I handed to the Chairman was the 

one that I cited earlier from April 20, Mr. Chairman. The individual at least that wrote this or signed their name to it was Joe 

Kincaid. 
41 

Mr. YOUNG. And he is not with the IRS? 

Mr. LUJA ́ N. Yes, sir. He is with the ITG. He is a group manager 

as well. And that is the letter that we are citing that went to the 

Confederated Tribes of the Warm Springs Reservation of Oregon 

dated April 20, 2012, that makes that statement in there that the 

IRS’ position is that per capitas are taxable to members when they 

are sourced in timber revenues from unallotted tribal lands held in 

trust. And that is the essence of—— 

Mr. YOUNG. Yes. This is what we are looking for, someone—I 

don’t know how much money is involved. We will have to find out 

how much money is involved in taxable income. 

I have another question. 

It is my understanding moneys derived from the trust fund—the 

interest—if it was for, in fact, the tribe to use that in government 

agencies or within their government itself, that is nontaxable; is 

that correct? 

Ms. JACOBS. Yes, Mr. Chairman. If they use their trust—— 

Mr. YOUNG. OK. If I were to make a suggestion if every tribe was 

to hire all its tribal members, you couldn’t collect any tax. You 

would hire them for whatever the dividend is, $500, $1,000, whatever it is. Then you can’t tax them. 

Because, right now, this is going to affect every person that has 

ever gotten a dividend check from one of the tribes. If they don’t 

file it correctly, then I take it that the individual would be liable 

for tax evasion. 

Ms. JACOBS. Mr. Chairman, if I might, if the tribe is making per 

capita payments pursuant to the Per Capita Act, which I believe 

are the types of things you are discussing, from the trust assets, 

I think you can look at this notice and the legal analysis leads you 

to an official position that these are not subject to tax—— 

Mr. YOUNG. But it says right here, from tribal timber lands, they 

are taxable. 

Ms. JACOBS. As I discussed earlier, Mr. Chairman, when we publish a position on a matter, anything that is individually being discussed in a different context would then be brought into line with 

that published position. 

Mr. YOUNG. So what does that mean? You are going to tax them 

or not tax them? 

Ms. JACOBS. Mr. Chairman, I do not believe that per capita payments made to tribal members pursuant to the Per Capita Act from 

trust resources are taxable. 

Mr. YOUNG. Including timber resources from nonallocated lands 

under trust? 

Ms. JACOBS. That would be exactly the sort of item that would 

be covered by the Per Capita Act. Yes, sir. 

Mr. YOUNG. Then I think that should be clarified. 

I mean, these people aren’t here by accident. I mean, I don’t 

know how many people have gone—you haven’t gone through an 

audit. You work for the IRS. I went through it nine times. It is not 

a good feeling. And every time I told them, there is nothing there. 

Just because I put in a taxpayer bill of rights back about 30 years 

ago. Don’t tell me that was by accident, by the way. 

Was the Department of the Interior—did they agree with the 

analysis of what came down on the September 6th IRS notice? 
42 

Ms. JACOBS. Yes. Mr. Chairman, I hate to speak for another 

agency, but we did coordinate with both the Department of the Interior and the Department of Justice on the guidance. 

Mr. YOUNG. The Department and BIA agreed with this? 

Ms. JACOBS. We coordinated, sir, with the Solicitor’s Office at the 

Department of the Interior. 

Mr. YOUNG. Was the BIA ever notified? 

Ms. JACOBS. Mr. Chairman, you would have to speak to the Department of the Interior about that. I know that we coordinate directly with the Solicitor’s Office and those negotiating the settlements. 

Mr. YOUNG. Well, for the members of the Committee, that is another example of why we should eliminate those spokesmen for the 

natives in the Department of the Interior and the BIA. They should 

be at this table saying this has never been implemented. There is 

no need for this notice. It has caused consternation amongst the 

native tribes. 

And I can assure you, Ms. Jacobs—and with all due respect, it 

is not you personally. I would suggest respectfully you go back and 

make it clear that the revenues from the trust funds, from resources are nontaxable so they understand it, so they don’t have to 

worry about it. And if you don’t do that and if they don’t do that, 

I am confident I have the votes not only in this Committee but in 

this House and probably on the Floor—I want to see the IRS stick 

its nose up in the air and say, we are not going to change our policy. 

You have enough problems the way it is. You have bigger chickens to pluck than this problem. 

As Mr. Kildee has said, I am very frustrated with the ‘‘forked 

tongue’’ approach, with the concept that we can have a settlement 

and a possibility—now we send out a notice saying that 55 are not 

going to be taxed but those that have trust funds are going to be 

taxed is totally inappropriate. 

Would anybody else like to comment? Would the gentlelady from 

Hawaii or anybody else like to make a suggestion? Would anybody 

on the panel like to say anything before I adjourn this meeting? 

Yes, ma’am. Athena. 

Ms. SANCHEY YALLUP. Thank you, Chairman. Thank you for 

those comments. I appreciate that on behalf of the Yakama Nation. 

As you notice, in the 2012–60 notice or opinion of the IRS, the 

Yakama Nation is not listed on there. So that is our question to 

IRS. Knowing that the settlement agreement is mismanagement of 

our trust resources—and it is from the 1972 period to the 1992 period Arthur Andersen audit, again, that is all trust. 

I cannot help that the Federal Government mismanaged it. 

When I came here today, I felt the same thing, that I am confused 

on the notice. Truly, it should say, all settlement agreement funds 

that are issued or awarded or are actually ours to the tribes is nontaxable. And trust income is nontaxable. Because, since our opinion 

of the 1957 for the Yakama Nation, it was nontaxable. 

Again, the natural resources for the exclusive use of the Yakama 

in article two of our treaty rights says it is our use and benefit for 

the inclusive exclusive use of the Yakama people. Within the min-
43 

utes of our Yakama treaty, it speaks of burden. And truly taxation 

in the 2012 year is a burden to the Yakama Nation. 

The treaty is written and understood as a Yakama, and that is 

how we look at that. Our resources are not taxable. 

And I do appreciate your comment. I appreciate the opportunity 

to sit here on behalf of my people with this issue. It does worry me 

as a leader. It does worry all of our elected officials throughout 

Indian country on this issue. And my brothers to the left of me, I 

really support their effort. We are from the Northwest. And I really 

appreciate that. 

Thank you. 

Mr. YOUNG. I thank you. 

And, Ron, I do hope that you don’t have to litigate. Like I say, 

I don’t have any love for lawyers. They cost me a lot of money. 

But, having said that, we will hopefully have the IRS respond to 

this hearing and respond to this question, clarify it. And, if not, we 

will take care of it. I would prefer them doing it themselves. 

Ron, go ahead. 

Mr. SUPPAH. Mr. Chairman, a couple of things: In order for 

Warm Springs to protect our interest for our tribal membership, 

the tribal council took action to institute an IRS protocol policy because we were afraid that there were too many doorways that IRS 

could use to obtain the information that they wanted to get. And 

we did that to protect ourselves, to make sure that they only had 

one door to come through to consult with us about any IRS business. 

Last, Mr. Chairman, I would appreciate it if the Committee 

would take a closer look at our trustees sort of absence from stepping up to support the tribes’ position. Because, right now, the appearance from Warm Springs looking in from the outside of the 

Federal Government agencies, it is pretty much fractionated; and 

I think that all of these action agencies need to be working together to do what is right. 

Thank you. 

Mr. YOUNG. I appreciate that, and that may be something we can 

look at. Because the Interior Department never had a good record. 

That is the reason we had the settlement. 

By the way, I thought it should have been $27 billion. I did a 

lot of work on this before they reached a settlement. The inoperability and I say total corruption of the Interior Department over 

the years cost the tribes a great deal of money. And I know you 

have to have these trusts, I believe, with the Department of the Interior. And, again, there should be a watchdog so we don’t have the 

same problem. 

Go ahead, Mr. Luja ́n. 

Mr. LUJA ́ N. Mr. Chairman, just one follow-up on the last line of 

responses. 

Director, I think your testimony covers this. When asked the 

question about why weren’t other tribes included or would the 

other tribes to be brought in for consideration, you stated that you 

foresee the possibility of entering into additional similar agreements in the future with other tribal trust litigants. And that is 

where my line of questioning is, does the IRS’ new guidance on the 
44 

tax-exempt status of per capita distribution of settlement funds 

apply only to the 55 tribes listed in the guidance? 

Ms. JACOBS. Congressman, currently, it would apply only to the 

55. But we are told by the Department of Justice and the Department of the Interior that they anticipate 10 or 11 more very similar 

settlements. So those then would be added to the list. 

Mr. LUJA ́ N. So in consideration with the Yakama tribe’s questions, they would fall into that category and they would be included? 

Ms. JACOBS. If they had a settlement, yes, sir. But I believe the 

concern for them is the broader issue of payments made from trust 

assets, not from the settlement. 

Mr. LUJA ́ N. Which the clarification of the notice should clarify. 

Ms. JACOBS. Yes, sir. 

Mr. LUJA ́ N. Very good. 

Mr. YOUNG. I thank the members of the Committee, and I thank 

the witnesses and appreciate this. And I do hope we can solve this 

problem. I have always found there is a way to solve a problem. 

I still want to know, like I say, where this brilliant idea came 

from. We will keep pursuing that unless there is a different change 

of attitude. 

And the Committee is adjourned. 

[Whereupon, at 1:15 p.m., the Subcommittee was adjourned.] 

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