Minnesota is home to a significant Native American population and several reservations and Indian-run casinos. If you are confused as to how tribal lands and income relates to the Internal Revenue Service, you're not alone. According to a recent news article, not even the IRS may be clear on what they can and cannot tax.
Apparently the IRS has been narrowing the tax exemptions for social benefits tribe members may receive. This has resulted in an increased number of income tax audits and increasing objections from tribal leaders.
In a Congressional hearing, the Oglala Sioux Tribe chief testified that the IRS is failing to recognize the sovereignty of the nation when it tries to tax nation-funded assistance such as housing, school clothes and burial aid. These are services that the tribes provide to members, many of whom are living in poverty.
While the tribes have been seeking clarity on the allowable exemptions under the General Welfare Doctrine, more and more tribal members are being audited. It was suggested that this is not a coincidence.
Another tribal leader for the Confederated Tribes and Bands of the Yakima Nation in Washington State says that the IRS is now taxing distributions from the nation's timber business. It is the first time in history that the IRS has sought to tax these distributions. Why the change?
According to IRS' director of the Office of Indian Tribal Governments, the exemption for social welfare benefits is an administrative exemption. She reportedly said that to be "excluded from taxes, benefits and payments must be made under a governmental program, promote the general welfare and not represent compensation for services."
Whenever there is a dispute with the IRS regarding exemptions, an audit or any other matter, it is advisable to have legal representation. It was not made clear in the news article whether or not the Oglala Sioux or other tribes had representation in their negotiations with the IRS.
Source: The Guardian, "American Indian tribes alarmed by IRS tax audits," Suzanne Gamboa, June 14, 2012