The Internal Revenue Service (IRS) is working with Native American tribes to develop and clarify its tax exemption rules for Tribal governments. The IRS allows some tax exemptions to tribal members for federal, state and locally funded social benefits.
According to Christine Jacobs, the IRS’ director of the Office of Indian Tribal Governments, the benefits and payments must be made under a governmental program, promote the general welfare and not represent compensation for services in order to qualify for tax exemption.
Meanwhile, several tribes have received notices that they are being audited. According to John Yellowbird Steele, chief of the Oglala Sioux Tribe
, the IRS has requested documentation on employee payments, including payments to council and tribal members, petty cash and bank records, healthcare benefits to tribal members and employees, powwow prizes and other records.
Athena Sanchey Yallup, executive secretary of the Confederated Tribes and Bands of the Yakima Nation
, said the IRS is reviewing the tribe’s distribution of earnings from timber for the first time in its history. Yallup said the taxation of trust payments is a “radical change in policy.”
Tribal members argue that the IRS is failing to recognize tribal sovereignty in trying to tax tribal and government-funded assistance. IRS Deputy Assistant Secretary Aaron Klein admits that additional guidance and clarification is needed. Klein said the IRS has been gathering comments and recommendations from tribes on what can be taxed as income.