mctlaw Advises Tribes About the Department of the Treasury Consultation on the Tax Status of Tribally Chartered Corporations

Attorney Jeffrey Nelson

On May 15, 2023, the Department of the Treasury announced that it would be holding consultation sessions on the status of tribally chartered corporations. Two consultation meetings were held via conference call in June.  The Department will be receiving written comments until Friday, August 18, 2023.  This is an important opportunity of which all tribes should take advantage.

Treasury has long recognized that tribes themselves are not considered taxable entities, and it has also recognized that their corporations organized under section 17 of Indian Reorganization Act and section 3 of the Oklahoma Indian Welfare Act are not separate from the tribe for federal tax purposes.  Treasury has not, however, issued guidance regarding the federal tax status of corporations organized by tribes pursuant to their inherent sovereignty.  For this reason, many tribes have been reluctant to use tribally chartered corporations for economic development. 

As a result, many tribes have had to rely on section 17 and section 3 corporations to conduct tribal economic development activities.  But tribes should not have to rely on IRA and OIWA corporations because they take too much time to be approved by the Secretary of the Interior through the Bureau of Indian Affairs.  Tribes typically wait for months, sometimes even years, for such approval, and the BIA approval process typically adds nothing substantive to the charter and usually represents nothing more that BIA intermeddling in tribal business. Once approved, a tribe that wants to update or amend its charter must undergo the same time-consuming process. 

As an alternative to IRA and OIWA corporations, some tribes have resorted to the use of limited liability companies (often times organized pursuant to a tribal business organization code).  Because an LLC is treated as a pass-through entity, income earned by a business venture organized in this manner is not taxed if that income is paid to the Tribe.  But even this is an unnecessary hoop for tribes to have to jump through. 

Instead, tribes should be allowed to use their inherent sovereignty to organize corporations to conduct their sovereign economic development activities and know with certainty that the company’s income will not be taxed as long as it is wholly owned by the tribe and that its revenues are devoted to tribal governmental purposes. 

Tribes and their tribally chartered corporations should communicate their positions about this critical topic to the Treasury Department. You can submit comments directly to [email protected].  The attorneys at mctlaw encourage all tribes and tribally chartered corporations to submit your comments to Treasury on this important issue.                                                                                                                                                       

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