IRS Announces Updated Indian Gaming Regulatory Act Trust Guidance

The IRS announced the publication of Revenue Procedure 2011-56, which provides Indian Gaming Regulatory Act (IGRA) trust guidance. Under IGRA, an Indian tribe may make per capita payments to tribal members from gaming revenues if the interests of minors and other legally incompetent persons who are entitled to receive the per capita payments are protected and preserved. Indian tribes frequently use trusts to maintain and preserve the minor and incompetent members’ interests (IGRA trusts).

In 2003, the IRS released Revenue Procedure 2003-14, which provided safe harbor requirements for IGRA trusts. IGRA trusts meeting these requirements are treated as tribally-owned grantor trusts, and the per capita payments or trust earnings are not included in the beneficiaries’ incomes until actually or constructively received.

In addition to providing a safe harbor, Revenue Procedure 2003-14 sought public comments on the safe harbor requirements. After receiving and considering numerous comments, the IRS published Revenue Procedure 2011-56.  The revenue procedure:

  • clarifies that an IGRA trust must be an ordinary trust (pursuant to 26 C.F.R. §301.7701-4(a)) for federal tax law purposes
  • clarifies that trustees may make staggered distributions to beneficiaries at different ages or upon the occurrence of specific events rather than distributing all the trust assets when the beneficiary attains a specified age
  • eliminates the references to federal and local trust law, as the validity of trusts is governed by state or tribal law
  • broadens the class of survivors who may inherit a beneficiary’s trust interest
  • modifies the trustee discretion provisions for making health and welfare distributions

Revenue Procedure 2011-56 supersedes Revenue Procedure 2003-14.

For more information, click HERE.


IRS Allocates First Billion In Tribal Economic Development Bonds

The first billion-dollar tranche of Tribal Economic Development Bonds has now been allocated by the federal government, with the funds being spread over 58 projects for Tribes throughout the country.  The largest dollar allocation for any single project in this financng tranche is $22,565,088.46, which was authorized for over 30 projects, with the remainder receiving smaller authorizations. 

Examples of approved projects in the first financing round include:

Confederated Tribes of the Warm Springs Reservation of Oregon: Water Infrastructure and Tourism Facility Improvements -- $22,565,088.46

Lummi Nation (Washington): Environmental and Transportation Infrastructure -- $22,565,088.46

Santee Sioux Tribe of Nebraska: Health Facility -- $13,539,053.08

Pueblo of Acoma (New Mexico): Manufacturing Facility -- $8,273,865.77

Mille Lacs Band of Ojibwe (Minnesota): Education Facility -- $6,279,393.17

The first tranche of bond authorization was significantly oversubscribed, with the IRS receiving many more applications for projects than the available funding could support.  In an unusual move, rather than reject certain projects completely, the IRS imposed an across-the-board percentage cut to nearly all projects that were approved.  As a result, many projects did not receive the full amount of funding sought, and Tribes may need to revise the scope of work to achieve completion with available funds.

The complete list of Tribal projects authorized for bond issues in this first phase is available here.

IRS Ruling Provides Good News For Tribal Energy Bonds

Reservation Energy Projects - Oneida Tribe of Indians

A recent Private Letter Ruling by the IRS has held that for certain purposes related to government finance, Native American Tribes are to be treated like states. This allows Tribes to issue financially-attractive tax exempt bonds to finance projects related to “essential government functions”. Normally, commercial or industrial activity by Tribes is not considered an “essential” function of Tribal government, thereby precluding the issuance of tax exempt bonds for such activities. However, the IRS ruling states that an exemption to this rule exists for utilities “if the activity provides substantially all of its service on (a) tribe’s reservation. A utility-type activity includes the furnishing or sale of electrical energy, gas, water, or sewage disposal services.”

Stating that “we find the ownership, operation, and financing with proceeds of tax-exempt bonds of the facilities of municipal power utilities to be both sufficiently prevalent and sufficiently longstanding among state and local governments to be considered customarily performed by state and local governments.” Since Tribes and states are treated the same by the IRS in this context, the IRS held that Tribal utility projects may be financed with tax-exempt bonds when they are “not a commercial activity, (are) indistinguishable from public works projects...focus on benefits to local citizens, and are not in competition with other businesses.” The ruling also allows for some energy generated by Tribal projects to be sold to off-reservation users, so long as “the electrical power generated by (the Tribe) will be used to service the local population with only minimal amounts of power sold to customers in the immediate vicinity of the Reservation that are not adequately served by other power providers.”

At a time when interest in and opportunities for generating renewable energy on Tribal Lands are beginning to soar, the ability of Tribes to finance such projects with desirable tax-exempt investment vehicles will help raise necessary capital even in the current economic climate.