Dubious Credit Promotion Intensifies Campaign for Tribal Tax Law

A Democrat and a Republican in the House plan to revive legislation they hope will provide parity and close loopholes in tribal tax law, an effort that comes amid the proliferation of so-called sovereign tribal tax credits the Treasury Department and IRS say don’t exist.

The Tribal Tax and Investment Reform Act, sponsored by Rep. Gwen Moore (D-Wis.) and Rep. David Schweikert (R-Ariz.) last year, would clear up several issues related to taxes and tribes, such as giving tribes similar rights as states when it comes to excise taxes or bond insurance. It also would standardize the allocation of new market tax credits for tribal areas.

Promoters of the sovereign tribal tax credits took advantage of gray areas in how the federal government treats the taxation of tribes and their entities, said Cory Blankenship, executive director of NAFOA, founded as the Native American Finance Officers Association. Establishing legal guardrails around often-misunderstood tribal tax issues could prevent future questionable arrangements. The IRS has long warned about tax schemes that misrepresent tribal treaties or the federal status of tribes to claim improper tax advantages.

“A lack of clarity and a lack of parity with our state-and-local counterparts just creates an opportunity for these types of schemes and scams,” Blankenship said.

Schweikert and Moore plan to reintroduce the legislation after the GOP’s massive tax package passes, said Mitchell Shedd, Schweikert’s communications director.

“This bill contains a multitude of long-overdue provisions to provide tax parity to tribes that reaffirm our commitment to Indian Nations and their tribal sovereignty,” Moore said in a statement.

Sovereign Tribal Tax Credits

The push comes as Senate Democrats have focused on nonexistent sovereign tribal tax credits, first reported by Bloomberg Tax in December. Billy Long, President Donald Trump’s nominee for IRS commissioner, admitted to referring some potential buyers to the credits, telling lawmakers during his confirmation hearing earlier this month that he didn’t realize they didn’t exist at the time and still isn’t sure.

Long received income and campaign donations from people associated with companies that promoted the tax credits. Cherokee Nation Attorney General Chad Harsha late last year told Bloomberg Tax he sent a cease-and-desist letter to the credits’ sponsor, White River Energy Corp., because some promotional materials referred to the Cherokees.

The promotion of the nonexistent credit “underscores a need for greater education on the intricacies of Indian Country, including how tax policy applies to us,” said Liz Malerba, director of policy and legislative affairs at the United South and Eastern Tribes Inc. Sovereignty Protection Fund, a nonprofit that advocates for dozens of tribal nations.

These questionable tax arrangements may make investors less likely to do projects that would generate legitimate tax credits, such as new market or low-income housing tax credits, Blankenship said. It’s common for investors to misunderstand the relationship between tribal nations and the federal government.

“I think a lot of folks thought that there were no limits, no bounds, and that tribes could act however they wanted in terms of standing up projects,” Blankenship said. “And we know that’s just not the case.”

Regulatory Changes

Tribal leaders are also pushing Treasury and IRS to quickly finalize rules related to tribal welfare benefit payments and wholly owned tribal government corporations, both of which were proposed last fall.

Treasury and IRS officials committed to finalizing the rules during a May Treasury Tribal Advisory Committee meeting and said work is underway. The committee, created by a 2014 law, includes tribal leaders appointed by the Treasury Secretary and members of Congress. It advises Treasury on matters related to the taxation of Native Americans and IRS field agent training.

Malerba said tribal governments have tried to get rules on wholly owned tribal corporations for three decades. Once that rule is finalized, Malerba said, the next step is guidance on the tax treatment of partially owned tribal corporations.

Amid progress through the Treasury advisory committee, it’s still an uphill battle to educate lawmakers on tribal tax issues and to get the issues prioritized in Congress, Malerba said.

“There’s still a lot of confusion about where tribal nations fit into the tax code,” Malerba said.