Rich People Buy Tribal Tax Credits Treasury Says Don’t Exist (1)

Cut your tax bill in half. Or maybe, not owe federal tax at all.

Native American tribes get billions of dollars in tax credits because of their sovereign status. If investors act now, they can take advantage of this exclusive offer to buy these credits for 50 cents on the dollar and claim the same benefits tribes do. They’re authorized by law, and two Big Law firms are giving opinions verifying the program.

That’s the pitch from financial advisers to put wealthy clients into these investments.

But no such credits exist, according to the Treasury Department. The two law firms named in promotional materials deny they’ve given any opinions or guidance blessing them. The Cherokee Nation, referenced in a promotional document, also denied association. And the auditor for the publicly traded company behind the so-called credits has questioned the arrangement’s legality.

The “sovereign tribal tax credits” pitch, which hasn’t been previously reported, is an example of how promoters of tax shelters can lean on confusion surrounding the US tax code to proliferate arrangements that may not be uncovered for months after a tax return is filed.

Investors paid $24 million for the tribal credits through March of this year, according to Securities and Exchange Commission filings. But because the credits are so new and the IRS is early in its auditing cycle for 2023 returns, most investors and their advisers probably aren’t yet aware that the credits could be denied. The offers come on the heels of the Democrats’ 2022 law that provided billions in tax credits for clean energy projects.

“The people who buy into this are the people who have this belief that really wealthy people don’t have to pay all their taxes,” said Jeff Socha, founder and CEO of financial planning firm Texas-based Socha Capital, who had multiple fellow wealth advisers send him this pitch. “They feel like there’s a secret. That’s the way this kind of thing gets peddled.”

Bloomberg Tax reviewed about a dozen documents, pitch materials, and emails from wealth management firms promoting this program that were provided by two separate sources. At least five wealth advisers are or have promoted the offer. Bloomberg Tax also reviewed almost a decade of SEC filings by the sponsor, White River Energy Corp., and its predecessor companies, and spoke to multiple attorneys specializing in tribal tax law and tax credits.

Promoters of tax shelters can face civil and criminal penalties. Two tax professionals whom the IRS alleged caused hundreds of millions of dollars in lost tax payments because of syndicated conservation easement schemes face more than two decades in prison each. Taxpayers who claim an erroneous refund or a tax credit face penalties of about 20% the amount claimed, plus interest, according to the IRS website.

“As the Nation’s Attorney General, I am actively working in partnership with state and federal agencies to prevent further harm to the victims of this scheme, and to prevent damage to legitimate tribal government services and businesses,” Cherokee Nation Attorney General Chad Harsha said in an email.

White River officials declined to be interviewed or answer written questions from Bloomberg Tax, with Chief Financial Officer Jay Puchir citing “our need to protect our confidential trade secrets for competitive purposes.” When asked why a tax credit program would be considered a trade secret and if the company had responses to Treasury’s denying the credits’ existence, Puchir twice said he would answer questions if Bloomberg Tax signed a nondisclosure agreement. Bloomberg Tax didn’t agree, and doesn’t sign nondisclosure agreements during newsgathering.

Fact or Fiction

Minnesota-based tax and financial planning firm Nepsis Inc., and North Carolina-based Quartermaster Tax, a company that aims to help small business owners lower their tax bills, have promoted the sovereign tax credits as being something not contained in the Internal Revenue Code. Mark Pearson, founder and chief investment officer of Nepsis, owned a 2.9% stake in White River as of February, according to an SEC filing, and hasn’t reported any share purchases or sales since then.

Instead of the tax code, the promoters claim origins in a law that solidified Native American tribal sovereignty and created a process in which the Department of Interior manages tribal assets in trusts. Tribes can choose to receive tax credits instead of annual payments from the trusts because of an agreement between the Interior and Treasury departments, according to emails from promoters.

The Indian Self-Determination and Education Assistance Act of 1975 gave tribes the authority to contract with the federal government to operate land management programs for property held in federal trust, and a 1934 law created the process for how property held in trust for tribes and tribal citizens is managed. Interior oversees financial assets in the trusts and said it distributes more than $1 billion annually from them.

But there is no agreement between Interior and Treasury to allow those payments to convert to tax credits, Treasury spokesperson Michael Martinez said. The $64 billion in credits that E3 Family Office—another wealth and tax advisory company that has documents promoting the credits—said in a memo that White River has access to is eight times the total amount of Native American assets managed by Interior. And no federal tax credits are allowed to be sold other than energy credits outlined in the 2022 tax-and-climate law known as the Inflation Reduction Act, according to Treasury. Interior officials didn’t respond to multiple requests for comment.

E3 Family Office, unlike Nepsis and Quartermaster, said in a December 2023 due diligence document that the credits are in the Internal Revenue Code. But the code section it cites in due diligence materials as proof that the credit program exists relates to how tribal trust funds should be invested.

White River’s program, as described in its SEC filings and third-party promotional materials, resembles Treasury’s longstanding new markets tax credit program, which allocates billions of dollars per year to community development entities (CDEs). Those groups choose investors to support projects in qualified Census tracts. The CDEs pass on the new market tax credits to the investors, who must fund or develop specific economic development projects that the CDE supports.

White River and other companies it claims are affiliated with the tax credit program aren’t registered as CDEs or have received allocations of the new market tax credit, according to Treasury’s database of award recipients.

In 2024 and 2025, the new market tax credit program had $10 billion total to allocate, nowhere near the $64 billion the sovereign tax credit program supposedly has.

The offer to sell these credits at 50 to 60 cents on the dollar is far below the market prices for energy tax credits provided by the IRA, and other types of transferable credits such as state film-tax incentives. In 2023, the first year of energy credit transactions, the average price of those credits was between 92 and 94 cents, according to energy tax credit transfer platform Crux Climate Inc.

The Setup

White River, whose shares are traded over the counter, became an oil and gas company in 2022 after previous lives as a cannabis venture, a biotech company, and a cigar broker. It began offering the tax credit sales through a newly formed subsidiary in November 2023. The company has sold most of its wells and disclosed that it expects to report only $408,000 in revenue for its fiscal year ending in March, notwithstanding its statement in SEC filings that it raised $24 million from tax credit sales through March.

The company says it has access to the sovereign tribal tax credits through a joint venture, according to SEC filings. It doesn’t name the partner but said the company sold it $500 million of “United States federal income tax credits issued to a Native American tribe in exchange for certain consideration,” which includes profit participation on credit sales and 10 million shares of White River’s restricted common stock. The E3 Family Office memo and due diligence document identified that tribe as the Cherokee Nation.

It’s unclear how the partnering company would have received those tax credits if they were given to a tribe. The E3 memo shows the partnering company has access to the credits as a “sovereign entity” because of “the chief’s lineage as a descendant of the Freedmen allowed into Native American tribes in 2017.” The Cherokee Nation said that individual is not a Cherokee citizen.

“The Cherokee Nation did not authorize and is not associated with these tax credits and takes the misuse of its name seriously,” Harsha said in the statement. The Cherokee Nation sent a cease and desist letter to White River, Harsha confirmed.

While it’s true that descendants of the Freedmen are now recognized as tribal members, companies don’t get special status just because they’re owned by tribal members. Corporations wholly owned by tribal governments are exempt from federal income taxes, but that doesn’t extend to companies owned by tribal members, according to federal law and IRS rules.

E3 Family Office President John Moriarty said by email that the company did due diligence for the sovereign tribal tax credit and “put together some educational resources for people” but hasn’t been involved for several months. Moriarty declined to comment on the credits and directed questions to White River’s Puchir, who said E3 was under a “strict non-disclosure agreement” and wasn’t allowed to speak about the program.

Nepsis spokesperson Tom Warburton declined to comment “due to the fact White River is a publicly traded company.”

White River executives also have a financial incentive to sell as many of the credits as possible.

CEO Randy May and CFO Puchir get royalties of 2% on credit sales as of October 2024, according to SEC filings. Livio Stan, CEO of Truuli Environmental Inc. that merged with White River in April, receives a 0.5% royalty and the right to buy enough credits for 50 cents on the dollar to wipe away his federal income tax liability for two years. Royalties also go to the company’s three directors.

The Pitch

Advisers who have come across this promotion typically have clients such as doctors or entrepreneurs who may make between $500,000 and a few million dollars per year, Socha said.

In some cases, taxpayers faced imminent past-due tax bills or were desperate to cut their tax liability with the Oct. 15 tax-filing extension deadline for individual federal income tax returns approaching. Eric Lanning, counsel at Frost Law, said a client at his firm came across the program just before Oct. 15—before the law firm could fully vet the tax credit.

“I’ve had people before say, ‘Well, these are proprietary planning techniques’ or something,” Lanning said. “You and I can go to the Internal Revenue Code and look up any provision that anyone else can look up. There’s nothing proprietary about it.”

The promotional pitches include a level of urgency—showing taxpayers that it’s such a good deal that they must act now.

“This could last 90 days, six months, a year. It depends on how quickly institutions get involved,” said Don Rasmussen, managing partner of Quartermaster, in an October LinkedIn video hosted by Ashley Tison, founder of OZPros, a firm that helps taxpayers navigate opportunity zone rules. The video is no longer available on LinkedIn.

Rasmussen said there was $300 million left in tax credits that taxpayers could use if they had filed for an extension on their 2023 returns or filed a superseding 2023 return. He said the cost was 80 cents per $1.

“It’s amazing because I had all these questions ahead of time and, literally, we got the answers, and we got them, like, today, right?” Tison said in the video.

“Now we can actually potentially make things happen for folks that have an Oct. 15 deadline,” Tison continued.

The program had been handled by a collection of tribes, Rasmussen said in the video, but demand was so high that they passed management to White River. Part of the money from the tax credit sales is going toward oil drilling on Native American land, which will generate money for the tribes, Rasmussen said.

That claim isn’t in any other promotional materials seen by Bloomberg Tax. White River said in the joint venture agreement filed with the SEC that proceeds from tax credit sales would be used to first pay off the company’s tax liabilities, then to fund acquisitions and oil production activities.

“They’re the ones who had the relationship in place, I would assume,” Rasmussen said of White River’s involvement in the video. “That’s probably how this all transpired. I don’t know any more details than that, but they’re the ones who ponied up to the table last November and were able to get this secured.”

A former Big Four tax attorney on Rasmussen’s team vetted the program “very meticulously,” he said.

“A lot of this stuff comes down to trust,” Tison said.

Rasmussen declined to comment through his assistant. Tison didn’t respond to multiple requests for comment.

Big Names

In the E3 Family Office memo and an email exchange between wealth advisers seen by Bloomberg Tax, promoters said they were waiting on a tax opinion from global law firm Squire Patton Boggs to validate the credits. Squire Patton Boggs also would be advocating for the program with members of Congress and the IRS, because some tax returns claiming the credit were being held up, the E3 Family Office memo said.

“While there are recent examples of tax returns receiving tax refunds or paying outstanding income tax liabilities with the sovereign tax credits, there are still dozens of tax returns in limbo due to the IRS’ slow response and probable lack of knowledge regarding these tax credits that is delaying the decision making,” the E3 memo, which said it’s updated as of July, reads.

But Squire Patton Boggs never wrote such an opinion, company spokesperson Angelo Kakolyris said. Federal lobbying disclosures have no record of the firm advocating for White River.

White River said in an April SEC filing that it had received a legal opinion “from a confidential law firm confirming validity.”

White River had also planned to get a private letter ruling with the IRS from law firm Parker Poe, according to E3 Family Office’s due diligence document.. But Parker Poe never got the ruling or wrote a tax opinion about the program, said Michael Tomsic, Parker Poe director of marketing. The firm wouldn’t say whether White River is or was a client.

White River’s own accountants have shown concern about “uncertainties surrounding such tax credits and their validity and use,” according to a July 1 SEC filing. That concern prompted White River in July to delay filing its annual report for fiscal year 2024, which ended on March 31, 2024. The report still hasn’t been filed.

“The delay is also attributable to the ongoing audit being conducted by the company’s independent registered public accounting firm surrounding the credits,” the late filing notice reads.

MaloneBailey LLP was White River’s auditor from 2022 to February 2024, when it was dismissed, according to an SEC filing. MaloneBailey declined to comment on the circumstances surrounding the dismissal. RBSM LLP took over the role. RBSM didn’t respond to a request for comment.

‘Societal Shift’

This offer and similar ones play on the feeling that other wealthy people have a secret that allows them to pay less taxes than the typical person, Socha said.

One outside promoter told a tax lawyer who asked to learn more about the program that he would only provide it if the adviser signed a nondisclosure agreement before the call, according to an email exchange reviewed by Bloomberg Tax.

Secrecy is “the first red flag,” said Scott Diamond, president of wealth management firm Roxbury Consultants in California. He found out about the program when a client who had invested had concerns and asked him to look at it.

Drew Adams, founding partner at Mississippi-based wealth advisory firm Addicus, traces the interest in new tax schemes to the IRS’s public crackdowns against allegedly abusive tax shelters such as syndicated conservation easements, where investors claimed outsized deductions for charitable donations of land. The US Tax Court is still considering hundreds of appeals by taxpayers fighting IRS attempts to disallow those deductions.

The publicity of the IRS’s court fight against those arrangements was a deterrent for some. For others, it spelled an opportunity.

“It awakened a whole group of people who said, ‘Oh, you can do that? They don’t like it, but you can do it?’” Adams said. “Go back to the ‘80s, ‘90s, ‘00s, people were absolutely terrified of the IRS. There’s been a societal shift.”