The U.S. Department of the Treasury and the IRS have issued a Notice of Proposed Rulemaking (NPRM) clarifying the tax status of wholly-owned Tribal entities. According to this proposal, these entities, which are chartered or organized by one or more Tribes, will share the same federal tax status as their owning Tribes, making them exempt from federal income tax.
This proposed rule aims to recognize the unique nature of Tribal economies that depend on businesses to generate revenue for government functions. It also extends eligibility for Inflation Reduction Act clean energy tax credits through a mechanism known as elective pay, or direct pay. This allows entities without federal tax liability to fully benefit from these incentives.
"For far too long, tax uncertainty has held back tribes’ economic opportunity," stated U.S. Deputy Secretary of the Treasury Wally Adeyemo. He emphasized that recognizing the tax status of Tribally chartered entities would enable further contributions to economic development.
Senator Catherine Cortez Masto commented on the policy's significance for Native communities' development: "This will give tribes the certainty they need to use new tools...to expand opportunity and support economic development on Tribal lands."
Congressman Dan Kildee highlighted how these changes would facilitate new clean energy investments and create jobs across Indian Country. Meanwhile, Congresswoman Gwen Moore expressed appreciation for progress in addressing federal tax status issues faced by Tribally chartered corporations.
Mashantucket Pequot Tribal Nation Chairman Rodney Butler described the regulations as a pivotal moment for tribal economic development. "These regulations recognize the importance of Tribal economies and Tribal sovereignty," he said.
Mark Macarro, President of the National Congress of American Indians, praised the draft regulations for valuing input from Tribal Nations and leadership over time. "Representation also matters," he noted regarding appointments within critical policy positions by the Biden-Harris Administration.
Chief Kirk Francis from United South and Eastern Tribes Sovereignty Protection Fund acknowledged that while there is still work to be done, this guidance removes significant barriers to economic development in Indian Country.
Joseph P. Kalt from Harvard University’s Project on Indigenous Governance and Development stated that adopting this proposed rule would enhance resources needed for economic development across Native nations.
The guidance addresses longstanding requests from Tribes for confirmation that their wholly-owned entities share their tax-exempt status. This clarification became crucial following the Inflation Reduction Act's passage when many Tribes sought clean energy tax credits available to Indian tribal governments for the first time.
Tribes can rely on today's rules for previous tax years before this NPRM's date. The Treasury Department invites public comments and will begin consultations with Tribal Nations on these proposed regulations.
