Proposed rules describe that Tribally chartered entities have same federal tax status as their owning Tribes and clarify Tribal eligibility for elective pay to access Inflation Reduction Act tax credits
WASHINGTON – Today, the U.S. Department of the Treasury and the IRS issued a Notice of Proposed Rulemaking (NPRM) clarifying that wholly-owned Tribal entities chartered or organized by one or more Tribes have the same tax status of their owning Tribes. This means that these Tribal entities – businesses entirely owned by a Tribe – would not be subject to federal income tax. The proposed rule recognizes that Tribal economies are unique and rely on Tribal businesses to generate government revenue. The rule also would make these Tribal entities eligible for certain Inflation Reduction Act clean energy tax credits through a payment mechanism known as elective pay, commonly referred to as direct pay, that allows entities without federal tax liability to receive the full benefit of these incentives.
“For far too long, tax uncertainty has held back tribes’ economic opportunity, and the Biden-Harris Administration is reversing that trend. Tribally chartered entities generate critical revenue for their communities, and today’s rules recognize their tax status to enable them to further their contributions to economic development,” said U.S. Deputy Secretary of the Treasury Wally Adeyemo. “The Biden-Harris Administration will continue to support Tribal communities, ensuring Tribes are able to easily access the Inflation Reduction Act’s clean energy tax credits to help lower utility costs and strengthen energy security.”
“The Biden-Harris Administration’s new policy clarifying that Tribally chartered businesses are exempt from income taxes is a crucial step in the development of Native communities,” said Senator Catherine Cortez Masto. “This will give tribes the certainty they need to use new tools, including the Inflation Reduction Act, to expand opportunity and support economic development on Tribal lands. As a member of the Senate Indian Affairs Committee, I will continue fighting for the economic prosperity of tribes in Nevada.”
“We must ensure that our tax code recognizes the unique challenges facing Native American families and communities,” said Congressman Dan Kildee. “Thanks to the Biden-Harris Administration and new laws passed by Democrats like the Inflation Reduction Act, tribes can now take advantage of new tax credits to create new clean energy investments. This new effort will help support more clean energy projects and good-paying jobs across Indian Country.”
“Tribal governments have long requested guidance from Treasury and the IRS on the tax status of Tribally chartered corporations. Without guidance, Tribal Nations face uncertainty and the threat of a potential audit, which has hindered their economic growth,” said Congresswoman Gwen Moore. “I appreciate that the Biden-Harris Administration is making progress by addressing the Federal tax status of corporations chartered under Tribal law that are wholly owned. And, I eagerly await further guidance on the treatment of such corporations that are majority owned or jointly owned by a Tribe.”
“Today’s proposed regulations from the Department of the Treasury and the IRS signify a pivotal moment for tribal economic development,” said Mashantucket Pequot Tribal Nation Chairman Rodney Butler, President of NAFOA (founded as the Native American Finance Officers Association). Chairman Butler is also a member of the Treasury Tribal Advisory Committee (TTAC), where NAFOA serves as a technical advisor. “These regulations recognize the importance of Tribal economies and Tribal sovereignty and demonstrate the value of meaningful Tribal consultation and the essential work of the TTAC and its advisors.”
“This second tranche of new draft regulations makes clear that the U.S. Treasury Department values the input of Tribal Nations and Tribal leadership it has received through the years. These proposed new rules use Tribal sovereignty as a foundation and put a premium on Tribal self-determination,” said Mark Macarro, President of the National Congress of American Indians. “Representation also matters. The Biden-Harris Administration has appointed Tribal leadership into critical policy seats as exemplified by US Treasurer Lynn Malerba, Chief of the Mohegan Tribe and her team at Treasury. This tilt toward embracing Tribal sovereignty in federal rulemaking should not be anomalous. With the leadership Treasury has shown, now other agencies’ leadership will see that the primacy of Tribal government decision-making is valued.”
“This guidance will increase those tribal entities’ access to credit, the larger capital market, and provide the certainty we need to negotiate better terms and expand the breadth and depth of what these entities bring to tribal governments to fund basic services to tribal citizens,” said Coalition of Large Tribes Executive Director OJ Semans, Sr.
“For over 30 years, Tribal Nations have been awaiting confirmation that Tribally chartered corporations and entities are not subject to federal income tax. Uncertainty regarding the tax status of Tribal entities has been a significant federal policy barrier faced by Tribal Nations as we seek to build our economies and generate our own governmental revenues. Today, Treasury and IRS are taking historic steps to remove this barrier to economic development in Indian Country,” said United South and Eastern Tribes Sovereignty Protection Fund President, Chief Kirk Francis. “While we recognize there is still more to do on this front, we extend our deep appreciation to Treasury, especially its Office of Tribal and Native Affairs, the IRS, and the TTAC, for the considerable work involved in developing this guidance and urge its swift finalization.”
“Adoption of the proposed rule will immediately foster improved access to credit and directly enhance resources needed for economic development, service provision, and infrastructure investment across America’s Native nations. The tribal and non-tribal citizens of the United States will benefit,” said Joseph P. Kalt, Co-Founder and Director of Harvard University’s Harvard Project on Indigenous Governance and Development.
Today’s guidance is needed because, as a result of federal policy, Tribal Nations largely lack the same property, income, and sales tax bases as non-Tribal governments. Tribal Nations, therefore, rely on commercial entities to generate government revenue and have historically accorded their sovereign privileges and immunities to these entities. Over the past 30 years, Tribes have requested confirmation that their wholly-owned entities chartered under Tribal law (Tribally chartered entities) share their tax status because tax certainty is critical to Tribal economic development.
Upon the passage of the Inflation Reduction Act, the question of the tax status of Tribally chartered entities became especially critical as many Tribes began projects, owned by their Tribally chartered entities, to seek clean energy tax credits that are available to Indian tribal governments for the first time.
The proposed rule describes that federally-chartered Tribal corporations and wholly-owned Tribal entities may directly register for and claim applicable clean energy tax credits through a payment mechanism known as elective pay. In addition, Tribally chartered entities and Federally chartered Tribal corporations that are wholly owned by multiple Tribes may also be the entity that registers for and claims applicable clean energy tax credits via elective pay.
Tribes may rely on the rules issued today for tax years that precede the date of the NPRM.
Today’s guidance follows robust consultations with Tribal Nations and the Treasury Tribal Advisory Committee (TTAC) that explained that wholly owned Tribally chartered entities are an exercise of their inherent sovereign authority to generate governmental revenue, self-govern the use of that revenue according to their own laws, and self-determine the use of that revenue for their citizenry. This guidance demonstrates Treasury’s recognition, support, and protection of principles of Tribal sovereignty, sovereign immunity, and self-governance that have been repeatedly reaffirmed by the Supreme Court and outlined in the Biden-Harris Administration’s Executive Order 14112.
This guidance follows on our September 2024 publication of a proposed rule on the Tribal General Welfare Exclusion Act, which would enable Tribes to provide assistance to Tribal communities that is excludable from gross income. Like today’s proposed rule, that NPRM addresses a decade of tax uncertainty and supports deference to Tribal Nations and support for Tribal self-determination on their community’s needs.
Today’s proposed regulations build upon Treasury’s historic investment in its Tribal relations through creation of its first Office of Tribal and Native Affairs under the first Native American Treasurer, former TTAC member Chief Malerba. This Office has worked across the Department to support the administration of $30 billion in recovery set asides to Tribal Nations and support for Tribal access to the billions in clean energy tax credits through the Inflation Reduction Act.
Treasury welcomes public comment on this rule and is commencing Tribal consultation on these proposed regulations. To learn more about this rule, see the Dear Tribal Leader Letter, Consultation and Federal Feedback Summary, and Tribal Fact Sheet.