On December 15, the U.S. Department of Treasury (Treasury) and the Internal Revenue Service (IRS) will hold a listening session to discuss the income tax treatment of leases pursuant the Helping Expedite and Advance Responsible Tribal Home Ownership Act of 2012 (HEARTH Act).

Treasury Listening Session Information

Date: December 15, 2016

Time: 4:00 p.m. ET

Call in Number: 1.800.988.9486

Passcode: 4635

Background

HEARTH Act Leasing Regulations 

The HEARTH Act created a voluntary, alternative land leasing process available to tribes by amending the Indian Long-Term Leasing Act of 1955. Once a tribe's leasing regulations have been submitted to and approved by the Department of the Interior (DOI) pursuant the HEARTH Act, the tribe is authorized to negotiate and enter into leases of tribal trust lands without Bureau of Indian Affairs (BIA) approval. To date, 26 federally recognized tribes have been authorized to enter into HEARTH Act leases.

While the HEARTH Act has been enacted for more than 4 years, tribal governments have expressed concerns regarding hurdles in utilizing regulations enacted under it, including the uncertainty related to the income tax treatment of per capita distributions of revenues from HEARTH Act leases. Whether revenues from such leases could be accepted into a tribal trust account administered by the DOI's Office of Special Trustee (OST) is one of the threshold issues tribes have raised with both DOI and IRS.

Overview on the Taxation of Tribal Trust Account Distributions 

In September 2015, the IRS and Treasury issued Notice 2015-67, which provided that Treasury would generally treat funds deposited into a tribal trust account for the purposes of distributing per capita payments to tribal members as excluded from the gross income of the beneficiaries. The Notice further clarifies that funds deposited into these trust accounts from timber sales, agricultural leases, or grazing permits are also excluded.

Interim guidance issued by the Director of the IRS Office of Tribal Government in June 2016 directs IRS personnel conducting examinations of tribal governments to apply the standards set forth in the Notice when determining whether per capita distributions of tribal trust land lease revenues paid directly to a tribe are subject to information reporting or withholding taxes. For more information, please see IRS Issues Interim Guidance on Tax Treatment of Direct Pay Lease Funds. This interim guidance appeared to be premised on the fact that direct-pay leases, like traditional agency-pay leases, are approved by BIA.

Current IRS guidance does not address the income tax consequences of per capita distributions from HEARTH Act leases. Consequently, several tribes have urged the IRS to issue guidance conforming the tax treatment of HEARTH Act leases and permits to that of leases approved by BIA, as provided for in the IRS Notice and the Interim Guidance. However, to date, no such guidance has been issued.