On June 8, 2017, the Internal Revenue Service (IRS) issued interim guidance to clarify that a per capita distribution of trust income earned by an Indian tribe from a “direct-pay” lease (such as those executed pursuant to tribal regulations under the HEARTH Act) is not taxable to the tribal member receiving the distribution. Attached is a copy of the IRS’ interim guidance memorandum from IRS’ Indian Tribal Governments Director Christie Jacobs.
As the Department of Interior describes, the Helping Expedite and Advance Responsible Tribal Home Ownership Act of 2012 (the HEARTH Act), “creates a voluntary, alternative land leasing process available to tribes by amending the Indian Long-Term Leasing Act of 1955, 25 U.S.C. Sec. 415. Under the Act, once their governing tribal leasing regulations have been submitted to, and approved by, the Secretary of the Interior, tribes are authorized to negotiate and enter into leases without further approvals by the Secretary.”
The interim guidance relies upon IRS Notice 2015-67, which clarified that per capita distributions made to tribes from funds held by the Secretary of the Interior as part of a tribal trust account are excluded from the gross income of tribal members. In 2016, the IRS issued “Interim Guidance on the Direct Pay of Tribal Lease Funds”, to clarify that the tax exemption for per capita distributions of trust income also applies when the source of the per capita distribution is income received by a tribe pursuant to a Bureau of Indian Affairs-approved direct payment from the lessee. The 2016 guidance did not, however, expressly extend the guidance to direct income earned from leases executed under the HEARTH Act.
Tribal representatives urged clarification extending IRS Notice 2015-67 to HEARTH Act lease income. The IRS and Treasury Department held a listening sessions with tribal representatives on this issue in December 2016. The interim guidance achieves the thrust of the requested clarification and treats the per capita distribution of direct-pay HEARTH Act lease income in accordance with IRS Notice 2015-67.
Please let us know if you would like additional information regarding the interim guidance.