[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



 
      PER CAPITA ACT AND FEDERAL TREATMENT OF TRUST PER CAPITA  

                             DISTRIBUTIONS
=======================================================================


                           OVERSIGHT HEARING

                               before the

                       SUBCOMMITTEE ON INDIAN AND

                         ALASKA NATIVE AFFAIRS

                                 of the

                     COMMITTEE ON NATURAL RESOURCES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                       Friday, September 14, 2012

                               __________

                           Serial No. 112-130

                               __________

       Printed for the use of the Committee on Natural Resources



         Available via the World Wide Web: http://www.fdsys.gov
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                     COMMITTEE ON NATURAL RESOURCES

                       DOC HASTINGS, WA, Chairman
            EDWARD J. MARKEY, MA, Ranking Democratic Member

Don Young, AK                        Dale E. Kildee, MI
John J. Duncan, Jr., TN              Peter A. DeFazio, OR
Louie Gohmert, TX                    Eni F. H. Faleomavaega, AS
Rob Bishop, UT                       Frank Pallone, Jr., NJ
Doug Lamborn, CO                     Grace F. Napolitano, CA
Robert J. Wittman, VA                Rush D. Holt, NJ
Paul C. Broun, GA                    Raul M. Grijalva, AZ
John Fleming, LA                     Madeleine Z. Bordallo, GU
Mike Coffman, CO                     Jim Costa, CA
Tom McClintock, CA                   Dan Boren, OK
Glenn Thompson, PA                   Gregorio Kilili Camacho Sablan, 
Jeff Denham, CA                          CNMI
Dan Benishek, MI                     Martin Heinrich, NM
David Rivera, FL                     Ben Ray Lujan, NM
Jeff Duncan, SC                      Betty Sutton, OH
Scott R. Tipton, CO                  Niki Tsongas, MA
Paul A. Gosar, AZ                    Pedro R. Pierluisi, PR
Raul R. Labrador, ID                 John Garamendi, CA
Kristi L. Noem, SD                   Colleen W. Hanabusa, HI
Steve Southerland, II, FL            Paul Tonko, NY
Bill Flores, TX                      Vacancy
Andy Harris, MD
Jeffrey M. Landry, LA
Jon Runyan, NJ
Bill Johnson, OH
Mark E. Amodei, NV

                       Todd Young, Chief of Staff
                      Lisa Pittman, Chief Counsel
               Jeffrey Duncan, Democratic Staff Director
                David Watkins, Democratic Chief Counsel
                                 ------                                

            SUBCOMMITTEE ON INDIAN AND ALASKA NATIVE AFFAIRS

                        DON YOUNG, AK, Chairman
              BEN RAY LUJAN, NM, Ranking Democratic Member

Tom McClintock, CA                   Dale E. Kildee, MI
Jeff Denham, CA                      Eni F. H. Faleomavaega, AS
Dan Benishek, MI                     Colleen W. Hanabusa, HI
Paul A. Gosar, AZ                    Raul M. Grijalva, AZ
Raul R. Labrador, ID                 Edward J. Markey, MA, ex officio
Kristi L. Noem, SD
Doc Hastings, WA, ex officio


                                 ------                                
                                CONTENTS

                              ----------                              
                                                                   Page

Hearing held on Friday, September 14, 2012.......................     1

Statement of Members:
    Hastings, Hon. Doc, a Representative in Congress from the 
      State of Washington........................................     7
        Prepared statement of....................................     8
    Lujan, Hon. Ben Ray, a Representative in Congress from the 
      State of New Mexico........................................     3
        Prepared statement of....................................     6
    Young, Hon. Don, the Representative in Congress for the State 
      of Alaska..................................................     1
        Prepared statement of....................................     2

Statement of Witnesses:
    Jacobs, Christie J., Director, Office of Indian Tribal 
      Governments, Internal Revenue Service, U.S. Department of 
      the Treasury...............................................     9
        Prepared statement of....................................    10
        Response to questions submitted for the record...........    12
    Sanchey Yallup, Hon. Athena, Executive Secretary, The 
      Confederated Tribes and Bands of the Yakama Nation.........    13
        Prepared statement of....................................    15
        Memo to the Bureau of Indian Affairs from the Office of 
          the Regional Solicitor, dated May 1, 1957..............    20
    Sirois, Hon. John E., Chairman, The Confederated Tribes of 
      the Colville Reservation...................................    28
        Prepared statement of....................................    29
    Suppah, Hon. Ron, Vice Chairman, Tribal Council of the 
      Confederated Tribes of the Warm Springs Reservation of 
      Oregon.....................................................    24
        Prepared statement of....................................    26

Additional materials supplied:
    National Congress of American Indians, Resolution LNK-12-010 
      submitted for the record by The Honorable Ben Ray Lujan....     4
    ITG FAQ Answer #2 submitted for the record by The Honorable 
      Ben Ray Lujan..............................................     6
                                     



 OVERSIGHT HEARING ON ``PER CAPITA ACT AND FEDERAL TREATMENT OF TRUST 
                      PER CAPITA DISTRIBUTIONS.''

                              ----------                              


                       Friday, September 14, 2012

                     U.S. House of Representatives

            Subcommittee on Indian and Alaska Native Affairs

                     Committee on Natural Resources

                            Washington, D.C.

                              ----------                              

    The Subcommittee met, pursuant to call, at 11:00 a.m., in 
Room 1324, Longworth House Office Building, Hon. Don Young 
[Chairman of the Subcommittee] presiding.
    Present: Representatives Young, Noem, Hastings (ex 
officio), Lujan, Kildee, Hanabusa.

 STATEMENT OF THE HON. DON YOUNG, A REPRESENTATIVE IN CONGRESS 
                    FROM THE STATE OF ALASKA

    Mr. Young. The Committee will come to order. I note that a 
quorum is present.
    The Subcommittee on Indian and Alaska Native Affairs is 
meeting today to hear testimony on the Per Capita Act and 
Federal Treatment of Trust Per Capita Distributions.
    Under Committee rule 4 of opening statements of Members, 
the Chairman, myself, the Ranking Member, or whoever sits in 
for him, we will ask unanimous consent to include the other 
Members' opening statements if submitted to the clerk by today.
    Today, the Subcommittee will review the Federal 
Government's controversial tax treatment of nongaming per 
capita payments distributed by Indian tribes to their enrolled 
members. Gaming revenues are governed by the Indian Gaming 
Regulatory Act of 1988 and are not an issue in this hearing. 
Under a historical precedent case law and a law known as the 
Per Capita Act, per capita payments for tribes to their members 
are nontaxable if the funds are taken from the accounts held in 
trust by the Department of the Interior. These funds in turn 
are derived from the development of natural resources on lands 
held in trust for tribes, among other sources.
    To be clear, per capita payments are not government 
handouts. They are benefits that belong to Indians secured 
under terms negotiated in treaty and statute whereby tribes 
ceded tens of millions of acres of land to the United States. 
It would be a grave injustice to tax revenues originating from 
lands held for the exclusive use and benefit of American 
Indians who secured their property at great cost.
    Today's hearing was called when the Committee learned that 
several tribes received troubling notices from the IRS. The IRS 
notified the tribes that enrolled members receiving per capita 
payments from tribes' trust accounts were taxable. The 
taxability of such benefits appears to be unprecedented. It 
drastically affects the special terms of statutes of recognized 
tribes, a matter of which this Committee has jurisdiction.
    At the same time that tribes are wrestling with this new 
unauthorized tax liability, the IRS last week issued a public 
notice declaring that per capita payments from the private 
accounts of 55 tribes are not taxable. These are tribes that 
recently settled their trust mismanagement lawsuits with the 
Obama Administration, a settlement proceeding called the 
Settlement Proposal of the Obama Administration, or SPOA.
    While the United States should not tax tribal settlement 
funds, the IRS guidance regarding SPOA funds is most curious. 
It is clear that the Per Capita Act protects tribal funds from 
taxation when they are in trust accounts. It does not protect 
funds held in private nontrust accounts. This begs a question: 
Why would the IRS tax tribal payments derived from trust 
resources when granting tax relief for payments derived from 
nontrust accounts? This, to me, makes no sense; and it creates 
the perception that something political has occurred in the 
Department of the Treasury; and that would be very, very 
unfortunate.
    I maintain that none of the funds I have described should 
be taxable, but the IRS must explain why it thinks certain 
trust payments are taxable while the private ones are not. The 
Committee is interested in ensuring that congressional intent 
is correct and followed under the Per Capita Act.
    I look forward to hearing from my witnesses, and now I will 
recognize my late Ranking Member for an opening statement.
    [The prepared statement of Mr. Young follows:]

            Statement of The Honorable Don Young, Chairman, 
           Subcommittee on Indian and Alaska Native Affairs 

    Today the Subcommittee will review the Federal government's 
controversial tax treatment of non-gaming per capita payments 
distributed by Indian tribes to their enrolled members. Gaming revenues 
are governed by the Indian Gaming Regulatory Act of 1988 and are not at 
issue in this hearing.
    Under historical precedent, case law, and a statute known as the 
Per Capita Act, per capita payments from tribes to their members are 
not taxable if the funds are taken from accounts held in trust by the 
Department of the Interior. These funds in turn are derived from the 
development of natural resources on lands held in trust for tribes, 
among other sources.
    To be clear, these per capita payments are not government hand-
outs. They are benefits that belong to Indians, secured under terms 
negotiated in treaty and statute whereby tribes ceded tens of millions 
of acres of land to the United States.
    It would be a grave injustice to tax revenues originating from 
lands held for the exclusive use and benefit of American Indians, who 
secured their property at a great cost.
    Today's hearing was called when the Committee learned that several 
tribes received troubling notices from the IRS. The IRS notified the 
tribes that enrolled members receiving per capita payments from the 
tribes' trust accounts are taxable. The taxability of such benefits 
appears to be unprecedented. It drastically affects the special status 
of recognized tribes, a matter over which this Committee has 
jurisdiction.
    At the same time that tribes are wrestling with this new, 
unauthorized tax liability, the IRS last week issued a public notice 
declaring that per capita payments from the private accounts of 55 
tribes are not taxable. These are tribes that recently settled their 
trust mismanagement lawsuits with the Obama Administration, a 
settlement process called the Settlement Proposal to the Obama 
Administration, or ``SPOA.''
    While the United States should not tax tribal settlement funds, the 
IRS guidance regarding SPOA funds is most curious.
    It is clear that the Per Capita Act protects tribal funds from 
taxation when they're in trust accounts. It does not protect funds held 
in private, non-trust accounts.
    This begs a question: Why would the IRS tax tribal payments derived 
from trust resources, while granting tax relief for payments derived 
from non-trust accounts?
    This makes no sense, and it creates the perception that something 
political has occurred in the Department of the Treasury.
    I believe that none of the funds I've described should be taxable, 
but the IRS must explain why it thinks certain trust payments are 
taxable while the private ones are not. I look forward to hearing more 
about these issues from our witnesses today, and hope to explore 
solutions to ensure the Per Capita Act is implemented as intended by 
Congress.
                                 ______
                                 

   STATEMENT OF THE HON. BEN RAY LUJAN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF NEW MEXICO

    Mr. Lujan. Thank you very much, Mr. Chairman.
    Tribal governments, like State and local entities, are not 
subject to Federal taxation. Tribal trust lands reserved for 
the beneficial use of Indian tribes by the United States are 
similarly not subject to Federal taxation.
    The tax-exempt status of tribes and their trust land is 
grounded in Indian treaties and the trust responsibility, but 
individual Indians are taxed on their personal incomes subject 
to limited exceptions. For decades, the IRS has treated income 
derived from natural resources on tribal trust land which is 
then distributed on a per capita basis from trust accounts as 
immune from Federal taxation.
    Tribal leadership, however, has recently reported an 
increase in efforts by the IRS to tax per capita payments made 
to tribal members from trust funds derived from trust 
resources, despite what tribes argue is clear statutory 
authority under the Per Capita Act to prohibit treatment of 
such funds as taxable income.
    The National Congress of American Indians passed a 
resolution rejecting the IRS' alleged efforts and urging the 
IRS and the Department of the Treasury to cease these efforts 
immediately. And, Mr. Chairman, I would ask for unanimous 
consent to enter the National Congress of American Indian 
Resolution LNK-12-010 into the record.
    Mr. Young. Without objection, so ordered.
    Mr. Lujan. Thank you, Mr. Chairman.
    [The National Congress of American Indian Resolution 
LNK-12-010 follows:]

[GRAPHIC] [TIFF OMITTED] 85943.001

[GRAPHIC] [TIFF OMITTED] 85943.002



    Mr. Lujan. I am pleased that the IRS has been called to 
testify today to answer questions about taxation of per capita 
income derived from such resources for the record; and I would 
like to hear exactly how it treats per capita income derived 
from trust resources and, if there has been a change in its 
practice, the legal basis upon which it is basing such 
practice.
    I am concerned that the IRS is not communicating with 
Indian country as effectively as it should and that tribal tax 
policies are not being conveyed with uniformity and that this 
is contributing to ambiguity in the field.
    Let me be clear: As a matter of Federal Indian tax policy 
based on over a century of treaties, respect for tribal 
sovereignty and empowerment of tribe self-determination, funds 
derived from trust resources that are distributed on a per 
capita basis to individual Indians cannot and should not be 
subject to Federal tax. If the IRS is engaged or intends to 
engage in efforts to tax per capita distributions, as our 
tribal witnesses today will testify, it should cease such 
efforts immediately.
    Also, I understand the IRS has issued guidance that 
clarifies that per capita payments from settlement of tribal 
trust cases between the United States and 55 tribes are not 
subject to Federal taxation. This guidance is most welcome. It 
is now beyond dispute that these payments should be tax exempt 
as they originated as damages in part as a result of the 
Federal Government's mismanagement of tribal trust accounts.
    This hearing will inform us as legislators in Congress 
about whether the Per Capita Act should be clarified to make 
express that per capita income derived from trust resources and 
issued from tribal accounts is not subject to Federal taxation.
    I look forward to the testimony, and I yield back.
    [The prepared statement of Mr. Lujan follows:]

       Statement of The Honorable Ben R. Lujan, Ranking Member, 
            Subcommittee on Indian and Alaska Native Affairs

    Thank you, Mr. Chairman.
    Tribal governments, like state and local entities, are not subject 
to federal taxation. Tribal trust lands, reserved for the beneficial 
use of Indian tribes by the United States, are similarly not subject to 
federal taxation. The tax exempt status of tribes and their trust lands 
is grounded in Indian treaties and the trust responsibility. But 
individual Indians are taxed on their personal income subject to 
limited exceptions.
    For decades, the IRS has treated income derived from natural 
resources on tribal trust land, which is then distributed on a per 
capita basis from trust accounts, as immune from federal taxation.
    Tribal leadership, however, has recently reported an increase in 
efforts by the IRS to tax per capita payments made to tribal members 
from trust funds derived from trust resources, despite what tribes 
argue is clear statutory authority under the Per Capita Act to prohibit 
treatment of such funds as taxable income.
    The National Congress of American Indians passed a resolution 
rejecting the IRS' alleged efforts and urging the IRS and the 
Department of the Treasury to cease these efforts immediately.
    I'm pleased that the IRS has been called to testify today to answer 
questions about taxation of per capita income derived from trust 
resources for the record. I'd like to hear exactly how it treats per 
capita income derived from trust resources and, if there has been a 
change in its practice, the legal basis on which it is basing such 
practice.
    I'm concerned that the IRS is not communicating with Indian country 
as effectively as it should, and that tribal tax policies are not being 
conveyed with uniformity and that this is contributing to ambiguity in 
the field.
    Let me be clear: as a matter of federal Indian tax policy based on 
over a century of treaties, respect for tribal sovereignty, and 
empowerment of tribal self-determination, funds derived from trust 
resources that are distributed on a per capita basis to individual 
Indians cannot and should not be subject to federal tax. If the IRS has 
engaged, or intends to engage, in efforts to tax per capita 
distributions, as our tribal witnesses today will testify, it should 
cease such efforts immediately.
    Also, I understand the IRS has issued guidance that clarifies that 
per capita payments from settlements of tribal trust cases between the 
United States and 55 tribes are not subject to federal taxation. This 
guidance is most welcome. It is now beyond dispute that these payments 
should be tax exempt, as they originated as damages in part as a result 
of the federal government's mismanagement of tribal trust accounts.
    This hearing will inform us as legislators in Congress about 
whether the Per Capita Act should be clarified to make express that per 
capita income derived from trust resources and issued from tribal 
accounts is not subject to federal taxation. I look forward to the 
testimony.
    I yield back.
                                 ______
                                 

      Question submitted to the IRS by The Honorable Ben Ray Lujan

ITG FAQ Answer #2: Are any Per Capita Distributions exempt from Federal 
        income taxation?
    Yes, when distributions are received resulting from a land claims 
settlement and judgment, and also when there are distributions of trust 
principal and income held by the Secretary of the Interior.
                                 ______
                                 
    Mr. Young. I thank the gentleman.
    I will now recognize the Chairman of the full Committee, 
Doc Hastings.

    STATEMENT OF THE HON. DOC HASTINGS, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF WASHINGTON

    Mr. Hastings. Thank you very much, Mr. Chairman, and thank 
you for scheduling this hearing.
    I want to welcome all three of the tribal witnesses who 
flew in here from the great Pacific Northwest to be with us 
today. Two of the witnesses, Executive Secretary Athena Sanchey 
Yallup and Chairman John Sirois, are representing the Yakama 
Nation and the Colville tribes respectively, and both of these 
tribes are located in eastern Washington. One of them is fully 
within my district, and the other is partially in my district.
    This hearing is needed to clarify ambiguous, potentially 
conflicting policies of the Obama Administration relating to 
the Federal Government's income tax treatment of certain 
payments made by tribes to their enrolled members. It is my 
understanding that, for at least the last 50 years, 
distributions of per capita payments to enrolled tribal members 
have been considered nontaxable if those payments are derived 
from accounts held in trust by the Department of the Interior. 
These are accounts for funds from the development of tribes' 
trust resources, such as timber specifically in my area and 
from judgments and claims that are deposited.
    However, the IRS has notified several tribes that members 
receiving per capita payment sourced from trust timber 
resources are now taxable, while the IRS has just issued a new 
notice declaring that certain per capita payments made by 55 
tribes from funds in private accounts are not taxable. These 
funds in these accounts are derived from a recent tribal trust 
lawsuit settlement with the Obama Administration. The 
discrepancy in the treatment of these payments is a source of 
great uncertainty to tribes everywhere, particularly those 
actively engaged in forest management, a vital activity in the 
Pacific Northwest.
    The IRS policy potentially exposes many impoverished Indian 
people in Washington State to new, unexpected tax liabilities 
at a time of high unemployment and rising energy prices. And 
the policy seems to turn long-standing Federal principles of 
Indian law on its head. Namely, lands reserved for Indian 
tribes under treaties, acts of Congress, and Executive Orders 
are meant for the exclusive use and for the benefit of tribes.
    In addition, inconsistent and unclear government tax 
policies always result in economic uncertainty. In the middle 
of a recession, the last thing the tribes need while trying to 
serve their members is more uncertainty with respect to the tax 
treatment of tribal revenues. So I appreciate very much the 
Subcommittee holding this hearing.
    This was brought to my attention by a casual remark made by 
one tribal member recently, and we looked into it and found 
this is indeed serious.
    I appreciate the Chairman and Ranking Member holding this 
hearing.
    [The prepared statement of Mr. Hastings follows:]

          Statement of The Honorable Doc Hastings, Chairman, 
                     Committee on Natural Resources

    Thank you, Chairman Young, for scheduling this hearing. I welcome 
all three tribal witnesses who flew here from the Pacific Northwest to 
be with us today. Two of the witnesses--Executive Secretary Athena 
Sanchey Yallup and Chairman John Sirois are here representing the 
Yakama Nation and the Colville Tribes, respectively.
    Both of these tribes are located in Eastern Washington, which is an 
area that I have the honor and privilege to represent.
    Mr. Chairman, this hearing is needed to clarify ambiguous and 
potentially conflicting policies of the Obama Administration relating 
to the federal government's income tax treatment of certain payments 
made by tribes to their enrolled members.
    It is my understanding that for at least the last 50 years, 
distributions of per capita payments to enrolled tribal members have 
been considered non-taxable if those payments are derived from accounts 
held in trust by the Department of the Interior. These are accounts 
where funds from the development of a tribe's trust resources--such as 
timber--and from judgments and claims are deposited. However, the IRS 
has notified several tribes that members receiving per capita payments 
sourced from trust timber resources are now taxable.
    Meanwhile, the IRS has just issued a new notice declaring that 
certain per capita payments made by 55 tribes from funds in private 
accounts are not taxable. The funds in these accounts are derived from 
a recent tribal trust lawsuit settlement with the Obama Administration.
    The discrepancy in the treatment of these payments is a source of 
great uncertainty to tribes everywhere, particularly those actively 
engaged in forest management, a vital activity in the Pacific Northwest 
sustaining thousands of jobs and driving the economies of many small 
towns.
    The IRS's policy potentially exposes many impoverished Indian 
people in Washington State to new, unexpected tax liabilities in a time 
of high unemployment and rising energy prices. And the policy seems to 
turn long-standing federal principles of Indian law on their head. 
Namely, lands reserved for Indian tribes under treaties, Acts of 
Congress, and Executive Orders are meant for the exclusive use and 
benefit of tribes.
    In addition, inconsistent or unclear government tax policy always 
results in economic uncertainty. In the middle of a recession, the last 
thing that tribes need while trying to serve their members is more 
uncertainty with respect to the tax treatment of their tribal revenues.
    I appreciate the Subcommittee clearing the air on this important 
issue, and look forward to hearing ideas for a resolution.
                                 ______
                                 
    Mr. Young. I thank the gentleman.
    I will now call the witnesses to the table.
    Christie Jacobs, Director of the Office of Indian Tribal 
Governments, Internal Revenue Service; Athena Sanchey Yallup, 
Executive Secretary, the Confederated Tribes and Bands of the 
Yakama Nation; Ron Suppah, Vice Chairman, Tribal Council of the 
Confederated Tribes of the Warm Springs Reservation of Oregon; 
and John Sirois, Chairman of the Confederated Tribes of the 
Colville Reservation.
    Please take your seats. You are already there.
    I hope you know that your opening statements are 5 minutes. 
Watch the clock in front of you; and if you are doing a great 
job, I may let you go a minute over. But, if not, I am going to 
shut you off anyway.
    The microphones are run by a button in front of you. Make 
sure you push it.
    And I am sure you know what the timing lights do.
    So we will now recognize the first witness, Christie Jacobs 
from Internal Revenue Service.
    You are recognized, Christie.

  STATEMENT OF CHRISTIE J. JACOBS, DIRECTOR, OFFICE OF INDIAN 
 TRIBAL GOVERNMENTS, INTERNAL REVENUE SERVICE, U.S. DEPARTMENT 
                        OF THE TREASURY

    Ms. Jacobs. Good morning, Chairman Young, Ranking Member 
Lujan, and members of the Subcommittee. I appreciate the 
opportunity to be here this morning to discuss the taxation of 
per capita payments made by tribes to their members from 
proceeds of certain settlements or assets held in trust.
    At the opening of my testimony, I want to acknowledge that 
the United States has a unique government-to-government 
relationship with Indian tribes, as set forth in the 
Constitution of the United States, treaties, statutes, 
Executive Orders, and court decisions.
    The Office of Indian Tribal Governments within the Internal 
Revenue Service was created in response to a request by tribal 
leaders. The office exists to facilitate the government-to-
government relationship and to assist tribes in meeting their 
Federal tax obligations.
    There are two distinct but related issues for discussion 
today: first, per capita payments made by tribes to their 
members from proceeds of certain settlements of tribal trust 
cases between the United States and those Indian tribes; and, 
second, per capita payments made by tribes to their members 
from resources held in trust by the United States.
    In order to provide context to this discussion, I would 
like to briefly explain the legal principles involved. Section 
61 of the Internal Revenue Code, which defines gross income, 
and the Per Capita Act found in title 25 are both relevant to 
this discussion.
    Section 61(a) of the Internal Revenue Code provides that, 
except as otherwise provided by law, gross income means all 
income from whatever source derived unless a specific exception 
in the Code applies. Tribal members are citizens of the United 
States and are subject to payment of income taxes unless an 
express exception, like a statute or treaty applies. The 
Federal courts have applied this rule to per capita 
distributions from trust assets and found them subject to tax. 
However, those cases have not considered the application of the 
Per Capita Act.
    The Per Capita Act, which is codified in title 25, provides 
authority to Indian tribes to make per capita payments to their 
members out of tribal trust revenue. Under the Per Capita Act, 
funds held in trust by the Secretary of the Interior for an 
Indian tribe that are distributed per capita to members of that 
tribe may be distributed either by the Secretary of the 
Interior or at the request of the governing body of the tribe 
and subject to approval by the Secretary of the Interior and 
the tribe.
    The Per Capita Act provides that funds distributed under 
that Act are subject to the provisions of section 1407 of the 
Indian Tribal Judgment Funds Use or Distribution Act. The funds 
described in that section, and all interest and investment 
income accrued on the funds while held in trust, are not 
subject to Federal income taxes.
    Recently, the United States entered into settlement 
agreements with Federally recognized Indian tribes resolving 
litigation in which the tribes allege that the Department of 
the Interior and the Department of the Treasury mismanaged 
monetary assets and natural resources the United States holds 
in trust for the benefit of the tribes. Upon receipt of the 
settlement proceeds, the tribes will dismiss their claims with 
prejudice.
    The United States foresees the possibility of entering into 
additional similar agreements in the future with other tribal 
trust litigants.
    On September 6, 2012, Treasury and the IRS published Notice 
2012-60. The notice concluded that the per capita payments 
described above are excluded from the tribal members' gross 
income.
    Prior to issuing this notice, pursuant to Executive Order 
13175, we engaged in direct consultation as requested by 
several tribes and tribal organizations. These consultations 
and conversations were extremely useful in preparing the 
notice.
    The notice applies only to per capita payments from 
proceeds of the settlements that are described in the notice 
and upon which we engaged in consultation with the affected 
tribes. The issue of per capita distributions from trust assets 
is outside the scope of the notice, but, as stated in the 
notice, this issue may be addressed in future guidance after 
further consultation.
    This concludes my testimony this morning, and I would be 
happy to answer any questions you might have.
    Mr. Young. Thank you, Ms. Jacobs. I appreciate that.
    [The prepared statement of Ms. Jacobs follows:]

              Statement of Christie J. Jacobs, Director, 
     Office of Indian Tribal Governments, Internal Revenue Service

Introduction
    Good morning, Chairman Young, Ranking Member Lujan, and members of 
the Subcommittee.
    I appreciate the opportunity to be here this morning to discuss the 
taxation of per capita payments made by tribes to their tribal members 
from proceeds of certain settlements or assets held in trust.
    At the opening of my testimony, I want to acknowledge that the 
United States has a unique government-to-government relationship with 
Indian tribes as set forth in the Constitution of the United States, 
treaties, statutes, executive orders, and court decisions. The Office 
of Indian Tribal Governments within the Internal Revenue Service (IRS) 
was created in response to requests by tribal leaders. The office 
exists to facilitate government-to-government interactions and to 
assist tribes in meeting their Federal tax obligations.
The Principal Issues
    There are two distinct, but related, issues for discussion today: 
(1) per capita payments made by tribes to their members from proceeds 
of certain settlements of tribal trust cases between the United States 
and those Indian tribes, and (2) per capita payments made by tribes to 
their members from resources held in trust by the United States.
    In order to provide context to this discussion, I would like to 
briefly explain the legal principles involved.
Brief Explanation of Legal Principles
    Section 61(a) of the Internal Revenue Code, which defines gross 
income, and the Per Capita Act (25 U.S.C. Sec. 117a, et. seq.) are both 
relevant to this discussion.
    Section 61(a) of the Internal Revenue Code provides that, except as 
otherwise provided by law, gross income is defined as all income from 
whatever source derived. Under Sec. 61, Congress intends to tax all 
gains and ``undeniable accessions to wealth, clearly realized,[] over 
which taxpayers have complete dominion.'' Commissioner v. Glenshaw 
Glass Co., 348 U.S. 426 (1955). Indians are citizens subject to the 
payment of income taxes. Squire v. Capoeman, 351 U.S. 1, 6 (1956). An 
exemption from the payment of taxes ``should be clearly expressed.'' 
Id.
    Unless an express exception--like a statute, treaty or agreement--
applies, the general rule is that gross income is all income from 
whatever source derived. The Federal courts have applied this rule to 
per capita distributions from a tribe to its members from trust assets 
and found them subject to tax. See, e.g., Tonasket v. C.I.R., T.C. 
Memo. 1985-365. However, these cases have not considered the 
application of the Per Capita Act.
    The Per Capita Act, codified in 25 U.S.C. Sec. Sec. 117a through 
117c, provides authority to Indian tribes to make per capita payments 
to Indians out of tribal trust funds. Under the Per Capita Act, funds 
held in trust by the Secretary of the Interior for an Indian tribe that 
are to be distributed per capita to members of that tribe may be 
distributed by either the Secretary of the Interior or, at the request 
of the governing body of the tribe and subject to the approval of the 
Secretary of the Interior, the tribe.
    The Per Capita Act provides, in 25 U.S.C. Sec. 117b(a), that funds 
distributed under that Act are subject to the provisions of 25 U.S.C. 
Sec. 1407 of the Indian Tribal Judgment Funds Use or Distribution Act. 
Under Sec. 1407, the funds described in that section, and all interest 
and investment income accrued on the funds while held in trust, are not 
subject to federal income taxes.
Per Capita Payments from Settlement Proceeds--Notice 2012-60
    Recently, the United States has entered into settlement 
agreements--and foresees the possibility of entering into additional 
similar agreements in the future with other tribal trust litigants--
with federally recognized Indian tribes resolving litigation in which 
the tribes allege that the Department of the Interior and the 
Department of the Treasury (Treasury) mismanaged monetary assets and 
natural resources the United States holds in trust for the benefit of 
the tribes. Upon receipt of the settlement proceeds, the tribes will 
dismiss their claims with prejudice.
    On September 6, 2012, Treasury and the IRS published Notice 2012-
60. The notice concluded that the per capita payments described above 
are excluded from the tribal members' gross incomes.
    The notice applies to per capita payments made from agreements 
settling trust mismanagement claims. The notice states that ''other per 
capita payments made by the Secretary of the Interior or Indian tribes 
to members of Indian tribes[,]''are ``outside the scope of this notice 
and may be addressed in future guidance.''
    Prior to issuing this notice, we engaged in direct consultation as 
requested by several tribes and other affiliated organizations and in 
the spirit of Executive Order 13175. These consultations and 
conversations were extremely useful in preparing the notice.
Per Capita Payments from Trust Resources
    The notice applies only to per capita payments from proceeds of the 
settlements that are described in the notice and upon which we engaged 
in consultation with affected tribes. The issue of per capita 
distributions from trust assets is outside the scope of the notice, but 
as stated in the notice, this issue may be addressed in future guidance 
after further consultation.
    This concludes my testimony this morning. I would be happy to 
answer any questions you might have.
                                 ______
                                 
    [The response to questions submitted for the record by 
Ms. Jacobs follows:]
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    Mr. Young. Athena, please, Secretary of the Confederated 
Tribes and Bands of the Yakama.

    STATEMENT OF THE HON. ATHENA SANCHEY YALLUP, EXECUTIVE 
  SECRETARY, THE CONFEDERATED TRIBES AND BANDS OF THE YAKAMA 
                             NATION

    Ms. Sanchey Yallup. Shix mayfski [speaking in native 
language].
    Good morning, Chairman Young and members of the 
Subcommittee. I am honored to be here. I am Athena Sanchey 
Yallup. I am the Executive Secretary for the Yakama Nation, and 
I would like to thank you for this opportunity to testify on 
behalf of the Per Capita Act and Federal Treatment of Trust Per 
Capita Distributions.
    I also request that my oral and written testimony be made 
part of the record on behalf of the Yakama Nation.
    Mr. Young. Without objection.
    Ms. Sanchey Yallup. The Yakama Nation negotiated the treaty 
of 1855 with the U.S. Government with the understanding that 
the rights bestowed to our treaty would be upheld by the 
supreme laws of the land. I have traveled from the land of my 
people and ancestors to bring your attention to the Internal 
Revenue Service's attempt to tax per capita distributions of 
the Yakama Nation trust resources. This is a serious issue that 
is potentially another broken promise of our treaty with the 
United States, and we cannot sit idly by and tolerate the 
treatment of the Internal Revenue Service.
    The action of attacking trust resources is unprecedented 
and is not supported by Federal law. The Per Capita Act clearly 
states per capita distribution of trust funds are not taxable, 
and the new IRS Notice 2012-60 states mismanagement trust funds 
are not taxable funds either. We know trust resources, funds, 
or per capita distributions managed properly or mismanaged are 
not taxable.
    Today we still continue this fight, and we need to maintain 
for our future generations the benefit of our sacred ancestors 
that our trust per capitas are not taxable. We know that the 
Yakama Nation Reservation and its trust resources are for the 
exclusive benefit of the Yakama people and not the IRS or any 
other part of the United States.
    We were moved from our homelands along the Columbia River 
so that goods could be provided to the world. We understand 
that dams were built on the Columbia River and its tributaries 
to enhance the quality of life for the Northwest people. We 
understand housing was built during World War II, but it 
relocated our people from their homes, polluted our waters and 
fish, and kept us from our ancestral lands.
    We understand that the United States has tried to keep our 
best interest through the trust responsibility, but yet we are 
sitting here today again to retain and restore our trust 
responsibility and our rights.
    The Yakama people have adopted and survived many of the 
policies imposed on them from the United States, such as an 
allotment act, boarding schools, and terminations. My people 
and I will not dishonor the sacrifices of many; and I, as a 
tribal leader, must speak and stand up for the treaty rights 
and ask why does the U.S. and its agencies and staff continue 
to want more of what we have, what my leadership has fought for 
and maintained through litigation since the time of my treaty.
    We strive to be the strongest tribal nation that adequately 
serves its people. When will the United States--now 
specifically the IRS--have enough of what the Yakamas have 
before they are satisfied?
    I see my people going without work. I see alcoholism, drug 
abuse, and suicide affecting my people and question the 
government's adequate health care. I see the IRS attempting to 
take more from the tribes that have given up so much already.
    Our government tries to fill the voids from the lack of 
services from their Federal Government and create economic 
development, and our tribal governments respect our land and 
honor the air and water. We reinvest our resources to right the 
wrongs. We are true stewards of this land.
    Maybe the United States should give us back the public 
lands in my ceded area. I am sure my people are capable of 
maintaining the lands of the Yakama Nation.
    Again, the IRS' continued attempt to tax the Yakama trust 
resources is appalling and disgraceful. My trust resources are 
not taxable. With respect and honor, I request that the 
Subcommittee reaffirm Congress' intent that the per capita 
distributions of trust resources are not taxable and demand the 
IRS and the Department of the Treasury consult with tribes, as 
required by Executive Order 13175.
    Thank you for the time and the opportunity to testify 
before this Subcommittee.
    Mr. Young. Thank you.
    [The prepared statement of Ms. Sanchey Yallup follows:]

    Statement of Athena Sanchey Yallup, Executive Secretary of the 
           Confederated Tribes and Bands of the Yakama Nation

    Shix mayfski. Chairman Young, honored Subcommittee members, I would 
like to thank you for the opportunity to testify regarding the ``Per 
Capita Act and Federal Treatment of Trust Per Capita Distributions.'' I 
ask that my oral and written testimonies be placed on the record on 
behalf of the enrolled members of the Confederated Tribes and Bands of 
the Yakama Nation.
    My name is Athena Sanchey Yallup, and I serve as the Executive 
Secretary of the Yakama Nation Tribal Council. I have lived on the 
Yakama Reservation--where my ancestors have lived since time 
immemorial--for my entire life. I have worked for my tribal government 
for more than 25 years, and have served my people as an elected 
official since 2006. Today, I have travelled from the land of my people 
to speak on behalf of the 10,400 enrolled members of the Yakama Nation 
to bring to your attention the Internal Revenue Service's (``IRS'') 
attempts to tax per capita distributions of the Yakama Nation's trust 
resources. This is a serious issue that affects every single Yakama 
member, and every Tribe with a reservation that attempts to provide for 
its own people. Given the gravity of this issue for the Yakama Nation 
and Indian Country, we request your assistance by (1) reaffirming 
Congress' intent that per capita distributions of trust resources are 
not taxable, and (2) facilitating consultation between the IRS and the 
Yakama Nation.
    I respectfully submit the following statement supporting the Yakama 
Nation's position that this new federal tax burden is without 
precedent, without foundation in federal law, contrary to the federal 
trust responsibility, and in violation of the Yakama Treaty of 1855.
BACKGROUND ON YAKAMA NATION AND ITS TRUST RESOURCES
    The creation stories of the Tribes and Bands that were brought 
together under the Treaty of 1855 speak of the creation of the Yakama 
People within what is now the ceded and reservation lands of the Yakama 
Nation. Anthropological data supports these stories, dating our 
ancestors' presence on our lands back more than 14,000 years. Our 
people have lived off of these sacred lands for millennia, and were 
nourished by the same resources that the Yakama people cultivate and 
utilize today. Our lands, our resources, and our people have been 
connected spiritually and physically throughout history unlike any 
relationship understood by Western Civilization.
    In 1855, the Palouse, Piquose, Yakama, Wenatchapam, Klinquit, Oche 
Chotes, Kow way saye ee, Sk'in-pah, Kah-miltpah, Klickitat, Wish ham, 
See ap cat, Li ay was, and Shyik Indians came together to negotiate a 
treaty with Territorial Governor Isaac Stevens as representative of the 
United States. Our ancestors gave up nearly 10 million acres of land to 
protect our way of life, including our hunting and fishing rights off 
reservation, and the right to the `exclusive use and benefit' of our 
reservation lands. These reserved rights were memorialized in the 
Treaty of 1855, which outlines the rights that my People granted to the 
United States, and those that were retained for ourselves. Before the 
Treaty of 1855, the Confederated Tribes and Bands exercised our 
exclusive right to the use and benefit of our lands. The Treaty of 1855 
explicitly protected that exclusive right so that future Yakamas could 
continue using and benefitting from the Yakama lands. Congress has not 
acted to divest the Yakama Nation of that right. Now, in what is a 
blatant attack on the sovereignty of the Yakama Nation, the IRS is 
attempting to do what Congress has not, by divesting the Yakama Nation 
of our right to the exclusive use and benefit of our lands.
    On June 29, 2010, the IRS sent a letter to Chairman Harry Smiskin 
announcing an audit of the Yakama Nation for fiscal year 2008. Although 
the Yakama Nation defended all IRS tax matters, the audit has 
subsequently been expanded to include fiscal years 2009, 2010, and 2011 
with respect to the Yakama Nation trust per capita distributions. This 
audit represents yet another attempt by the United States Government to 
tax our per capita distributions of our trust resources. Originally, 
the United States Department of the Interior (``DOI'') issued an 
opinion to the IRS in 1957, which clearly states that distributions of 
our trust resources are not to be taxed. From 1957 to 1983, when the 
Per Capita Act was passed, the Bureau of Indian Affairs (``BIA'') made 
distributions of our trust resources to our members without any tax 
consequence. In all these years that the federal government 
administered trust distributions, no tax forms were given to the Yakama 
people. From 1983 until 2010, the Yakama Nation made per capita 
distributions of trust resources under authority of the Per Capita Act 
without tax consequence to our members--just as our trustee did for 
over 20 years. The IRS even stated on its website that such 
distributions were not taxable as recently as November 2011. There have 
been no changes in the law. There have been no changes in Congressional 
policy. We are struggling to understand why the IRS has decided to 
directly contradict such explicit legislation and established federal 
policy.
    The trust resources that the IRS claims to be taxable income are 
derived from forest management activities within the Yakama 
reservation, which provide essential benefits to the Yakama Nation and 
its people. These activities employ more than 500 enrolled Yakama 
members each year, the proceeds of which support the Tribal Government 
and members through semi-annual per capita distributions. These 
distributions are never more than a few hundred dollars, but this 
amount helps our members pay for basic necessities such as food, 
clothing, and electricity. These practices are in line with the Federal 
Government's Indian policy of self-determination, which is meant to 
help the Yakama Nation provide for and support itself with limited 
federal assistance and interference. We are using our resources to 
provide basic governmental services, jobs, and economic security for 
our members. This is what self-determination looks like. But, we cannot 
hope to realize self-sufficiency when the Federal Government seeks to 
find new ways to hinder our progress at every turn. Our ancestors 
protected the lands of the Yakama People for our exclusive use and 
benefit, and we will not dishonor them by allowing the IRS to disregard 
the Treaty of 1855 by reaching into our protected forests to take our 
timber in the form of a tax.
    Therefore, we ask that this Subcommittee acknowledge the rights 
reserved to the Yakama Nation in the Treaty of 1855 by reaffirming its 
intention that our trust resources are exempt from federal taxation, 
and by compelling the IRS to consult with the Yakama Nation on a 
government-to-government basis regarding this dramatic shift in federal 
policy.
PER CAPITA ACT
    The Per Capita Act, which is the Congressional authority the 
Yakamas (and other Tribes) rely upon, was passed in 1983 to provide a 
legal mechanism for Indian Tribe's to assume responsibility for 
distributing their trust resources to tribal members. In practice, the 
legislation merely changed the name of the issuing agency on the per 
capita check from the `Federal Government' to the `Indian Tribe'. But, 
in doing so, the Federal Government reaffirmed its position that such 
distributions of trust resources are not taxable. The IRS seems blind 
to this position, despite the explicit language of the Per Capita Act 
and its legislative history, which support our position that the Yakama 
Nation's per capita distributions of trust resources are not taxable.
    The explicit language of the Per Capita Act states that per capita 
distributions of trust resources under the Per Capita Act are not 
taxable. Specifically, 25 U.S.C. Sec. 117a provides that the Per Capita 
Act governs per capita distributions of resources held in trust by the 
Federal Government on behalf of Tribes. Section 117b, which is entitled 
``Previous contracted obligations; tax exemption,'' states that 
distributions made under the Act, including distributions made pursuant 
to Sec. 117a, are subject to the provisions of 25 U.S.C. Sec. 1407. 
Section 1407 states that none of the funds that are distributed per 
capita or held in trust pursuant to a plan approved under the 
provisions of this Act shall be subject to Federal or State income 
taxes. Therefore, the plain language of the Per Capita Act exempts any 
per capita distribution made from trust funds to tribal members from 
Federal or State taxes.
    The legislative history of the Per Capita Act further supports our 
position that Congress intended to exempt all per capita payments from 
trust funds. Congress has consistently described the purpose of the tax 
exemption clause of 25 U.S.C. Sec. 117b(a) in later legislation as 
exempting tribal trust per capita distributions from taxation. For 
instance, when identifying the specific exceptions to taxation for 
Indians, Congress stated:
        ``One exception to this general rule is the exclusion from 
        income provided for income received by Indians from the 
        exercise of certain fishing rights guaranteed by treaties, 
        Federal Statute, or Executive order (sec. 7873). See also 25 
        U.S.C. sections 1401-1407 (funds appropriated in satisfaction 
        of a judgment of the United States Court of Federal Claims in 
        favor of an Indian tribe which are then distributed per capita 
        to tribal members pursuant to a plan approved by the Secretary 
        of Interior are exempt from Federal income taxes); 25 U.S.C. 
        section 117b(a) (per capita distributions made to tribal 
        members from Indian trust fund revenues are exempt from tax if 
        the Secretary of the Interior approves of such distributions).

(emphasis added). 104 H. Rept. 350, 104th Congress; 1st Session, 
Balanced Budget Act of 1995. Clearly, Congress understands Sec. 117b to 
exempt per capita distributions of trust funds from federal taxation.
    Given such explicit statutory language, and such a clear expression 
of Congress' legislative intent, we are left to conclude that the IRS's 
attempts to tax our trust resources are simply a disingenuous money 
grab that our People can ill afford to handle in this economic climate. 
Again we ask that you reaffirm Congress' position that our trust 
resources are not taxable, and urge the IRS to consult with the Yakama 
Nation on a government-to-government basis to explain their harmful and 
unprecedented actions.
TRUST RESOURCE MISMANAGEMENT SETTLEMENTS
    On September 6, 2012, the IRS issued Notice 2012-60 entitled ``Per 
Capita Payments from Proceeds of Settlements of Indian Tribal Trust 
Cases.'' This Notice expressly excluded all per capita payments of 
trust funds derived from United States-Tribal resource mismanagement 
settlements, but failed to extend this tax exclusion to the per capita 
distributions of trust resources. Apparently, the Department of the 
Treasury thought that Notice 2012-60 resolved the trust resources issue 
in its entirety, making this Oversight Hearing moot. Although the IRS 
Notice appropriately does not tax settlements related to trust resource 
mismanagement, its analysis does not reach its logical conclusion: that 
per capita distributions of trust resources are not taxable.
    Notice 2012-60 cites to the 25 U.S.C. Sec. 1407's cross-reference 
in the Per Capita Act stating that ``funds distributed under 25 U.S.C. 
Sec. 117a are subject to the provisions of 25 U.S.C. Sec. 1407.'' The 
IRS is using the Per Capita Act to justify its position that trust 
mismanagement settlement funds distributed per capita are not taxable. 
Where we fail to follow the IRS's analysis is where it doesn't extend 
this reasoning to our trust resources. Why is the Yakama Nation going 
to enjoy tax-free distributions of timber revenues earned 25 years ago, 
but not enjoy tax-free distributions of timber extracted today? The law 
has not changed. The trees being cut today are no different than the 
trees cut for the last 75 years.
    Adding to our confusion is the IRS's reliance on the `origin of the 
claim' doctrine. The origin of the claim doctrine traces the settlement 
recovery back to the source of the claim to determine its tax status. 
In this case, the source is ``mismanaged trust accounts, lands, and 
natural resources . . . the United States holds in trust for the 
benefit of the tribes.'' The only word in that sentence that 
distinguishes the trust resources at issue in our case from trust 
resources covered by the trust settlements is `mismanaged'. To follow 
this difference to its logical conclusion, if the Yakama Nation were to 
continue to have its trust resources mismanaged by the United States, 
our trust resources would not be taxable. But, if our trust resources 
are not mismanaged by the United States, our resources are taxable. 
Such a proposition is so absurd that I am embarrassed to have to 
present it to this Subcommittee, but here we are.
    To resolve this dispute once and for all, we request that this 
Subcommittee reaffirm Congress' intent to exclude our per capita 
distributions of trust resources from tax, and to push the IRS and the 
Department of Treasury to consult with the Yakama Nation on a 
government-to-government basis.
RESOURCE EXCLUSION FOR FEDERAL BENEFITS DETERMINATION
    The impact of the IRS's policy change is not limited in its impact 
to the final amount of taxable income on our members' tax filings. 
Rather, this policy change will directly affect our members' 
eligibility for the federal benefits that they rely upon so heavily. 
Following the Per Capita Act, federal agencies responsible for 
establishing an American citizen's income for the purposes of 
determining federal benefits issued regulations excluding per capita 
distributions of trust resources from income. In essence, the agencies 
determined that such tax-exempt income should also be exempted from 
federal income determinations. The IRS's new policy would force the 
Department of Interior, Department of Health and Human Services, 
Department of Housing and Urban Development, Social Security 
Administration, Department of Education, and the Department of 
Agriculture to start counting per capita distributions of trust 
resources as income. Such a change in policy is not supported by 
congressional intent, and would have an extremely detrimental effect on 
the Yakama People.
    First, following the passage of the Per Capita Act in 1983, 
Congress stated that per capita distributions of trust resources should 
not be counted as income for the purpose of determining eligibility for 
federal benefits. In particular, Congress interpreted 25 U.S.C. 
Sec. 1407's tax exclusion language to exclude per capita distributions 
of trust resources from income determinations for federal benefits as 
well. When describing the purpose of the Per Capita Act, Congress 
stated:
        ``Prior to the enactment of the Tribal Per Capita Distribution 
        Act (P.L. 98-64), only per capita payments of Indian Judgment 
        Funds (and purchases made with an interest and investment 
        income accrued thereon) were excluded from consideration as 
        income or resources for purposes of federally-assisted 
        programs. (Indian Judgment Funds Distribution Act, P.L. 93-134, 
        as amended by P.L. 97-458). The Tribal Per Capita Distribution 
        Act (P.L. 98-64) extended this treatment to tribal per capita 
        distributions of funds derived from tribal trust resources.''

(emphasis added). 102 S. Rpt. 214, Bill S. 754. Not only does this 
language represent evidence of Congress' intent to extend the tax 
exemption language of Sec. 1407 to trust funds; further, it extends the 
income exemption language from Sec. 1407 to per capita distributions of 
trust funds. The language could not be any clearer.
    Second, this Subcommittee should take a moment to consider the 
implications of the IRS's new policy--that trust resources should be 
taxable, and therefore includable as income for federal benefit 
determinations--on the Yakama Nation and its People. The Yakama People 
are rich in our traditions and our culture, but we are financially 
destitute. Our people are forced to make decisions that the more 
fortunate among us will never have to make. Should you pay for heat 
during the winter, or warm winter clothes? Should you buy food for your 
family, or medicine for your sick? Now the IRS wants us to answer yet 
another question. Should Yakama members take their per capita 
distribution and risk losing their federal benefits, or keep their 
federal benefits and reject their per capita distribution? Our trust 
resources are protected by federal Treaty, federal law, and federal 
common law. The IRS' policy change does not promote self-determination 
and perversely requires poor tribal members to pass on tribal resources 
to avoid taxation. The IRS' policy change also corrupts the trustee 
relationship by profiting from trust resources of the beneficiary.
    We are forced by the blatant attacks of the IRS to ask that this 
Subcommittee provide yet another statement that our trust resources are 
not taxable, and are not to be included in income determinations for 
federal benefits. What more can the Yakama Nation do to ensure that the 
Federal Government leaves our trust resources alone!
CONSULTATION
    Adding insult to injury, the Yakama Nation has requested, in 
writing, government-to-government consultations from the Department of 
Treasury and the IRS on their changed taxation policies regarding per 
capita distributions of trust resources, and neither Agency has so much 
as answered our requests. When the Yakama Nation was asked to speak 
before the Senate Committee on Indian Affairs on June 14, 2012, I sat 
before Chairman Akaka and the esteemed members of the Committee--on the 
same panel with the IRS and Treasury--and we again requested 
consultation with the IRS and Treasury. Again, we heard nothing. In 
July 2012, the Yakama Nation requested consultation with the Department 
of Treasury, the Department of the Interior, Senators, Congressman, and 
the President of the United States. Chairman Young and Congressman 
Hastings quickly acted to set up a hearing before this Subcommittee--
for which we are extremely grateful--but we have yet to receive a 
response from the agencies responsible for creating such uncertainty 
for our People. The Federal Government owes a trust responsibility to 
Tribes that contemplates consultation, and President Obama memorialized 
that duty in Executive Order 13175.
    Executive Order 13175, reaffirmed by President Barack Obama on 
November 5, 2009, requires federal agencies to consult on a government-
to-government basis with Indian Tribes on matters that have tribal 
implications. The term `tribal implications' includes policy actions 
that have substantial direct effects on an Indian Tribe. Should IRS's 
interpretation of the Per Capita Act become accepted federal policy, 
there will be direct and immediate effects on my People. The taxation 
of our timber trust resources, which are protected by the inherent 
sovereignty of the Yakama Nation, the Treaty of 1855, and federal law, 
would require our members to further decrease their standard of living. 
Furthermore, the Treaty of 1855 guarantees the Yakama Nation the right 
to bring its grievances before the President of the United States, 
which my People have understood to be an explicit consultation right. 
Because the contemplated changes in IRS's interpretation of the Per 
Capita Act will directly impact the Yakama Nation and the Yakama 
People, and under the Treaty of 1855, the Yakama Nation reiterates its 
request on the record for meaningful government-to-government 
consultation with the Department of Treasury and the IRS.
    We ask that this Subcommittee urge the IRS and the Department of 
Treasury to consult with the Yakama Nation on a government-to-
government basis as is required by the Federal trust responsibility 
towards Indian Tribes, and Executive Order 13175.
CONCLUSION
    Based upon the Treaty of 1855, the Per Capita Act of 1983, the 
language of IRS Notice 2012-60, and the historical treatment of the 
Yakama Nation's trust resources, per capita distributions of our trust 
resources are not taxable. The Treaty of 1855 reserves to the Yakama 
People the right to the exclusive use and benefit of our lands, which 
does not contemplate the IRS taking \1/3\ of every tree cut down on the 
Yakama Reservation in the form of a tax. The Per Capita Act's express 
language and legislative history support our interpretation that per 
capita distributions of trust resources are not taxable. The IRS's 
Notice 2012-60 uses the Per Capita Act to justify its conclusion that 
distributions from settlement funds meant to compensate Tribes for 
trust mismanagement are not taxable, but the same analysis is not 
extended to our trust funds because they don't seem to be mismanaged? 
Such an analysis is absurd. Finally, the federal government and the 
Yakama Nation have been distributing per capita the Yakama Nation's 
trust resources for nearly 75 years without taxing them. I must ask a 
simple question: why now?
    On behalf of the Yakama Nation, I respectfully request that this 
Subcommittee (1) reaffirm Congress' intent that per capita 
distributions of trust resources are not taxable, and (2) to facilitate 
consultation between the IRS and the Yakama Nation.
    Thank you for giving the Yakama Nation a voice on this extremely 
important issue.
    Kwtanushash chitkwi.
                                 ______
                                 
    [A memo to the Bureau of Indian Affairs from the Office of 
the Regional Solicitor, dated May 1, 1957, follows:]
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    Mr. Young. Ron Suppah.

STATEMENT OF THE HON. RON SUPPAH, VICE CHAIRMAN, TRIBAL COUNCIL 
 OF THE CONFEDERATED TRIBES OF THE WARM SPRINGS RESERVATION OF 
                             OREGON

    Mr. Suppah. Good morning, Chairman Young and honorable 
members of the Subcommittee. My name is Ron Suppah, and I am 
Vice Chairman of the Warm Springs Tribal Council in Oregon. 
Thank you for asking Warm Springs to share its recent 
experience with the Internal Revenue Service and its efforts to 
tax the very modest distribution of revenue made to our tribal 
members from tribal trust resources.
    Warm Springs is a timber tribe; and for nearly 60 years the 
tribe has made periodic and very small payments to our tribal 
members from the revenue, called stumpage, generated by the 
sale of timber from our reservation's forests. Our reservation 
is 98 percent trust land. So the revenue from the sale of 
tribal timber, our principal trust resource, is paid to the 
Department of the Interior and held in a trust account for the 
benefit of the tribe.
    Payments from the tribe's trust account go to all enrolled 
members in equal amounts and are, therefore, called per capita 
payments. While they are modest in size, 60 percent of the 
people living on the Warm Springs Reservation are unemployed. 
So these payments are very meaningful.
    The tribe has always regarded these trust per capita 
payments to our tribal members as nontaxable. Let me give you 
five clear reasons why:
    The first is our 1855 treaty with the U.S. Government where 
our tribe ceded 10 million acres of land worth untold trillions 
of dollars to the United States. In return, certain lands were 
reserved for our tribe with the language ``for the exclusive 
use and benefit of the tribe.'' It is clear that our land and 
income directly from our land cannot be taxed by the United 
States.
    Second, the 1956 U.S. Supreme Court decision called Squire 
v. Capoeman ruled that timber stumpage payments made to a 
tribal member from these trust allotments were not subject to 
taxation.
    Third, a Department of the Interior Solicitor's Office 
opinion the following year, 1957, concluded that the principle 
of Squire v. Capoeman applied to timber stumpage payments from 
the tribal trust timberlands, not just allotments.
    Fourth, Congress squarely protected the nontaxable nature 
of tribal trust per capita payments when it passed the Per 
Capita Act in 1983. Committee staff from that time tell us that 
they always regarded trust per capita payments as nontaxable. 
To enshrine that understanding, section two of the 1983 Per 
Capita Act makes crystal clear that trust per capita payments, 
even if made by the tribes rather than by the government, would 
remain tax exempt.
    Fifth, this matter is settled law to everyone except the 
IRS. Cohen's Handbook of Indian Law, for example, states that 
trust per capita payments are nontaxable and cites the 1983 Per 
Capita Act.
    Imagine our surprise when the Internal Revenue office in 
Portland, Oregon, advised us in March of this year that the IRS 
now regarded our trust per capita payments as taxable. They 
asked for the names and addresses of all of our enrolled 
members, apparently so the IRS could audit their tax returns 
and claim additional tax owed on their Warm Springs trust per 
capita payments. Of course, we refused to provide that 
information.
    The IRS put their new position in writing. Let me quote the 
IRS April 20, 2012, letter to Warm Springs: ``The IRS position 
is that per capita to members are taxable when they are sourced 
in timber revenues from unallotted tribal lands held in 
trust.''
    This is a reversal of nearly 60 years of IRS practice. We 
have been trying to consult with the Treasury Department, the 
Interior Department, the White House as well as the IRS. 
Initially, IRS and Treasury told us they could not consult with 
the tribes because we were under a tax examination or audit. 
However, we have joined with the National Congress of American 
Indians and have had some limited meetings with government 
officials, although the issue remains unresolved.
    Last week's Treasury Department guidance on the tax status 
of recent settlements with tribes is a step in the right 
direction. In fact, Treasury relied on the 1983 Per Capita Act 
to conclude that per capita payments from the recent 
settlements were nontaxable.
    Let me quote the guidance language: ``Consequently, for 
Federal income tax purposes, per capita payments that an Indian 
tribe makes from the tribe's tribal trust case settlement 
proceeds are treated the same as per capita payments from funds 
held in trust by the Secretary of the Interior under the Per 
Capita Act.''
    This statement does everything but flat-out declare that 
trust per capita payments under the Per Capita Act, such as the 
Warm Springs tribal stumpage payments, are nontaxable. So why 
didn't last week's guidance clearly state that the Per Capita 
Act exempts from taxation all tribal trust per capita payments 
regardless of whether such payments are made by the tribes or 
by the government? As things now stand, however, the Warm 
Springs tribe's disputes continue with the IRS, and this issue 
remains unresolved.
    Mr. Chairman, this Subcommittee is the legislative body 
that originated the Per Capita Act in 1983. We urge you to 
reaffirm your legislative intent and communicate it to the IRS. 
We believe such instructions to the IRS may very well resolve 
this matter once and for all.
    I thank you.
    Mr. Young. I thank you, Ron.
    [The prepared statement of Mr. Suppah follows:]

        Statement of Ron Suppah, Vice Chairman, Tribal Council, 
     Confederated Tribes of the Warm Springs Reservation of Oregon

    Good morning, Chairman Young and honorable members of the 
Subcommittee. My name is Ron Suppah, and I am Vice Chairman of the Warm 
Springs Tribal Council, which is the governing body of the Confederated 
Tribes of the Warm Springs Reservation of Oregon (``Warm Springs'' or 
the ``Tribe'').
    I am here today to testify regarding the recent experience of our 
Tribe with efforts by the Internal Revenue Service to tax the very 
modest distributions of revenue made to our tribal members from the 
utilization of our tribal trust resources.
    As background, you should know that Warm Springs is a timber tribe 
and for nearly sixty years the Tribe has made periodic and very small 
payments to our tribal members from the revenue--called stumpage--
generated by the sale of timber from our Reservation's forests. Our 
Reservation is 98 percent trust land, so the revenue from the sale of 
tribal timber, our principal trust resource, is paid to the Department 
of Interior and held in a trust account for the benefit of the Tribe. 
Payments from the Tribe's trust account go to all enrolled members in 
equal amounts and are therefore called ``per capita payments.''
    The Tribe has always regarded these trust per capita payments to 
our tribal members as non-taxable. In the 1956, a U.S. Supreme Court 
decision called Squire v. Capoeman ruled that timber stumpage payments 
made to a tribal member from his trust allotment were not subject to 
taxation. A Department of Interior Solicitor Office opinion the 
following year concluded that the principle of Squire v. Capoeman 
applied to timber stumpage payments from tribal trust timberlands, not 
just allotments.
    If there had been any uncertainty about the non-taxable nature of 
tribal trust per capita payments, Congress resolved the issue when it 
passed the Per Capita Act in 1983 (Public Law 98-64, 25 U.S.C. 
Sec. Sec. 117a-c). In fact, the House version of this legislation 
originated in this Committee. According to Frank Duchenaux, the now 
retired Committee counsel who drafted the 1983 legislation and 
Committee report (House Report 98-230), the purpose of the Act was to 
provide tribes with the option to make trust per capita payments 
directly to their members on tribal checks rather than continue to have 
the Bureau of Indian Affairs make the payments on Treasury Department 
checks. The Treasury checks had become a source of misunderstanding 
with many non-Indian businesses cashing the checks believing they 
represented a government ``hand out'', rather than the tribal members' 
own money generated from the utilization of tribally owned trust 
resources.
    Mr. Duchenaux recently explained that he and Committee staff had 
always regarded trust per capita payments as non-taxable. However, he 
feared that allowing tribes to make the trust per capita payments 
themselves, rather than continuing to have the Government make the 
payments, might cause the IRS and state revenue agencies to question 
whether the payments were somehow now taxable. To guard against that 
mistaken interpretation, Mr. Duchenaux included language in Section 2 
of the 1983 Per Capita Act making it clear that trust per capita 
payments under the 1983 Act, even if made by the tribes rather than by 
the Government, would have the same tax exempt status as payments made 
under Section 1407 of the Indian Tribal Judgment Funds Use or 
Distribution Act (25 U.S.C. Sec. Sec. 1401-1408). The cross-reference 
to the tax exemption for payments made under the other Indian 
legislation was intended to clarify that all trust per capita payments 
under the 1983 Act were accorded the same treatment as distributions of 
Indian claims judgment and settlement funds. Importantly, the cross 
reference to Section 1407 also meant that trust per capita 
distributions under the Per Capita Act would not count as income or 
resources for determining eligibility for Social Security Act programs 
or other federally funded needs-based programs.
    As I stated earlier, Warm Springs has long believed that the non-
taxable nature of trust per capita payments was settled law. In fact, 
our Tribal Attorney showed us where the leading compilation of ``black 
letter'' Indian law, Cohen's Handbook of Federal Indian Law, states 
that trust per capita payments are non-taxable and cites the 1983 Per 
Capita Act. So, we were very much surprised when the Internal Revenue 
Office in Portland, Oregon advised us in March of this year that the 
IRS now regarded our trust per capita payments as taxable. They asked 
for the names and addresses of all our enrolled members, apparently so 
the IRS could audit their tax returns and claim additional tax owned on 
their Warm Springs trust per capita payments. Of course, we have 
refused to provide this information.
    Since the IRS told us of their new position, which we believe is a 
reversal of nearly 60 years of IRS practice, we have been trying to 
consult with the Treasury Department, the Interior Department and the 
White House, as well as the IRS. Initially, IRS and Treasury told us 
they could not consult with the Tribe because we were under a tax 
``examination'' or ``audit''. However, we have joined with the National 
Congress of American Indians and have had some limited meetings with 
Government officials, although the issue remains unresolved.
    As you know, last week the Treasury Department issued a Notice of 
guidance (Notice 2012-60) regarding the federal income tax treatment of 
``Per Capita Payments from Proceeds of Settlements of Indian Tribal 
Trust Cases''. This guidance resolved an issue related to, but separate 
from, our trust per capita issue. The guidance made the welcome 
announcement that per capita payments from 55 recent tribal trust 
claims settlements were non-taxable, even though the payments were not 
made under the Indian Tribal Judgment Funds Use or Distribution Act 
and, in most cases, were not made from tribal trust accounts.
    Last week's guidance is a step in the right direction, and the 
Notice contains language that is supportive of our interpretation of 
the 1983 Per Capita Act. In particular, we were happy to see that the 
Notice referred to the 1983 House Report on the Per Capita Act, ``. . . 
which provides that per capita distributions of tribal trust revenue 
`shall be subject to the provisions of [25 U.S.C. Sec. 1407] with 
respect to tax exemptions' ''. Our legal arguments to the IRS have 
pointed to the same language in the House Report to support our 
position that the Per Capita Act confirmed the tax exempt status of 
trust per capita payments under the Per Capita Act.
    We were also pleased to see that last week's Notice of guidance 
relied on the 1983 Per Capita Act to conclude that per capita payments 
from the recent settlements were non-taxable. Let me quote the Notice 
language: ``Consequently, for federal income tax purposes, per capita 
payments that an Indian tribe makes from the tribe's Tribal Trust case 
settlement proceeds are treated the same as per capita payments from 
funds held in trust by the Secretary of the Interior under [the Per 
Capita Act].'' (Emphasis added).
    In our mind, this statement from last week's guidance on the recent 
settlements does everything but flat out declare that trust per capita 
payments under the Per Capita Act, such as the Warm Springs tribal 
timber stumpage payments, are non-taxable. In fact, the guidance uses 
the same statutory cross reference technique as the Per Capita Act 
(which cross references Section 1407 of the Indian Tribal Judgment 
Funds Use or Distribution Act) to declare payments from the trust 
settlements as non-taxable.
    Our disappointment, however, is that last week's guidance did not 
go far enough. In a section called ``Limitation'', the Notice of 
guidance declared that it ``. . . applies only to per capita payments 
from proceeds on the Tribal Trust case settlements . . .'' Our issue, 
which is the tax treatment of other per capita payments made by the 
Secretary of the Interior or Indian tribes to members of Indian tribes, 
is declared to be ``. . . outside the scope of this notice . . .''
    Why didn't last week's guidance clearly state that the Per Capita 
Act exempts from taxation all tribal trust per capita payments, 
regardless of whether such payments are made by the tribes or by the 
Government? We don't know. By failing to make such a statement, 
however, the guidance falls short. Accordingly, as things now stand, 
the Warm Springs Tribe's dispute with the IRS continues and the issue 
remains unresolved.
    We urge this Subcommittee, as the legislative body that originated 
the Per Capita Act in 1983, to communicate to the IRS the Committee's 
clear legislative intent in the 1983 Act to confirm the tax exempt 
status of trust per capita payments, made either by the tribes or by 
the Government. We believe such instruction to the IRS may very well 
resolve this matter once and for all.
    We appreciate this Subcommittee's leadership in this specific 
matter and urge your continued leadership and consideration of other 
Indian tax matters such as: tribes' ability to access tax-free 
financing on par with all other governmental entities; exemptions for 
tribes' general welfare assistance to their members, and parity for 
tribal pension programs; issues which Warm Springs the National 
Congress of American Indians are working to resolve.
    Thank you.
                                 ______
                                 
    Mr. Young. John Sirois, please.

      STATEMENT OF THE HON. JOHN E. SIROIS, CHAIRMAN, THE 
        CONFEDERATED TRIBES OF THE COLVILLE RESERVATION

    Mr. Sirois. [speaking Okanagan Salish.]
    Good afternoon, Chairman Young----
    Mr. Young. Before you go on, both of you addressed me in 
your language. And I hope you said, ``Good morning. Thank you 
for the hearing.'' If you said something else, I have an 
interpreter behind me who is going to tell me what you said. 
But go ahead.
    Mr. Sirois. Yes, Chairman. I said, ``Good day and thank you 
for being here and listening to our hearts. Because we come 
here speaking from our hearts, sharing with you these things.''
    Mr. Young. That makes me feel better.
    Mr. Sirois. So my name is John Sirois. I am the Chairman of 
the Colville Business Council, the governing body of the 
Colville Indian Reservation. On behalf of the Colville tribes, 
I appreciate this opportunity to testify on the Per Capita Act 
and the Federal treatment of trust per capita distributions.
    Just to give you an idea about us, the Colville Reservation 
is located in North Central Washington, and it is about the 
size of the State of Delaware. About two-thirds of our 
reservation is covered in forested lands, commercial 
timberlands; and timber sales and forest products have 
traditionally been our primary source of employment and revenue 
to fund tribal governmental programs. About half of our 9,500 
enrolled citizens live on or near the Colville Reservation.
    For decades, there has been a bright line that per capita 
distributions from funds held in tribal trust accounts are not 
taxable. The Colville tribes are concerned by reports that the 
IRS has called into question the Per Capita Act as a valid 
income tax exemption for per capita distributions from trust 
accounts.
    I have three key points I would like to make today.
    First, trust funds have always been treated as nontaxable. 
It has long been common knowledge in Indian country that the 
surest way to protect per capita distributions from taxation is 
to distribute the funds from a trust account.
    As my written testimony explains, the Per Capita Act on its 
face provides that per capita distributions from tribal trust 
accounts are tax exempt. Historically, the Colville tribes have 
made modest per capita distributions from our timber sales to 
our tribal citizens. We have always made sure that these were 
distributed from a tribal trust account.
    Other Federal agencies have also considered per capita 
distributions from tribal trust funds as tax exempt. Over the 
years, the Colville tribes have worked closely with the Office 
of Special Trustee to make sure that our trust resource 
revenues would be accepted in the tribal trust accounts.
    Second, Colville tribes negotiated to secure settlement 
funds in the trust. Colville was one of several dozen tribes to 
settle its trust mismanagement claims against the United States 
this past spring. It was because of the Per Capita Act and the 
tax exempt treatment of trust per capitas that we insisted that 
funds from our trust settlement be held in trust. The United 
States did not want to keep any funds in trust because it did 
not want to be liable for mismanaging these funds in the 
future. We had to bargain for this provision because we knew 
that our tribal citizens would expect at least some of the 
settlement to be distributed per capita. We wanted to ensure 
that these funds would not be taxable.
    Let me be very clear: We made our intent to protect these 
funds from taxation painstakingly clear in our negotiations. 
All of the government lawyers involved understood this, and the 
government recognized that there was a tax value to the 
tribes--especially us--in having funds deposited into a trust 
account rather than a private account.
    The Treasury Department was a defendant in our case, and 
Treasury lawyers participated in our negotiations. After the 
settlements were publicly announced in April, it turned out 
that we were one of a very small number of settling tribes to 
negotiate to secure any settlement funds in the trust.
    As tribal communities around the country began learning 
about the tribe's settlements and demanding per capita 
distributions, the tax status of the settlements took center 
stage at Treasury and the IRS. This led Treasury and the IRS to 
issue their September 6 notice. That notice treats settlement 
of per capita distributions from nontrust accounts the same as 
distributions from trust accounts.
    Third, Treasury and the IRS should issue new guidance on 
the Per Capita Act. Colville and other tribes have relied on 
the long-standing treatment of the Per Capita Act as a tax 
exemption for decades, as have other Federal agencies. And, as 
I have mentioned, even during our settlement negotiations the 
government recognized the tax value to tribes in having 
settlement funds deposited into trust accounts for per capita 
distributions.
    In closing, the Colville tribes believe that Treasury and 
the IRS should issue new guidance that the Per Capita Act 
provides a tax exemption for all per capita distributions from 
tribal trust accounts. If they do not consider the Per Capita 
Act a valid tax exemption for all per capita distributions from 
tribal trust accounts, this position simply cannot be 
reconciled with the September 6 notice.
    This concludes my testimony.
    [speaking Okanagan Salish.]
    At this time, I would be happy to answer any questions that 
the members of the Subcommittee may have.
    [The prepared statement of Mr. Sirois follows:]

         Statement of The Honorable John E. Sirois, Chairman, 
          The Confederated Tribes of the Colville Reservation

    Good afternoon Chairman Young, Ranking Member Lujan, and members of 
the Subcommittee. On behalf of the Confederated Tribes of the Colville 
Reservation (``Colville Tribes'' or the ``Tribes''), I appreciate the 
opportunity to testify today on the Per Capita Act and on the federal 
treatment of trust per capita distributions. My name is John Sirois, 
and I am the Chairman of the Colville Business Council, which is the 
governing body of the Colville Tribes.
    For decades, there has existed a bright line--per capita 
distributions from funds held in tribal trust accounts are not taxable. 
The Colville Tribes is concerned by reports that the Internal Revenue 
Service (``IRS'') has called the Per Capita Act into question as a 
valid income tax exemption for per capita distributions from tribal 
trust accounts. We find this even more curious in light of the recent 
notice issued by the Treasury Department and the IRS that per capita 
distributions from the dozens of tribal trust settlements announced 
earlier this year are tax exempt, even if they were distributed from 
private, non-trust accounts.
    The Colville Tribes hopes that this hearing will provide some 
needed sunlight on this issue, and that Treasury and the IRS will issue 
new guidance that unequivocally states that the Per Capita Act 
constitutes an express tax exemption for all funds distributed per 
capita from tribal trust accounts.
Background on the Colville Tribes
    Although now considered a single Indian tribe, the Confederated 
Tribes of the Colville Reservation is, as the name states, a 
confederation of 12 aboriginal tribes and bands from across eastern 
Washington State. The Colville Tribes has more than 9,400 enrolled 
members, making it one of the largest Indian tribes in the Pacific 
Northwest. About half of the Colville Tribes' members live on or near 
the Colville Reservation.
    The Colville Reservation encompasses more than 1.4 million acres, 
of which approximately 66 percent is commercial forest land. Although 
the Colville Tribes has diversified into several lines of business, it 
has traditionally relied on timber sales and its forest products 
industries as primary sources of employment and revenue to fund tribal 
government programs.
    The Colville Tribes owns a traditional sawmill, Colville Indian 
Precision Pine (``CIPP''), and a plywood manufacturing facility, 
Colville Indian Power and Veneer (``CIPV''). Both of these facilities 
are located in Omak, Washington. The downturn in the housing market 
forced the Colville Tribes to make the difficult decision to close CIPP 
in 2009 and CIPV in 2010 until market conditions improve. Closure of 
those facilities resulted in the loss of nearly 400 jobs, not including 
secondary jobs such as contract loggers and truck drivers that the 
facilities supported. These facilities remain closed.
    Prior to the market downturn, the Colville Tribes had been able to 
utilize revenue from its timber sales to provide tribal members with 
modest per capita payments. The Tribes typically made two distributions 
in August and December to coincide with the back-to-school and holiday 
seasons, respectively.
The Per Capita Act and Historical Tax Treatment of Per Capita 
        Distributions from Tribal Trust Accounts
    The Per Capita Act (25 U.S.C. Sec. Sec. 117a-117c) was signed into 
law in 1983 and allows the Secretary of the Interior or Indian tribes 
to distribute per capita payments from tribal trust accounts. The Per 
Capita Act explicitly states that funds that are distributed from 
tribal trust funds under the Act are subject to one particular section 
(25 U.S.C. Sec. 1407) of a separate federal law called the Indian 
Tribal Judgment Funds Use or Distribution Act (``UDA''). Section 1407 
of the UDA provides that per capita distributions subject to the UDA 
are not subject to state or local taxation, and up to $2,000 is 
excluded from determining eligibility for certain federal or federally 
assisted programs. When read together, the Per Capita Act and the UDA 
operate to treat those funds distributed per capita from tribal trust 
accounts as tax exempt to the recipient.
    By its terms, the Per Capita Act applies only to funds distributed 
per capita from tribal trust accounts and does not extend any benefits 
or protection to funds distributed per capita by tribes from private, 
non-trust accounts. The Department of the Interior (``DOI''), through 
the Office of the Special Trustee (``OST''), will only accept certain 
funds for deposit into trust accounts under its regulations. Examples 
of funds that can be so deposited include proceeds from timber sales, 
payments from leases or other encumbrances of Indian land, and funds 
``derived directly'' from trust lands or trust resources when paid 
directly the Secretary, among others.
    For decades, the IRS has not considered per capita distributions 
from tribal trust accounts as taxable income. Because of this 
historical treatment and the existence of the Per Capita Act, it has 
long been common knowledge in Indian country that the surest way to 
protect per capita distributions from federal taxation is to distribute 
funds only from tribal trust accounts.
    In the Colville Tribes' experience, OST has been and is similarly 
cognizant of the federal tax treatment of funds distributed per capita 
from tribal trust accounts. The Colville Tribes has previously worked 
cooperatively with OST to demonstrate that certain tribal revenues 
could be deposited in trust under OST regulations. OST evaluates these 
requests carefully. For example, prior OST officials have informed the 
Colville Tribes that because the Indian Gaming Regulatory Act 
explicitly provides that per capita distributions of gaming revenues 
are taxable, OST must be very careful to ensure that any funds accepted 
into trust do not include commingled gaming revenue.
The SPOA Initiative and the Treasury Department's Notice on Per Capita 
        Distributions from the Tribal Trust Settlements
    Earlier this year, the Colville Tribes and several dozen other 
tribes resolved their trust accounting and trust mismanagement claims 
against the United States through an initiative commonly referred to as 
the ``Settlement Proposal to the Obama Administration'' (``SPOA''). On 
April 11, 2012, the Department of Justice publicly announced 
settlements with 41 tribes, including the Colville Tribes. Other tribes 
have reached settlements since then. The Colville Tribes' $193 million 
settlement was the largest of the SPOA settlements.
    The United States took the position during the SPOA process that 
any payments to settling tribes must be deposited in private, non-trust 
accounts. The United States also wanted to prohibit DOI and Treasury 
from ever accepting settlement payments into trust accounts at a later 
date. The United States wanted these provisions to ensure that it would 
not be liable for mismanaging settlement funds in the future.
    The Colville Tribes had to negotiate to secure provisions in its 
settlement agreement to keep a portion of its settlement payment ($38.6 
million) in a trust account instead of in a private, non-trust account 
as the United States wanted. The Colville Tribes bargained for this 
provision knowing that its tribal membership would expect at least some 
of the Tribes' settlement to be distributed per capita and to shield 
those funds from federal taxation. Our representatives made these 
points clear during the negotiations, and the government lawyers 
acknowledged our rationale for doing so. Because the Department of 
Treasury was a defendant in the Tribes' lawsuit, lawyers from Treasury 
participated in our negotiations as well.
    After the SPOA settlements were publicly announced on April 11, it 
turned out that the Colville Tribes was one of a very small number of 
settling tribes on that list to successfully negotiate to secure any 
settlement proceeds in a trust account. The other tribal settlements 
had settlement payments deposited into private accounts with the going-
forward prohibition on DOI taking them into trust in the future. Of the 
tribes identified in the April 11 press release, the Colville Tribes' 
$38.6 million was the largest amount to be retained in trust.
    As tribal communities around the country began learning about their 
tribes' settlements and began demanding per capita distributions, the 
tax status of the SPOA settlements seemed to take center stage at 
Treasury and the IRS. The focus on the settlement taxation issue 
diverted resources from other Indian-related issues, such as the IRS's 
implementation of the Indian provisions of the Affordable Care Act of 
2010. All of this ultimately led Treasury and the IRS to issue Notice 
2012-60, ``Per Capita Payments from Proceeds of Settlements of Indian 
Tribal Trust Cases'' (the ``Notice'').
    The Notice acknowledges that most of the SPOA settlements directed 
the settlement funds to be deposited in private, non-trust accounts. 
The Notice proceeded, however, to state that all per capita payments 
from the SPOA settlements are treated for federal tax purposes ``the 
same as per capita payments from funds held in trust by the Secretary 
of the Interior'' under the Per Capita Act. Although the Notice is not 
precise on this point, the apparent rationale for this conclusion is 
that the SPOA settlements resolved claims of mismanagement of tribal 
trust resources. The Notice goes on to conclude that interest earned by 
SPOA settlement proceeds while in a private bank account is taxable 
income when distributed per capita.
Treasury and the IRS Should Issue New Guidance on the Per Capita Act
    The tax-exempt treatment of per capita distributions from tribal 
trust accounts has always been a bright line in Indian country. In 
light of the issuance of the Notice, it would be an absurd result if 
per capita distributions of timber sale or other trust resource revenue 
from tribal trust accounts were now to be considered taxable income. 
Not only have the Colville Tribes and other tribes relied for decades 
on the longstanding treatment of the Per Capita Act as an exemption, 
but other federal agencies such as OST have also recognized this 
treatment as well. With the issuance of the Notice, Treasury and the 
IRS should take this opportunity to issue new guidance that the Per 
Capita Act provides a tax exemption for all per capita distributions 
from tribal trust accounts.
    To the extent that the IRS has questions or concerns about the 
types of revenue that OST accepts for deposit in trust, OST regulations 
provide clear guidance. In the Colville Tribes' experience, OST is 
well-suited to evaluate these requests and has been doing so with the 
tax implications in mind for many years.
    The Colville Tribes appreciates the Subcommittee's consideration of 
this testimony. At this time I would be happy to answer any questions 
that members of the Subcommittee may have.
                                 ______
                                 
    Mr. Young. I thank the panel.
    And this is one of the poor things about this body right 
now. We do have to go vote. And you are free to go have a cup 
of coffee, do whatever you want to do. We will be back here at 
about 12:25.
    I do apologize for that. I have no control over that. In 
the good old days, we had proxies, and we could have a good 
time. But we can't do that anymore. We want to look good in the 
public's eye. So I do apologize.
    And thank you for your testimony. All of it was good, 
excellent testimony. When we come back, we will finish 
questioning and continue our discussion and try to solve this 
problem.
    With that, we are now in recess until 12:25.
    [recess.]
    Mr. Young. The Committee is out of recess.
    I recognize the Ranking Member, Mr. Lujan, for questions.
    Mr. Lujan. Thank you very much, Mr. Chairman.
    Ms. Jacobs, that tribal trust lands are not subject to 
taxation has been settled law for some time. Are trust lands 
and income derived from trust lands which tribes may distribute 
on a per capita basis to their members treated differently for 
tax purposes?
    Ms. Jacobs. Thank you for that question, Congressman.
    I believe that in this notice about the settlements is the 
first time that the Internal Revenue Service has spoken to the 
Per Capita Act, which would be the law you refer to that has 
been in effect for some time. And though the notice does not 
directly address the treatment of distributions--per capita 
distributions under the Per Capita Act to tribal members from 
tribal trust resources, I think the legal reasoning 
underpinning the particular notice we issued last week would 
support that those payments would not be includable as income.
    Mr. Lujan. For the record, what is the IRS' practice on the 
tax treatment of per capita distributions from tribal trust 
incomes of income derived from natural resources?
    Ms. Jacobs. Well, Congressman, as I said, we--maybe I need 
to give a little background. It is not an issue that comes up 
very often for us, is my understanding. And, as I said, we have 
not issued any guidance since the Per Capita Act passed in 1983 
particularly on that topic. So this is the first time we would 
have addressed that at all.
    Mr. Lujan. In its recent guidance on the tax-exempt status 
of settlement funds, the IRS relied on, I quote, ``the source 
of funds and origins of claims principles in making its 
determination.'' Following this logic, shouldn't per capita 
income derived from trust resources be similarly tax exempt?
    Ms. Jacobs. Congressman, I think there are two different 
legal principles at work in those questions. For the 
settlements, we needed to look at the origin of the claim, 
because we were dealing with a settlement issue. For items that 
are placed in trust that are then distributed per capita 
pursuant to the Per Capita Act, that would be really relying 
solely on the Per Capita Act and not an origin of a claim sort 
of doctrine.
    Mr. Lujan. Two things I think, Mr. Chairman.
    One, I will ask unanimous consent to submit into the record 
screen shots from the IRS' website.
    [NOTE: The IRS website screen shots have been retained in 
the Committee's official files.]
    Mr. Lujan. Ms. Jacobs, why is there a difference in policy 
from November 18, 2011, to April 3, 2012, which are when these 
screen shots were captured?
    The ITG fact answer and question area asked this question: 
``Are any per capita distributions exempt from Federal income 
taxation?'' The IRS on their own answered that question and 
they stated on November 18, 2011, ``Yes, when distributions are 
received resulting from a land claim settlement and judgment 
and also when there are distributions of trust principal and 
income held by the Secretary of the Interior,'' which I agree 
with.
    What the screen shot now says is, ``Yes, distributions of 
principal and interest made from land claim settlements or 
judgment funds that are held in trust by the Secretary of the 
Interior are not subject to taxation.''
    Why was that language taken out?
    Ms. Jacobs. Congressman, I am not aware of there being a 
change on the website. I can look into that.
    I do know there was an effort to simplify questions, and it 
may have been a general part of that. But there was no 
particular reason I am aware of that one question would have 
been changed.
    Mr. Lujan. So it seems to me that is why we are here today. 
It is not to simplify the question. It changes what is tax 
exempt and direction to constituencies.
    I guess also my follow-up questions are: Is there something 
that can be done administratively by the IRS to make it clear 
that these are tax-exempt dollars? Or is legislation needed?
    Ms. Jacobs. Congressman, I think we indicate in the notice 
that further guidance might be issued on the broader issue of 
income from tribal trust assets themselves versus the 
settlement context. We do have the legal reasoning in the 
notice, and I think it is possible to make some clarifying 
changes to things administratively through guidance as well as 
changes to the website. The problem with the website change is 
that it is not reliable guidance. We would want to do something 
that people can rely on.
    Mr. Lujan. And last, Mr. Chairman, if I may, as my time 
runs out, I would hope that if we can do that maybe we can also 
reissue a letter that went out to the Confederated Tribes of 
the Warm Springs Reservation of Oregon dated April 20, 2012, 
from Mr. Joe W. Kincaid in which the closing paragraph states: 
As noted throughout, the IRS position is that per capitas are 
taxable to members when they are sourced in timber revenues 
from unallotted tribal land held in trust.
    If we can do that administratively, I think that that will 
change the direction of what has happened with these tribes as 
well; and, Mr. Chairman, that sure would make things a lot 
easier, sir.
    Mr. Young. I thank the gentleman.
    The gentlelady from Hawaii.
    Ms. Hanabusa. Thank you, Mr. Chairman.
    Ms. Jacobs, in reading your testimony, I have to tell you I 
am somewhat confused. I am confused in that statement you made 
on page 3 where you were talking about the notice. And it says, 
``Other per capita payments made by the Secretary of the 
Interior for Indian tribes to members of Indian tribes are 
outside the scope of the notice and may be addressed in further 
guidance.'' So when that notice was made, what do you 
anticipate as being, one, outside the scope of the notice? Are 
there any examples you can give me? And, two, how do you intend 
to address it in further guidance?
    Ms. Jacobs. Sure. Thank you, Congresswoman, for that 
question.
    The notice is limited to the settlement context. So it was 
also a subject of extensive consultation with the tribes who 
are affected by the settlements. So we did not address the 
broader question of distributions by tribes from tribal trust 
assets through the Per Capita Act because that would affect a 
broader group of tribes. We would want to consult more broadly. 
So that would be one of the types of items not necessarily 
covered by this notice.
    In addition, we would probably seek to do that through a 
different form of guidance, which generally takes a longer 
period of time, something we call a revenue ruling or a revenue 
procedure.
    So those would be the types of payments that we would say 
were beyond the scope of the guidance. But, as I have said 
before, I believe that the legal underpinnings of the rationale 
of the notice would apply to the sort of payments we are 
talking about, per capita distributions pursuant to the Per 
Capita Act from tribal trust resources.
    Ms. Hanabusa. So am I understanding you correctly that, 
one, the fact that the asset is a trust asset--in other words, 
they are tribal assets but held in trust--at the point that the 
per capita distribution may be made that it does not mean that 
could not, I guess, rise to the level of a taxable event? That 
is something that you are still going to be looking at? Am I 
hearing you correctly?
    Ms. Jacobs. Congresswoman, I think that we are saying in 
the notice that the Per Capita Act--if we are talking about 
distributions of tribally held versus individually held--
tribally held trust assets, those distributions are subject to 
the Per Capita Act and would not be taxable. There might be 
instances where tribes are using income from a trust asset and 
making a payment that is not a per capita payment under the Per 
Capita Act, so that conceivably could be something that would 
be taxable. But every case would be looked at separately for 
the facts relating to that.
    Ms. Hanabusa. So taking that discussion further, if, for 
example, an individual files a lawsuit and the settlement is 
reached--common language that we are using here--and as a 
result of that settlement it becomes ``tribal assets''--in 
other words, it doesn't designate you in particular. This isn't 
for Ms. Jacobs. This is for the tribe--that you believe, given 
this notice, I would assume then that would not lead to a 
taxable event for any kind of per capita distribution as a 
result of that settlement. Would I be correct in that 
assumption?
    Ms. Jacobs. Well, Congresswoman, if what we are talking 
about is the--we would have to look at what the origin of the 
claim was. And if the settlement was of a trust fund case, this 
notice indicates that payments from those settlements are not 
subject to tax because of the nature of the origin of the 
claim.
    Ms. Hanabusa. So it almost seems like what this notice is 
saying to tribal members or to tribes themselves is do not 
bring anything in terms of an individual right but you must 
bring things in terms of--something that may enhance the 
concept of their Indian country interests that the Interior is 
going to administer as trust property. Because, other than 
that, we are going to tax you.
    Ms. Jacobs. Congresswoman, I don't believe that is the 
intent of the notice. The notice did not address individual 
trust suits. Those would have to be considered separately. We 
addressed in the notice the tribal trust cases only and the tax 
consequences of those cases.
    Ms. Hanabusa. But by the caveat at the end that says this 
is all that this applies to, you are almost by innuendo telling 
them or telegraphing to the tribes that if it is brought in, in 
any other form other than for tribal assets, you stand the 
jeopardy or you stand the risk that it will give rise to a per 
capita tax issue. That would be the plain reading of this, 
wouldn't it?
    Ms. Jacobs. Congresswoman, I believe other statutes would 
apply to individual Indian trust litigation. I do not believe 
we intended any more in the notice than to solely address these 
cases and the settlements from them. And that language limiting 
it is meant to indicate that this notice is limited to those 
cases which are listed at the end and for which we anticipate 
approximately 10 to 11 more to be added to that list.
    Ms. Hanabusa. Of trust assets that will be exempt from 
taxation?
    Ms. Jacobs. Congresswoman, the addition to the list would 
be--there are approximately 11 more settlements that we expect 
that are similar to the 55 we list in the notice, and those 
would be exempt under the reasoning of this notice.
    Ms. Hanabusa. Mr. Chair, I will yield back.
    Mr. Young. Thank you. And, if you wish, we will have a 
second round.
    Kristi, you are up.
    Mrs. Noem. Thank you, Mr. Chairman.
    And to Director Jacobs, I just wanted to ask you for a 
little bit of clarification on some of that discussion that you 
had as well. But the notice that you are referring to, is that 
the Notice 2012-60?
    Ms. Jacobs. Yes.
    Mrs. Noem. OK. The specific question I have is how that 
treats specific income that would come in from timber leases or 
grazing leases, income from a trust asset. What is your policy 
on taxing that type of income as it relates to tribes?
    Ms. Jacobs. Well, Congresswoman, as we have discussed, the 
notice itself does not directly address those sorts of 
payments. That is per capita payments under the Per Capita Act 
from tribal trust assets. But the legal analysis applied in the 
notice to the payments that are made through the settlement 
would, I believe, support a position that those payments would 
not be subject to tax.
    Mrs. Noem. OK. So when you are looking at each of these 
instances, is there quite a bit of judgment that needs to be 
utilized in each individual specific case by the IRS when they 
are deciding whether to tax or not to tax this income type?
    Ms. Jacobs. Well, Congresswoman, in the audit context, 
things do become very factual. So if we are speaking in terms 
of a specific matter, then, of course, we do look to see 
whether, in fact, it is something made under the Per Capita 
Act, for example, or to verify whatever the payment might be in 
a general context. If you take a deduction on your return, we 
would look at whether or not we have documentation for it, that 
sort of thing.
    So, in that way, it would be specific. But we do not have 
any specific effort to look for these payments or to bring this 
issue to bear, and I think we are trying to issue general 
guidance so that people can have more clarity on particularly 
these settlements. And, as we have indicated, we would need to 
do that in the future for the broader question.
    Mrs. Noem. Some of your previous testimony that was given 
over on the Senate side, it appeared that some of the 
conversation was trying to get clarification on what the policy 
really was, that there was no new policy was what your 
testimony had said but yet there was never a clear definition 
of what the policy actually was. So if you wanted the 
opportunity to clarify what that would be today, I would 
certainly appreciate it.
    Ms. Jacobs. Well, thank you, Congresswoman.
    I think in the notice we are trying to indicate that we do 
want to consult further with tribes on the issue of the tax 
treatment of tribal trust assets, as referred to in the Per 
Capita Act. But the legal analysis in the notice would indicate 
that those are not subject to tax. I do think we need to have 
more conversations with the tribes. That is the legal analysis.
    Mrs. Noem. Thank you. I appreciate that.
    With that, Mr. Chairman, I yield back.
    Mr. Young. I thank the good lady.
    Mr. Lujan, would you like to pursue another question?
    Mr. Lujan. Mr. Chairman, thank you so much.
    Director, just a quick follow-up. I appreciate the line of 
questioning as well. I know the IRS will not comment on 
individual audits or pending actions. However, I would like to 
know why we are hearing reports from tribal leaders testifying 
today that IRS action in the field is not consistent with 
existing tax policy.
    Ms. Jacobs. Thank you very much for that question, 
Congressman.
    Let me confirm that I cannot speak to the existence of 
audits as well as any specific details of them. But perhaps it 
would be useful if I explain in my experience when guidance 
comes out what happens were there to be an open audit question.
    Normally what would happen on published guidance which is 
broadly applicable comes out, then any open audit that has that 
issue in it would be evaluated against the guidance; and the 
position taken in the audit would be brought in line with 
published position. So that process, as you can imagine, takes 
a little bit of time. The notice has come out only a week ago. 
So we are very early in it becoming public. In fact, it only 
was able to be posted on the website yesterday. So that is the 
normal process that would be evaluated and any audits brought 
in line with the position.
    Mr. Lujan. I appreciate that clarification, Director. I 
think that will help shed some light on what we are trying to 
accomplish here. Thank you very much. We look forward to seeing 
that as well. And, again, any other letters or documents that 
may be resubmitted to some of the tribes--namely, the one that 
I cited from April 20 to the Confederated Tribes of the Warm 
Springs Reservation of Oregon.
    Thank you, Mr. Chairman.
    Mr. Young. Does the gentlelady from Hawaii have some 
questions?
    Ms. Hanabusa. Yes, Mr. Chairman.
    As you know, there have been tribes that assume that they 
had, I guess, the status until the Carcieri decision came out. 
Have you looked at how that decision is going to affect the 
issue of when their ``income'' or distributions may be subject 
to the per capita tax? These are tribes that are post-
recognized 1934. Have you looked at that?
    Ms. Jacobs. Thank you, Congresswoman. No, we have not 
looked at the effects of the Carcieri decision.
    Ms. Hanabusa. Do you expect that the Carcieri decision will 
have an impact on how the IRS views whether or not it will give 
rise to taxable income because of their status post-Carcieri?
    Ms. Jacobs. Congresswoman, I am simply just not prepared to 
answer that question. We have not looked at that and the effect 
of that at all.
    Ms. Hanabusa. Well, let me ask it this way: Has there been 
any consideration or concern on the part of the IRS that that 
particular decision may then change your interpretation of the 
per capita tax for those tribes who are post-1934?
    Ms. Jacobs. No, Congresswoman, I don't believe that we at 
the IRS have looked at that issue and been concerned. But any 
of us who work in Indian country are generally concerned about 
the decision and are waiting to see how it will affect any of 
our agencies.
    Ms. Hanabusa. Has there been any attempt on the IRS' part 
to differentiate as you issue notices to tribes that are not 
covered due to--well, let's just say the the post-Carcieri 
decision tribes.
    Ms. Jacobs. No, Congresswoman.
    Ms. Hanabusa. So, right now, post-1934, a Carcieri decision 
tribe that may be affected by Carcieri is still going to have 
the benefit of the interpretation of this notice as to trust 
assets?
    Ms. Jacobs. Well, Congresswoman, the issue simply has not 
come up. So if that were an issue, we would have to obviously 
do a legal analysis of whether the decision did have any 
effect. We just have not had that issue.
    Ms. Hanabusa. So let me understand as simply as I can. So 
what this notice basically is now saying is that, for example, 
if interest income is derived from an asset like revenues from 
timber, that interest income, when it is then given to the 
members, that would give rise to a taxable event?
    Ms. Jacobs. No, Congresswoman. If we are talking about 
interest earned while the trust asset or the income from the 
trust asset is held in trust----
    Ms. Hanabusa. Well, what if it is held in a bank account 
somewhere else?
    Ms. Jacobs. Well, if it is part of one of the settlements 
that the notice is on, I think the settlement makes it clear 
that once it is in a private account the interest amounts would 
be taxable. And that is not a change. That has been the law for 
quite some time.
    Ms. Hanabusa. But if that interest amount is held in trust, 
basically would that be some interior account of some sort, 
that would not give rise to a taxable event when that is 
distributed?
    Ms. Jacobs. Yes, Congresswoman. If the interest is earned 
while the principal amount is held in trust, that interest is 
not subject to income tax. If the interest is earned while the 
amount is in a private account, then the answer is different.
    Ms. Hanabusa. Have you in this discussion looked at the 
amount or the interest rates? Is there a difference between 
what you would get if it is held in trust versus held in a 
private account? Is there a difference in that?
    Ms. Jacobs. Congresswoman, I do not have that information 
at all. We did not look and I do not know what the rates would 
be.
    Ms. Hanabusa. But definitely if it is held in trust it is 
not taxable; and if it is not held in trust and returning, say, 
twice the amount that you would have in trust, that would give 
rise to a taxable event?
    Ms. Jacobs. Yes, Congresswoman. That has been the settled 
position for some time.
    Ms. Hanabusa. Thank you.
    Thank you, Mr. Chairman.
    Mr. Young. I thank the gentlelady.
    Athena, to your knowledge, what efforts has the IRS made to 
educate tribes about the taxability of per capita trust 
payments?
    Ms. Sanchey Yallup. Thank you, Chairman, for the question.
    The Yakama Nation has never been consulted on the issue of 
that. The Yakama Nation has received a letter stating that the 
IRS wanted to come and audit, and that is basically IRS' 
understanding of consultation to the Yakama Nation.
    Mr. Young. And, otherwise, they just notified you that they 
were going to audit you?
    Ms. Sanchey Yallup. Yes, that is the only thing.
    Mr. Young. That is not proper consultation.
    Ms. Sanchey Yallup. No, that is not.
    Mr. Young. In your opinion, has the IRS lived up to the 
President's directive to implement Executive Order 13175 
regarding the Federal agency's consultation with Indian tribes?
    Ms. Sanchey Yallup. Thank you, Chairman, for that question.
    In the Yakama Nation's opinion, IRS has not lived up to the 
proper Executive Order of consultation with the Confederated 
Tribes and Bands of the Yakama Nation.
    Mr. Young. The letter you received, did it come from 
Washington, D.C., or from the local office?
    Ms. Sanchey Yallup. Chairman, it was received from the 
Portland office.
    Mr. Young. From the Portland office.
    Ms. Sanchey Yallup. Yes.
    Mr. Young. OK.
    All right. Ron, if these per capita trust payments are 
considered taxable income, what impact does it have on your 
membership eligibility for food stamps, Social Security, and 
other public assistance?
    Mr. Suppah. Thank you for the question.
    Warm Springs, not unlike any other government, has to pay 
for certain services with revenues generated by our 
enterprises. It would have a terrible impact on our tribal 
membership if those revenues were determined to be taxable, 
because we are suffering from a very severe financial problem 
at home in our nation.
    Mr. Young. OK. If the IRS doesn't change its attitude--and 
I hate to ask this because it makes some lawyer some money--are 
you prepared to litigate?
    Mr. Suppah. I think in visiting with Colville and Yakama, 
Warm Springs had kind of laid out some steps.
    Number one, our hope is that if this Committee--which is 
the appropriate Committee to make a determination and decision 
to possibly resolve this--would do that today, that would be 
the greatest news that we could have.
    Second, if that were not to occur and we have to continue 
this battle in addressing this problem from Warm Springs, yes, 
we are preparing for litigation.
    Third, I think that if the Committee would somehow direct 
IRS to honor Executive Order 13175 and consult with the 
affected tribes that would be good. Because I think that, right 
now, we seem to be just poking each other in the eye, and 
nothing is being resolved. We are just kind of talking about 
each other from across the fence.
    Mr. Young. OK. And, John, in your tribe's settlement, the 
government agreed to deposit 20 percent of the settlement funds 
into a trust. I take it that is a settlement fund of a big 
lawsuit, is that correct?
    Mr. Sirois. Yes, Mr. Chairman.
    Mr. Young. OK. Now was there something you had to bargain 
for? Or how did this come about and what did you have to give 
up?
    Mr. Sirois. Thank you, Mr. Chairman, for that question.
    In the negotiation process, it was basically clear that we 
had to negotiate for a portion of that settlement being put 
into trust; and all sides clearly knew that we had to bargain 
for that. Because, otherwise, the remainder of the settlement 
would be taxed, taxable income. And that was the assumption and 
the direction that the negotiation team had.
    Mr. Young. Now let me clarify this. You settled--you are 
one of the 55 tribes.
    Mr. Sirois. That is right.
    Mr. Young. You are one of the few that took the 20 percent 
and put it into the trust----
    Mr. Sirois. That is right.
    Mr. Young [continuing]. Because you thought that the 
remaining amount would be taxable income?
    Mr. Sirois. That is correct.
    Mr. Young. And with their directive they came out and said, 
that is not taxable income--that part of it. But any other 
income from resources that were the original treaty, the 
original concept of your reservation, your nation, was not to 
be taxable.
    Mr. Sirois. That is correct.
    Mr. Young. OK. Good.
    All right. Christie, I am a little confused. Where did this 
idea come from? Which brainchild and what area of the Moon did 
they come from?
    Ms. Jacobs. Congressman, could you clarify which idea you 
are speaking of?
    Mr. Young. The memos, this has never been done since 1983.
    Ms. Jacobs. The notice?
    Mr. Young. The notice went out. But, see, I happen to think 
a pimple comes from eating too much candy. Someone ate too much 
candy. Now who and where did this come from? Did it come from 
the Oregon office? That is where the letter comes from. Did it 
come from Washington, D.C.? Do we have some little energetic 
individual who thinks, Oh, we will get those Indian tribes, and 
they have to pay their money?
    Ms. Jacobs. I apologize. Mr. Chairman, do you mean----
    Mr. Young. The idea, the memo.
    Ms. Jacobs. Do you mean the notice?
    Mr. Young. Yeah, the notice.
    Ms. Jacobs. Notice 2012-60.
    Mr. Young. I don't care what it is. The one that came in 
2011, 2012.
    Ms. Jacobs. The notice that we published last week was a 
result of requests from tribes and tribal organizations that we 
clarify the treatment of the settlements.
    Mr. Young. But they required that because there was a 
previous notice of identification that they would be audited. 
Is that correct?
    Ms. Jacobs. My understanding, Mr. Chairman, is that the 
tribes that requested clarification were concerned that our 
positions were not clear about what the tax treatment of 
settlement payments would be, both----
    Mr. Young. That was for the 55 tribes----
    Ms. Jacobs. Yes, sir.
    Mr. Young. But now we bring in the resources, moneys into a 
trust. How did that come up?
    Ms. Jacobs. Well, Mr. Chairman, as we discussed, I am 
unable to disclose any information about whether or not anyone 
may have had that as an issue in audit. Nor can I confirm the 
existence----
    Mr. Young. With all due respect to you, you can't say it, 
but I will damn well subpoena somebody and find out about it.
    Ms. Jacobs. Right.
    Mr. Young. Because what we are trying to do here is what is 
right. Not some government agency. These tribes worked all 
these years under the understanding that they would have a 
trust and when they distributed primarily interest from the 
capital of the trust to their members it would be nontaxable 
income.
    Now someone came up with a bright idea--and why, I don't 
know. Because you think about the income of 90 percent of the 
tribes is below the minimum amount of taxation that they now 
have to declare which will affect food stamps and so on down 
the line. You have better things to do.
    Mr. Lujan. So the letter that I handed to the Chairman was 
the one that I cited earlier from April 20, Mr. Chairman. The 
individual at least that wrote this or signed their name to it 
was Joe Kincaid.
    Mr. Young. And he is not with the IRS?
    Mr. Lujan. Yes, sir. He is with the ITG. He is a group 
manager as well. And that is the letter that we are citing that 
went to the Confederated Tribes of the Warm Springs Reservation 
of Oregon dated April 20, 2012, that makes that statement in 
there that the IRS' position is that per capitas are taxable to 
members when they are sourced in timber revenues from 
unallotted tribal lands held in trust. And that is the essence 
of----
    Mr. Young. Yes. This is what we are looking for, someone--I 
don't know how much money is involved. We will have to find out 
how much money is involved in taxable income.
    I have another question.
    It is my understanding moneys derived from the trust fund--
the interest--if it was for, in fact, the tribe to use that in 
government agencies or within their government itself, that is 
nontaxable; is that correct?
    Ms. Jacobs. Yes, Mr. Chairman. If they use their trust----
    Mr. Young. OK. If I were to make a suggestion if every 
tribe was to hire all its tribal members, you couldn't collect 
any tax. You would hire them for whatever the dividend is, 
$500, $1,000, whatever it is. Then you can't tax them.
    Because, right now, this is going to affect every person 
that has ever gotten a dividend check from one of the tribes. 
If they don't file it correctly, then I take it that the 
individual would be liable for tax evasion.
    Ms. Jacobs. Mr. Chairman, if I might, if the tribe is 
making per capita payments pursuant to the Per Capita Act, 
which I believe are the types of things you are discussing, 
from the trust assets, I think you can look at this notice and 
the legal analysis leads you to an official position that these 
are not subject to tax----
    Mr. Young. But it says right here, from tribal timber 
lands, they are taxable.
    Ms. Jacobs. As I discussed earlier, Mr. Chairman, when we 
publish a position on a matter, anything that is individually 
being discussed in a different context would then be brought 
into line with that published position.
    Mr. Young. So what does that mean? You are going to tax 
them or not tax them?
    Ms. Jacobs. Mr. Chairman, I do not believe that per capita 
payments made to tribal members pursuant to the Per Capita Act 
from trust resources are taxable.
    Mr. Young. Including timber resources from nonallocated 
lands under trust?
    Ms. Jacobs. That would be exactly the sort of item that 
would be covered by the Per Capita Act. Yes, sir.
    Mr. Young. Then I think that should be clarified.
    I mean, these people aren't here by accident. I mean, I 
don't know how many people have gone--you haven't gone through 
an audit. You work for the IRS. I went through it nine times. 
It is not a good feeling. And every time I told them, there is 
nothing there. Just because I put in a taxpayer bill of rights 
back about 30 years ago. Don't tell me that was by accident, by 
the way.
    Was the Department of the Interior--did they agree with the 
analysis of what came down on the September 6th IRS notice?
    Ms. Jacobs. Yes. Mr. Chairman, I hate to speak for another 
agency, but we did coordinate with both the Department of the 
Interior and the Department of Justice on the guidance.
    Mr. Young. The Department and BIA agreed with this?
    Ms. Jacobs. We coordinated, sir, with the Solicitor's 
Office at the Department of the Interior.
    Mr. Young. Was the BIA ever notified?
    Ms. Jacobs. Mr. Chairman, you would have to speak to the 
Department of the Interior about that. I know that we 
coordinate directly with the Solicitor's Office and those 
negotiating the settlements.
    Mr. Young. Well, for the members of the Committee, that is 
another example of why we should eliminate those spokesmen for 
the natives in the Department of the Interior and the BIA. They 
should be at this table saying this has never been implemented. 
There is no need for this notice. It has caused consternation 
amongst the native tribes.
    And I can assure you, Ms. Jacobs--and with all due respect, 
it is not you personally. I would suggest respectfully you go 
back and make it clear that the revenues from the trust funds, 
from resources are nontaxable so they understand it, so they 
don't have to worry about it. And if you don't do that and if 
they don't do that, I am confident I have the votes not only in 
this Committee but in this House and probably on the Floor--I 
want to see the IRS stick its nose up in the air and say, we 
are not going to change our policy.
    You have enough problems the way it is. You have bigger 
chickens to pluck than this problem.
    As Mr. Kildee has said, I am very frustrated with the 
``forked tongue'' approach, with the concept that we can have a 
settlement and a possibility--now we send out a notice saying 
that 55 are not going to be taxed but those that have trust 
funds are going to be taxed is totally inappropriate.
    Would anybody else like to comment? Would the gentlelady 
from Hawaii or anybody else like to make a suggestion? Would 
anybody on the panel like to say anything before I adjourn this 
meeting?
    Yes, ma'am. Athena.
    Ms. Sanchey Yallup. Thank you, Chairman. Thank you for 
those comments. I appreciate that on behalf of the Yakama 
Nation.
    As you notice, in the 2012-60 notice or opinion of the IRS, 
the Yakama Nation is not listed on there. So that is our 
question to IRS. Knowing that the settlement agreement is 
mismanagement of our trust resources--and it is from the 1972 
period to the 1992 period Arthur Andersen audit, again, that is 
all trust.
    I cannot help that the Federal Government mismanaged it. 
When I came here today, I felt the same thing, that I am 
confused on the notice. Truly, it should say, all settlement 
agreement funds that are issued or awarded or are actually ours 
to the tribes is nontaxable. And trust income is nontaxable. 
Because, since our opinion of the 1957 for the Yakama Nation, 
it was nontaxable.
    Again, the natural resources for the exclusive use of the 
Yakama in article two of our treaty rights says it is our use 
and benefit for the inclusive exclusive use of the Yakama 
people. Within the minutes of our Yakama treaty, it speaks of 
burden. And truly taxation in the 2012 year is a burden to the 
Yakama Nation.
    The treaty is written and understood as a Yakama, and that 
is how we look at that. Our resources are not taxable.
    And I do appreciate your comment. I appreciate the 
opportunity to sit here on behalf of my people with this issue. 
It does worry me as a leader. It does worry all of our elected 
officials throughout Indian country on this issue. And my 
brothers to the left of me, I really support their effort. We 
are from the Northwest. And I really appreciate that.
    Thank you.
    Mr. Young. I thank you.
    And, Ron, I do hope that you don't have to litigate. Like I 
say, I don't have any love for lawyers. They cost me a lot of 
money.
    But, having said that, we will hopefully have the IRS 
respond to this hearing and respond to this question, clarify 
it. And, if not, we will take care of it. I would prefer them 
doing it themselves.
    Ron, go ahead.
    Mr. Suppah. Mr. Chairman, a couple of things: In order for 
Warm Springs to protect our interest for our tribal membership, 
the tribal council took action to institute an IRS protocol 
policy because we were afraid that there were too many doorways 
that IRS could use to obtain the information that they wanted 
to get. And we did that to protect ourselves, to make sure that 
they only had one door to come through to consult with us about 
any IRS business.
    Last, Mr. Chairman, I would appreciate it if the Committee 
would take a closer look at our trustees sort of absence from 
stepping up to support the tribes' position. Because, right 
now, the appearance from Warm Springs looking in from the 
outside of the Federal Government agencies, it is pretty much 
fractionated; and I think that all of these action agencies 
need to be working together to do what is right.
    Thank you.
    Mr. Young. I appreciate that, and that may be something we 
can look at. Because the Interior Department never had a good 
record. That is the reason we had the settlement.
    By the way, I thought it should have been $27 billion. I 
did a lot of work on this before they reached a settlement. The 
inoperability and I say total corruption of the Interior 
Department over the years cost the tribes a great deal of 
money. And I know you have to have these trusts, I believe, 
with the Department of the Interior. And, again, there should 
be a watchdog so we don't have the same problem.
    Go ahead, Mr. Lujan.
    Mr. Lujan. Mr. Chairman, just one follow-up on the last 
line of responses.
    Director, I think your testimony covers this. When asked 
the question about why weren't other tribes included or would 
the other tribes to be brought in for consideration, you stated 
that you foresee the possibility of entering into additional 
similar agreements in the future with other tribal trust 
litigants. And that is where my line of questioning is, does 
the IRS' new guidance on the tax-exempt status of per capita 
distribution of settlement funds apply only to the 55 tribes 
listed in the guidance?
    Ms. Jacobs. Congressman, currently, it would apply only to 
the 55. But we are told by the Department of Justice and the 
Department of the Interior that they anticipate 10 or 11 more 
very similar settlements. So those then would be added to the 
list.
    Mr. Lujan. So in consideration with the Yakama tribe's 
questions, they would fall into that category and they would be 
included?
    Ms. Jacobs. If they had a settlement, yes, sir. But I 
believe the concern for them is the broader issue of payments 
made from trust assets, not from the settlement.
    Mr. Lujan. Which the clarification of the notice should 
clarify.
    Ms. Jacobs. Yes, sir.
    Mr. Lujan. Very good.
    Mr. Young. I thank the members of the Committee, and I 
thank the witnesses and appreciate this. And I do hope we can 
solve this problem. I have always found there is a way to solve 
a problem.
    I still want to know, like I say, where this brilliant idea 
came from. We will keep pursuing that unless there is a 
different change of attitude.
    And the Committee is adjourned.
    [Whereupon, at 1:15 p.m., the Subcommittee was adjourned.]

                                 
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