Federal Income Taxation of Indian Tribes and Members

Federal Income Taxation of Indian Tribes and Members

Order Code RL34220
Federal Income Taxation
of Indian Tribes and Members
October 26, 2007
Yule Kim
Law Clerk
American Law Division

Federal Income Taxation of Indian Tribes and Members
Summary
Generally, Indian tribes are exempt from federal income taxation. This
exemption extends to income earned by federally chartered — but not state-chartered
— tribal corporations. On the other hand, individual tribal members are not exempt
from federal income taxation. However, there are two Indian-specific tax exemptions
available for individual tribal members: (1) income derived directly from restricted
lands and (2) income derived from treaty fishing-rights activity. Finally, while the
income of Indian tribes may be exempt from tax, Indian tribes are still generally
subject to withholding and employment tax obligations.

Contents
General Tax Status of Indian Tribes and Other Tribal Entities . . . . . . . . . . . . . . . 1
General Tax Status of Individual Indians . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Exemption For Income Derived Directly From Allotted Lands . . . . . . . . . . 3
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Lands That Qualify For Tax Exemption . . . . . . . . . . . . . . . . . . . . . . . . 5
The Definition of “Derived Directly” . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Exemption For Income Derived From Treaty Fishing-Rights . . . . . . . . . . . . 7
Tribal Obligations For Payroll Taxes and Withholding . . . . . . . . . . . . . . . . . . . . . 8
Tribal Obligation to Withhold Federal Income Tax . . . . . . . . . . . . . . . 9
Federal Insurance Contributions Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Federal Unemployment Tax Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Federal Income Taxation of Indian Tribes
and Members
This report provides an overview of federal taxation of Indian tribes and
individual tribal members. Generally, Indian tribes are exempt from federal income
taxation. This exemption generally extends to tribal corporations chartered under
federal law, but does not extend to tribal corporations chartered under state law. On
the other hand, the income of individual tribal members is not generally exempt from
federal income taxation, though there are some Indian-specific exemptions available
for some of their income. Finally, while the income of Indian tribes may be exempt
from tax, Indian tribes are generally still subject to withholding and employment tax
obligations.
General Tax Status of Indian Tribes
and Other Tribal Entities
The income of an Indian tribe is generally exempt from federal taxation,
regardless of the location where the income was earned.1 The Internal Revenue
Service (IRS) appears to base this conclusion on the theory that Congress did not
designate Indian tribes as taxable entities within Section 11 of the Internal Revenue
Code (IRC).2 This exemption extends to income generated by tribal corporations
federally chartered under Section 17 of the Indian Reorganization Act of 1934 (IRA)3
or Section 3 of the Oklahoma Indian Welfare Act.4 Nonetheless, the IRS has
indicated that the exemption does not extend to tribal corporations chartered under
state law.5 It should be noted that the tax status of corporations chartered under tribal
1 Rev. Rul. 67-284, 1967-2 C.B. 55 (“Income tax statutes do not tax Indian tribes. The tribe
is not a taxable entity.”); Rev. Rul. 94-16, 1994-1 C.B. 19 (“Because an Indian tribe is not
a taxable entity, any income earned by an unincorporated tribe, regardless of the location
of the business activities that produced the income, is not subject to federal income tax.”).
2 Mark J. Cowan, Leaving Money on the Table(s): An Examination of Federal Income Tax
Policy Towards Indian Tribes, 6 Fla. Tax Rev. 347, 355 (2004). See also I.R.C. § 11
(imposing a tax on corporations and associations).
3 25 U.S.C. § 477. See also Rev. Rul. 81-295, 1981-2 C.B. 15; Rev. Rul. 94-16, 1994-1 C.B.
19.
4 25 U.S.C. § 503. See also Rev. Rul. 94-65, 1994-2 C.B. 14.
5 Rev. Rul. 94-16, 1994-1 C.B. 19 (“[...] a corporation organized by an Indian tribe under
state law is not the same as an Indian tribal corporation organized under section 17 of the
IRA and does not share the same tax status as the Indian tribe for federal income tax
purposes.”). See also Moline Properties v. Comm’r, 319 U.S. 436 (1943) (holding that
(continued...)

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laws is uncertain, and as the date of this report, the IRS has yet to issue any formal
guidance on the issue.6 Similarly, the tax status of tribal limited liability companies7
(LLCs) is also uncertain.8
General Tax Status of Individual Indians
Individual Indians are generally subject to federal income taxes. This conclusion
is based on the expansive breadth of the language imposing the federal income tax
on individuals.9 Furthermore, the reach of the federal income tax extends over all
income from whatever source it may be derived, unless specifically exempted by
law.10 An individual’s status as an Indian or his status as a tribal member alone has
no bearing on whether the individual’s income is subject to federal taxation,11 absent
a statute or treaty provision evincing a clear intent from Congress to exempt.12
This said, there are two significant Indian-exclusive exemptions from federal
income taxes: income derived directly from allotted restricted lands that are held in
trust by the United States government13 and income derived from treaty fishing
5 (...continued)
unless the corporate entity is a sham or there is some necessity to disregard the corporate
form to prevent fraud on the tax statutes, corporations should be recognized as a separate
taxable entities from the owners, and owners who opt for the benefits of incorporation must
accept the disadvantages in tax liability).
6 See Simplification of Entity Classification Rules [T.D. 8697], 61 Fed. Reg. 66584, 66585-
66586 (December 18, 1996).
7 A “limited liability company” is a “company — statutorily authorized in certain states —
that is characterized by limited liability, management by members or managers, and
limitations on ownership transfers.” Black’s Law Dictionary 275 (7th ed. 1999).
8 See Felix S. Cohen. Handbook of Federal Indian Law 676 (Nell Jessup Newton ed.,
LexisNexis 1941) (2005) (theorizing that LLCs wholly owned by a tribe may have the same
tax-exempt status as the tribe).
9 I.R.C. § 1 (tax imposed on all individuals, trusts, and estates).
10 Id. § 61 (“[...]gross income is all income from whatever source derived[...]”).
11 Choteau v. Burnet, 283 U.S. 691, 694 (1931) (ruling that Osage mineral royalties were
subject to federal income tax based on the language of the Osage Allotment Act, 34 Stat.
539. In doing so, the Court noted that the legislation of the allotment era evinced the intent
of Congress to gradually impose both the privileges and responsibilities of property
ownership to Indians, with one such responsibility being the duty to pay taxes.). See also
Rev. Rul. 67-284, 1967-2 C.B. 55.
12 Superintendent of Five Civilized Tribes v. Comm’r, 295 U.S. 418, 420 (1935). See also
Squire v. Capoeman, 351 U.S. 1, 6 (1956) (reaffirming the proposition that Indians are
citizens and, when in the ordinary affairs of life not governed by treaties or remedial
legislation, are subject to federal taxation like other citizens unless an exemption to the tax
laws is “clearly expressed” by Congress); Rev. Rul. 67-284, 1967-2 C.B. 55.
13 Capoeman, 351 U.S. at 7-8. See also Rev. Rul. 67-284, 1967-2 C.B. 55; Rev. Rul. 74-13,
(continued...)

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rights.14 The first has been developed primarily through case law and IRS revenue
rulings. The second exemption is a statutory provision in the Internal Revenue Code.
Exemption For Income Derived Directly From Allotted Lands
Background. Under specific circumstances, Indians enjoy a tax exemption on
income derived directly from allotted restricted lands held in trust by the United
States government. The leading case on this issue is Squire v. Capoeman, which held
that the General Allotment of Act of 1887 contained language evincing a
congressional intent to grant such an exemption.15
The General Allotment Act of 1887, also commonly called the Dawes Act,
authorized the President to allot portions of reservation lands to individual Indians.16
Title to the allotted lands was to be held in trust by the United States government for
a period of 25 years, which the President had the option to extend by executive
order.17 At the end of the trust period, the land would be conveyed to the Indian “in
fee, discharged of said trust and free of all charge of incumbrance whatsoever.”18
Alternatively, the act authorized the Secretary of the Interior (SOI) to issue a patent
in fee simple to any allottee “competent” of managing his own affairs, and thereafter
“all restrictions as to sale, incumbrance or taxation of said land shall be removed and
said land shall not be liable to the satisfaction of any debt contracted prior to the
issuing of such patent.”19 Until an Indian was certified as “competent,” which meant
capable to manage his affairs as an independent landowner, his allotted land
remained in trust, and was therefore “restricted.”20 However, the allotment policy was
repudiated by the IRA in 1934.21 The IRA prohibited further allotment of tribal
land,22 provided that allotted land held in trust would continue in trust until Congress
provided otherwise,23 and authorized the Secretary of the Interior to take land into
trust for tribes and tribal members.24 Congress would later apply these provisions to
13 (...continued)
1974-1 C.B. 14.
14 I.R.C. § 7873.
15 351 U.S. 1 (1956).
16 24 Stat. 388 (February 8, 1887).
17 24 Stat. 389 (February 8, 1887).
18 Id.
19 34 Stat. 182 (May 8, 1906).
20 24 Stat. 388 (February 8, 1887); 34 Stat. 182 (May 8, 1906).
21 Cohen, supra, 1042-1043 (2005).
22 25 U.S.C. § 461.
23 25 U.S.C. § 462.
24 25 U.S.C. § 465.

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non-IRA tribes as well. Currently, land acquired for or by an Indian may be placed
in trust25 and the trust period for allotments has been extended indefinitely.26
In Capoeman, the issue was whether proceeds from the sale of timber grown on
lands allotted pursuant to the General Allotment Act were subject to the federal tax
on capital gains.27 The Indians who held the allotment were deemed noncompetent.
Moreover, during the tax year in which the income from the timber was realized, the
land allotted was still held in trust by the United States government and not subject
to either alienation or encumbrance by the Indian allottee.28
The Court concluded that the language in sections 5 and 6 of the General
Allotment Act expressed an intent by Congress to exempt from federal taxation all
income derived directly from allotted lands still held in trust by the United States
government.29 First, the Court agreed with the proposition that tax exemptions must
be “clearly expressed.”30 The Court then referenced section 5 of the General
Allotment Act, which ordained that, when allotted lands were conveyed to Indians
in fee, they be “free of all charge or incumbrance whatsoever.” Though the provision,
as the Court conceded, was “not expressly couched in terms of nontaxability,” the
Court nonetheless surmised that the term “charges and incumbrances” might well
include “taxation.”31 Furthermore, the Court cited the language in section 6 stating
that “all restrictions as to sale, incumbrance or taxation of said land shall be
removed,” and then concluded that the language clearly expressed a congressional
intent to exempt the allotted lands from the reach of federal taxation until title to the
allotted lands was conveyed to the Indian allottee in fee.32
In Capoeman, the Court ruled that “[t]he literal language of the proviso [of the
General Allotment Act] evinces a congressional intent to subject an Indian allotment
to all taxes only after a patent in fee is issued to the allotee.”33 Relying on Capoeman,
the IRS has published a series of revenue rulings adopting its holding, and in many
ways expanding its scope. Though the reach of the Capoeman holding is limited to
lands allotted under the General Allotment Act of 1887, the IRS has taken the
position that the tax exemption not only applies to noncompetent Indians allotted
restricted land held under that specific act, but also “land held under acts or treaties
25 25 U.S.C. § 2202.
26 25 U.S.C. § 478-1.
27 Capoeman, 351 U.S. at 2.
28 Id. at 3.
29 Sections 5 and 6 of the General Allotment Act of 1887 were codified in 25 U.S.C. §§ 348,
349.
30 Capoeman, 351 U.S. at 6.
31 Id. at 7-8.
32 Id.at 7.
33 Id. at 8.

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containing an exception provision similar to the General Allotment Act.”34 In a series
of additional rulings, the IRS has also elucidated further contours of this exemption,
addressing two specific areas of concern: which lands qualify for the exemption
outlined in Capoeman, and what types of income derived from allotted lands are
exempted.
Lands That Qualify For Tax Exemption. The IRS will recognize the
exempt status of restricted lands held under the General Allotment Act of 1887 or
lands held under acts or treaties containing an exemption provision similar to the
General Allotment Act.35 The IRS applies five “tests” to determine whether income
from the land in question will qualify for the exemptions, with the failure of any one
of the five tests resulting in a denial of the exemption.36 The tests are whether: “(1)
the land in question is held in trust by the United States government; (2) such land
is restricted and allotted and is held for an individual noncompetent Indian, and not
for a tribe; (3) the income is ‘derived directly’ from the land; (4) the statute, treaty
or other authority involved evinces congressional intent that the allotment be used as
a means of protecting the Indian until such time as he becomes competent; and (5)
the authority in question contains language indicating clear congressional intent that
the land, until conveyed in fee simple to the allottee, is not to be subject to
taxation.”37
It appears that lands located outside Indian reservations fall under the Capoeman
exemption since the General Allotment Act authorizes allotments located outside of
reservations, and Capoeman makes no distinctions between allotted lands located
within or outside of reservations.38 Capoeman applies to allotments issued pursuant
to tribe-specific allotment statutes, regardless of whether the General Allotment Act
applies to those allotments or not.39 The exemption for restricted lands also applies
to individual trust property which is transferred to a subsequent allottee by gift,
devise, or inheritance.40 Furthermore, property that had been purchased in an arm’s
length transaction, which was then subsequently converted to trust status by the
Secretary of the Interior also qualifies for the exemption.41 However, once the
34 Rev. Rul. 67-284, 1967-2 C.B. 55.
35 Id.
36 Id.
37 Id.
38 Cohen, supra 679 (2005).
39 Rev. Rul. 70-116, 1970-1 C.B. 11. See also Stevens v. Comm’r, 452 F.2d 741, 744-746
(9th Cir. 1971) (construing Ft. Belknap Allotment Act of March 3, 1921, 41 Stat. 1355);
United States v. Hallam, 304 F.2d 620, 622-623 (10th Cir. 1962) (Quapaw allotments
pursuant to Act of March 2, 1985, §1, 28 Stat. 876); Big Eagle v. United States, 300 F.2d
765, 770-772 (Ct. Cl. 1962) (taxation of Osage shares of tribal mineral estate under Act of
June 28, 1906, 34 Stat. 539); Red Eagle v. United States, 300 F.2d 772 (Ct. Cl. 1962)
(same).
40 Rev. Rul. 67-284, 1967-2 C.B. 55.
41 Rev. Rul 74-13, 1974-1 C.B. 14 (adopting the holding of Stevens).

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restriction on the allotted land is removed, the income derived from the land becomes
taxable.42
The Definition of “Derived Directly.” In Capoeman, the Court, citing
Professor Felix S. Cohen, declared the scope of the tax exemption found in Sections
5 and 6 of the General Allotment Act of 1887 to include income derived directly
from restricted lands allotted under the act.43 Because of this language, in order for
income to be exempt, the income must “derive directly” from the restricted land. The
IRS has enumerated several sources of income that satisfy the “derived directly” test.
These sources include, but are not limited to: rentals (including crop rentals),
royalties, proceeds from the sale of the natural resources of the land, income from the
sale of crops grown upon the land and from the use of the land for grazing purposes,
and income from the sale or exchange of cattle or other livestock raised on the land.44
The IRS also recognizes that proceeds from the sale of restricted allotted land while
the fee title is still held by the government in trust for the Indian are exempt from
federal taxation.45
Federal appellate courts have also recognized a variety of sources of income that
satisfy the “derived directly” test: income from farming and ranching,46 bonus income
from signing oil and gas leases,47 timber harvests,48 royalties from mineral deposits,49
and rental and sales of chattel from land.50 However, courts have also concluded that
other sources of income fail the test — namely income from businesses, building
rentals, and smokeshops.51 Furthermore, courts have also rejected exemptions for
rental income derived from lands used as a tourist site,52 and income derived from the
lease of the restricted land to a smokeshop.53 In essence, the courts appear to have
delineated the limits of the “derived directly” test by exempting income from taxation
only if the income is derived from the land’s natural resources, while taxing income
derived from the commercial development of restricted lands.54
42 Capoeman, 351 U.S. at 7-10.
43 Id. at 8. (citing Felix S. Cohen, Handbook of Federal Indian Law 265 (1942)).
44 Rev. Rul. 67-284, 1967-2 C.B. 55.
45 Id.
46 Stevens v. Comm’r, 452 F.2d 741 (9th Cir. 1971).
47 United States v. Daney, 370 F.2d 791 (10th Cir. 1966).
48 Kirschling v. United States, 746 F.2d 512 (9th Cir. 1984).
49 Big Eagle v. United States, 300 F.2d 765 (Ct. Cl. 1962).
50 United States v. Hallam, 304 F.2d 620 (10th Cir. 1962).
51 See Dillon v. United States, 792 F.2d 849 (9th Cir. 1986); Critzer v. United States, 597
F.2d 708 (Ct. Cl. 1979).
52 See Saunooke v. United States, 806 F.2d 1053 (Fed. Cir. 1986).
53 See Hale v. United States, 579 F. Supp. 646 (E.D. Wash. 1984).
54 Cohen, supra 682-683 (2005) (characterizing the trend to tax income from commercial
development as “conceptually muddled” because it creates a disincentive for Indians to put
(continued...)

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Furthermore, income unrelated to the use of restricted property, even when it has
some connection to tribal self-sufficiency (such as income from serving in the tribal
government) is not exempt from taxation.55 Nor are per capita payments derived from
tribal restricted lands exempt.56
Finally, there is no tax exemption for “reinvestment income,” which is the
proceeds of invested income originally derived directly from restricted lands. In
Superintendent of Five Civilized Tribes v. Commissioner (Superintendent), an Indian
had invested funds derived from a restricted allotment.57 The Court held that there
was no language which expressly exempted the proceeds of the investment from the
federal income tax, and that an exemption cannot be inferred absent a clear intent
from Congress.”58 Capoeman further clarified the Superintendent holding on the
taxability of “reinvestment” income.59
Exemption For Income Derived From Treaty Fishing-Rights
Indians whose tribes have negotiated treaty fishing rights with the federal
government may have all income derived from those rights exempted from federal
taxation.60 This statutory tax exemption extends over income derived by individual
tribal members or by a “qualified Indian entity” of the tribe, and exempts income
derived from that tribe’s “fishing rights-related” activities.61 To qualify for
exemption, the treaty fishing rights must have been recognized by treaty, executive
order, or act of Congress as of March 17, 1988.62
“Fishing rights-related” activities include activities that are “directly related” to
harvesting, processing, or transporting fish harvested in the exercise of a recognized
fishing right of the tribe, or the sale of the harvested fish; but, the exemption applies
only if substantially all of the harvesting was performed by tribal members.63 Income
54 (...continued)
their land to the profitable use, which appears contrary to federal policy).
55 See Hoptowit v. Comm’r, 709 F.2d 564 (9th Cir. 1983); Jourdain v. Comm’r, 617 F.2d
507 (8th Cir. 1980).
56 See Campbell v. United States, 164 F.3d 1140, 1142 (8th Cir. 1999).
57 Superintendent of Five Civilized Tribes, 295 U.S. at 418-420. See also Capoeman 351
U.S. at 9 (distinguishing the “reinvestment income” from Superintendent of Five Civilized
Tribes from the income at issue in Capoeman).
58 Id. at 420.
59 Capoeman, 351 U.S. at 9 (distinguishing the “reinvestment income” from Superintendent
of Five Civilized Tribes from the income at issue in Capoeman).
60 I.R.C. § 7873(a)(1).
61 Id. § 7873(a)(1)(A), (B).
62 Id. § 7873(b)(2).
63 Id. § 7873(b)(1).

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that may be related to fishing rights activity, but is merely incidental to it, does not
qualify for the tax exemption.64
An entity is a “qualified Indian entity” if: (1) such entity is engaged in a fishing
rights-related activity of the tribe; (2) all of the equity interest in the entity is owned
by qualified Indian tribes,65 members of such tribe, or their spouses; (3) except as
provided in regulations, in the case of an entity which engages to any extent in any
substantial processing or transporting of fish, 90 percent or more of the annual gross
receipts of the entity is derived from fishing rights-related activities of one or more
qualified Indian tribes each of which owns at least 10 percent of the equity interest
in the entity; and (4) substantially all of the management functions of the entity are
performed by members of qualified Indian tribes.66
Tribal Obligations For Payroll Taxes
and Withholding
In general, employers must withhold from their employees’ wages67 the amounts
owed in federal income tax, pay and withhold Federal Insurance Contribution Act
(FICA) taxes, and pay Federal Unemployment Tax Act (FUTA) taxes.
Indian tribes, as employers, are not exempt from these payroll tax obligations.
This is because there is no general exemption for wages earned from tribes.68 As
discussed below, Indian tribes must generally withhold from their employees’ wages
the amounts owed in federal income tax, pay and withhold Federal Insurance
Contribution Act (FICA) taxes, and pay Federal Unemployment Tax Act (FUTA)
taxes.69
An exception applies to income earned as a tribal council member. The IRS
determined that the Indian Reorganization Act (IRA), which provides the framework
for tribal governance, precluded a conclusion that service performed as a council
64 See, e.g., Warbus v. Comm’r, 110 T.C. 279 (1998) (holding that discharge of indebtedness
income did not qualify for a tax exemption even when the original loan financed equipment
used for treaty fishing rights activities).
65 See I.R.C. § 7873(b)(3)(B) (defining “qualified Indian tribe” as a tribe whose fishing
rights are being used by the entity in order to engage in fishing rights related activities.).
66 I.R.C. § 7873(b)(3)(A).
67 Whether workers are treated as employees, as opposed to independent contractors, for
these purposes generally depends on whether they meet the common law definition of
“employee.” A person will typically qualify as an employee if the employer has the right to
control what the person will do and the manner in which it will be done. See Rev. Rul. 87-
41, 1987-1 C.B. 296. See also I.R.C. §§ 3131(d), 3306(I), 3508.
68 Rev. Rul. 59-354, 1950-2 C.B. 24.
69 Id.

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member constituted employment for federal tax purposes.70 Since income earned as
a tribal council member is exempt from tax, there are no withholding or other payroll
tax obligations.71 Income derived from tribal fishing rights is also exempt from the
payroll tax requirements.72
Tribal Obligation to Withhold Federal Income Tax. Notwithstanding
tribes’ immunity from federal income tax, the IRS has nevertheless ruled that tribes
must comply with the withholding of taxes owed by their employees.73 Since the
wages of tribal employees are generally subject to federal tax obligations, including
the obligation to withhold,74 the IRS concluded that tribes should have the same
administrative obligation to withhold as other employers.75 As a result of the IRS
ruling, tribes generally do comply with federal income tax withholding
requirements.76
Federal Insurance Contributions Act. Under FICA,77 employers must
deduct Social Security and Medicare “contributions” from the wages of their
employees.78 In addition, the employer must pay an excise tax to fund old-age,
survivors, and disability insurance with respect to employed individuals.79 Depending
on circumstances, state and local governments and their employees may or may not
be covered by the Social Security part of FICA. Generally, all state and local
employees hired after March 31, 1986, are subject to the hospital insurance
(Medicare) portion of FICA.80 While Indian tribes are treated as states for certain
purposes under the Internal Revenue Code,81 tribes have been determined not to be
“states” for FICA purposes.82 This is because, unlike states, there was no express
exclusion for tribes within FICA.83 Therefore, tribes are subject to the same FICA
obligations as private employers.84 However, Indian tribes are exempted from paying
70 Rev. Rul 59-354, 1950-2 C.B. 24. See also 25 U.S.C. § 476
71 Rev. Rul. 59-354, 1950-2 C.B. 24.
72 I.R.C. § 7873(a)(2).
73 Rev. Rul. 59-354, 1950-2 C.B. 24.
74 I.R.C. § 3402.
75 Rev. Rul. 59-354, 1950-2 C.B. 24.
76 Cohen, supra 686 (2005).
77 I.R.C. §§ 3101-3128.
78 Id. § 3102(a).
79 I.R.C. § 3111.
80 I.R.C. § 3121(b)(5), (7), 3121(u).
81 See I.R.C. § 7871.
82 I.R.S. Priv. Ltr. Rul. 9043066 (October 26, 1990).
83 Id.
84 Id.

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FICA taxes for wages derived from treaty fishing rights.85 It appears that tribes
generally pay into the FICA scheme.86
Federal Unemployment Tax Act. FUTA, along with state unemployment
systems, funds unemployment benefits for eligible workers.87 Under FUTA, only
employers pay the unemployment tax, and are liable for the amount owed regardless
as to whether the employer pays into a similar state based unemployment plan.88 In
1959, the IRS ruled that Indian tribes qualify as employers and must pay the tax for
all wages paid to their employees with the exception of compensation paid to tribal
council members.89 However, this treatment changed under the Community Renewal
Tax Relief Act.90 Now, recognized tribes are exempt from FUTA if they elect to
participate in the State Unemployment Tax Act (SUTA) system.91 Under this system,
tribes can participate by either making contributions or some payment in lieu of
contribution to a state unemployment plan.92 However, if the tribes choose a form of
payment other than making contributions, states have the option to mandate a bond
or some other reasonable measure to ensure that the payment will be made.93
85 I.R.C. § 3121(a)(21).
86 Cohen, supra 686 (2005).
87 I.R.C. §§ 3301-3311.
88 Treas. Reg. § 31.3301-1; I.R.C. § 3301.
89 Rev. Rul. 59-354, 1950-2 C.B. 24.
90 P.L. 106-554, 114 Stat. 2763 (2000) (codified as amended at I.R.C. § 3306(c)(7)).
91 I.R.C. § 3309(d).
92 Id.
93 Id.