The Indian Tribal Governmental Tax Status Act: An Overview

The Indian Tribal Governmental Tax Status Act: An Overview

Order Code RL34290
The Indian Tribal Governmental Tax Status Act:
An Overview
December 20, 2007
Yule Kim
Legislative Attorney
American Law Division

The Indian Tribal Governmental Tax Status Act:
An Overview
Summary
The Indian Tribal Governmental Tax Status Act ( P.L. 97-473, Title II, Section
202(a)) (the act), extends to Indian tribal governments and their subdivisions in
certain specific circumstances the same tax treatment as states and their political
subdivisions. For example, tribal governments may receive an exemption from
certain federal excise taxes when purchasing an item if the transaction involves the
exercise of an essential governmental function. Likewise, tribal governments may
also issue tax-exempt bonds either to finance the exercise of an essential
governmental function or to build a manufacturing facility on tribal trust lands. The
act also grants deductions to individuals who make charitable donations or tax
payments to tribal governments and provides various other means for tribal
governments to receive favorable forms of tax treatment.
Though the act provides many forms of favorable tax treatment, these benefits
are limited to the specific situations prescribed in the statute. Federal courts are
unlikely to extend state tax status to tribes in other areas not explicitly authorized in
the act. Furthermore, the tax treatment that tribal governments receive is severely
limited by restrictions that do not apply to states. For example, exemptions from
federal excise taxes and the authority to issue tax-exempt bonds are available only
when a tribe is exercising an essential governmental function. This means that tribal
governments cannot claim an exemption from an excise tax if the item was purchased
solely for the purpose of resale to consumers. Moreover, because of the essential
governmental function restriction and other restrictions embedded in the act, tribal
governments do not have the same flexibility in issuing tax-exempt bonds as states.
Two bills introduced in the 110th Congress, S. 1850 and H.R. 3164, would
amend the act by giving tribal governments greater flexibility in issuing tax-exempt
bonds.
This report will be updated if warranted by significant legislative activity.

Contents
Qualified Entities Under The Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
“Essential Governmental Function” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Ways In Which Tribal Governments Are Treated As States . . . . . . . . . . . . . 5
Exemptions From Federal Excise Taxes . . . . . . . . . . . . . . . . . . . . . . . . 5
Tax-Exempt Tribal Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Tribal Tax Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Charitable Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Other Provisions of the Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Pending Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
S. 1850 and H.R. 3164 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

The Indian Tribal Governmental
Tax Status Act:
An Overview
The Indian Tribal Governmental Tax Status Act (the act) was enacted in 19831
as a temporary measure and made permanent in 1985.2 The act extends to Indian
tribal governments several favorable forms of tax treatment previously enjoyed
exclusively by states and their political subdivisions. Prior to the passage of the act,
the Internal Revenue Service (IRS) had concluded that, absent express statutory
provisions, tribal governments were not to be treated as states for federal taxation
purposes.3 In response to this IRS determination, Congress, recognizing that both
state and tribal governments perform similar functions for their citizens, passed the
act as a means of facilitating tribal governments in the exercise of their governmental
powers.4
Qualified Entities Under The Act
The act applies to “Indian tribal governments” and their subdivisions.5 For a
tribe to qualify under the act as an “Indian tribal government,” the Treasury
Department, in consultation with the Department of the Interior, must conclude that
the governing body of the Indian tribe exercises “governmental functions.”6
Moreover, a subdivision of an Indian tribal government will receive treatment as a
1 P.L. 97-473,Title II, § 202(a), 96 Stat. 2608 (1983) (codified as amended at I.R.C. §§
7701(a)(4), 7871). I.R.C. refers to the Internal Revenue Code, which can be found in Title
26 of the U.S. Code.
2 Deficit Reduction Act of 1984, P.L. 98-369, Div. A, Title X, § 1065(b), 98 Stat. 494, 1048
(1984).
3 Rev. Rul. 58-610, 1958-2 C.B. 815 (no tribal exemption from manufacturers excise tax);
Rev. Rul. 68-231, 1968-1 C.B. 48 (no exemptions for interest on bonds issued by tribes);
Rev. Rul. 74-179, 1974-1 C.B. 279 (charitable bequests to tribes not allowable as a
charitable deduction). I.R.S. administrative materials can be found on [http://www.irs.gov].
4 S.Rept. 97-646, at 11 (1982). (“[I]n order to facilitate these efforts of Indian tribal
governments that exercise such sovereign powers, it is appropriate to provide these
governments with a status under the Internal Revenue Code similar to what is now provided
for the governments of the States of the United States.”).
5 I.R.C. § 7871(a).
6 Id. § 7701(a)(40) (“The term ‘Indian tribal government’ means the governing body of any
tribe, band, community, village, or group of Indians, or (if applicable) Alaska Natives, which
is determined by the Secretary [of the Treasury], after consultation with the Secretary of the
Interior, to exercise governmental functions.”)

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political subdivision of a state “if (and only if)” the Treasury Department makes a
determination that the subdivision has been delegated a “substantial governmental
function” by the Indian tribal government.7 The statute does not define “substantial
governmental function.” However, in Rev. Proc. 84-37, issued in 1984, the IRS
identifies three governmental powers that it considers to be substantial governmental
functions: the power to tax, the power of eminent domain, and the police power.8 The
IRS later applied this reasoning in a private letter ruling determining that the tribal
government’s delegation of its taxation power to its subdivision, in this case a town,
qualified the subdivision for tax treatment as a political subdivision of a state.9
Currently, the IRS has published lists of qualified Indian tribal governments and
subdivisions, which are occasionally updated when warranted.10 If a tribal
government or a subdivision is not officially recognized by the Treasury Department
and is not on an IRS list, the tribal government or the subdivision must, through
procedures outlined by Treasury regulations, request a ruling from the IRS that it
qualifies for tax treatment under the act.11
Alaska Native entities may qualify for state tax treatment under the act12 and a
list of Alaska Native entities is included in the IRS list of qualifying tribal
governments.13 The act, however, includes a provision which states: “Nothing in the
Indian Tribal Governmental Tax Status Act of 1982, or in the amendments made
thereby, shall validate or invalidate any claim by Alaska Natives of sovereign
authority over lands or people.”14 Currently, no Alaska Native Corporations are
included in the IRS list.15
7 Id. §7871(d) (“[A] subdivision of an Indian tribal government shall be treated as a political
subdivision of a State if (and only if) the Secretary of the Treasury determines (after
consultation with the Secretary of the Interior) that such subdivision has been delegated the
right to exercise one or more of the substantial governmental functions of the Indian tribal
government.”). See also Rev. Rul. 86-44, 1986-1 C.B. 376.
8 Rev. Proc. 84-37, 1984-1 C.B. 513, modified, Rev. Proc. 86-17.
9 I.R.S. Priv. Ltr. Rul. 200638016 (June 14, 2006).
10 See Rev. Proc. 2002-64, 2002-2 C.B. 717 (list of Indian tribal governments); Rev. Proc.
84-36 1984-1 C.B. 510, modified, Rev. Proc. 86-17, 1986-1 C.B. 550 (list of political
subdivisions).
11 26 CFR § 305.7701-1(a) (providing procedures that Indian tribal governments must follow
in order to obtain tax treatment as a state); 26 CFR §305.7871-1(e) (providing procedures
that subdivisions of Indian tribal governments must follow in order to obtain tax treatments
as a political subdivision of a state). See also Rev. Proc. 84-37, 1984-1 C.B. 513.
12 I.R.C. § 7701(a)(40)(B).
13 See Rev. Proc. 2002-64, 2002-2 C.B. 717.
14 I.R.C. § 7701(a)(40)(B). See also Alaska v. Venetie, 522 U.S. 520 (1998) (holding that
the Indian Country statute did not apply to lands held by an Alaska Native corporation and
that Alaska Native entities could not impose taxes on nonmembers conducting business on
those lands).
15 See Rev. Proc. 2002-64, 2002-2 C.B. 717.

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“Essential Governmental Function”
The act imposes a restriction on tribal governments that seek exemptions from
federal excise taxes or the authority to issue tax-exempt bonds. In order for tribal
governments to obtain treatment as a state in these transactions, the tribal
government’s involvement in the transaction must further an “essential governmental
function.”16 “Essential governmental functions” are distinct from the “substantial
governmental functions.”17 Essential governmental functions, unlike substantial
governmental functions, do not test whether an entity possesses a governmental
power; rather, the test is whether the transaction in question serves or furthers a
governmental purpose that the entity is supposed to fulfill for its citizens.
Section 7871(e) of the Internal Revenue Code states that “‘essential
governmental function’ shall not include any function which is not customarily
performed by State and local governments with general taxing power.”18 Outside of
this provision, there is little definitive guidance on what constitutes an essential
governmental function. In a recently issued Advance Notice of Proposed Rulemaking
(ANPRM), the IRS announced a rule it anticipates to propose that would define
essential governmental function in the context of tax-exempt bonds as an activity (1)
that numerous state and local governments have conducted and financed with tax-
exempt governmental bonds (prevalence); (2) that state and local governments have
conducted for many years (duration); and (3) that is not commercial or industrial.19
The rule will also provide that essential governmental functions, include, but are not
limited to, roads, schools, and government buildings.20
In formulating this rule, the IRS refers to both statutory language and legislative
history. Establishing prevalence and duration was deemed necessary because the
statutory definition of “essential governmental function” demands that activity in
question be one “customarily” performed by states.21 The IRS interpreted the word
“customarily” to mean that the activity must be practiced by a large number of states
for a long duration of time.22 Moreover, the prohibition on commercial or industrial
activity was included because of language in the legislative history which suggests
16 Id. § 7871(b), (c)(1).
17 See ante at CRS-1.
18 Id. § 7871(e) (“[T]he term ‘essential governmental function’ shall not include any
function which is not customarily performed by State and local governments with general
taxing powers.”).
19 Definition of Essential Governmental Function Under Section 7871 and Limitation to
Activities Customarily Performed by States and Local Governments, 71 Fed. Reg. 45474
(announced August 9, 2006).
20 Id.
21 I.R.C. § 7871(e). See also I.R.S. Tech. Adv. Mem. 200704019 (October 24, 2006).
22 I.R.S. Tech. Adv. Mem. 200704019 (October 24, 2006).

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Congress did not want tax-exempt bonds to finance commercial or industrial
projects.23
The IRS has also released administrative material that provides examples of
what the agency considers to be an essential governmental function. While discussing
the extent of the exemptions from federal excise taxes in a Private Letter Ruling, the
IRS held that school, police, and firefighting services were essential governmental
functions.24 In a Technical Advice Memorandum, the IRS remarked that the issuance
of bonds to finance industrial or commercial facilities was not an essential
governmental function while activities customarily financed with governmental
bonds, such as schools, roads, and governmental buildings, did fall within the scope
of the definition.25
From these sources, it appears that the IRS’s current approach mirrors the
method announced in the ANPRM.26 The IRS now seems to classify an activity as
an essential governmental function if the activity is (1) practiced by a large number
of state or local governments (2) for a long duration of time and (3) is not an
industrial or commercial activity.27 When determining whether an activity is
practiced by other state or local governments, the IRS also seems to require that the
manner in which tribal governments conduct the activity must closely match the
general practice of the activity among the states.28
When determining whether an activity is “commercial,” the IRS appears to
approach the issue by looking at a host of factors, such as “whether the facility
operates to earn a profit, competes with for-profit entities, and functions in a
commercial manner.”29 The IRS also looks at “the balance of the operations of the
facility between service to the local community and attraction of paying customers
from outside the local community.”30
There is a caveat: the ANPRM and the Technical Advice Memorandum define
essential governmental function in the context of tax-exempt bonds. Even though it
would seem that the IRS should use only one test to define the term since the
23 H.Rept. 100-391, at 1139 (1987) (“For example, issuance of bonds to finance commercial
or industrial facilities (e.g. private rental housing, cement factories, or mirror factories)[,]
which bonds technically may not be private activity bonds[,] is not included within the scope
of the essential governmental function exception.”).
24 Rev. Rul. 94-81, 1994-2, C.B. 412.
25 I.R.S. Tech. Adv. Mem. 200704019 (October 24, 2006).
26 See id.
27 See id.
28 Id. (E.g., “it is not enough that a lodge owned and operated by an Indian tribal government
accept paying guests for overnight stays in private rooms like a state owned lodge; instead
the lodge must be comparable in other dimensions as well, such as size and amenities.”).
29 Id.
30 Id.

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provision defining essential governmental function covers the entirety of the act,31
there is no guarantee that the IRS will.
Ways In Which Tribal Governments Are Treated As States
Exemptions From Federal Excise Taxes. The act offers Indian tribal
governments exemptions from a select number of federal excise taxes similar to
exemptions enjoyed by states.32 The tax treatment includes exemptions from:
! taxes imposed on the sale or use of certain liquid fuels if used
exclusively by the tribal government or its subdivisions;33
! various manufacturers excise taxes if the article sold to a tribal
government or its subdivisions will be used exclusively by the tribal
government or its subdivisions;34
! communication taxes if the communication services or facilities are
furnished for the use of a tribal government or its subdivisions;35 and
! the highway use tax for any use of a highway motor vehicle used by
a tribal government or its subdivisions.36
Exemptions from federal excise taxes are limited to transactions that involve
“the exercise of an essential governmental function of the Indian tribal
government.”37 Purchases made in furtherance of an essential governmental function
will qualify for an exemption if there is a provision in the act covering the
transaction.38 On the other hand, even if a statutory provision in the act expressly
grants an exemption for the purchase of an item, if the item was purchased for the
purpose of resale to consumers, the purchase does not serve an essential
governmental function.39 Therefore, purchases made by tribal governments for the
purpose of resale are not exempt from federal excise taxes.40
31 See I.R.C. § 7871(e).
32 I.R.C. § 7871(a)(2)
33 Id. § 4041(g)(2). See also id. § 4041(a)(1), (2).
34 See generally id. ch. 32.
35 See id. § 4253(i).
36 See id. § 4483(a).
37 Id. § 7871(b).
38 Rev. Rul. 94-81, 1994-2, C.B. 412.
39 Id.
40 Id.

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Indian tribes do not have “inherent exemption” from federal excise taxes.41 State
exemptions available to Indian tribal governments are limited to those expressly
provided for in the act.42 For example, although states are exempt from federal
wagering and occupational taxes,43 the act does not expressly extend this exemption
to tribes. In Chickasaw Nation v. United States, the Supreme Court held that the
Indian Gaming Regulatory Act did not exempt tribes from paying the tax on lottery
styled pull-tab games even though there were provisions providing that tribes were
to be treated like states for matters concerning the reporting and withholding of such
taxes.44 Though this case was based on statutory construction, it demonstrates the
reluctance of the federal courts to infer exemptions from federal excise taxes for
Indian tribes in the absence of express provisions.
Tax-Exempt Tribal Bonds. The act also provides tribal governments, in a
manner similar to states, the authority to issue tax-exempt bonds.45 Tax-exempt
bonds facilitate capital formation for tribal governments by excluding the interest
earned on these bonds from gross income of bondholders for federal income taxation
purposes.46 This results in lower cost of capital for tribal governments since tribal
bonds can offer lower yields than private bonds while still ensuring high-income
investors a competitive after-tax return.47 Tribal governments, however, do not have
the same flexibility in financing projects with tax-exempt bonds that states enjoy.
Congress has instead restricted the ways in which tribal governments can use the
proceeds from tax-exempt bonds: tribal governments can either use “governmental
bonds” to finance a project which furthers an essential governmental function48 or use
“private activity bonds” to finance the construction of a manufacturing facility if
certain specific criteria are met.49
Governmental Bonds. Governmental bonds are generally used to finance
public infrastructure.50 As mentioned above, in the context of tribal bonds, in order
to issue a governmental bond, substantially all of the proceeds of the bond must
finance a project that is an exercise of an essential governmental function, i.e., a
function customarily exercised by a state or local government with general taxing
41 Id.
42 Id.
43 I.R.C. § 4402(3). See generally I.R.C. ch. 35 (taxes on wagering).
44 534 U.S. 84 (2001).
45 I.R.C. § 7871(a)(4). See also I.R.C. § 103.
46 See CRS Report RL30638, Tax-Exempt Bonds: A Description of State and Local
Government Debt, by Steven Maguire.
47 Id.
48 Id. § 7871(c)(1).
49 Id. § 7871(c)(3).
50 See CRS Report RL34159, Private Activity Bonds: An Analysis of State Use, 2001 to 2005
by Steven Maguire and Heather Durkin Negley.

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powers.51 When determining whether an activity being financed by the issuance is an
essential governmental function, the IRS appears to use a test that evaluates (1)
whether many state or local governments practice the activity, (2) whether state or
local governments have practiced the activity for a long period of time, and (3)
whether the activity is industrial or commercial.52 Furthermore, in order for a tax-
exempt bond to be issued for an essential governmental function, “substantially all”53
(i.e., 90% or more) of the proceeds of the bond must go to the essential governmental
function.54
Private Activity Bonds. Private activity bonds55 are bonds issued by
governmental entities, the proceeds of which go to private business use.56 Section 141
of the Internal Revenue Code provides the statutory definition of private activity
bond: a private activity bond is a bond that satisfies both the private business use
test57 and the private security or payment test.58 Section 141 also states that a bond
is a private activity bond if it satisfies the private loan financing test.59 Private activity
bonds are not tax-exempt.
States and their political subdivisions, however, can authorize the issuance of
tax-exempt “qualified private activity” bonds for certain specific purposes.60
51 Id. § 7871(e).
52 See I.R.S. Tech. Adv. Mem. 200704019 (October 24, 2006).
53 See 26 C.F.R. § 1.103-8(a) (“Substantially all of the proceeds of an issue of governmental
obligations are used to provide for an exempt facility if 90 percent or more of such proceeds
are so used.”). It should be noted that the definition in 26 C.F.R. § 1.103-8(a) was referenced
by 26 C.F.R. § 305.7871-1(c), a temporary regulation that is no longer effective. However,
the terms mirror each other in similar statutory provisions, so it stands to reason the
definition of “substantially all” in I.R.C. § 7871 mirrors that of I.R.C. § 103.
54 I.R.C. § 7871(c)(1).
55 See CRS Report RL34159, Private Activity Bonds: An Analysis of State Use, 2001 to 2005
by Steven Maguire.
56 I.R.C. § 141(b)(6) (“[T]he term ‘private business use’ means use (directly or indirectly)
in a trade or business carried on by any person other than a governmental unit. [U]se as a
member of the general public shall not be taken into account.”).
57 Id. § 141(b)(1). The private business use test is satisfied if more than 10 percent of the
proceeds of the issue are to be used for any private business use.
58 Id. § 141(b)(2). The private security or payment test is satisfied if the payment of the
principal of, or the interest on, more than 10 percent of the proceeds of such issue is either
directly or indirectly (1) secured by an interest in either property used or to be used for a
private business use or payments in respect of such property, or (2) to be derived from
payments (whether or not to the issuer) in respect of property, or borrowed money, used or
to be used for a private business use.
59 Id. § 141(c). The private loan financing test is satisfied if the amount of the proceeds of
the issue which are to be used to make or finance loans to persons other than governmental
units exceeds the lesser of 5 percent of such proceeds or $5,000,000.
60 See id. § 142 (qualified public activity bonds issued to finance certain facilities), § 143
(continued...)

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Qualified private activity bonds finance a variety of projects with a private business
use, such as the construction of qualified residential rental projects.61
With one exception, tribal governments are prohibited by the act from issuing
all tax-exempt private activity bonds, including qualified bonds.62 Tribal
governments can issue tax-exempt private activity bonds to finance the construction
of certain manufacturing facilities on Indian tribal lands held in trust by the United
States.63 In order for a private activity bond to qualify for this exception:
! 95 percent or more of the net proceeds of the issue are to be used for
the acquisition, construction, reconstruction, or improvement of
property which is of a character subject to the allowance of
depreciation and which is part of a manufacturing facility;64
! the bond must be issued by an Indian tribal government or a
subdivision thereof;65
! 95 percent or more of the net proceeds of the issue are to be used to
finance property which (1) is to be located on land which,
throughout the five-year period ending on the date of issuance of
such issue, is held in trust by the United States for the benefit of the
issuer tribe and (2) is to be owned and operated by such issuer
tribe;66
! such bond would not, outside of its purpose to finance the
manufacturing facility, be a private activity bond;67
60 (...continued)
(qualified public activity bonds issued to finance owner-occupied residences), § 144
(qualified small issue bonds, qualified student bonds, and qualified redevelopment bonds),
§ 145 (bonds issued for qualified 501(c)(3) organizations). See also CRS Report RL31457,
Private Activity Bonds: An Introduction, by Steven Maguire.
61 Id. § 103(b). See also id. §§ 142-145.
62 Id. § 7871(c)(2).
63 Id. § 7871(c)(3)(B).
64 Id. § 7871(c)(3)(B)(i). See also id. § 144(a)(12)(C) (“[T]he term ‘manufacturing facility’
means any facility which is used in the manufacturing or production of tangible personal
property.”).
65 Id. § 7871(c)(3)(B)(ii).
66 Id. § 7871(c)(3)(B)(iii).
67 Id. § 7871(c)(3)(B)(iv).

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! it is reasonably expected (at the time of issuance) that an
employment requirement68 be met with respect to the facility to be
financed by the net proceeds of the issue;69 and
! no principal user of such facility will be a person who (1)
guarantees, arranges, participates, or assists with the issuance of any
bond the proceeds of which are to be used to finance the facility or
(2) provides any property, or any franchise, trademark, or trade name
which is to be used in connection with the facility.70
Tribal Tax Deductions. Payments for tribal taxes enumerated in Section 164
of the Internal Revenue code are deductible from federal income taxes in the same
manner as state taxes.71 Taxes imposed by subdivisions of Indian tribal governments
are treated as “local taxes” and are also deductible.72 The types of taxes that are
deductible are:
! real property taxes;73
! personal property taxes;74
! income, war profits, and excess profits taxes;75
! “Generation-Skipping Transfer”76 taxes;77 and
! taxes which are paid or accrued within the taxable year in carrying
on a trade or business or activity relating to expenses for the
production of income.78
68 See id. § 7871(c)(3)(D) (generally requiring that, at the end of a calendar year during a
specified “testing period,” the aggregate face amount of all outstanding tax-exempt private
activity bonds issued to provide financing for the facility is not more than 20 times greater
than the aggregate wages paid, in the preceding calendar year, to members of the issuer tribe
or their spouses who rendered services to the facility).
69 Id. § 7871(c)(3)(B)(v).
70 Id. § 7871(c)(3)(B)(vi); id. § 144(a)(6)(B).
71 Id. § 7871(a)(3).
72 S. Rep. No. 97-646, at 15.
73 See I.R.C. § 164(a)(1).
74 Id. § 164(a)(2).
75 Id. § 164(a)(3).
76 “A conveyance of assets to a person more than one generation removed from the
transferor...” Black’s Legal Dictionary 694 (7th ed. 1999).
77 I.R.C. § 164(a)(4).
78 Id. § 164(a). See also id. § 212 (describing what constitutes expenses related to the
production of income).

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Charitable Deductions. Charitable donations made to Indian tribal
governments are deductible from federal income, estate, and gift taxes.79 These gifts,
however, must be made for “exclusively public purposes,” with this restriction being
applied in a manner comparable to its application to state governments.80
Other Provisions of the Act. There are a number of additional ways in
which the act treats tribes like states. The act:
! authorizes the application of the unrelated business income tax to
tribal colleges;81
! permits the amount of discount at which certain tribally issued short-
term debts are originally sold to be considered to accrue only when
the debt is paid at maturity, sold, or otherwise disposed of;82
! permits tribal employees to exclude from their gross income tribal
contributions to certain annuity plans for federal income tax
purposes;83
! subjects expenditures to attempt to influence the legislation of tribal
governments to the tax on excessive lobbying expenditures;84
! permits tribes to be treated like states for purposes of the various
taxes imposed on private foundations;85 and
! permits amounts received from a sickness and disability fund for
employees maintained under the law of a tribe to be treated as
amounts received as accident or health insurance, and thus
excludible from the gross income of the employee so long as the
amount constitutes reimbursement for medical care or payment for
permanent injury.86
79 Id. § 7871(a)(1)(A), (B), (C).
80 S. Rep. No. 97-646, at 15.
81 Id. § 7871(a)(5). See also id. § 511(a)(2)(B).
82 Id. § 7871(a)(6)(C). See also id. § 454(b)(2).
83 Id. § 7871(a)(6)(B). See also id. § 403(b)(1)(A)(ii).
84 Id. § 7871(a)(7)(A). See also id. ch. 41
85 Id. § 7871(a)(7)(B). See also id. ch. 42.
86 Id. § 7871(a)(6)(A). See also id. § 105(e)(2).

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Pending Legislation
S. 1850 and H.R. 3164. Currently, there are two bills, S. 1850 and H.R.
3164,87 which, if enacted, would:
! Expand the tax-exempt bonding authority of tribal governments by
amending Section 7871(c) of the Internal Revenue Code. The tax-
exempt bonding authority provided for under Section 103 of the
Internal Revenue Code would apply only if (1) “95% or more of the
net proceeds” of the tribal bond issuance “are to be used to finance
any facility [other than any portion of a building housing or used for
Class II or Class III Indian gaming88] located on the Indian
reservation”89 of the tribal government or (2) substantially all of the
proceeds of the bonds are to be used in the exercise of an essential
governmental function.90 This bill effectively allows tribal
governments to issue the same “qualified private activity bonds” that
states are currently allowed to issue. It may also be the case that the
tribal authority to issue tax-exempt private activity bonds could be
even broader than the states’ because the bill allows tribal
governments to issue tax-exempt bonds to finance “any facility”
located within “Indian reservations.”91 “Any facility”could mean
facilities used for private business use which may not be covered
under a qualified private activity bond. Because of the broad
definition of “Indian reservation”92 and the reference to “any
facility,” tribal governments may have broader leeway to issue
private activity bonds than states.

! Alter the definition of essential governmental function by amending
Section 7871(e) of the Internal Revenue Code. “Essential
governmental function” will be defined to include “any function
which is performed by a State or local government with general
87 S. 1850, 110th Cong. (2007); H.R. 3164, 110th Cong. (2007).
88 See 25 U.S.C. § 2702 (provision of the Indian Gaming Regulatory Act defining Class II
and Class III gaming).
89 S. 1850 and H.R. 3164 define “Indian reservation” by reference to 25 U.S.C. § 1903(10),
which, in turn, refers to the Indian country statute, 18 U.S.C. § 1151. Thus, “Indian
reservation” includes “all land within the limits of any Indian reservation under the
jurisdiction of the United States Government, notwithstanding the issuance of any patent...,
all dependent Indian communities within the borders of the United States..., and all Indian
allotments.” “Indian reservation” also includes “any lands, not covered under 18 U.S.C. §
1151, which are either “held in trust by the United States for the benefit of any Indian tribe
or individual” or “held by any Indian tribe or member subject to a restriction by the United
States against alienation.”
90 S. 1850, 110th Cong. § 2 (2007); H.R. 3164, 110th Cong. § 2 (2007).
91 Id.
92 The definition of “Indian reservation” includes fee lands located within Indian
reservations and trust lands located outside of Indian reservations.

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taxing powers.”93 Tribal governments would no longer need to show
that the function is “customarily” performed by such state or local
government. Under this change, it would seem that tribal
governments would no longer have to establish that an activity was
practiced by a large number of states for a long period of time in
order to establish that it was an essential governmental function.
! Exempt any security, including tax-exempt bonds, issued by a tribal
government from the federal registration requirements imposed upon
initial offerings of securities by amending Section 3(a)(2) of the
Securities Act of 1933.94 States and their political subdivisions
currently enjoy this exemption from the federal registration
requirements.95
93 S. 1850, 110th Cong. § 3 (2007); H.R. 3164, 110th Cong. § 3 (2007).
94 S. 1850, 110th Cong. § 4 (2007); H.R. 3164, 110th Cong. § 4 (2007).
95 15 U.S.C. § 77c(a)(2).