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Effective Tax Strategies for Establishing Tribal Business Entities

Effective Tax Strategies for Establishing Tribal Business Entities. Rob Roy Smith Ater Wynne, LLP Suite 1501, 601 Union Street Seattle, WA 98101-2341 (206) 623-4711 (206) 467-8406 (fax) rrs@aterwynne.com. Available Forms for Tribal Business Entity Development.

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Effective Tax Strategies for Establishing Tribal Business Entities

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  1. Effective Tax Strategies for Establishing Tribal Business Entities Rob Roy Smith Ater Wynne, LLP Suite 1501, 601 Union Street Seattle, WA 98101-2341 (206) 623-4711 (206) 467-8406 (fax) rrs@aterwynne.com

  2. Available Forms for Tribal Business Entity Development • Tribal Government Enterprises • Section 17 Corporations • Tribally-Chartered Tribal Corporations • State-Chartered Tribal Corporations • Tribal Limited Liability Companies • Non-profit Organizations Ater Wynne, LLP www.aterwynne.com

  3. Tribal Government Enterprise • Subordinate governmental entity created by the tribal government pursuant to the tribe’s constitution and inherent sovereign powers • Cloaked with the same privileges and immunities of the Indian tribe • Will not be subject to federal income tax or state taxes imposed directly on business operating within Indian lands Ater Wynne, LLP www.aterwynne.com

  4. Section 17 Corporations • Corporate powers may include: power to borrow money, encumber its assets (including land), sue and be sued, and waive its sovereign immunity • Corporate charter will describe how autonomous the corporation will be from tribal governmental control • Section 17 corporation has the same tax status as the Indian tribe and is not taxable on income from activities carried on within or outside the reservation Ater Wynne, LLP www.aterwynne.com

  5. Tribally-Chartered Tribal Corporations • Tribally-owned corporations under tribal law • Any legal benefits? • Tribes already enjoy sovereign immunity and do not need the limited liability protection from a corporate shareholder suit provided by incorporation • Advantage of corporate perpetual existence is irrelevant because, unless specifically terminated by Congress, tribes have perpetual existence • Federal tax status uncertain Ater Wynne, LLP www.aterwynne.com

  6. State-Chartered Tribal Corporations • A tribal corporation organized under state law does not have the same tax status as the tribe for federal tax purposes and is subject to federal income tax on any income earned regardless of the location of the business activities • All state laws apply; in Washington, certain state taxes inapplicable if: • (1) 51% or more of the corporation is owned by enrolled members of an Indian tribe and • (2) business activities take place within Indian lands Ater Wynne, LLP www.aterwynne.com

  7. State-Chartered Corporations(Continued) • General rule: A tribe that is a partner in a partnership is not subject to Federal income tax • EXCEPTION: a tribally-owned state chartered corporation that is a partner will be subject to Federal income tax on its distributive share of partnership income Ater Wynne, LLP www.aterwynne.com

  8. Tribal LLCs • A single-member LLC may choose between tax treatment as a corporation or as a “disregarded entity,” which essentially allows the LLC to be treated and taxed as a sole proprietorship, branch, or division of the owner. • Since tribes are exempt from federal income tax, where a tribe is the single owner of an LLC, it would similarly be exempt from federal income tax laws regardless of whether it was created under state or tribal law. • Are there practical benefits? Ater Wynne, LLP www.aterwynne.com

  9. Section 501(c)(3) Creature of state law Must be approved by IRS Subject to certain annual reporting Tax-Deductible Donations for any “charitable” purpose Section 7871 Tribal government, or an “integral part” of tribal government, as defined by IRS Legally, no reporting requirements Limited to contributions for “public purposes” Non-Profit Organizations Ater Wynne, LLP www.aterwynne.com

  10. Rules Review • Tribal Enterprise: any income earned, regardless of the location of the business activities that produced the income, is not subject to federal income tax • Section 17 Corporation: any income earned, regardless of the location of the business activities that produced the income, is not subject to federal income tax • State Chartered Corporation: any income earned, regardless of the location of the business activities that produced the income, is subject to federal income tax and state laws Ater Wynne, LLP www.aterwynne.com

  11. For more information: Rob Roy Smith 206-623-4711 rrs@aterwynne.com www.aterwynne.com

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