IRS Proposes Regs to Exempt Tribal-Owned Companies From Income Tax

Corporations or LLCs that are owned entirely by Native American tribal governments and formed under the laws of the tribes that own them wouldn’t be recognized as separate entities for federal tax purposes and wouldn’t be subject to federal income tax, according to regulations proposed by the Treasury Department and the IRS on Oct. 7.

During discussions with the Treasury Tribal Advisory Committee, tribes had requested guidance on the federal tax classification of tribal law entities entirely owned by tribes. Generally, entities formed under the laws of a tribe are known as tribal law entities, the IRS said.

“The importance of tribal sovereignty and self-determination that was raised during these discussions resulted in the Treasury and IRS proposing to amend the rules on entity classification,” the agency added. “Under the proposed regulations, tribal law entities that are entirely owned by tribes would not be recognized as separate entities for federal tax purposes and would not be subject to federal income tax.”

The proposed regulations would also clarify that tribal law entities entirely owned by tribes may receive the value of certain energy credits under the Inflation Reduction Act.

Until the final regulations are published in the Federal Register, tribes and related entities may generally rely on these proposed regulations, according to the IRS. The proposed regulations contain definitions and examples, including an example that illustrates the federal tax classification of an entity entirely owned by multiple tribes.

Public comments on this guidance can be submitted through Regulations.gov. You must indicate IRS and REG-113628-21 in the submission. Also, written comments may be mailed to CC:PA:01:PR (REG-113628-21) Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

A public hearing has been scheduled for Jan. 17, 2025.