Tribes Blast Treasury for Slow Action On Studying "Unfair" Requirements

Indian tribes are criticizing the Treasury Department for failing to complete, within the congressionally mandated time frame, a study of the tax law requirements for tribal economic development bonds that the tribes claim are unfair.

The February 2010 deadline for the study “has come and gone, and tribes are still awaiting the final product,” the National Congress of American Indians said in a two-page letter sent recently to Treasury Secretary Timothy Geithner.

The American Recovery and Reinvestment Act of 2009 required Treasury to study the impact of the TED bond program and to complete the study and send recommendations to Congress within a year.

The act also temporarily removed the requirement that tribal bonds only be used to finance projects with “essential governmental functions” like schools and sewer projects — a hurdle that tribes have long-felt put them at a disadvantage because state and local governments do not have the same restriction.

But the ARRA provisions expired on Dec. 31.

Last July, the Treasury requested comments from tribal governments for input on the study, including on whether Congress should repeal the “essential governmental function” requirement.

The NCAI told the Treasury in its recent letter, “The manner in which this section has been interpreted has been anything but generous to tribal governments.”

The group noted that the Internal Revenue Service defined an essential government function in an advanced notice of proposed rulemaking in 2006.

The IRS said an activity constituted an essential government function if numerous state and local government with taxing powers have been conducting the activity and financing it with tax-exempt bonds for many years. The agency also said the activity could not be commercial or industrial.

The NCAI said this definition, which has never been finalized in rules but is nevertheless in effect, “hinder[s] any realistic advancement in the area of tax-exempt bond issuance by tribal governments.”

The group is particularly unhappy that Indian tribes cannot issue tax-exempt bonds for commercial or industrial projects, which, it points out, are typically financed by many states and localities with general taxing powers.

The NCAI told the Treasury that it is critical for the study to be completed because “tribal governments are in a position, much like the rest of the nation, where the need for policies which stimulate economic growth are immediate.”

A member of a Indian tribal government section of an advisory group to the IRS said on Thursday that it is still not clear when the Treasury will complete the study.

“There’s no commitment in terms of timing,” said Wendy Pearson, of counsel with Bennett, Bigelow & Leedom P.S. in Seattle.

“Having not met that deadline, it’s anyone’s guess” when the Treasury will complete the study, she said.

In June, the advisory committee urged the IRS to removed the essential governmental function requirement for TED bonds.

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