Indian tribes take issue with IRS interpretations

Indian tribal governments are urging Congress to enact legislation that would prohibit the IRS from interpreting the tax law in a way that limits the tax-exempt debt that Indian tribes can issue, claiming that such limitations put the tribes at a competitive disadvantage to state and local government, according to a report in public finance newsletter, The Bond Buyer.

Tribes claim that the IRS limitations require that tax-exempt bond status is only allowed if the proceeds from the bond issues go towards "essential government functions." Tribes attempting to use tax-exempt bond dollars for golf courses and convention centers are being told the bonds don't qualify for tax exempt status. Tribes compare their golf courses to municipal golf courses that are built by state and local governments with tax-exempt dollars.

Wayne A. Shammel, general counsel for the Cow Creek Band of Umpqua Tribe of Indians, referred to the "disparity in treatment between tribes and the tax code and other governmental entities," in conversations with lawmakers, according to The Bond Buyer.

In a notice of proposed rulemaking in 2006, the IRS stated that an essential government function does not include non-municipal golf courses and thus the courses owned by the tribes should not qualify for tax-exempt financing, The Bond Buyer reports.

Senator Max Baucus (D-MN) is co-sponsoring legislation that would allow tribal governments to issue tax exempt bonds for facilities on tribal reservations that are used for essential government functions. Gaming property is not to be included in the definition of essential government functions.

In a related matter, the Agua Callente Band of Cahuilla Indians in Washington State is appealing an IRS ruling that disallowed the use of revenue from tax-exempt bonds for the renovation of a golf course and recreation center.

In disallowing the usage of tax-exempt monies, the IRS is taking the position that Indian tribes are building facilities for commercial purposes and those purposes prohibit the use of tax-exempt funds for construction and renovation.

Attorneys for the Indian tribes have suggested that the IRS is trying to distinguish between municipal golf courses that are used by members of the community and other golf courses that more likely attract tourists. Attorneys are suggesting that tourists have been known to use municipal golf courses, so that distinction doesn't make sense.

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