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Lev
Lev, Tax Advisor
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I am considering working as a consultant for one of the indian

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I am considering working as a consultant for one of the indian tribes. I am not a Native American ( I am an American citizen). I was told by a financial advisor to the Tribe that my compensation would be "tax-free," since my compensation would come from the tribe. Researching the IRS website, I find that the tribe would file a 1099-Misc for contractor's compensation if the annual amount is over $600. Am I missing something?

Thank you for your time and consideration!
Submitted: 4 years ago.
Category: Tax
Expert:  Lev replied 4 years ago.

Indian tribes generally are not regulated the same way as 501(c)(3) organizations.

As governmental entities, federally recognized tribes are not subject to income taxes.

 

A tribe may incorporate under section 17 of the Indian Reorganization Act (IRA) of 1934, 25T U.S.C. Section 477 (section 17). This type of corporation is not subject to income tax, no matter where the business is located. An Approval Article or Certificate signed by the Secretary of the Interior is evidence of incorporation under the Indian Reorganization Act.

Indian tribes in Oklahoma are not eligible to incorporate under section 17 of the IRA. Instead,

Indian tribes may also form a corporation under state law. This type of corporation is ordinarily subject to federal income tax on income earned on or after October 1, 1994, no matter where the business is located. Because the state charter creates an entity separate and distinct from the tribe, the federal income tax applies to this new entity. A Certificate of Incorporation issued by the state is evidence of incorporation under state laws. Revenue Ruling 94-16, 1994-1 CB 19, as amplified by Revenue Ruling 94-65, 1994-2 C., further defines this issue.

Members of federally recognized tribes are subject to federal income taxes. In most situations, if a tribal member works for anyone, including himself, he is subject to the appropriate federal income taxes on the income, in most situations. This is also true for passive income the person might receive, from most sources.

One of these is income from individually allotted land that remains in trust. The General Allotment Act of 1887 provided for tribal lands to be allotted to individual Indians in trust for a period of years, after which the lands were to be conveyed to the allottees in fee " free of all charge or encumbrance whatsoever." (25 U.S.C.A. Par 348) This provision has been interpreted to prevent taxation of income or capital gains "derived directly" from allotted land while it remains in trust. (Squire v. Capoeman, 351 U.S. 1 (1956)) This exemption applies to rents and royalties as well as income from sale of crops or minerals from the land. ( Rev. Rul. 56-342, 1956-2 C. B. 20) Gain from the sale of livestock raised and grazed on allotted trust land has also been ruled exempt. ( Rev. Rul. 62-16, 1962-1 C. B. 7.)

 

See some additional information here - http://www.irs.gov/govt/tribes/article/0,,id=102543,00.html

 

The fact of receiving a payment from the Tribe doesn't make such payment not taxable.

That is a taxable income for you regardless of the amount.

Th e information you were given is incorrect - sorry if you expected a different answer.

You may confirm by calling the IRS directly (be prepared to wait if you want to speak with a life person) 1-800-829-1040

 

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22829
Experience: Taxes, Immigration, Labor Relations
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