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Christopher Phelps
Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2710
Experience:  CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
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how are individual native americans tax exempt

Resolved Question:

I heard that native americans are tax exepmt. However no one wants you to find the law. From some research they have a publication 3747 that is not helpful. I heard that this law would exist in the 1800's however im not sure. If you could clear this puzzle up I would appreciate it.I am aware that those that live and work within the reservations are tax exepmt. However I know of some native american who work and reside out of the reservations that are tax exepmt. Thank You

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Detroit, Michigan

Already Tried:
irs, library, tribal affliations

Submitted: 11 years ago.
Category: Tax
Expert:  Christopher Phelps replied 11 years ago.

For most purposes, Native Americans are subject to the same income tax treatment as any other citizen and compute gross income in the same manner, because there is no statutory provision exempting Native Americans from income taxation generally or excluding their income from gross income.

Native American treaties are liberally construed to favor the Native Americans only when the treaties contain language which can reasonably be interpreted to confer income exclusions, and thus a Native American's income is not exempt from federal income taxation if the treaties do not give any textual support for an exemption. Also, treaties, patents, or statutes affecting one tribe or its members have no bearing on the treatment of another tribe or its members, because each tribe is considered separate. In addition, treaties, patents, or statutes exempting the income of a tribe derived from its lands do not apply to income derived by a member of the tribe unless those members are specifically included in the exemption.

Generally, the treaties, patents, or statutes exempt income directly derived by Native Americans tribes from tribal lands or by an Native American from allotted lands subject to the treaty, patent or statute. Under most of the treaties, patents, and statutes, such as the Medicine Creek Treaty of 1854, the income must be directly derived from the allotted land as a condition of exemption.

Unless specifically otherwise provided by treaty, patent, or statute, income directly derived by a member of an Native American tribe from unallotted land cultivated under an agreement with the tribe is included in gross income. Gross income also includes the income of unrestricted minors and mineral bonuses received by members of tribes whose allotted lands had been freed of restriction. Gross income includes surplus allotments that are free of restrictions.

Likewise, gross income includes per capita payments from leases of unallotted common tribal lands and tribal members' shares of the tribe's mineral lease payments. Even if the tribal member is not permitted to sell the headright shares from which the mineral income is derived, the income is not excludible if the Native American is competent, but is excluded if the Native American is non-competent.

Income directly derived from allotted lands includes such income as that derived from farming, grazing, and mineral exploitation activities on the allotted land. It includes income from tribal mineral deposits credited to individual trust accounts of noncompetent Native Americans under the Osage Allotment Act and cash bonuses received for executing mineral exploitation leases of allotted lands. Income directly derived from allotted lands also includes payments under programs administered by the Stabilization and Conservation Service of the Department of Agriculture. Income from training and selling horses raised on allotted lands is not excluded from gross income because it is not derived directly from the land. Likewise, gross income includes income from the rental of residential property built on alloted lands because it is derived from the improvements and not from the land.

As you can imagine there is much case law dealing with what constitutes income derived from alloted lands versus unalloted lands as well as whether certain types of income generated from alloted lands falls within the exclusion provisions of a particular treaty.

The botXXXXX XXXXXne is that Native Americans are generally treated for tax purposes the same as any other citizen unless their income is specifically excluded under the provisions of a treaty with the U.S.

If you have something ssprecific I can review it but I would recommend you engage a qualified tax preparer who is familiar with the subject matter and the relevant treaty in particular.

Because it is impossible for me to identify and consider ALL the relevant facts, this advice is not intended or written to be used for the purpose of avoiding penalties, and cannot be used for that purpose.

Expert:  Christopher Phelps replied 11 years ago.

If you need any additional information or clarification, please let me know. I would appreciate if you would come back and hit the accept button.

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