Proposed Rule2024-23142
Entities Wholly Owned by Indian Tribal Governments
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 9, 2024
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains proposed regulations regarding the Federal tax classification of entities wholly owned by Indian Tribal governments (Tribes). The proposed regulations would provide that entities that are wholly owned by Tribes and organized or incorporated exclusively under the laws of the Tribes that own them generally are not recognized as separate entities for Federal tax purposes. The proposed regulations would also provide that, for purposes of making certain elective payment elections (including determining eligibility for and the consequences of such elections) for certain energy credits under the Inflation Reduction Act of 2022, these entities and certain Tribal corporations chartered by the Department of the Interior (DOI) are treated as an instrumentality of one or more Indian Tribal governments or subdivisions thereof. This document also requests comments and provides notice of a public hearing on the proposed regulations that will be in addition to Tribal consultation on the proposed regulations.
Full Text
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<title>Federal Register, Volume 89 Issue 196 (Wednesday, October 9, 2024)</title>
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[Federal Register Volume 89, Number 196 (Wednesday, October 9, 2024)]
[Proposed Rules]
[Pages 81871-81878]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-23142]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
[REG-113628-21]
RIN 1545-BQ13
Entities Wholly Owned by Indian Tribal Governments
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
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SUMMARY: This document contains proposed regulations regarding the
Federal tax classification of entities wholly owned by Indian Tribal
governments (Tribes). The proposed regulations would provide that
entities that are wholly owned by Tribes and organized or incorporated
exclusively under the laws of the Tribes that own them generally are
not recognized as separate entities for Federal tax purposes. The
proposed regulations would also provide that, for purposes of making
certain elective payment elections (including determining eligibility
for and the consequences of such elections) for certain energy credits
under the Inflation Reduction Act of 2022, these entities and certain
Tribal corporations chartered by the Department of the Interior (DOI)
are treated as an instrumentality of one or more Indian Tribal
governments or subdivisions thereof. This document also requests
comments and provides notice of a public hearing on the proposed
regulations that will be in addition to Tribal consultation on the
proposed regulations.
DATES:
Comments: Electronic or written comments on this proposed rule from
the public must be received by January 7, 2025.
Public Hearing: The public hearing on these proposed regulations is
scheduled to be held on January 17, 2025, at 10
[[Page 81872]]
a.m. EST. Requests to speak and outlines of topics to be discussed at
the public hearing must be received by January 7, 2025. If no outlines
are received by January 7, 2025, the public hearing will be cancelled.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically via the Federal eRulemaking Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a> (indicate IRS and REG-113628-21) by following the
online instructions for submitting comments. Once submitted to the
Federal eRulemaking Portal, comments cannot be edited or withdrawn. The
Department of the Treasury (Treasury Department) and the IRS will
publish for public availability any comments submitted to the IRS's
public docket. Send paper submissions to: CC:PA:01:PR (REG-113628-21),
Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
contact Amanda R. Markarian of the Office of Associate Chief Counsel
(Passthroughs and Special Industries) at (202) 317-6850 (not a toll-
free number); and concerning submissions of comments, the hearing, or
any questions to attend the hearing by teleconferencing, contact
Publications and Regulations Section at (202) 317-6901 (not a toll-free
number) or preferably by email to <a href="/cdn-cgi/l/email-protection#c4b4b1a6a8ada7aca1a5b6adaaa3b784adb6b7eaa3abb2"><span class="__cf_email__" data-cfemail="fc8c899e90959f94999d8e95929b8fbc958e8fd29b938a">[email protected]</span></a>. If emailing,
please include the following information in the subject line: Attend,
Testify, or Question and REG-113628-21.
SUPPLEMENTARY INFORMATION:
Authority
This notice of proposed rulemaking contains proposed amendments to
provisions of 26 CFR part 1 (Income Tax Regulations) under section 6417
of the Internal Revenue Code (Code) and 26 CFR part 301 (Procedure and
Administration Regulations) under section 7701 of the Code that would
address the Federal tax treatment of certain Tribal entities wholly
owned by one or more Indian Tribal governments (proposed regulations).
Section 6417(h) provides an express delegation of authority to the
Secretary of the Treasury or her delegate (Secretary) relating to
elective payment elections under section 6417 (section 6417 elections),
stating, ``[t]he Secretary shall issue such regulations or other
guidance as may be necessary to carry out the purposes of this section,
including guidance to ensure that the amount of the payment or deemed
payment made under this section is commensurate with the amount of the
credit that would be otherwise allowable (determined without regard to
section 38(c)).''
Section 7701(a)(40) provides an express delegation of authority to
the Secretary related to identifying Indian Tribal governments for
Federal tax purposes, stating, ``[t]he term `Indian tribal government'
means the governing body of any tribe, band, community, village, or
group of Indians, or (if applicable) Alaska Natives, which is
determined by the Secretary, after consultation with the Secretary of
the Interior, to exercise governmental functions.'' \1\
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\1\ Under the Federally Recognized Indian Tribe List Act of
1994, Public Law 103-454, 108 Stat. 4791 (List Act), the Secretary
of the Interior is required to publish annually a list of all
Federally-recognized Tribes. In Revenue Procedure 2008-55 (2008-39
I.R.B. 768), after consultation with the Department of Interior
(DOI), the Treasury Department and the IRS determined that the
Indian tribal entities that appear on the current or future lists of
Federally-recognized Tribes published annually under the List Act by
the DOI, Bureau of Indian Affairs, are designated as Indian tribal
governments for purposes of section 7701(a)(40). See 89 FR 944
(January 8, 2024) for the most current list published by the DOI,
Bureau of Indian Affairs.
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Finally, section 7805(a) of the Code authorizes the Secretary to
``prescribe all needful rules and regulations for the enforcement of
[the Code], including all rules and regulations as may be necessary by
reason of any alteration of law in relation to internal revenue.''
Background
I. Overview
The proposed regulations under section 7701 would provide that an
entity wholly owned by one or more Indian Tribal governments, within
the meaning of section 7701(a)(40), that is organized or incorporated
under the laws of the Tribe or Tribes that own it (wholly owned Tribal
entity) is not recognized as a separate entity for Federal tax
purposes. A single member limited liability company organized under the
laws of the Tribe that owns it would be a wholly owned Tribal entity.
Additionally, the proposed regulations would provide that wholly owned
Tribal entities, as well as Tribes incorporated under section 17 of the
Indian Reorganization Act of 1934, as amended, 25 U.S.C. 5124 (section
17 corporations), or under section 3 of the Oklahoma Indian Welfare
Act, as amended, 25 U.S.C. 5203 (section 3 corporations), are treated,
for purposes of making section 6417 elections (including determining
eligibility for and the consequences of such elections), as
instrumentalities of the Indian Tribal government(s) that wholly own
them.
The Treasury Department and the IRS consulted with DOI on these
proposed rules because of DOI's role in working with Federally-
recognized Indian Tribes and administering a broad array of Federal
laws that affect Federally-recognized Indian Tribes. These proposed
rules would address only the application of Federal tax law and would
not affect the rights of Tribes and Tribal entities under other Federal
laws.
The Treasury Department and the IRS continue to consider the
Federal tax treatment of Tribally chartered corporations that are owned
in part by persons other than Tribes. The Treasury Department and the
IRS would conduct Tribal consultation prior to issuing any additional
guidance in that area.
II. Executive Order 14112
In December 2023, the President issued an executive order titled
``Reforming Federal Funding and Support for Tribal Nations to Better
Embrace Our Trust Responsibilities and Promote the Next Era of Tribal
Self-Determination.'' Executive Order 14112 (Dec. 6, 2023). Executive
Order 14112 reaffirms the Executive Branch's support for Tribal self-
determination as the most effective policy for the economic growth of
Tribal Nations and the economic well-being of Tribal citizens.
Executive Order 14112 requires agency heads to take certain actions,
consistent with applicable law and to the extent practicable, to
increase access to ``Federal funding and support programs for Tribal
Nations''; provide Tribal Nations with the flexibility to improve
economic growth and address the specific needs of their communities;
and reduce administrative burdens. Section 2(b) of the Executive Order
defines ``Federal funding and support programs for Tribal Nations'' as
including ``funding, programs, technical assistance, loans, grants, or
other financial support or direct services that the Federal Government
provides to Tribal Nations or Indians because of their status as
Indians.'' The Treasury Tribal Advisory Committee has advised that
Tribes consider ``financial support'' in Executive Order 14112 to
include tax matters that range from tax credits to Federal tax rules
that regulate Tribal revenue.
Consistent with Executive Order 14112, the Treasury Department and
the IRS recognize the importance of protecting and supporting Tribal
sovereignty and self-determination. As the Executive Order explains,
``As we continue to support Tribal Nations, we must respect their
sovereignty by better
[[Page 81873]]
ensuring that they are able to make their own decisions about where and
how to meet the needs of their communities. No less than for any other
sovereign, Tribal self-governance is about the fundamental right of a
people to determine their own destiny and to prosper and flourish on
their own terms.'' These commitments build on a recognition of
principles of sovereignty, sovereign immunity, and self-governance that
have been repeatedly reaffirmed by the Supreme Court. See, e.g., Three
Affiliated Tribes of the Fort Berthold Reservation v. Wold Engineering,
P.C., et al., 476 U.S. 877, 890-91 (1986); Oklahoma Tax Comm'n v.
Citizen Band Potawatomi Indian Tribe of Oklahoma, 498 U.S. 505, 510
(1991).
III. Prior Guidance
The Federal government has long recognized the unique aspects of
Tribal sovereignty and Tribal sovereign immunity. Tribes themselves are
not subject to Federal income tax under the Code.\2\ IRS guidance on
the issue in the 1960s raised questions about the extent to which
section 17 corporations and section 3 corporations should share the
Tribe's Federal income tax status. In response, the IRS published
further guidance and issued proposed regulations in 1996 on the
treatment of section 17 corporations and section 3 corporations for
Federal tax purposes. See the notice of proposed rulemaking,
Simplification of Entity Classification Rules, (PS-43-95) published in
the Federal Register (61 FR 21989) on May 13, 1996 (explaining the
basis for the proposed rule later adopted as Sec. 301.7701-1(a)(3)).
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\2\ See Rev. Rul. 67-284, 1967-2 C.B. 55. However, Tribes
generally are subject to Federal employment taxes. Employment taxes
refers to Federal Insurance Contributions Act (FICA) (consisting of
both social security and Medicare taxes), Federal Unemployment Tax
Act (FUTA), and Income Tax Withholding. Section 3306(c)(7) of the
Code provides an exception from FUTA taxes under certain
circumstances. Further, subject to applicable law, including
statutes (such as section 7871 of the Code) and treaties or
agreements with the United States, Tribes are subject to Federal
excise taxes. See Rev. Rul. 94-81, 1994-2 C.B. 412.
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On December 18, 1996, the Treasury Department and the IRS published
final regulations (TD 8697) in the Federal Register (61 FR 66584) under
section 7701, known as the entity classification regulations. Those
still-existing regulations at Sec. 301.7701-1(a)(3) make clear that
entities formed under local laws are not always recognized as separate
entities for Federal tax purposes. For example, an organization wholly
owned by a State is not recognized as a separate entity for Federal tax
purposes if it is an integral part of the State. Similarly, those
regulations provide that section 17 corporations and section 3
corporations are not recognized as separate entities for Federal tax
purposes. The entity classification regulations, however, do not
specifically address whether an organization formed under Tribal law
and wholly owned by a Tribe (that is, a wholly owned Tribal entity) is
recognized as a separate entity for Federal tax purposes.
The preamble to TD 8697 states that the IRS received a number of
comments asking for clarification of the tax treatment of wholly owned
Tribal entities. 61 FR 66584. The preamble also indicated that the
Treasury Department and the IRS continued to study the issue and would
issue additional guidance, if necessary. Id. at 66585-86.
IV. Tribal Consultation
Over the past several decades, Tribes have sought clarity
concerning the Federal tax status of Tribally chartered corporations
that are wholly owned by Tribes, in part to provide certainty for
Tribal economic development and to support the generation of revenue
for Indian Tribal governments. In order to obtain Tribal input on the
issue, and in accordance with Executive Order 13175 (November 6, 2000),
``Consultation and Coordination with Indian Tribal Governments,'' and
the Treasury Department's Tribal Consultation Policy (80 FR 57434,
September 23, 2015), superseded by Treasury Order 112-04 (November 22,
2023), the Treasury Department and the IRS most recently held Tribal
consultations on the issue on June 21 and June 22, 2023, October 8 and
October 10, 2019, and a listening session on December 3, 2019.
During Tribal consultations, Tribes have explained that they view
Tribally chartered corporations as an exercise of their inherent
sovereign authority to generate governmental revenue, self-govern the
use of that revenue according to their own laws, and self-determine the
use of that revenue for their citizenry. Tribes highlighted that
Tribally chartered corporations enable Tribes to create entities that
meet their emerging revenue opportunities, establish guidelines for the
operation of these entities that are culturally appropriate and protect
Tribal assets, and dissolve them when they are unneeded. Tribes also
highlighted that Tribally chartered corporations are consistent with
recent Federal policy that promotes Tribal sovereignty, self-
governance, and self-determination in economic development activities.
In contrast, Tribes highlighted that section 17 and section 3
corporations are not sufficient to meet their needs. The incorporation
process for these entities is a lengthy multi-step Federal process that
subjects Tribal authority to Federal oversight and approval, results in
increased administrative costs to Tribes, and requires an act of
Congress to dissolve the chartered entity.
This issue has taken on increased salience in recent years,
particularly with the enactment of laws, such as Public Law 117-169,
136 Stat. 1818 (August 16, 2022), commonly known as the Inflation
Reduction Act of 2022, that extend greater access to capital and new
economic opportunities to certain governments (including Indian Tribal
governments), tax-exempt organizations, and other entities. Tribes have
reiterated their requests for guidance through meetings of the Treasury
Tribal Advisory Committee and other Tribal consultations.
In light of the considerations of Tribal sovereignty and self-
determination described previously, the Treasury Department and the IRS
propose to amend the existing section 7701 regulations to make clear
that entities wholly owned by Tribes and organized or incorporated
under the laws of the Tribes that own them generally are not recognized
as separate entities for Federal tax purposes. Accordingly, such
entities generally would be viewed as one and the same as the Tribes
that own them for Federal tax purposes and would therefore not be
subject to Federal income tax. In addition, the Treasury Department and
the IRS are proposing to amend the existing regulations under section
6417 to provide that such entities and section 17 and section 3
corporations are treated as instrumentalities of the Indian Tribal
governments that own them for purposes of making an elective payment
election under section 6417 (including determining eligibility for and
the consequences of the election). This would mean that the wholly
owned Tribal entity itself, rather than the Indian Tribal government(s)
owning the entity, would make a section 6417 election for an applicable
credit determined with respect to any applicable credit property held
directly by the wholly owned Tribal entity.
The Treasury Department and the IRS will conduct Tribal
consultation before finalizing these regulations to obtain additional
input on questions involving these proposed regulations. The content of
these consultations will be published in a Tribal consultation summary.
[[Page 81874]]
Explanation of Provisions
I. In General
These proposed regulations would address the Federal tax treatment
of wholly owned Tribal entities (that is, entities wholly owned by
Tribes and organized or incorporated exclusively under the laws of the
Tribes that own them). Specifically, these proposed regulations would
provide that such entities are not recognized as separate entities for
Federal tax purposes (other than for purposes related to section 6417
elections described in part III of this Explanation of Provisions). The
proposed regulations recognize that these entities share core
characteristics with section 17 corporations and section 3
corporations, including that they are wholly owned by Tribes and
benefit the Tribes by facilitating economic growth and Tribal
rebuilding. Accordingly, just as section 17 corporations and section 3
corporations are not recognized as separate entities for Federal tax
purposes and are thus not subject to Federal income tax on income
earned in the conduct of commercial business on or off the organizing
Tribe's reservation, the proposed regulations would confirm that wholly
owned Tribal entities would not be recognized as separate entities for
Federal tax purposes and would not be subject to Federal income tax on
income earned in the conduct of commercial business on or off the
organizing Tribe's reservation.
II. Requirements
A. Tribal Law
The proposed regulations would recognize that Tribal law is
established by each individual Tribe. Where multiple Tribes work
together to establish an entity that is owned by more than one Tribe,
each Tribe would need to provide for the entity under its own laws.
B. Wholly Owned
As is the case for determining the ownership of all corporations
(including a corporation wholly owned by a State or other government),
the determination of whether an outside investor (a person other than a
Tribe) holds stock in a Tribal entity, such that it would fail to be
wholly owned by one or more Indian Tribal governments for Federal tax
purposes, would take into account principles of Federal tax law, such
as the substance over form doctrine, debt versus equity analyses, and
the economic substance doctrine.
Under these proposed regulations, an entity could satisfy the
wholly owned requirement through a multi-Tribe ownership structure, so
long as the entity is organized or incorporated under each Tribe's
laws. Proposed Sec. 301.7701-1(a)(4)(iii)(D) (Example 4) illustrates
an example of the organizational structure of such an entity.
III. Elective Pay
The proposed regulations would revise the elective pay regulations
to provide that, for purposes of making a section 6417 election
(including determining eligibility for and the consequences of such
election), entities described in proposed Sec. 301.7701-1(a)(4)(i)
(that is, section 17 corporations, section 3 corporations, and wholly
owned Tribal entities), would be treated as instrumentalities of Indian
Tribal governments. Under existing Sec. 1.6417-1(f), section 17
corporations and section 3 corporations are treated as ``disregarded
entities'' for purposes of section 6417, and the applicable-entity
owner of a disregarded entity that directly holds applicable credit
property must make a section 6417 election for applicable credits
determined with respect to such property pursuant to Sec. 1.6417-
2(a)(1)(ii). Treatment as instrumentalities under these proposed
regulations would mean that an entity described in proposed Sec.
301.7701-1(a)(4)(i) that directly owns applicable credit property would
make the section 6417 election itself, rather than its owner or owners.
Such an entity generally would do so by filing a Form 990-T, Exempt
Organization Business Income Tax Return, as described in Sec. 1.6417-
1(b)(2), using its own name and employer identification number.
The Treasury Department and the IRS are proposing this rule
pursuant to the Secretary's authority under section 6417(h) to issue
such regulations or other guidance as may be necessary to carry out the
purposes of section 6417, including guidance to ensure that the amount
of the payment or deemed payment made under section 6417 is
commensurate with the amount of the credit that would be otherwise
allowable (determined without regard to section 38(c) of the Code).
Given that proposed Sec. 301.7701-1(a)(4)(i) would generally provide
that an entity owned by multiple Tribes is not recognized as a separate
entity from those Tribes for Federal tax purposes, treating the entity
as a ``disregarded entity'' for section 6417 purposes would have
required each of the entity's owners to make a section 6417 election
with respect to an applicable credit determined with respect to an
applicable credit property owned directly by the entity. That approach
would have been administratively burdensome and complex for the Tribes
that own the entity as well as for the IRS. Given the need for
coordination among these Tribes in making consistent tax filings, it
could also have resulted in cases in which the amount of the total
payments or deemed payments claimed under section 6417 may not be
commensurate with the amount of the underlying credit. In addition,
even for an entity owned by a single Tribe, the entity directly owning
the applicable credit property may be better positioned to fulfill the
pre-filing registration and other requirements to make the section 6417
election. Accordingly, the proposed regulations are intended to
simplify the filing obligations for Tribes and their wholly owned
entities and ensure that the amount of any payment or deemed payment
made under section 6417 will be commensurate with the amount of the
credit that would be otherwise allowable.
In general, the determination of whether an entity is an agency or
instrumentality is analyzed on a facts and circumstances basis. In
determining whether an entity is an agency or instrumentality for
Federal tax purposes, Federal courts have applied a test similar to the
six-factor test in Rev. Rul. 57-128, 1957-1 C.B. 311, which generally
provides guidance on whether an entity is an instrumentality for
purposes of the exemptions from employment taxes under sections
3121(b)(7) and 3306(c)(7). See, e.g., Berini v. Federal Reserve Bank of
St. Louis, Eighth District, 420 F. Supp. 2d 1021 (E.D. Mo. 2005) and
Rose v. Long Island Railroad Pension Plan, 828 F.2d 910, 918 (2d Cir.
1987), cert. denied, 485 U.S. 936 (1988).
No inferences should be drawn from the instrumentality treatment in
proposed Sec. 1.6417-1(c)(7) as to whether any particular entity is or
is not an instrumentality in other contexts. The special rule in
proposed Sec. 1.6417-1(c)(7) is informed in part by administrative
considerations and would be issued under the express delegation of
authority in section 6417(h) to promulgate rules that carry out the
purposes of section 6417 and ensure that the amount of the payment or
deemed payment made thereunder is commensurate with the amount of the
underlying credit.
Proposed Applicability Dates
These proposed regulations would, upon finalization, apply to
taxable years ending after October 9, 2024. The proposed regulations
would also, upon finalization, generally allow an entity the option to
apply proposed
[[Page 81875]]
Sec. 301.7701-1(a)(4), including the option to apply proposed Sec.
1.6417-1(c)(7) and (f), to taxable years ending on or before October 9,
2024, provided that the Indian Tribal government(s) that own the entity
also apply Sec. 301.7701-1(a)(4), and Sec. 1.6417-1(c)(7) and (f) as
applicable, consistently with such entity for all such taxable years.
However, this option would not be available for any taxable period for
a Federal excise tax or employment tax with respect to which the entity
was, as of October 9, 2024, a party to any administrative or judicial
proceeding.
Until the date final regulations are published in the Federal
Register, an entity described in proposed Sec. 301.7701-1(a)(4)(i)
generally may rely on the proposed regulations for taxable years ending
on or before that date, provided that the Indian Tribal government(s)
that own the entity do so consistently with such entity for all such
taxable years. However, an entity described in proposed Sec. 301.7701-
1(a)(4)(i) may not rely on the proposed regulations for any taxable
period for a Federal excise tax or employment tax with respect to which
the entity was, as of October 9, 2024, a party to any administrative or
judicial proceeding.
Reliance and the proposed option to apply the regulations
retroactively are not provided for any taxable period for a Federal
excise or employment tax subject to pending administrative or judicial
proceedings as of October 9, 2024, because reliance and retroactive
application of these regulations in that context could create certain
unintended and technical procedural questions. This exception to
reliance on the proposed regulations and the proposed option to
retroactively apply these regulations is limited to the Federal excise
and employment tax context because these questions would not arise in
the context of a Federal income tax administrative or judicial
proceeding.
Special Analyses
I. Executive Order 13175: Consultation and Coordination With Indian
Tribal Governments
Executive Order 13175 (Consultation and Coordination With Indian
Tribal Governments) prohibits an agency from publishing any rule that
has Tribal implications if the rule either imposes substantial, direct
compliance costs on Indian Tribal governments and is not required by
statute, or preempts Tribal law, unless the agency meets the
consultation and funding requirements of section 5 of the Executive
order. This proposed rule would neither impose substantial, direct
compliance costs on Indian Tribal governments nor preempt Tribal law
within the meaning of the Executive order.
II. Executive Order 14112: Reforming Federal Funding and Support for
Tribal Nations To Better Embrace Our Trust Responsibilities and Promote
the Next Era of Tribal Self-Determination
Consistent with Executive Order 14112 (described previously in the
Background section), these proposed regulations would further Tribal
self-determination and self-governance and reduce administrative
burdens by providing entities wholly owned by Tribes and organized or
incorporated under the laws of the Tribes that own them with the same
Federal tax treatment that applies to section 17 corporations and
section 3 corporations.
III. Regulatory Planning and Review
Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject to the requirements of
section 6 of Executive Order 12866, as amended. Therefore, a regulatory
impact assessment is not required.
IV. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA)
generally requires that a Federal agency obtain the approval of the
Office of Management and Budget (OMB) before collecting information
from the public, whether such collection of information is mandatory,
voluntary, or required to obtain or retain a benefit. An agency may not
conduct or sponsor, and a person is not required to respond to, a
collection of information unless the collection of information displays
a valid control number.
The collection of information in these regulations contain
reporting and recordkeeping requirements. The recordkeeping
requirements mentioned within these final regulations are considered
general tax records under Sec. 1.6001-1(e). These records are required
for the IRS to validate that taxpayers have met the regulatory
requirements and are entitled to make an elective payment election and
to verify the Federal tax classification of entities described in these
proposed regulations. For PRA purposes, general tax records are already
approved by OMB under 1545-0047 for tax-exempt organizations and
government entities.
These regulations also mention reporting requirements related to
making elections under section 6417. These elections will be made by
taxpayers on Forms 990-T, and credit calculations will be made on Form
3800 and supporting forms. These forms are approved under 1545-0047 for
tax-exempt organizations and governmental entities.
V. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6),
the Secretary of the Treasury hereby certifies that the proposed
regulations will not have a significant economic impact on a
substantial number of small entities pursuant to the Regulatory
Flexibility Act (5 U.S.C. chapter 6). These proposed regulations would
affect entities that are wholly owned by Tribes. Additionally, no added
burden is created through these proposed regulations; rather, these
proposed regulations would expand the definition of an eligible entity
for section 6417 of the Code but does not expand the requirements for
entities to make the elective pay election. Although data is not
readily available about the number of small entities that are
potentially affected by this rule, it is possible that a substantial
number of small entities may be affected.
To the extent the entities described in these regulations make
elections under section 6417, the Treasury Department and the IRS
certify the final regulatory flexibility analysis undertaken in TD
9988.
For the reasons stated, a regulatory flexibility analysis under the
Regulatory Flexibility Act is not required. The Treasury Department and
the IRS invite comments on the impact of the proposed regulations on
small entities.
Pursuant to section 7805(f), this notice of proposed rulemaking has
been submitted to the Chief Counsel for the Office of Advocacy of the
Small Business Administration for comment on its impact on small
business.
VI. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandate Reform Act of 1995 requires
that agencies assess anticipated costs and benefits and take certain
other actions before issuing a final rule that includes any Federal
mandate that may result in expenditures in any one year by a State,
local, or Indian Tribal government, in the aggregate, or by the private
sector, of $100 million (updated annually for inflation). These
proposed regulations do not include any Federal mandate that may result
in expenditures by State, local, or Indian Tribal governments or by the
private sector in excess of that threshold.
[[Page 81876]]
VII. Executive Order 13132: Federalism
Executive Order 13132 (Federalism) prohibits an agency from
publishing any rule that has Federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the executive order. These proposed regulations do not
have Federalism implications and do not impose substantial, direct
compliance costs on State and local governments or preempt State law
within the meaning of the executive order.
Comments and Public Hearing
Consideration will be given to comments received in Tribal
consultation and comments regarding the notice of proposed rulemaking
that are submitted timely to the IRS as prescribed in the preamble
under the ADDRESSES section. The Treasury Department and the IRS
request comments on all aspects of the proposed regulations, including
the application of the proposed regulations in the context of federal
employment and excise taxes. All commenters are strongly encouraged to
submit comments electronically. All comments will be made available at
<a href="https://www.regulations.gov">https://www.regulations.gov</a>. Once submitted to the Federal eRulemaking
Portal, comments cannot be edited or withdrawn.
A public hearing will be held on January 17, 2025, beginning at 10
a.m. ET, in the Auditorium at the Internal Revenue Building, 1111
Constitution Avenue NW, Washington, DC. Due to building security
procedures, visitors must enter at the Constitution Avenue entrance. In
addition, all visitors must present photo identification to enter the
building. Because of access restrictions, visitors will not be admitted
beyond the immediate entrance area more than 30 minutes before the
hearing starts. Pursuant to Announcement 2023-16, 2023-20 I.R.B. 854
(May 15, 2023), the public hearing is scheduled to be conducted in
person, but the IRS will provide a telephonic option for individuals
who wish to attend or testify at the hearing by telephone.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to present oral comments at the hearing must submit an outline of
the topics to be discussed as well as the time to be devoted to each
topic January 7, 2025. A period of ten minutes will be allocated to
each person for making comments. After the deadline for receiving
outlines has passed, the IRS will prepare an agenda containing the
schedule of speakers. Copies of the agenda will be made available free
of charge at the hearing. If no outlines of the topics to be discussed
at the hearing are received by January 7, 2025, the public hearing will
be cancelled. If the public hearing is cancelled, a notice of
cancellation of the public hearing will be published in the Federal
Register.
Individuals who want to testify in person at the public hearing
must send an email to <a href="/cdn-cgi/l/email-protection#265653444a4f454e4347544f484155664f545508414950"><span class="__cf_email__" data-cfemail="e9999c8b85808a818c889b80878e9aa9809b9ac78e869f">[email protected]</span></a> to have your name added to
the building access list. The subject line of the email must contain
the regulation number REG-113628-21 and the language TESTIFY In Person.
For example, the subject line may say: ``Request to TESTIFY In Person
at Hearing for REG-113628-21.''
Individuals who want to testify by telephone at the public hearing
must send an email to <a href="/cdn-cgi/l/email-protection#fe8e8b9c92979d969b9f8c9790998dbe978c8dd0999188"><span class="__cf_email__" data-cfemail="b2c2c7d0dedbd1dad7d3c0dbdcd5c1f2dbc0c19cd5ddc4">[email protected]</span></a> to receive the telephone
number and access code for the hearing. The subject line of the email
must contain the regulation number REG-113628-21 and the language
TESTIFY Telephonically. For example, the subject line may say:
``Request to TESTIFY Telephonically at Hearing for REG-113628-21.''
Individuals who want to attend the public hearing in person without
testifying must also send an email to <a href="/cdn-cgi/l/email-protection#48383d2a24212b202d293a21262f3b08213a3b662f273e"><span class="__cf_email__" data-cfemail="5b2b2e39373238333e3a2932353c281b322928753c342d">[email protected]</span></a> to have
your name added to the building access list. The subject line of the
email must contain the regulation number (REG-113628-21) and the
language ATTEND In Person. For example, the subject line may say:
``Request to ATTEND Hearing In Person for REG-113628-21.'' Requests to
attend the public hearing must be received by 5 p.m. ET on January 15,
2025.
Individuals who want to attend the public hearing telephonically
without testifying must send an email to <a href="/cdn-cgi/l/email-protection#2c5c594e40454f44494d5e45424b5f6c455e5f024b435a"><span class="__cf_email__" data-cfemail="2d5d584f41444e45484c5f44434a5e6d445f5e034a425b">[email protected]</span></a> to
receive the telephone number and access code for the hearing. The
subject line of the email must contain the regulation number (REG-
113628-21) and the language ATTEND Hearing Telephonically. For example,
the subject line may say: ``Request to ATTEND Hearing Telephonically
for REG-113628-21.'' Requests to attend the public hearing must be
received by 5 p.m. ET on January 15, 2025.
The hearing will be made accessible to people with disabilities. To
request special assistance during the hearing, contact the Publications
and Regulations Branch of the Office of Associate Chief Counsel
(Procedure and Administration) by sending an email to
<a href="/cdn-cgi/l/email-protection#08787d6a64616b606d697a61666f7b48617a7b266f677e"><span class="__cf_email__" data-cfemail="512124333d383239343023383f3622113823227f363e27">[email protected]</span></a> (preferred) or by telephone at (202) 317-6901
(not a toll-free number) by 5 p.m. ET on January 14, 2025.
Statement of Availability of IRS Documents
Rev. Rul. 94-81, Rev. Rul. 94-65, Rev. Rul. 94-16, Rev. Rul. 67-
284, and Rev. Rul. 57-128 are published in the Internal Revenue
Bulletin (or Cumulative Bulletin) and are available from the
Superintendent of Documents, U.S. Government Publishing Office,
Washington, DC 20402, or by visiting the IRS website at <a href="https://www.irs.gov">https://www.irs.gov</a>.
Drafting Information
The principal authors of these proposed regulations are attorneys
in the Office of Associate Chief Counsel (Passthroughs and Special
Industries), Branch 1. However, other personnel from the Treasury
Department and the IRS participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and record keeping requirements.
26 CFR Part 301
Procedure and Administration.
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and the IRS propose to amend
26 CFR parts 1 and 301 as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * * *
0
Par. 2. Section 1.6417-1 is amended by:
0
1. Revising paragraph (c) introductory text;
0
2. Removing the semicolon from the end of paragraphs (c)(1)(ii) and
(c)(2) through (5) and adding a period in their places;
0
3. Removing ``; and'' from the end of paragraph (c)(6) and adding the
text a period in its place; and
0
4. Revising paragraphs (c)(7), (f), and (q).
The revisions read as follows:
Sec. 1.6417-1 Elective payment election of applicable credits.
* * * * *
(c) Applicable entity. The term applicable entity means any entity
described in paragraph (c)(1) through (7) of this section.
* * * * *
[[Page 81877]]
(7) An agency or instrumentality of any applicable entity described
in paragraph (c)(1)(ii) or (c)(2) or (3) of this section. For purposes
of making a section 6417 election (including determining eligibility
for and the consequences of such election), an entity described in
Sec. 301.7701-1(a)(4)(i) of this chapter is treated as an
instrumentality of the Indian Tribal government(s) or subdivision(s)
thereof that own(s) it.
* * * * *
(f) Disregarded entity. The term disregarded entity means an entity
that is disregarded as, or not recognized as, an entity separate from
its owner for Federal income tax purposes under Sec. 301.7701-1(a)(3)
or Sec. Sec. 301.7701-2 and 301.7701-3 of this chapter. See paragraph
(c)(7) of this section regarding entities described in Sec. 301.7701-
1(a)(4)(i) of this chapter.
* * * * *
(q) Applicability dates--(1) In general. Except as provided in
paragraph (q)(2) of this section, this section applies to taxable years
ending on or after March 11, 2024. For taxable years ending before
March 11, 2024, taxpayers may choose to apply the rules of Sec. Sec.
1.6417-1 through 1.6417-4 and 1.6417-6, provided the taxpayers apply
the rules in their entirety and in a consistent manner.
(2) Paragraphs (c)(7) and (f) of this section. Paragraphs (c)(7)
and (f) of this section apply to taxable years ending after October 9,
2024. For taxable years ending on or before October 9, 2024, an entity
described in Sec. 301.7701-1(a)(4)(i) of this chapter may choose to
apply paragraphs (c)(7) and (f) of this section as contained in 26 CFR
part 1, revised October 9, 2024 by following the Federal tax reporting
requirements in a manner consistent with those provisions for all such
years, but only if the Indian Tribal government(s) that own the entity
also apply paragraphs (c)(7) and (f) of this section consistently with
such entity for all such taxable years.
PART 301--PROCEDURE AND ADMINISTRATION
0
Par. 3. The authority citation for part 301 is amended by adding an
entry for Sec. 301.7701-1(a)(4) in numerical order to read in part as
follows:
Authority: 26 U.S.C. 7805 * * * *
* * * * *
Section 301.7701-1(a)(4) also issued under 26 U.S.C.
7701(a)(40).
* * * * *
0
Par. 4. Section 301.7701-1 is amended by:
0
1. Revising paragraph (a)(3);
0
2. Redesignating paragraph (a)(4) as paragraph (a)(5);
0
3. Adding new paragraph (a)(4); and
0
4. Revising paragraph (f).
The revisions and addition read as follows:
Sec. 301.7701-1 Classification of organizations for federal tax
purposes.
(a) * * *
(3) Certain State and local law entities not recognized. An entity
formed under State or local law is not always recognized as a separate
entity for Federal tax purposes. For example, an organization wholly
owned by a State is not recognized as a separate entity for Federal tax
purposes if it is an integral part of the State.
(4) Certain Tribal entities--(i) In general. Except as provided in
paragraph (a)(4)(ii) of this section, Tribes incorporated under section
17 of the Indian Reorganization Act of 1934, as amended, 25 U.S.C. 5124
(section 17 corporation), or under section 3 of the Oklahoma Indian
Welfare Act, as amended, 25 U.S.C. 5203 (section 3 corporation), are
not recognized as separate entities for Federal tax purposes. Also,
except as provided in paragraph (a)(4)(ii) of this section, entities
wholly owned by one or more Indian Tribal governments (within the
meaning of section 7701(a)(40) of the Code) and organized or
incorporated exclusively under the laws of the Indian Tribal
government(s) that own them (wholly owned Tribal entity) are not
recognized as separate entities for Federal tax purposes.
(ii) Elections under section 6417. See Sec. 1.6417-1(c)(7) of this
chapter for the treatment of section 17 corporations, section 3
corporations, and wholly owned Tribal entities described in paragraph
(a)(4)(i) of this section for the purposes of making an elective
payment election under section 6417 of the Code (section 6417
election), including determining eligibility for and the consequences
of such election.
(iii) Examples. The following examples illustrate the application
of paragraph (a)(4)(i) and (ii) of this section. For purposes of these
examples, all references to a Tribe are references to an Indian Tribal
government within the meaning of section 7701(a)(40).
(A) Example 1. Tribe B incorporates Corporation X pursuant to Tribe
B's Corporations Ordinance, which governs the purpose, formation, and
operation of commercial entities. Tribe B owns all the shares of
Corporation X. Corporation X is therefore wholly owned by Tribe B and
organized or incorporated exclusively under the laws of Tribe B. As a
result, Corporation X is not recognized as a separate entity from Tribe
B for Federal tax purposes, except for the purposes described in Sec.
1.6417-1(c)(7) of this chapter. Accordingly, Corporation X is not
subject to Federal income tax. Under Sec. 1.6417-1(c)(7) of this
chapter, Corporation X is treated as an instrumentality of Tribe B for
the purposes of making a section 6417 election (including determining
eligibility for and the consequences of such election). Thus,
Corporation X, rather than Tribe B, would be the applicable entity for
purposes of making a section 6417 election for any applicable credit
(as defined in section 6417(b)) relating to property held or activities
conducted by Corporation X.
(B) Example 2. Same facts as in paragraph (a)(4)(iii)(A) of this
section (Example 1), except that the board of Corporation X, pursuant
to Tribe B's Corporations Ordinance, organizes a subsidiary,
Corporation Z, to pursue a limited line of new business. Corporation X
owns all the shares of Corporation Z. Corporation Z is therefore wholly
owned by Tribe B and organized or incorporated exclusively under the
laws of Tribe B. As a result, neither Corporation X nor Corporation Z
is recognized as an entity separate from Tribe B for Federal tax
purposes, except for the purposes described in Sec. 1.6417-1(c)(7) of
this chapter. Accordingly, Corporation Z is not subject to Federal
income tax. Under Sec. 1.6417-1(c)(7) of this chapter, Corporation X
and Corporation Z are each treated as an instrumentality of Tribe B for
the purposes of making a section 6417 election (including determining
eligibility for and the consequences of such election). Thus,
Corporation Z, rather than Corporation X or Tribe B, would be the
applicable entity for purposes of making a section 6417 election for
any applicable credit relating to property held or activities conducted
by Corporation Z. As in Example 1, Corporation X would continue to be
the applicable entity for purposes of making a section 6417 election
for any applicable credit relating to property held or activities
conducted by Corporation X.
(C) Example 3. Tribe B incorporates a section 17 corporation. The
section 17 corporation subsequently incorporates Corporation J pursuant
to Tribe B's Corporations Ordinance, which governs the purpose,
formation, and operation of commercial entities. The section 17
corporation owns all the shares of Corporation J. Corporation J is
therefore treated as wholly owned by Tribe B and organized or
incorporated exclusively under the laws of Tribe B. As a result,
Corporation J is not recognized as a
[[Page 81878]]
separate entity from Tribe B for Federal tax purposes, except for the
purposes described in Sec. 1.6417-1(c)(7) of this chapter.
Accordingly, neither the section 17 corporation nor Corporation J is
subject to Federal income tax. Under Sec. 1.6417-1(c)(7) of this
chapter, the section 17 corporation and Corporation J are each treated
as an instrumentality of Tribe B for the purposes of making a section
6417 election (including determining eligibility for and the
consequences of such election). Thus, the section 17 corporation,
rather than Tribe B, would be the applicable entity for purposes of
making a section 6417 election for any applicable credit relating to
property held or activities conducted by the section 17 corporation. In
addition, Corporation J, rather than Tribe B or the section 17
corporation, would be the applicable entity for purposes of making a
section 6417 election for any applicable credit relating to property
held or activities conducted by Corporation J. The analysis would be
the same if Tribe B had organized its business as a single member
limited liability company pursuant to the Tribe's business code instead
of incorporating Corporation J.
(D) Example 4. Pursuant to their respective Tribal laws, Tribe A,
Tribe B, Tribe C, and Tribe D organize Corporation K via a resolution
approved by their respective Indian Tribal governments. Each Tribe owns
25% of the shares of Corporation K. Corporation K is therefore wholly
owned by Indian Tribal governments and organized or incorporated
exclusively under the laws of each Indian Tribal government that owns
it. As a result, Corporation K is not recognized as a separate entity
from the Tribes for Federal tax purposes, except for the purposes
described in Sec. 1.6417-1(c)(7) of this chapter. Accordingly,
Corporation K is not subject to Federal income tax. Under Sec. 1.6417-
1(c)(7) of this chapter, Corporation K is treated as an instrumentality
of Tribe A, Tribe B, Tribe C, and Tribe D for the purposes of making a
section 6417 election (including determining eligibility for and the
consequences of such election). Thus, Corporation K, rather than Tribe
A, Tribe B, Tribe C, or Tribe D, would be the applicable entity for
purposes of making a section 6417 election for any applicable credit
relating to property held or activities conducted by Corporation K.
* * * * *
(f) Applicability dates--(1) In general. Except as provided in
paragraph (f)(2) of this section, the rules of this section are
applicable as of January 1, 1997.
(2) Exceptions--(i) Paragraph (a)(4) of this section. The rules of
paragraph (a)(4) of this section apply to taxable years ending after
October 9, 2024. In general, an entity may choose to apply paragraph
(a)(4) of this section to taxable years ending on or before October 9,
2024 if the Indian Tribal government(s) that own the entity also apply
paragraph (a)(4) of this section consistently with such entity for all
such taxable years. However, an entity may not choose to apply
paragraph (a)(4) of this section to any taxable period for a Federal
excise tax or Federal employment tax with respect to which the entity
was, as of October 9, 2024, a party to any administrative or judicial
proceeding.
(ii) Paragraph (c) of this section. The rules of paragraph (c) of
this section are applicable on January 5, 2009.
Douglas W. O'Donnell,
Deputy Commissioner.
[FR Doc. 2024-23142 Filed 10-7-24; 4:15 pm]
BILLING CODE 4830-01-P
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</html>Indexed from Federal Register on October 9, 2024.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.