Treasury and IRS issue proposed regulations providing clarity regarding the federal tax classification of entities entirely owned by Tribal governments

The Department of the Treasury and the Internal Revenue Service today issued proposed regulationsaddressing the federal tax classification of corporations or LLCs that are owned entirely by Indian Tribal governments (Tribes) and formed under the laws of the Tribes that own them. Generally, entities formed under the laws of a Tribe are known as Tribal law entities.

During discussions with the Treasury Tribal Advisory Committee, Tribes have requested guidance on the federal tax classification of Tribal law entities entirely owned by Tribes. The importance of Tribal sovereignty and self-determination that was raised during these discussions resulted in the Treasury and IRS proposing to amend the rules on entity classification. Under the proposed regulations, Tribal law entities that are entirely owned by Tribes would not be recognized as separate entities for federal tax purposes and would not be subject to federal income tax.

The proposed regulations would also clarify that Tribal law entities entirely owned by Tribes may receive the value of certain energy credits under the Inflation Reduction Act.

Until the final regulations are published in the Federal Register, Tribes and related entities may generally rely on these proposed regulations. The proposed regulations contain definitions and examples, including an example that illustrates the federal tax classification of an entity entirely owned by multiple Tribes.

Treasury and IRS encourage interested parties to submit comments on this guidance through Regulations.gov. Please indicate IRS and REG-113628-21 in the submission. Also, written comments may be mailed to CC:PA:01:PR (REG-113628-21) Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

A public hearing has been scheduled for Jan. 17, 2025.

Source: IRS-2024-261, Oct. 7, 2024