Effective Tax Strategies for
Establishing
Tribal Business Entities
Rob Roy Smith
Ater Wynne, LLP
Suite 1501, 601 Union Street
Seattle, WA 98101-2341
(206) 623-4711
(206) 467-8406 (fax)
rrs@aterwynne.com
Available Forms for Tribal Business
Entity Development
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Tribal Government Enterprises
Section 17 Corporations
Tribally-Chartered Tribal Corporations
State-Chartered Tribal Corporations
Tribal Limited Liability Companies
Non-profit Organizations
Ater Wynne, LLP
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Tribal Government Enterprise
• Subordinate governmental entity created
by the tribal government pursuant to the
tribe’s constitution and inherent sovereign
powers
• Cloaked with the same privileges and
immunities of the Indian tribe
• Will not be subject to federal income tax or
state taxes imposed directly on business
operating within Indian lands
Ater Wynne, LLP
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Section 17 Corporations
• Corporate powers may include: power to borrow
money, encumber its assets (including land), sue
and be sued, and waive its sovereign immunity
• Corporate charter will describe how autonomous
the corporation will be from tribal governmental
control
• Section 17 corporation has the same tax status
as the Indian tribe and is not taxable on income
from activities carried on within or outside the
reservation
Ater Wynne, LLP
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Tribally-Chartered Tribal
Corporations
• Tribally-owned corporations under tribal law
– Any legal benefits?
– Tribes already enjoy sovereign immunity and do not
need the limited liability protection from a corporate
shareholder suit provided by incorporation
– Advantage of corporate perpetual existence is
irrelevant because, unless specifically terminated by
Congress, tribes have perpetual existence
• Federal tax status uncertain
Ater Wynne, LLP
www.aterwynne.com
State-Chartered Tribal
Corporations
• A tribal corporation organized under state law
does not have the same tax status as the tribe
for federal tax purposes and is subject to federal
income tax on any income earned regardless of
the location of the business activities
• All state laws apply; in Washington, certain state
taxes inapplicable if:
– (1) 51% or more of the corporation is owned by
enrolled members of an Indian tribe and
– (2) business activities take place within Indian lands
Ater Wynne, LLP
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State-Chartered Corporations
(Continued)
• General rule: A tribe that is a partner in a
partnership is not subject to Federal
income tax
– EXCEPTION: a tribally-owned state
chartered corporation that is a partner will be
subject to Federal income tax on its
distributive share of partnership income
Ater Wynne, LLP
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Tribal LLCs
• A single-member LLC may choose between tax
treatment as a corporation or as a “disregarded
entity,” which essentially allows the LLC to be
treated and taxed as a sole proprietorship,
branch, or division of the owner.
• Since tribes are exempt from federal income tax,
where a tribe is the single owner of an LLC, it
would similarly be exempt from federal income
tax laws regardless of whether it was created
under state or tribal law.
• Are there practical benefits?
Ater Wynne, LLP
www.aterwynne.com
Non-Profit Organizations
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Section 501(c)(3)
Creature of state law
Must be approved by
IRS
Subject to certain
annual reporting
Tax-Deductible
Donations for any
“charitable” purpose
Section 7871
• Tribal government, or
an “integral part” of
tribal government, as
defined by IRS
• Legally, no reporting
requirements
• Limited to
contributions for
“public purposes”
Ater Wynne, LLP
www.aterwynne.com
Rules Review
• Tribal Enterprise: any income earned,
regardless of the location of the business
activities that produced the income, is not
subject to federal income tax
• Section 17 Corporation: any income earned,
regardless of the location of the business
activities that produced the income, is not
subject to federal income tax
• State Chartered Corporation: any income
earned, regardless of the location of the
business activities that produced the income, is
subject to federal income tax and state laws
Ater Wynne, LLP
www.aterwynne.com
For more information:
Rob Roy Smith
206-623-4711
rrs@aterwynne.com
www.aterwynne.com