May 13, 2021

Podcast - Native American Law Updates with Ron Allen, Chairman/CEO of the Jamestown S'Klallam Tribe

The Eyes on Washington Podcast Series

In this episode of our Public Policy & Regulation Group's "The Eyes on Washington Podcast" series, Native American Law Partners Philip Baker-Shenk and Ken Parsons have a conversation with Jamestown S'Klallam Tribe Chairman/CEO Ron Allen on tax policy issues affecting Indian Country. They specifically discuss the general welfare exclusion (GWE), a tax safe harbor that applies to certain benefits given to tribal members, beginning with an explanation of the context for the passage of the 2014 General Welfare Exclusion Act and subsequent creation of the Treasury Tribal Advisory Committee (TTAC).

Mr. Allen is a member of the TTAC, and Mr. Parsons is a member of TTAC's General Welfare Exclusion Subcommittee. The committee is currently preparing a report to submit to the U.S. Department of the Treasury regarding the implementation of GWE, and both Mr. Parsons and Mr. Allen provide an update on that process. They also highlight what tribes need to know to take advantage of GWE: Mr. Parsons emphasizes the current moratorium on Internal Revenue Service (IRS) audits and the broad coverage of the GWE statute, and Mr. Allen underscores the need for tribes to be proactive and draft safe harbor codes now, even if they have to be amended later. The conversation concludes by comparing the Biden Administration's relationship with Indian Country to that of previous administrations, along with previewing potential opportunities to come.


Philip Baker-Shenk: Hello everyone, my name is Phil Baker-Shenk. I'm a partner at Holland & Knight and part of the Native American Law Group here at H&K. I'm very pleased to be joined today in this podcast with one of my partners, Ken Parsons. Ken, do you want to say hello to everyone?

Ken Parsons: Hi everyone, I'm Ken. I work in the Washington, D.C., office of Holland & Knight with Phil, and I concentrate on tribal tax issues.

Philip Baker-Shenk: Thank you, Ken, and we're also very pleased to be joined today by Chairman Ron Allen. Ron Allen is a longtime tribal leader well known across Indian Country and serves in many, many capacities and is here to talk about one of his assignments, his areas of service. Ron, can you say good morning?

Ron Allen: Good morning, Phil, and greetings to everyone. I'm Ron Allen, Chair/CEO for the Jamestown S'Klallam Tribe, located out in western Washington state, west of Seattle.

Updates from TTAC

Philip Baker-Shenk: And Chairman Allen is also a member of the very group that we're here to talk today about on this podcast, the Treasury Tribal Advisory Committee, and serves also on a subcommittee of that advisory committee on the general welfare exclusion. Ken Parsons is also a member of that GWE, as we call it, subcommittee. And so we're here today to talk about the role and the function of that committee. First, I'd like to ask you, Ron, where are we at with that committee and the GWE subcommittee? You have a work plan that has stretched across a couple of years. Where are we in that process?

Ron Allen: Well, stepping back, so our Subcommittee for the General Welfare Exemption Doctrine is established by the Treasury TTAC, the Treasury Tribal Advisory Committee, that was established by the general welfare legislation that was passed a few years ago. So we had three main groups, subgroups, that we were going to tackle with Treasury. One of them is GWE, which is the one that I co-chair with Sharon Edenfield. And then we have another one that deals with pensions and another one that deals with dual taxation. And so our committee has been reviewing recommendations to make to the Treasury, which is including how we would expect, how they would promulgate, the implementation of GWE exemptions. And so we've been developing it and vetting it with Indian Country. And we just had a little workshop, just recently this last week, where we took our most recent draft that we are proposing and we vetted it with probably about close to 100 people from Indian Country. And Ken Parsons is one of the people who participated with us with regard to the complex subject matter of how it will be implemented. And the objective is to present our final recommendation to the TTAC on June 16 of this year for the Treasury to consider.

Philip Baker-Shenk: OK, and Ken there's some comment period that the subcommittee has set a schedule. And for the listeners, why don't you outline when they can get their comments to the subcommittee?

Ken Parsons: So we've been accepting comments since last July, since we initially put out the report, and we've gotten a lot of great comments, I think more than 30. And we also held a tribal forum last August, which was very similar to the one we just held last week. And we've extended the comment deadline until, I believe it's May 23. That went out in a tribal leader letter that came out last week. So any time between now and then, if people get us comments, we can incorporate them into our final report that we're submitting to TTAC on that meeting that Ron referred to in June.

General Welfare Exclusion Act: How We Got There

Philip Baker-Shenk: Right. So more on that draft report a little later. But I'd like to back up a bit. Ron, how did we get into this situation where we, where Congress, was asked by tribes, tribal leaders, you and many others, to enact some legislation that constrains the Internal Revenue Service because of some problems that Indian Country was experiencing at the hands of IRS agents? So how did we get into the position where we were asking Congress to essentially pass this General Welfare Exclusion Act provision? What were the problems that gave rise to that legislation?

Ron Allen: Well, that's a complicated, multilayered question, Phil. First of all, what everyone has to remember is that tribes are sovereign nations and they're part of the fabric of American governmental system. We have our own sovereignty, our own jurisdiction, our own authority. Unfortunately, we don't have clearly defined laws and litigation that has clarified what our tribes' taxation authority is, including tax exemption activities or subject matters. And so we have a long list of issues that we've been dealing with in terms of our taxing authority and the complex issue where other authorities try to tax within our jurisdiction. And good examples are the states or local governments, cities and counties, and so forth. And so we've been challenging Congress for many years to provide clarification because there's been constant litigation on that subject matter. And so for many, many years, we worked with the House and the Senate in Congress to come up with legislation to provide clarification on those matters. It's more complicated than just the general welfare doctrine — I'll come back in a second — because of the dual taxation issue, pension issues and other kinds of taxation issues that negatively impact our people at different venues. So when we went to Congress and we put out our quote unquote "laundry list" of things that need clarification because of litigation and ambiguity about the actual jurisdiction or tribe's taxation authority, the Congress basically said, "What are your highest priorities?" Well, one of the things that became very troubling for tribes is the tribes will provide these different kinds of services and assistance to their people. It could be spiritual purposes. It can be cultural purposes, traditional practice activities. It can be ways in which we provide services to our citizens who are typically in the poverty level and we try to help them with regard to areas that can help them live day to day, basically survive. And in our judgment, those are areas that have to be tax exempt. What the IRS has been doing is forcing tribes to do these 1099, which goes onto their tax status, and that became very problematic for our tribes. And it's complicated because values for those activities and services can vary from tribe to tribe. But nevertheless, to the credit of Congress, they have said, "Yes, let's get this thing fixed." We had a long list of what we felt was eligible for exemptions for these kinds of services or these kinds of compensation that we would provide to our citizens. And so they gave us, or they agreed to, a long list that comes under this doctrine of GWE. And so now they have it, and the question was how to implement it. And so the law established our new advisory committee — seven members — that was appointed. Three of them are from Treasury, four of them come from Congress, two on the House side, two on the Senate side. And they make up this committee that we advise and then the subcommittees that we already discussed. So that's the backdrop of it. It's more complicated than that, but I think that kind of gives you the big picture.

Philip Baker-Shenk: Good. And Ken, on the GWE aspect here, what was the law before this statute was enacted, and who was benefiting and who was being harmed in Indian Country as a result of that law prior to the GWE Act?

Ken Parsons: So prior to the GWE Act in 2014, there was a lot less certainty on the general welfare exclusion. There still isn't a whole lot of certainty now, but certainly prior to 2014, there was a lot of less certainty. And that led to audits from the IRS and disagreements between IRS and tribal governments on what constituted general welfare. So under the Internal Revenue Code Section 61, gross income includes all sorts of income from whatever source. So it's very, very broad. And so when a benefit is given, say, from your employer or anybody else, including salary or a health benefit, the default is going to be that that's a taxable benefit. All right. But there has always been this general welfare exclusion that actually predates 2014, the General Welfare Exclusion Act. It was in the common law with IRS rulings and revenue procedures that came out prior to 2014. And the three basic requirements for the exclusion were that it's a government payment or service provided that's for the promotion of general welfare and it's not compensation for services. So it's pretty basic there. And the big unknown is, well, what does it mean to be "for the promotion of general welfare," and that's where all the disputes arise. So there are audits, you know, decades ago that predate the General Welfare Exclusion Act that are the IRS saying, "Well, no, that benefit doesn't count" or, "That benefit was too much." So the General Welfare Exclusion Act is intended to put an end to those disputes by putting some more clarity on the general welfare exclusion.

Philip Baker-Shenk: And the tribes were audited, or individual Indian taxpayers were audited?

Ken Parsons: So it can happen both ways. A member could have something that was given to them that wasn't reported as income to them. But generally, I think you're going to find the audits at the tribal level, and that is because it's easier for the IRS to hit the tribe because it's one entity versus a bunch of members. And the tribe would be audited for either not issuing a 1099, which reports miscellaneous income, or issuing a 1099 that doesn't include all of the income that an individual received. So it really is both a tribal member and a tribal government issue. But generally it's resolved at the tribal government level because it's just easier for both sides.

Ron Allen: Well, if I might add Phil, we, on behalf of the tribal governments — these individuals, as Ken pointed out, they get these IRS audits and challenges — we take it upon ourselves as that's our responsibility to protect our citizens. So we've been very proactive at numerous levels: the National Congress of American Indians, our regional intertribal organizations and the Native American Finance Officers Association that deals with a lot of the taxation and fiscal, financial matters of tribes. So we've been mobilizing it together collectively in those forums.

Philip Baker-Shenk: So the role of the tribal government is as the protector of its own citizens, but you're kind of in between your citizens and the IRS who is trying to collect some money from these individual Indians based on benefits that tribes have been providing to their members. And that's, that was a real financial burden for individual Indians, and it was a hassle administratively for tribes. And it also challenged tribal protection of its own members. So we came to Congress and Indian Country got some relief, and this advisory committee was formed. And here we are in 2021. We have a new administration. Some of the terms are expiring of the seven members you mentioned. Ron, what are the plans here for reupping or replacing the three positions on the seven-member committee that the Biden Administration has announced?

Ron Allen: Well, the legislation wanted to create a political framework so that there's continuity on the tribal advisory committee for Treasury and IRS. And so in terms of doing that, since there were seven members and three were going to be appointed by Treasury, they decided that the best thing to do was to appoint the Treasury for two years and then their subsequent reappointment or new appointment, as a new individual, would be for four years. And then the other four were established under four-year terms. And if somebody is, if somebody resigns during their term, they'll just get a new appointment just to fill that term out and retain in that cycle. So basically, every two years, three of us or four of us will be up for considerations for either reappointment or a new individual to be appointed. There's no term limits, so if we're so inclined to serve for long periods of time for continuity purposes, that can happen. And I would point out the legislation asked that the delegators, meaning the Congress or the Treasury, appoint people who are knowledgeable about Treasury taxation, access to capital or IRS matters so that they're giving their best advice. Not necessarily designed to be regionally represented, but they wanted to have it be a workable forum but with expertise. And it was very clear that we are not a substitute for consultation responsibilities to the 574 tribal governments.

Philip Baker-Shenk: OK, and let me just add that on April 1 in the Federal Register, the administration published a note inviting people to submit their qualifications, resumes, letters of support, etc., who are interested in serving on this committee. There are three slots that open up that the Secretary of Treasury will reappoint or appoint when the terms of three of the members of the seven on the committee expire June 20 of this year. The congressional appointees — and Ron, you're a congressional appointee, right?

Ron Allen: No, I am an administrative Treasury appointee, so my term is up.

Philip Baker-Shenk: OK, do you happen to know the other two who are likewise administration appointees?

Ron Allen: Yeah. One is Lacey Horn from the Cherokee Nation of Oklahoma, and she's the chair of our TTAC currently. And the other one is Lynn Malerba. She's the traditional chief for the Mohegan Tribe up in Connecticut.

Additional Areas of Focus: Intersection of GWE and Other Assistance Programs

Philip Baker-Shenk: Right. Thank you. I want to turn to the ongoing work of the committee and particularly the subcommittee. Comments are due in May. As Ken pointed out on the report, that draft report is accessible on the web, and Ken can certainly provide you with a copy of that if you're interested. Just get in touch with Ken at Ron, we have an overall Indian Country tribe-wide tax strategy that is emerging that Indian Country seeks to have considered in the ongoing national tax policy debate, which looks to be heating up again in 2021 and in front of the 2022 midterm elections. If Congress and the administration are going to put up a tax reform package, are there some changes that you expect to be coming from the TTAC and particularly this subcommittee or the dual taxation or preemption subcommittees and pension subcommittees that may be part of what Indian Country is asking to be added to the legislative tax package?

Ron Allen: Well, yes, the answer is yes. What we would like to do, because the driver for this legislation was the general welfare exemptions criteria, and we took it upon ourselves to expand our mandate, and that's how we got into the pensions and dual taxation conversations. But there are many more issues that are important to us with regard to the Treasury and the IRS so that it's clear that we are an advisory to the secretary of Treasury and the commissioner of the IRS. We want to make sure that's unequivocally clear. We ran into a challenge when we wanted to provide some advice to them when they were implementing the CARES Act legislation with regard to the COVID-19 pandemic, and they said that was not in our wheelhouse of authority and they basically told us to stay in our own lane. Well, they were, that's how they were reading the current legislation. So we will want to expand that authority, because it's not just taxation issue, it's access to capital issue, it's being treated fairly in the financial world, that tribes are trying to advance their agenda for both self-governance and self-reliance. And Treasury and IRS are huge with regard to what each does in their own area of responsibility. So it can be CDFIs and a whole list of other issues on Treasury, and it can be different kinds of guidances, including the authority and the jurisdiction of tribal corporations, as opposed to what they call Section 17 BIA Corporations. So there's those kinds of distinctions that we need to be engaged with, and they're all relative to the tribes' sovereignty and jurisdiction as a government with regard to our ability to enhance our economy, create jobs and create more self-reliance for our tribal communities. Ken may have better clarity about some issues on GWE. I can't think of some off the top of my head, but we're starting to, we're starting to figure out there is some areas — Ken, you can help me on this one — over in Social Security. They're these SSI [Supplemental Security Income] issues that the legislation can be impediments for us because the laws conflict, and we've got to provide better clarity so that if we help our tribal citizens in one area and then it comes around to bite them in another area because many of them are on fixed incomes with Social Security, SSI and so forth. So I'll stop there, and I think Ken probably has better clarity about some of those agendas we're concerned about legislatively.

Ken Parsons: Just to add a couple of points on there, I think, and doing our forums with the tribal leaders and receiving comments, we've noticed that the issues aren't just limited to the general welfare exclusion tax issues that the committee has been focused on, that there are so many other related issues that tribal leaders really want other administrative bodies and officials at the table, like our Social Security Administration, the Treasury, people who are implementing the CARES Act and the American Rescue Plan Act, for situations where the tax law might not line up with other issues. So you give somebody money that's tax exempt under the general welfare exclusion, but then somehow it disqualifies them for SSI benefits, or you give somebody money with CARES Act money and it works for general welfare being tax exempt, but now you're at, the inspector general's coming after you, because that was apparently an impermissible use of those monies. So these are issues we're also looking into as well at the request of tribal leaders. And just to take a step back on the general welfare committee and the TTAC itself, if you look at the statute, the general welfare statute, the mandate isn't just for the TTAC or the TTAC subcommittee to produce this report on the general welfare exclusion. The work is not done on June 16 when that report is submitted to TTAC and subsequently to Treasury. There's actually a requirement for Treasury to consult with TTAC on the education and training of field agents of the IRS before audits can resume on general welfare programs. So the work actually is ongoing. And that's why I think we really need Ron to stay on the committee because the work isn't over with, right? We've got a lot more to do. So what we've actually done in this draft report is we've tried to do Treasury's job for them by putting together draft regulations, proposed regulations for the Treasury Department to implement the general welfare exclusion. And they'll probably have comments and changes, but it's our best shot for Indian Country to put forth these rules for Treasury to administer the general welfare exclusion.

When to Expect IRS GWE Regulations

Philip Baker-Shenk: So what's your sense of the timeframe, Ken, on when the administration will turn around and propose their own draft regulations on GWE?

Ken Parsons: Yeah, so I don't think it will happen relatively soon because we've got the meeting in June and that's when the report is going to be submitted to Treasury. And then they've got to have time to turn that around into a draft, and then that has to go out for consultation with tribes. So we're still looking at a long time away. The other thing to point out, and I think it hasn't come up yet in this podcast, is that there's a moratorium right now on general welfare exclusion audits. So the IRS cannot audit general welfare programs and payments right now because of this moratorium that's in the general welfare exclusion statute from 2014. And that moratorium can't end not just when the IRS issues the regulations, but they also have to train their agents. And that has to be done in consultation with the TTAC. One thing we've also asked for, and the draft report that the subcommittee prepared, is we don't want the IRS to be able to flip a switch on the date those regulations come out or the training is complete. We want a grace period of at least a year for tribes to be able to review that guidance and say, OK, well, here's where we need to make changes to our programs, here's where we might want to revisit some programs or some payment amounts or whatever it is. Tribes need time to be able to change their programs. And so I think this pushes, if the grace period is allowed by the IRS and Treasury, that would push audits of general welfare, I think, until at least 2023.

Ron Allen: I agree with what Ken is saying. We hand it over to them, and then they'll review it. And we have asked, "Can we engage with you?" Now typically it's embargoed, and it goes behind the curtain, so to speak, and we don't know what they're thinking about our proposal. We would like to try to change that because the government-to-government relationship is not the typical way that the federal government develops their own regulations or guidances, as Ken said. And so we would like to be able to stay engaged with them. We believe we have the authority to do that politically because of our unique standing on government to government. So that's a big deal. And then going to Ken's point that, OK, how long do we reach out to the tribes for their feedback? Now, we've gotten quite a bit of feedback now. So is it 30 days, is it 60 days, is 90 days? I think Indian Country is a little anxious to get moving, kick the can down the road, so to speak. And we want to do that. So we will be debating with Treasury on how long should they put the extension of a request from the tribe about the proposal that they will put on the table. So there's a time period between when we give it to them when they put something out there for feedback from the government, wish that we want to engage with them, and then when it comes back, after it comes back, all of these recommendations, A, B and C, then we would like to engage with them on a final recommendation before it's actually proposed. So there is an anxiousness to move it, but we also want to make sure we don't make any mistakes, which is always challenging in this forum. I also want to circle back to, just for a second, on other issues, just make sure people understand why it's so damn important that we get this thing right. So I was referencing Social Security impact. Well, there's other things that are out there in terms of if we issue some sort of benefit to our tribal citizens and that comes back and makes them ineligible for a HUD [U.S. Department of Housing and Urban Development] housing assistance program or LIHEAP [Low Income Home Energy Assistance Program] assistance program, and there's other programs like that, which have their own statutes. And so again, we want to be value added, not add and take away. So we want to make sure that that happens in a good way. That is a statutory clarification that we will be engaged in and make recommendations to the Hill to make sure that GWE is implemented and is not in conflict with other eligibility criteria that tribes, tribal citizens should have. So those are issues that are out there right now on top of this whole process of getting a final and then getting to eventually the training education that can reference with the IRS agents.

Working with Federal Policymakers: A Continuing Education Effort

Philip Baker-Shenk: On the timing, it is interesting, isn't it? Like every sword has two sides, two edges. On the one hand, we want clarity so that there's no gotcha and surprise going forward, but on the other hand, the statute gave us a lot of time here and really permitted the process to be done carefully and deliberately — and often, that means slowly — and the moratorium extends throughout that period of time so that we take the time to get it right. And I noticed that one of the recommendations is that any change in IRS policy then is forward-looking. It never should, in all fairness, reach back and then penalize people who were acting in good faith during this moratorium period. And as Ken mentioned, there's a grace period being sought as well so that tribes and frankly, the Internal Revenue Service agents, can get better oriented as to how to proceed going forward. I want to switch here a bit, just ask a big picture question. Ron, of all the current tax policies that are of concern to Indian Country, is this GWE issue the hardest one to sell to federal policymakers, or was it a hard one, particularly in the context of raising revenue? And here we're asking to set aside and park as a safe harbor certain types of income that IRS was trying to tax and bolster the federal treasury. Was that one of the hardest sales pitches you've encountered on tax in your tenure, or are there others like it?

Ron Allen: Well, yes, there are others like it. So again, trying to step back, as I get older, I keep looking more at a bigger picture agenda for what we call Indian Country. And the bottom line is we have these treaties and statutory and moral obligations of the United States government to Indian Country until — there's those issues out there. And everybody is always well aware that we have among the highest unemployment rates and all those other dismal conditions, healthcare and so forth, conditions in our respective communities. So there's this obligation of the federal government to Indian Country where there's treaties, etc. And so we always are asking for, you know, why are we having to wrestle with, the needs of Indian Country? And the bottom line is, if there's around 20 or 21, 22 billion [dollars] in the federal government that serves Indian Country and the true need of Indian Country is probably north of 200 billion — and we have ways in which we can measure way that that's an accurate number — how do you get there? And so the bottom line is that it's a huge bridge, and it really, really lends to the argument that tribes really need to be empowered or their authority needs to be recognized so that we can develop our own economies to develop the resources in order to bridge that gap, because nowhere can the federal government actually get there. Most people have no concept of what trillions of debt is, where the United States government is, 21, 22 trillion, and they're adding trillions to that debt. It's this concept that's beyond most average citizens, including tribal citizens. And so they don't get that kind of part. But the bottom line is it means the federal government can never really get to the point of providing the kind of services that help Indian Country get to the norm of American citizens. And so, and then, when you get into those kinds of questions, which means that tribes would like to have BIA [Bureau of Indian Affairs] and IHS [Indian Health Service] and HUD and other direct programs for Indian Country, we would like to have that mandatory. Well, that's like Social Security programs and Medicare programs, and then that's off the budget, OK? So people don't understand how this big budget works and what's off the budget and what's on the budget with regard to domestic programs versus defense programs, etc. They don't get that kind of, those kinds of questions. So the issue becomes, you know, how do we get there? Well, now you go into these tasks and asks that we have for Congress and for the administration. And GWE is a complicated one because all of our Indian communities are very complicated and we provide for all kinds of different citizens. And so many of them don't get what we do for cultural traditional practices or the kinds of things we do for our disadvantaged, socially disadvantaged, economically disadvantaged, citizens. And it's layered and it's complicated with the 574 tribes from Florida to Alaska and Maine to California. And it's hard for those guys in Washington, D.C. We always say, 64 square miles surrounded by reality and reality out there is Indian Country, OK? And so it's a hard set of understandings to transition into the staff and the decision-makers, meaning the senators and congressmen.

What Tribes Should Know About GWE

Philip Baker-Shenk: And many of those decision-makers at the federal level have changed. It's a continuing education effort, not only of Hill folks, but also, as we know, administrations come and go. More on that in a little bit. But I want to ask Ken to contrast what Ron said is the challenge we have educating and reeducating federal policymakers around GWE issues. Have you encountered any resistance or challenges among tribal leaders and policymakers to actually exercising the authority they have on GWE, and if so, how? What's been your response?

Ken Parsons: Absolutely Phil, I would say that a lot of the response I get, I do a lot of the General Welfare Exclusion Act planning space and really trying to try to take advantage of this statute that came out in 2014 and really allow tribes to give more nontaxable benefits to their members. But some of the response I get when I speak on the issues or talk to tribal clients about it is well, you know, we don't have any guidance from the IRS on this yet. We need to wait and see what the IRS says we could do with the general welfare exclusion. And I would say the opposite: Rather, you don't need to wait. In fact, you should not wait until the IRS issues guidance. And one of the main reasons for that is the General Welfare Exclusion Act came out in 2014. That's seven years ago, and we don't have any IRS guidance yet. And in fact, as we discussed earlier, we're not going to have any IRS guidance for a while. So if you're waiting for the IRS to issue guidance, your members are unable to take advantage of the tribal General Welfare Exclusion Act for almost a decade after the act came out.

Philip Baker-Shenk: Meaning they're paying taxes they really don't have to pay. That means for every dollar worth of tribal benefit, they're losing, what, 10, 20, 30 cents on the dollar to pay the U.S. Treasury for money from their tribe in the form of a tax?

Ken Parsons: Correct. Currently, a lot of tribes and tribal members are overpaying Treasury for benefits that likely are not taxable under current law, and also we have the audit moratoriums. So if you're waiting for guidance, you don't need to be waiting for guidance because say, say you got it wrong. Say you couldn't do the program that you decided to do. First of all, I think that's pretty unlikely given how broad the General Welfare Exclusion Act is. But even if you did get it wrong, you're going to have the opportunity to change it in the future, and the IRS can't audit your interpretation of the General Welfare Exclusion Act prior to the audits resuming because the audits are going to be prospective only. So what I found is that the tribes that are more gun shy right now with the general welfare exclusion are the ones that did get audited 10, 15 years ago on the general welfare exclusion and had to write a big check to the federal government on these types of benefits. And so it's a hard sell right now to these tribes to say, "Hey, you know those benefits that you had to write millions of dollars of checks to the IRS on? You can do those now." And they're like, you know, it's confusing to them. And they're a little gun shy on that because they remember writing that check, and it's painful to write a check to the IRS. Nobody likes to pay taxes, right? So the message is harder to be received from those tribes when they've been kind of caught, or I wouldn't say caught, but been audited in the past on that and had to pay money. And those kinds of audits aren't happening right now. And beyond that, even when they do resume, the benefits that were paid 10, 15 years ago are not going to be the benefits that people have to pay taxes on in the future. There are lots of benefits — housing, education benefits, cultural-type benefits — that maybe tax had to be paid on 15, 20 years ago that aren't going to be taxable in the future.

Philip Baker-Shenk: Though, particularly in a pandemic era with tribal revenues down, all kinds of need going up in terms of general welfare, no matter how you count it, this is another way in which tribal governments can rearrange their own practice, their own law and their own codes to take advantage of what is in the federal law as their right on behalf of protecting the interests of their tribal citizens. Ron, as a tribal leader, what kind of things specifically do you think tribes ought to be doing and that you are doing at Jamestown S'Klallam and many of your colleagues are doing at other places?

Ron Allen: Well, what we've been encouraging is be proactive. To the point that Ken is making, step forward. Don't wait for IRS. The IRS are going to come in and come across our threshold sooner or later, but be prepared for them. So have your GWE safe harbor codes that address your programs that fall under the GWE authority and jurisdiction. And so those codes or regulations, however you are structured in your own tribal, political legal framework, should be established. And we have been making recommendations. And there's lots of advice out there. Your firm and your colleague firms out there provide great advice. Many of them have in-house counsel that can provide them in-house. But get ahead of the game, identify all of these issues. And one of the good things about our GWE subcommittee is that we've been reaching out to tribes about what are you doing that you believe falls under GWE. And so sometimes they come up with things that they're doing for their citizens that others never thought of. "Oh, man, that's a good idea." So we give them examples of things that should be under your code. And remember that these, your own laws and codes, are just like anybody else's laws and codes. They're dynamic. So get something in the books now, and then if you have to update it, that's fine. You can always update it or modify it so that it's clearer. So that's a proactive agenda. Don't wait for the guidance. Don't wait for the laws. Don't wait for the Treasury to come walking around the corner with, "Well, we need to take a look at how you're using these resources to the best of citizens and should you be doing 1099s or how should it be identified in terms of its eligibility." And you also have to cross-reference the laws where you might get these resources. And CARES is a good example, and another one that's coming around the corner here is the American Rescue Plan monies that tribes are going to get a lot of and they're going to figure out what they're going to do with it. Some of them may be used for the benefit of tribal citizens that would fall under the jurisdiction of GWE.

High Per Capita Tribes: Can They Use GWE?

Philip Baker-Shenk: So I would like to ask you Ken, given what both of you have said, talk about one of the most provocative, perhaps, and sensitive areas, and that is those tribes who either through oil and gas or, more often the case, through gaming activity, governmental gaming activity, have cash, which they have been benefiting to their members through per capita payments. What's the relationship between, for example, IGRA [Indian Gaming Regulatory Act] per capita and the GWE authority that is now on the books?

Ken Parsons: Yeah, it's a good question, and I want to take a step back a little bit, because we've been talking about how the General Welfare Exclusion Act is very broad and tribes should be assertive and take advantage of that now and not wait for any guidance. But I didn't want to let the podcast go without mentioning that there is already some guidance by the IRS on the general welfare exclusion that came out in the same year as the General Welfare Exclusion Act. There is a revenue procedure, 2014-35. I'm sure a lot of listeners are aware of that, but it contains a series of safe harbors for housing, education, cultural programs, elder programs, that really are pretty broad. And I think before the General Welfare Exclusion Act came out, people, tribes and a lot of attorneys like myself, we're looking at this and thinking, you know this, this is pretty good. It has a lot of programs, benefits, safe harbors, that can be provided to members with assurance that there's no tax liability there. And there's really no requirement for, like, an individualized determination of need that you don't have to look at, say, whether a certain tribal member has this need for the benefit. You kind of establish guidance, guidelines, on a community-wide basis under these programs. You've got specified guidelines, and all of these requirements and the safe harbor, actually most of them made it into the General Welfare Exclusion Act. So if you're looking for IRS guidance, some already exists, and for some of the more conservative tribes, they could be utilizing these safe harbors if they're not already doing so. And I mentioned the IRS revenue procedure and safe harbor because one of the lines in that — and kind of the preamble to it before it gets into the meat of the safe harbor — is that the source of the program, the revenue for the program, the money doesn't matter. So if it's gaming revenue the program is funded from, it doesn't figure into the tax analysis of whether the payment's taxable or not. So you can use as a tribe gaming revenue or oil and gas revenue or whichever you want to fund these general welfare programs.

Philip Baker-Shenk: So, you know, this does beg the question, why in the world would a tribal government not today put all of its member assistance, all of its cash, all of its resources, that it is providing benefits in one form or another to its membership, what reason would there be to not make that assistance compliant in good faith with the GWE authority that today exists? Another way to answer that, ask that question is, is there, properly advised and properly set up, is there any form of tribal benefit for which a recipient member will have to be taxed? If you're a tribe and you set up a GWE program to the maximum extent of the authority you have under the law today, is there any other form of tribal benefit that exists practically that would not be covered by that exemption and then would be taxable to the recipient member?

Ken Parsons: So I think it's very broad in what can be done. Even the safe harbors are broad. So one of the things that a lot of tribes can do if they're not already is have a housing program. And that amount of money, you know, if you say you base it off of the average rent in your community or your county, that to me is a pretty easy general welfare program to establish. And again, even if gaming revenue is used for that, you've got potentially a thousand dollars or more a month just in a housing program. And there are certainly other benefits that could be paid as well, like utilities and other things. I think especially if you're a tribe where the per capita payment is only a few thousand dollars a month, there may be ways to get there with general welfare programs or all of your distributions to members are general welfare. I think if you're a higher per cap tribe, it gets more difficult to put everything under the umbrella of general welfare. Because, sure, your members have general welfare needs and the fact that you're a high per capita tribe doesn't really figure into the analysis of whether you can have a general welfare program for housing and all that. It's not part of the safe harbor. It doesn't say, well, if your tribe distributes a lot of gaming revenue, you can't take advantage of this. It says nothing of the sort. But if you are a very high per cap tribe, I think there's only so far you can go with housing, utilities and other things. So I think at some point you're distributing money to members that's going to be taxable. And I think we might run out of benefits that we can distribute and use. But Ron might have some different opinions.

Ron Allen: Yeah, I if I might, Phil, I agree with Ken's assessment. This is a very complicated and a very sensitive subject. There are categories of which that regardless of how much we, how much the tribe, will provide benefits to its citizens that is relative to just basic living criteria, you know, housing and utilities and transportation and those kinds of matters. And it will vary because it costs more to live in Connecticut than it costs to live in Oklahoma or Kansas, etc. So they're all relative, and same with California and so forth. So there's those kinds of issues. There is going to be a point against this current political backdrop where the Congress and the administration are debating about taxation of the wealthy. Now, it's not the norm for Indian Country. Not everybody has the kind of resources that can generate per capita payments that are very high, very high levels of per capita. And those tribes are now going to reconsider, because of the GWE portions of their revenues, whether it's gaming, etc., how they will use it to benefit their citizens relative to their current values or where they live, etc., and they're going to sort that stuff out so that their citizens benefit from this, this right that is being preserved by tribes and their citizens. But against a political backdrop, we have to be careful against this backdrop that all of a sudden they look in and they cherry pick a tribe that's doing exceptionally well, has high per capita, and say isn't that kind of beyond the norm. So we want to avoid the experience that we've had in the past, and I forgot the phrase we used to use in Slade Gorton days. Means testing? Yes. Means testing. We want to avoid that phrase and that definition at all costs. But there's going to be a point where, and our approach should be more proactive about how we use those revenues to benefit our citizens relative to these basic categories that fall under GWE. And after that, then it becomes, it falls into a taxable revenue base. So basic services is not a problem. It doesn't matter whether it's housing or healthcare or childcare or cultural activities, etc. But when it comes to, OK, here's a number, you're going to get over and above that and you get to use it whatever way you want — and there's a whole variety of things that people will use their disposable income — then is that taxable? And so we're going to have to be very politically savvy and strategic on any further definitions with regard to that subject matter. Our focus right now is what falls under GWE. And then beyond that on this question you're raising with regard to those few tribes who have that kind of resource for their citizens, we're going to have to cross that bridge later and be careful how we cross that bridge. At least that's my view.

Comparing the Biden Administration to Its Predecessors, Looking Ahead

Philip Baker-Shenk: And your view is good counsel of caution that we proceed deliberately here, some very sensitive areas, keeping in mind that the GWE goal was to protect the right of tribes to set up their own programs, have benefit to their own citizens, and the right of the citizens to avail themselves of tribal opportunities. So Indian Country is diverse, but everybody is together: The fate of the Miccosukee affects the fate of the Jamestown S'Klallam in some ways under federal law. And the genius of the enactment in 2014 and the work with then-Obama Administration on the revenue procedure is that we have inherited some opportunity here that carried us through the Trump Administration, carries us through the Biden Administration and beyond. We've reached the hour that we set aside for this, and I wanted to give each of you a chance to reflect a bit on the differences you see, if any, between the Trump Administration's Treasury Department and its relationship to the TTAC and particularly the GWE topic of the subcommittee and the emerging relationship that is still in a honeymoon, perhaps, with the Biden Administration and its appointees. If you can draw any comparisons and contrasts, I appreciate that, and also then sum up by saying where you think this will go in the next couple of years.

Ken Parsons: I've gotten the sense that Treasury is becoming more favorable to Indian Country with the changes in the law and the administration. Again, the 2014 revenue procedure that came out that we can still rely on in Indian Country is very, very broad in the safe harbors, and I want to make clear that the General Welfare Exclusion Act that came out in 2014 is intended to be broader than that. It's actually in the legislative history that Congress intended to expand upon those safe harbors. And so through the consultations and the forums that we've had and going to conferences and stuff, I've gotten the sense from Treasury that they're very sensitive to general welfare as well as the other tribal issues Ron referenced earlier, the business corporations formed by tribes that Treasury is looking into. And they're being slow to issue guidance, but I've gotten the impression that they're being receptive and they really want to learn what Indian Country is doing. So although the guidance project is slow on that, the first step is, OK, going to Indian Country and OK, tell us how you're using these corporations. What are you doing? And I think with the general welfare exclusion, it's the same kind of thing: that there's a learning process, that part of TTAC and the subcommittee's role is to educate Treasury and the IRS, and I found them to be receptive in that area. And of course, we'll see what happens when the audits do resume. But at least in this period between 2014 when the act was passed and 2021, I found them to be in a receptive listening mode, and I haven't heard of them trying to audit these issues. I haven't had the experience of having to tell an agent, "Hey, look, you can't, you can't discuss this issue with us. It's subject to the moratorium on audits." I had an agent actually tell me that she would be fired if she brought up general welfare issues. So that shows you the sensitivity that there is out there for tribal tax issues right now.

Philip Baker-Shenk: Ron, compare and contrast, if you would, to the extent that there is one to be drawn, and then where are we going to go from here in the next couple of years?

Ron Allen: Because my tenure has transitioned through a number of administrations, I remember the Reagan Administration, and I remember the Bush One Administration and transitioned into the Clinton Administration, where we really penetrated for the first time the White House and the administration in a more meaningful way. We've always been engaged with Congress, and that has been something that we've been doing for many, many generations. When we moved out of the Clinton Administration into Bush Two, we leveled off, but we didn't lose ground. We held our own there in that administration in terms of the government-to-government consultation process, executive order, commitment, etc. The Obama Administration stepped us up a couple of notches, and including be more inclusive of the whole federal government in terms of their trust, legal obligation to government, the tribes. And that stepped up in a meaningful way. I think that we did OK. When you move out of the eight years of Obama and move into the Trump Administration, we held our own, and in this arena, I think we did OK. Unfortunately, we were not on the president's radar, but underneath you had people who care, people who want to understand, people who want to respect the executive order and government-to-government and our standing. It took us a while to get going because it took quite a while to get all seven members of the TTAC appointed so we can move forward in 2019. So it took us a while to get going, but we started making some progress. And then of course our subcommittee and the other subcommittees had a lot of work to do because once we got mobilized and once we got our charge, it took us a while to get going. Now we're into the Biden Administration, who came out with a very strong Indian platform, and he's making some really strong commitments to Indian Country. And so we have an opportunity here, and we have an opportunity with Congress as well. So there's two tracks going on here: What can be done administratively within the current authority, and what can be done to improve our position with the Congress, with some clarifying legislation? And so that's where I see our opportunity here for the next four years. Yes, we will have to be mindful of the politics of 2022 elections and the 2024 elections and that kind of stuff. But everybody still has a day job, and the day job is relative to what can we do to move the needle of empowering tribes. And I think that that's where our agenda is. That's where my focus is: Always stay focused on what you can do today that helps the long-range, big picture of strengthening tribes toward self-governance and self-reliance, and that allows us to take care of our people in a more meaningful way.

Philip Baker-Shenk: So thank you, listeners, for tuning in, and we hope to hear from you again and you from us again in the near future.

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