Taxation of Tribal Trust Settlements

Taxation of Tribal Trust Settlements
Eileen St. Pierre, The Everyday Financial Planner

In June 2013, the office of Indian Tribal Governments of the Internal Revenue Service (IRS) held a phone forum to discuss the taxation of tribal trust settlements. Payments to tribal members under several legal settlements began in 2012 and are still on-going. Here is summary of their tax consequences:

Cobell Settlement

  • Historical Accounting Class (Stage 1) – $1,000 to each qualifying tribal member
  • Trust Administration Class (Stage 2) – $800 to each qualifying tribal member
  • Government buy-backs of fractionated land

All of these settlement payments are exempt from income taxes. Recipients will not be receiving a 1099 form (if they do, it was issued in error – contact the IRS).

Tribal Trust Settlements

These lawsuits were brought by tribes, not individuals. According to the IRS, six of these cases have been settled to date. Tribes may decide to distribute settlements to their members via per capita payments.

  • These payments are not recorded on individual tribal members’ tax returns. They are exempt from federal income tax. So individuals should not receive a 1099 form.
  • The IRS issues notices where it attaches an appendix containing a list of all the tribes receiving settlements. The most recent appendix lists 70 tribes.

Keepseagle Settlement

This case dealt with discrimination in the U.S. Department of Agriculture (USDA) Farm Loan Program. All of these settlements are taxable. There are two settlement tracks:

  • Track A – Individual tribal members may receive up to $50,000 in damages but 25% of the award is paid to the IRS to offset taxes.
  • Track B – Individual tribal members may receive up to $25,000 in damages, but they are not eligible for the 25% tax offset. These recipients need to account for taxes on their own. They may need to consider making estimated tax payments during the year.

In addition to the $680 million in damages paid in this settlement, the USDA has agreed to forgive all farm loan debt currently owed by qualifying tribal members up to $80 million.

  • Forgiven debt is considered taxable income.
  • In this case, 25% of the forgiven amount is paid to the IRS to offset taxes.

All recipients of the Keepseagle settlements will receive 1099 forms. According to the IRS, the amounts of any tax offset and forgiven debt will be listed. Recipients should consult a tax advisor for help in accounting for this settlement on their tax returns.

For more information, go to www.irs.gov/tribes. The National Congress of American Indians has launched the Protect Native Money campaign to provide financial and consumer protection information to recipients.

For other tax information, visit my Taxes page.