Entities Wholly Owned by Indian Tribal Governments, 81871-81878 [2024-23142]
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81871
Proposed Rules
Federal Register
Vol. 89, No. 196
Wednesday, October 9, 2024
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.
FEDERAL TRADE COMMISSION
16 CFR Part 1
[File No. R407003]
Petition for Rulemaking of Consumer
Technology Association
Federal Trade Commission.
ACTION: Receipt of petition; request for
comment.
AGENCY:
Please take notice that the
Federal Trade Commission
(‘‘Commission’’) received a petition for
rulemaking from the Consumer
Technology Association (‘‘CTA’’) and
has published that petition online at
https://www.regulations.gov. This
petition requests that the Commission
clarify its application of the amended
Trade Regulation Rule Relating to Power
Output Claims for Amplifiers Utilized
in Home Entertainment Products (the
‘‘Amplifier Rule’’) or amend the
Amplifier Rule to apply only
prospectively to products designed,
tested, and manufactured on or after the
August 12, 2024 effective date. The
Commission invites written comments
concerning the petition. Publication of
this petition is pursuant to the
Commission’s Rules of Practice and
Procedure and does not affect the legal
status of the petition or its final
disposition.
SUMMARY:
Comments must identify the
petition docket number and be filed by
November 8, 2024.
ADDRESSES: You may view the petition,
identified by docket number FTC–2024–
0039, and submit written comments
concerning its merits by using the
Federal eRulemaking Portal at https://
www.regulations.gov. Follow the online
instructions for submitting comments.
Do not submit sensitive or confidential
information. You may read background
documents or comments received at
https://www.regulations.gov at any time.
FOR FURTHER INFORMATION CONTACT: Joel
Christie, Office of the Secretary, Federal
Trade Commission, 600 Pennsylvania
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DATES:
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Avenue NW, Washington, DC 20580,
jchristie@ftc.gov, 202–326–3297.
(Authority: 15 U.S.C. 46; 15 U.S.C. 57a; 5
U.S.C. 601 note.)
Pursuant
to Section 18(a)(1)(B) of the Federal
Trade Commission Act, 15 U.S.C.
57a(1)(B), and FTC Rule 1.31(f), 16 CFR
1.31(f), notice is hereby given that the
above-captioned petition has been filed
with the Secretary of the Commission
and has been placed on the public
record for a period of 30 days. Any
person may submit comments in
support of or in opposition to the
petition. All timely and responsive
comments submitted in connection with
this petition will become part of the
public record.
The Commission will not consider the
petition’s merits until after the comment
period closes. It may grant or deny the
petition in whole or in part, and it may
deem the petition insufficient to warrant
commencement of a rulemaking
proceeding. The purpose of this
document is to facilitate public
comment on the petition to aid the
Commission in determining what, if
any, action to take regarding the request
contained in the petition. This
document is not intended to start, stop,
cancel, or otherwise affect rulemaking
proceedings in any way.
Because your comment will be placed
on the publicly accessible website at
https://www.regulations.gov, you are
solely responsible for making sure your
comment does not include any sensitive
or confidential information. In
particular, your comment should not
include any sensitive personal
information, such as your or anyone
else’s Social Security number; date of
birth; driver’s license number or other
state identification number, or foreign
country equivalent; passport number;
financial account number; or credit or
debit card number. You are also solely
responsible for making sure your
comment does not include any sensitive
health information, such as medical
records or other individually
identifiable health information. In
addition, your comment should not
include any ‘‘trade secret or any
commercial or financial information
which . . . is privileged or
confidential’’—as provided by Section
6(f) of the FTC Act, 15 U.S.C. 46(f), and
FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2).
April J. Tabor,
Secretary.
SUPPLEMENTARY INFORMATION:
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[FR Doc. 2024–23272 Filed 10–8–24; 8:45 am]
BILLING CODE 6750–01–P
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
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
AGENCY:
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
SUMMARY:
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Federal Register / Vol. 89, No. 196 / Wednesday, October 9, 2024 / Proposed Rules
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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 https://
www.regulations.gov (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 publichearings@
irs.gov. 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
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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
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),
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 Federallyrecognized 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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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 Federallyrecognized 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 SelfDetermination.’’ 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
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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 selfgovernance 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).
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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
§ 301.7701–1(a)(3)).
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 § 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
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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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, selfgovern 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, selfgovernance, and self-determination in
economic development activities.
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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.
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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.
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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
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ownership structure, so long as the
entity is organized or incorporated
under each Tribe’s laws. Proposed
§ 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 § 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 § 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 § 1.6417–2(a)(1)(ii).
Treatment as instrumentalities under
these proposed regulations would mean
that an entity described in proposed
§ 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
§ 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 § 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
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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 § 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 § 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
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Federal Register / Vol. 89, No. 196 / Wednesday, October 9, 2024 / Proposed Rules
§ 301.7701–1(a)(4), including the option
to apply proposed § 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 § 301.7701–1(a)(4),
and § 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
§ 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 § 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.
khammond on DSKJM1Z7X2PROD with PROPOSALS
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
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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 selfdetermination 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
§ 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
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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 taxexempt 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.
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Federal Register / Vol. 89, No. 196 / Wednesday, October 9, 2024 / Proposed Rules
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.
khammond on DSKJM1Z7X2PROD with PROPOSALS
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
https://www.regulations.gov. 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
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16:16 Oct 08, 2024
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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 publichearings@irs.gov 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 publichearings@irs.gov
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
publichearings@irs.gov 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
publichearings@irs.gov 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
publichearings@irs.gov (preferred) or by
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telephone at (202) 317–6901 (not a tollfree 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 https://www.irs.gov.
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
Paragraph 1. The authority citation
for part 1 continues to read in part as
follows:
■
Authority: 26 U.S.C. 7805 * * * *
Par. 2. Section 1.6417–1 is amended
by:
■ 1. Revising paragraph (c) introductory
text;
■ 2. Removing the semicolon from the
end of paragraphs (c)(1)(ii) and (c)(2)
through (5) and adding a period in their
places;
■ 3. Removing ‘‘; and’’ from the end of
paragraph (c)(6) and adding the text a
period in its place; and
■ 4. Revising paragraphs (c)(7), (f), and
(q).
The revisions read as follows:
■
§ 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.
*
*
*
*
*
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Federal Register / Vol. 89, No. 196 / Wednesday, October 9, 2024 / Proposed Rules
(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 § 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
§ 301.7701–1(a)(3) or §§ 301.7701–2 and
301.7701–3 of this chapter. See
paragraph (c)(7) of this section regarding
entities described in § 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 §§ 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 § 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
Par. 3. The authority citation for part
301 is amended by adding an entry for
§ 301.7701–1(a)(4) in numerical order to
read in part as follows:
khammond on DSKJM1Z7X2PROD with PROPOSALS
■
Authority: 26 U.S.C. 7805 * * * *
*
*
*
*
*
Section 301.7701–1(a)(4) also issued under
26 U.S.C. 7701(a)(40).
*
*
*
*
*
Par. 4. Section 301.7701–1 is
amended by:
■ 1. Revising paragraph (a)(3);
■
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16:16 Oct 08, 2024
Jkt 265001
2. Redesignating paragraph (a)(4) as
paragraph (a)(5);
■ 3. Adding new paragraph (a)(4); and
■ 4. Revising paragraph (f).
The revisions and addition read as
follows:
■
§ 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
§ 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
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81877
recognized as a separate entity from
Tribe B for Federal tax purposes, except
for the purposes described in § 1.6417–
1(c)(7) of this chapter. Accordingly,
Corporation X is not subject to Federal
income tax. Under § 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 § 1.6417–
1(c)(7) of this chapter. Accordingly,
Corporation Z is not subject to Federal
income tax. Under § 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
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09OCP1
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Federal Register / Vol. 89, No. 196 / Wednesday, October 9, 2024 / Proposed Rules
separate entity from Tribe B for Federal
tax purposes, except for the purposes
described in § 1.6417–1(c)(7) of this
chapter. Accordingly, neither the
section 17 corporation nor Corporation
J is subject to Federal income tax. Under
§ 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
§ 1.6417–1(c)(7) of this chapter.
Accordingly, Corporation K is not
subject to Federal income tax. Under
§ 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.
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(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.
50 CFR Part 660
NMFS–2024–0081, by the following
method:
• Electronic Submission: Submit all
electronic public comments via the
Federal e-Rulemaking Portal. Go to
https://www.regulations.gov and enter
NOAA–NMFS–2024–0081 in the Search
box. Click on the ‘‘Comment’’ icon,
complete the required fields, and enter
or attach your comments.
Instructions: Comments sent by any
other method, to any other address or
individual, or received after the end of
the comment period, may not be
considered by NMFS. All comments
received are a part of the public record
and will generally be posted for public
viewing on https://www.regulations.gov
without change. All personal identifying
information (e.g., name, address, etc.),
confidential business information, or
otherwise sensitive information
submitted voluntarily by the sender will
be publicly accessible. NMFS will
accept anonymous comments (enter ‘‘N/
A’’ in the required fields if you wish to
remain anonymous).
Electronic copies of proposed
amendment 34 and the draft analysis
prepared for this action may be obtained
from https://www.regulations.gov and
the NMFS West Coast Region website at
https://www.fisheries.noaa.gov/region/
west-coast.
RIN 0648–BN15
FOR FURTHER INFORMATION CONTACT:
Douglas W. O’Donnell,
Deputy Commissioner.
[FR Doc. 2024–23142 Filed 10–7–24; 4:15 pm]
BILLING CODE 4830–01–P
DEPARTMENT OF COMMERCE
National Oceanic and Atmospheric
Administration
Magnuson-Stevens Act Provisions;
Fisheries Off West Coast States;
Pacific Coast Groundfish Fishery;
Pacific Coast Groundfish Fishery
Management Plan; Amendment 34;
Groundfish Exclusion Area for Coral
Research and Restoration
National Marine Fisheries
Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA),
Commerce.
ACTION: Notice of availability of
proposed fishery management plan
amendment; request for comments.
AGENCY:
NMFS announces that the
Pacific Fishery Management Council
(Council) submitted amendment 34 to
the Pacific Coast Groundfish Fishery
Management Plan (Groundfish FMP) to
the Secretary of Commerce for review. If
approved, amendment 34 would modify
the groundfish exclusion areas (GEA)
section in the Groundfish FMP and refer
to the GEAs described in Federal
regulation.
DATES: Comments on amendment 34
must be received on or before Sunday,
December 8, 2024.
ADDRESSES: You may submit comments
on this document, identified by NOAA–
SUMMARY:
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Megan Mackey, 206–526–6140,
megan.mackey@noaa.gov.
NMFS
manages the groundfish fisheries in the
exclusive economic zone (EEZ) seaward
of Washington, Oregon, and California
under the Groundfish FMP. The Council
prepared and NMFS implemented the
Groundfish FMP under the authority of
the Magnuson-Stevens Act, 16 U.S.C.
1801 et seq. and by regulations at 50
CFR parts 600 and 660. The MagnusonStevens Act requires that each regional
fishery management council submit any
FMP or plan amendment it prepares to
NMFS for review and approval,
disapproval, or partial approval by the
Secretary of Commerce. The MagnusonStevens Act also requires that NMFS,
upon receiving an FMP or amendment,
immediately publish a notice that the
FMP or amendment is available for
public review and comment. This notice
announces that the proposed
amendment 34 to the Groundfish FMP
is available for public review and
comment. NMFS will consider the
public comments received during the
comment period described above in
determining whether to approve,
partially approve, or disapprove
amendment 34 to the Groundfish FMP.
SUPPLEMENTARY INFORMATION:
E:\FR\FM\09OCP1.SGM
09OCP1
Agencies
[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 [www.gpo.gov]
[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 https://www.regulations.gov (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 [email protected]. 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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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)).
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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
https://www.regulations.gov. 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 [email protected] 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 [email protected] 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 [email protected] 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 [email protected] 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
[email protected] (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 https://www.irs.gov.
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