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Tax issues take center stage

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IRS honors George

VERONA, N.Y. - IRS Commissioner Steve T. Miller, one of the most senior
figures in the federal Internal Revenue Service, journeyed to the annual
meeting of the United South and Eastern Tribes, held at the new Event
Center at Turning Stone, an enterprise of the Oneida Indian Nation.

As Commissioner of the Tax Exempt and Government Entities Division of the
IRS, one of its four functional units, Miller supervises tax issues with
the tribes, a complex and growing field. His 80-minute discussion with the
Economic Development Committee touched on money laundering, tax-exempt
bonds, bogus compensation deferment plans and an outcry from the St. Regis
Mohawk Tribal Council about a border crack-down on untaxed motor fuel
imports.

But Commissioner Miller also brought praise for the history of cooperation
between the IRS and USET, the main lobbying group representing tribes east
of the Mississippi. Meeting with the Board of Directors, he presented the
Tax Exempt and Government Entities Commissioner's Award, which he called
"the highest honor I can personally bestow," to USET President Keller
George.

"You have always shared your experience and expertise," he told George,
"and in doing so have upheld the highest principles espoused in the Two Row
Wampum - governments traveling together down the river of life, aiming for
common goals, and working in harmony to improve the lives of their members
while respecting the sovereignty and independence of each party."

USET had even been instrumental in naming his division, Miller told Indian
Country Today in a joint interview with Christie J. Jacobs, director of the
Indian Tribal Government Office, who reports to him. He said that in 1999,
when the IRS was re-organizing into four divisions reflecting its client
base, his section was going to be called simply the Tax Exempt Division.
But the USET tribes felt that "that didn't reflect that they were
governments." As a result of meetings with the IRS head, the division title
was expanded.

"USET and Keller George have been wonderful partners," Miller said.

The IRS presentation showed in how many areas the agency needed tribal
cooperation. In money laundering enforcement, a major concern of the
anti-terrorist effort, Miller said the government was concerned that people
trying to hide a flow of funds might try to exploit rural tribal casinos,
believing that their personnel were less sophisticated. All financial
institutions have to report cash transactions of more than $10,000, but
floor managers at casinos have an additional duty to report "suspicious
transactions."

The gaming industry has expressed concern that there are no firm guidelines
for telling what should be reported, and that a great deal depends on the
experience of their staff.

The IRS has also been warning tribes about outsiders peddling deferred
compensation schemes that might not meet regulations. If the schemes were
disallowed, said Miller, "You could be left with a large tax bill, and
that's not pleasant." Jacobs added that likely victims were tribal elders
who were just beginning to receive per-capita payments, which are subject
to federal income tax, and who wanted to put some of the new prosperity
aside in retirement plans.

They urged tribes to consult with the IRS before setting up any plans.
Jacobs said the IRS has a program of providing private letter rulings on
whether plans are acceptable or not.

One of the emerging issues for tribes involves tax-exempt bonds, possibly
the least expensive method for raising development money. Because interest
payments on government bonds aren't subject to federal tax, they generally
sell at lower interest rates than any other form of borrowing. But the tax
code for Indian tribes requires that such bonds serve an "essential
government function," without defining the term. A bond to build a fire
house might not be a problem, but the question looms large for
casino-related investments. One tribe, for instance, ran into trouble when
it wanted to raise money for a golf course, to serve the function of
economic development.

This restriction does not apply to state bonds, said Jacobs, although the
grey area between government and business functions has caused perennial
controversy in the municipal bond market. As tribes increasingly turn to
this means of financing, disputes are bound to follow.

Jacobs herself recounted sitting in the hot seat for an IRS controversy not
of her division's making. She has met with the St. Regis Mohawk Tribal
Council and even took questions on the reservation's radio call-in show
over the IRS crackdown on untaxed imports of motor fuels. She and Miller
said the regulations came out of the IRS small business division and were
directed at individual retailers, not at tribal governments.

Although the St. Regis Council complained about the lack of tribal
consultation before the regs were reissued in July, Jacobs said the process
was making progress. The USET agenda included discussion of a final draft
of the IRS-Tribal Consultation Policy, which Jacobs said would be forwarded
to tribal leaders nationally for another round of review.