[Federal Register Volume 76, Number 216 (Tuesday, November 8, 2011)]
[Proposed Rules]
[Pages 69188-69198]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-28858]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-133223-08]
RIN 1545-BI19
Indian Tribal Governmental Plans
AGENCY: Internal Revenue Service (IRS), Department of the Treasury.
ACTION: Advance notice of proposed rulemaking.
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SUMMARY: The Treasury Department and IRS anticipate issuing regulations
under section 414(d) of the Internal Revenue Code (Code) to define the
term ``governmental plan.'' This document describes the rules the
Treasury Department and IRS are considering proposing relating to the
determination of whether a plan of an Indian tribal government is a
governmental plan within the meaning of section 414(d) and contains an
appendix that includes a draft notice of proposed rulemaking on which
the Treasury Department and IRS invite comments from the public. This
document applies to sponsors of, and participants and beneficiaries in,
employee benefit plans of Indian tribal governments.
DATES: Written or electronic comments must be received by February 6,
2012.
ADDRESSES: Send submissions relating to the section 414(d) draft ITG
regulations to: CC:PA:LPD:PR (REG-133223-08), Room 5203, Internal
Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington DC
20044. Submissions may be hand delivered Monday through Friday, between
the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-133223-08),
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue NW.,
Washington, DC.
Alternately, taxpayers may submit comments relating to the section
414(d) draft ITG regulations located in the Appendix to this ANPRM
electronically via the Federal eRulemaking Portal at http://www.regulations.gov (IRS-REG-133223-08).
FOR FURTHER INFORMATION CONTACT: Concerning the ANPRM, Pamela R.
Kinard, at (202) 622-6060; concerning submission of comments, Richard
Hurst, at (202) 622-7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document describes rules that the Treasury Department and IRS
are considering proposing and contains a draft notice of proposed
rulemaking (in the Appendix to this ANPRM) under section 414(d) of the
Internal Revenue Code (Code). Under the draft notice of proposed
rulemaking (in the Appendix to this ANPRM), the rules would provide
guidance relating to the determination of whether a plan of an Indian
tribal government, a subdivision of an Indian tribal government, or an
agency or instrumentality of either (ITG) is a governmental plan within
the meaning of section 414(d) of the Code (section 414(d) draft ITG
regulations).
Section 414(d) of the Code provides that the term ``governmental
plan'' generally means a plan established and maintained for its
employees by the Government of the United States, by the government of
any State or political subdivision thereof, or by any agency or
instrumentality of any of the foregoing. See sections 3(32) and
4021(b)(2) of the Employee Retirement Income Security Act of 1974
(ERISA) for definitions of the term ``governmental plan,'' which govern
respectively for purposes of title I and title IV of ERISA.\1\
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\1\ The three definitions of the term ``governmental plan'' are
essentially the same. The only difference is that, in defining the
term ``governmental plan,'' section 3(32) of ERISA uses the phrase
``established or maintained,'' whereas section 414(d) of the Code
and section 4021(b) of ERISA use the term ``established and
maintained.''
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The term ``governmental plan'' also includes any plan to which the
Railroad Retirement Act of 1935 or 1937 (49 Stat. 967, as amended by 50
Stat. 307) applies and which is financed by contributions required
under that Act and any plan of an international organization which is
exempt from taxation by reason of the International Organizations
Immunities Act (59 Stat. 669). See section 414(d)(2) of the Code.
[[Page 69189]]
Section 414(d) was amended by the Pension Protection Act of 2006,
Public Law 109-280 (120 Stat. 780) (PPA '06) to include certain plans
of Indian tribal governments and related entities.\2\ Section 906(a)(1)
of PPA '06 provides that the term ``governmental plan'' includes a plan
which is established and maintained by an Indian tribal government (as
defined in section 7701(a)(40)), a subdivision of an Indian tribal
government (determined in accordance with section 7871(d)), or an
agency or instrumentality of either (ITG), and all the participants of
which are employees of such entity substantially all of whose services
as such an employee are in the performance of essential governmental
functions but not in the performance of commercial activities (whether
or not an essential governmental function).
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\2\ Section 906(a) of PPA '06 made similar amendments to
sections 3(32) and 4021(b)(2) of ERISA.
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Neither section 414(d) of the Code, section 3(32) of ERISA, nor
section 4021(b)(2) of ERISA define key terms relating to governmental
plans, including the terms ``established and maintained,'' ``political
subdivision,'' ``agency,'' and ``instrumentality.'' Currently, there
are no regulations interpreting section 414(d). Revenue Ruling 89-49
(1989-1 CB 117), see Sec. 601.601(d)(2), sets forth a facts and
circumstances analysis for determining whether a retirement plan is a
governmental plan within the meaning of section 414(d).\3\ This
analysis is used by the IRS in issuing letter rulings. In connection
with this advanced notice of proposed rulemaking, an advance notice of
proposed rulemaking is also being issued with respect to the general
definition of a governmental plan (REG-157714-06 that is being
published elsewhere in this issue of the Federal Register).
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\3\ See also Rev. Rul. 57-128 (1957-1 CB 311), see Sec.
601.601(d)(2), which provides guidance on determining when an entity
is a governmental instrumentality for purposes of the exemption from
employment taxes under section 3121(b)(7) and 3306(c)(7).
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Governmental plans are subject to different rules than retirement
plans of nongovernmental employers. Governmental plans are excluded
from the provisions of titles I and IV of ERISA. In addition,
governmental plans receive special treatment under the Code. These
plans are exempt from certain qualification requirements and they are
deemed to satisfy certain other qualification requirements under
certain conditions. As a result, the principal qualification
requirements for a tax-qualified governmental plan\4\ are that the
plan--
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\4\ A special rule applies to contributory plans of certain
governmental entities. Section 414(h)(2) provides that, for a
qualified plan established by a State government or political
subdivision thereof, or by any agency or instrumentality of the
foregoing, where the contributions of the governmental employer are
designated as employee contributions under section 414(h)(1) but the
governmental employer picks up the contributions, the contributions
picked up will be treated as employer contributions.
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Be established and maintained by the employer for the
exclusive benefit of the employer's employees or their beneficiaries;
Provide definitely determinable benefits;
Be operated pursuant to its terms;
Satisfy the direct rollover rules of section 401(a)(31);
Satisfy the section 401(a)(17) limitation on compensation;
Comply with the statutory minimum required distribution
rules under section 401(a)(9);
Satisfy the pre-ERISA vesting requirements under section
411(e)(2); \5\
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\5\ Section 411(e)(2) states that a plan described in section
411(e)(1) is treated as meeting the requirements of section 411 if
the plan meets the vesting requirements resulting from the
application of section 401(a)(4) and (a)(7) as in effect on
September 1, 1974.
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Satisfy the section 415 limitations on benefits, as
applicable to governmental plans; and
Satisfy the prohibited transaction rules in section 503.
State and local governments, political subdivisions thereof, and
agencies or instrumentalities thereof are generally not permitted to
offer cash or deferred arrangements under section 401(k). However, an
ITG is permitted to offer a cash or deferred arrangement under section
401(k).
Notice 2006-89 (2006-2 CB 772) and Notice 2007-67 (2007-35 IRB
465), see Sec. 601.601(d)(2), summarize the changes made by section
906(a)(1) of PPA '06 and provide transitional relief to ITGs under a
reasonable and good faith standard to comply with such changes. The
notices provide that until such guidance is issued, a plan established
and maintained by an ITG for its employees is treated as satisfying the
requirements of section 906(a)(1) of PPA '06 to be a governmental plan
under section 414(d) of the Code if it complies with those requirements
based on a reasonable and good faith interpretation of section 414(d).
For further background, see the ``Background'' section of the preamble
of the section 414(d) draft ITG regulations in the Appendix to this
ANPRM under the headings, ``Notices Issued by the IRS Relating to ITG
Retirement Plans under PPA '06.''
The Treasury Department and the IRS participated in a series of
telephone listening meetings with the ITG community following the
passage of PPA '06. The attached draft notice of proposed rulemaking in
the Appendix to this ANPRM takes into account comments provided through
a number of informative and cooperative comments received in response
to Notices 2006-89 and 2007-67 and open and direct consultations with
the Indian tribal community. Those comments received from Notices 2006-
89 and 2007-67 and during the consultations were considered in drafting
the proposed rulemaking.
The Treasury Department and the IRS have determined to seek public
comment and consult with ITGs on the draft proposed regulations in
advance of issuing a notice of proposed rulemaking. In light of the
interaction of the governmental plan definitions in the Code and ERISA,
a copy of the comments will be forwarded to DOL and PBGC.
Explanation of Provisions
Attached to the Appendix to this ANPRM is a draft notice of
proposed rulemaking. These draft regulations include proposed rules, a
preamble, and a request for comments. The Treasury Department and IRS
invite the public to comment on the rules that the Treasury Department
and IRS are considering proposing, which would set forth special rules
relating to retirement plans of ITGs.
Section 414(d) Draft ITG Regulations
A plan established and maintained by an ITG is a governmental plan
under section 414(d), as amended by section 906 of PPA '06, only if all
of its participants are employees substantially all of whose services
are in the performance of essential governmental functions (but not in
the performance of commercial activities whether or not an essential
governmental function). Therefore, the rules under the section 414(d)
draft general regulations (in the Appendix to the ANPRM that is being
published elsewhere in this issue of the Federal Register) would apply
to ITG governmental plans, as well as the special rules under the
attached section 414(d) draft ITG regulations. The anticipated proposed
regulations would use the broader concepts of governmental activity and
commercial activity, instead of the terms essential governmental
function and commercial activity. See the ``Explanation of Provisions''
section in the section 414(d)
[[Page 69190]]
draft ITG regulations in the Appendix to this ANPRM under the heading,
``Determination of Governmental and Commercial Activities.''
Under the section 414(d) draft ITG regulations (in the Appendix to
this ANPRM), whether a plan of an ITG is a governmental plan or a
nongovernmental plan within the meaning of section 414(d) would be
based, in part, on: (1) A determination of which activities are
commercial activities and (2) a determination of whether employees of
the ITG covered by the plan are employees who perform substantial
services in commercial activities of the ITG (and are thus commercial
employees).
The anticipated proposed regulations would provide that certain
specific activities are deemed to be governmental or commercial for
purposes of section 414(d). Under the anticipated proposed regulations,
commercial activities would be operations involving a hotel, casino,
service station, convenience store, or marina. These activities are
examples that were identified as commercial activities in Notices 2006-
89 and 2007-67, as well as in the Joint Committee on Taxation Technical
Explanation to section 906 of PPA '06. The section 414(d) draft ITG
regulations in the Appendix to this ANPRM would provide that
governmental activities include activities related to the building and
maintenance of public roads, sidewalks, and buildings, activities
related to public work projects (such as schools and government
buildings), and activities that are subject to a treaty or special
rules that pertain to trust land ownership and use. See Sec.
601.601(d)(2).
In addition to listing certain specified activities, the
anticipated proposed regulations would provide a facts and
circumstances test for determining whether an activity is a
governmental or commercial activity. See the ``Explanation of
Provisions'' section in the section 414(d) draft ITG regulations in the
Appendix to this ANPRM under the heading, ``Governmental and Commercial
Activities.'' The anticipated proposed regulations would also provide
examples illustrating the application of the facts and circumstances
tests to particular activities.
The anticipated proposed regulations would also provide rules for
determining whether employees covered by an ITG plan are employees who
perform substantial services in activities that are governmental. For
this purpose, the determination of whether an employee's services are
for governmental or commercial activities would generally be based on
the employee's assigned duties and responsibilities. See the
``Explanation of Provisions'' section in the section 414(d) draft ITG
regulations in the Appendix to this ANPRM under the headings,
``Determination of Governmental ITG Employees'' and ``Determination of
Commercial ITG Employees.''
The anticipated proposed regulations do not address the broader
issue of whether a retirement plan is a governmental plan within the
meaning of section 414(d). That topic is addressed in the advance
notice of proposed rulemaking relating generally to the definition of
governmental plan that is being published elsewhere in this issue of
the Federal Register.
Request for Comments
Before a notice of proposed rulemaking is issued, consideration
will be given to any written comments that are submitted timely
(preferably a signed original and eight (8) copies) to the IRS. All
comments will be available for public inspection and copying. Copies of
the comments will be provided to the DOL and PBGC.
Comments are also requested on whether, as an alternative to
issuing proposed regulations, the Department of the Treasury and IRS
should publish a notice that reflects some or all of the rules in the
draft proposed regulations and that also modifies the rule in Notice
2007-67 concerning when a mixed ITG is required to be amended to be two
different plans, one for governmental employees and another for
commercial employees. If so, the notice would include a significant
transitional period for compliance similar to the transition period
that would be expected to apply for regulations (such as not being
effective until plan years that begin at least 18 months after
publication of the notice). The Department of the Treasury and IRS
invite comments on whether this method of guidance would be preferable
to the issuance of regulations.
The IRS and Department of the Treasury plan to schedule a public
hearing on the ANPRM. That hearing will be scheduled and announced at a
later date. In addition to a public hearing, the Treasury Department
and IRS anticipate scheduling consultation listening meetings in order
to obtain comments from tribal governments on the section 414(d) draft
ITG regulations. It is expected that these meetings will take place in
different locations across the country. Participants will be encouraged
to pre-register for the meetings. Information relating to these
meetings, including dates, times, locations, registration, and the
procedures for submitting written and oral comments, will be available
on the IRS Web site relating to governmental plans at http://www.irs.gov/retirement/article/0,,id=181779,00.html.
EO 13175, Consultation and Coordination With Indian Tribal Governments
In the Appendix to this ANPRM is a draft notice of proposed
rulemaking. These draft regulations include proposed rules, a preamble,
and a request for comments. The Treasury Department and the IRS invite
the public to comment on the rules under consideration, which would set
forth special rules relating to retirement plans of ITGs. This
solicitation of comments is in furtherance of the objective of
Executive Order 13175 under which Treasury consults with tribal
officials in the development of Federal policies that may have tribal
implications. The IRS and Treasury Department will consult with Indian
tribes through the normal comment process in the Federal Register,
issuing this advance notice of public rulemaking, and reaching out to
Indian tribes through a series of consultation listening meetings.
Drafting Information
The principal author of this advance notice of proposed rulemaking
is Pamela R. Kinard, Office of the Chief Counsel (Tax-exempt and
Government Entities), however, other personnel from the IRS and
Treasury Department participated in its development.
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
Appendix
The following is draft language for a notice of proposed rulemaking
that would set forth rules relating to the determination of whether a
plan of an Indian tribal government is a governmental plan within the
meaning of section 414(d). The IRS and Treasury release this draft
language in order to solicit comments from the governmental plans
community:
Background
This document contains proposed regulations under section 414(d) of
the Internal Revenue Code (Code). These regulations, when finalized,
would provide guidance relating to the determination of whether a plan
of an Indian tribal government or other entities related to an Indian
tribal government is a governmental plan within the meaning of section
414(d). The definition of a governmental plan
[[Page 69191]]
under section 414(d) applies for purposes of Part I of Subchapter D of
Chapter 1 of Subtitle A (Income Taxes) of the Code (sections 401
through 420) and certain other Code provisions that refer to section
414(d) (such as sections 72(t)(10), 501(c)(25)(C), 4975(g)(2),
4980B(d)(2), 9831(a)(1), and 9832(d)(1) of the Code).
Statutory Definition of Governmental Plan
Both the Code and the Employee Retirement Income Security Act of
1974 (ERISA) define the term ``governmental plan.'' Prior to the
Pension Protection Act of 2006, Public Law 109-280 (120 Stat. 780) (PPA
'06), section 414(d) of the Code provides that the term ``governmental
plan'' means a plan established and maintained for its employees by the
Government of the United States, by the government of any State or
political subdivision thereof, or by any agency or instrumentality of
any of the foregoing. Sections 3(32) and 4021(b)(2) of ERISA have
parallel definitions of the term ``governmental plan.'' The term
``governmental plan'' also includes any plan to which the Railroad
Retirement Act of 1935 or 1937 (49 Stat. 967, as amended by 50 Stat.
307) applies and which is financed by contributions required under that
Act and any plan of an international organization which is exempt from
taxation by reason of the International Organizations Immunities Act
Public Law 79-291 (59 Stat. 669).
Section 906 of PPA '06
Section 906(a) of PPA '06 amended section 414(d) of the Code (and
the parallel provisions in sections 3(32) and 4021(b)(2) of ERISA) to
include in the definition of ``governmental plan'' certain plans of an
Indian tribal government, a subdivision of an Indian tribal government,
or an agency or instrumentality thereof. Specifically, under section
906(a)(1) of PPA '06, the term ``governmental plan'' includes a plan
which is established and maintained for its employees by an Indian
tribal government (as defined in section 7701(a)(40)), a subdivision of
an Indian tribal government (determined in accordance with section
7871(d)), or an agency or instrumentality of either (ITG), and all of
the participants of which are employees of such entity substantially
all of whose services as such an employee are in the performance of
essential governmental functions but not in the performance of
commercial activities (whether or not an essential governmental
function). Section 906(c) of PPA '06 provides that the amendments made
by section 906 of PPA '06 apply to any year beginning on or after the
date of enactment, which is August 17, 2006.
In its Technical Explanation \6\ to section 906 of PPA '06, the
Joint Committee on Taxation refers to an employee substantially all of
whose services for an ITG are in the performance of essential
governmental services and not in the performance of commercial
activities (whether or not such activities are an essential
governmental function) as a qualified employee who is eligible to
participate in a governmental plan as described in section 414(d). The
Technical Explanation states, for example, that a governmental plan
includes a plan of an ITG, all of the participants of which are
teachers in tribal schools. However, the Technical Explanation also
states that a governmental plan does not include a plan covering tribal
employees who are employed by a hotel, casino, service station,
convenience store, or marina operated by a tribal government.
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\6\ Joint Committee on Taxation, Technical Explanation of H.R.
4, the ``Pension Protection Act of 2006'' as passed by the House on
July 28, 2006, and considered by the Senate on August 3, 2006 (JCX-
38-06), August 3, 2006, 109th Cong., 2nd Sess. 244 (2006).
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Exemption of Governmental ITG Plans From Certain Qualified Plan Rules
Governmental plans under Code section 414(d), including
governmental ITG plans, receive special treatment with respect to
certain qualification rules. Such plans are exempt from certain
qualification requirements and are deemed to satisfy certain other
qualification requirements under certain conditions. For example, the
nondiscrimination and minimum participation rules do not apply to
governmental plans.\7\ In addition, the Code provides other exemptions
for section 414(d) governmental plans:
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\7\ Section 861 of PPA '06 amended sections 401(a)(5)(G) and
401(a)(26)(G) of the Code to provide that the minimum participation
standards and nondiscrimination requirements of section 410 and the
additional participation requirements under section 401(a)(26) do
not apply to governmental plans within the meaning of section 414(d)
of the Code. Section 861 of PPA '06 also exempts governmental plans
from the nondiscrimination and participation requirements applicable
to qualified cash or deferred arrangements under section 401(k)(3)
of the Code.
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Section 401(a)(10)(B)(iii), which provides that the top-
heavy requirements of section 416 do not apply to a governmental plan.
Section 410(c)(1)(A), which provides that the minimum
participation provisions of section 410 do not apply to a governmental
plan.
Section 411(e), which provides that a governmental plan is
treated as satisfying the requirements of section 411 if the plan meets
the pre-ERISA vesting requirements.
Section 412(e)(2)(C), which provides that the minimum
funding standards of section 412 do not apply to a governmental plan.
Section 417, which provides rules relating to qualified
joint and survivor annuities and qualified preretirement survivor
annuities.
Section 415 also provides a number of special rules for
governmental plans. The special rules include section 415(b)(11) (under
which governmental pensions are not limited to 100% of a participant's
average high 3 compensation), section 415(b)(2)(I) (the reduced
limitation to the annual benefit payable beginning before age 62 and
the reduction in the dollar limitation to the annual benefit payable
for participation or services of less than 10 years do not apply to
disability or survivor benefits received from a governmental plan),
section 415(m) (benefits provided under a qualified governmental excess
benefit arrangement are not taken into account in determining the
section 415 benefit limitations under a section 414(d) governmental
plan), and section 415(n) (permissive service credit).
As a result, the principal qualification requirements for a tax-
qualified governmental plan \8\ are that the plan--
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\8\ A special rule applies to contributory plans of certain
governmental entities. Section 414(h)(2) provides that, for a
qualified plan established by a State government or political
subdivision thereof, or by any agency or instrumentality of the
foregoing, where the contributions of the governmental employer are
designated as employee contributions under section 414(h)(1) but the
governmental employer picks up the contributions, the contributions
picked up will be treated as employer contributions.
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Be established and maintained by the employer for the
exclusive benefit of the employer's employees or their beneficiaries;
Provide definitely determinable benefits;
Be operated pursuant to its terms;
Satisfy the direct rollover rules of sections 401(a)(31)
and 402(f);
Satisfy the section 401(a)(17) limitation on compensation;
Comply with the statutory minimum required distribution
rules under section 401(a)(9);
Satisfy the pre-ERISA vesting requirements under section
411(e)(2); \9\
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\9\ Section 411(e)(2) states that a plan described in section
411(e)(1) is treated as meeting the requirements of section 411 if
the plan meets the vesting requirements resulting from the
application of section 401(a)(4) and (a)(7) as in effect on
September 1, 1974.
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Satisfy the section 415 limitations on benefits, as
applicable to governmental plans; and
[[Page 69192]]
Satisfy the prohibited transaction rules in section 503.
State and local governments, political subdivisions thereof, and
agencies or instrumentalities thereof are generally not permitted to
offer cash or deferred arrangements under section 401(k).\10\ However,
Indian tribal governments and their related entities are permitted to
offer cash or deferred arrangements as part of a plan maintained by an
ITG.\11\
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\10\ Section 401(k)(4)(B)(ii) provide that a cash or deferred
arrangement shall not be treated as a qualified cash or deferred
arrangement if it is part of a plan maintained by a State or local
government or political subdivision thereof, or any or agency or
instrumentality thereof.
\11\ See section 401(k)(4)(B)(iii). For a general overview of
the special rules relating to plans of ITGs, see the Joint Committee
on Taxation, Overview of Federal Tax Provisions Relating to Native
American Tribes and Their Members (JCX 61-08), July 18, 2008.
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Rules Treating Indian Tribal Governments as States for Purposes of
Issuing Tax-Exempt Bonds
Section 7871 provides special rules for Indian tribal governments.
Section 7871(a)(4) provides that an Indian tribal government is to be
treated as a State for purposes of section 103, relating to tax-exempt
bonds.\12\ Section 7871(c)(1) generally provides that section 103(a)
applies to an obligation issued by an Indian tribal government only if
such obligation is part of an issue substantially all of the proceeds
of which are to be used in the exercise of any essential governmental
function.
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\12\ An Indian tribal government is treated in the same manner
as a State for certain specified purposes under the Code, but not
for purposes of section 414(d) (or any provision in sections 401
through 424, other than sections 403(b)(1)(A)(ii)).
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On August 9, 2006, an advance notice of proposed rulemaking under
section 7871 was published in the Federal Register (71 FR 45474). The
ANPRM describes the rules that the Treasury Department and the IRS
anticipate proposing on the definition of essential governmental
function under section 7871(e). The rules would provide that an
activity is considered an essential governmental function that is
customarily performed by State and local governments if: (1) There are
numerous State and local governments with general taxing powers that
have been conducting the activity and financing it with tax-exempt
governmental bonds; (2) State and local governments with general taxing
powers have been conducting the activity and financing it with tax-
exempt governmental bonds for many years; and (3) the activity is not a
commercial or industrial activity. The ANPRM provides examples of
activities customarily performed by State and local governments,
including public works projects such as roads, schools, and government
buildings.
Notices Issued by the IRS Relating to ITG Retirement Plans Under PPA
`06
Notice 2006-89 (2006-2 CB 772) and Notice 2007-67 (2007-35 IRB
467), see Sec. 601.601(d)(2), summarize the changes made by section
906(a)(1) of PPA '06 and provide transitional relief to ITGs under a
reasonable and good faith standard to comply with such changes. The
notices provide that, until such guidance is issued, a plan established
and maintained by an ITG for its employees is treated as satisfying the
requirements of section 906(a)(1) of PPA '06 to be a governmental plan
under section 414(d) of the Code if it complies with those requirements
based on a reasonable and good faith interpretation of section 414(d).
The notices further provide that it is not a reasonable and good faith
interpretation of section 414(d) for an ITG plan to claim to be a
governmental plan within the meaning of section 414(d) if employees
participating in the plan perform services for a hotel, casino, service
station, convenience store, or marina operated by an ITG.
In Notices 2006-89 and 2007-67, the Treasury Department and IRS
announced that regulations would be proposed to provide guidance on
section 414(d), including changes made to section 414(d) by section 906
of PPA '06, and to provide transitional relief pending the issuance of
these regulations. Comments were requested on issues relating to
section 906 of PPA '06, including transitional issues not addressed in
the notice.
The transitional relief provided to plans of ITGs under Notices
2006-89 and 2007-67 continues up to the date that is six months after
the date that guidance is issued under section 414(d) of the Code, as
amended by section 906 of PPA '06 (extended date). For ITG plans that
provide benefits both to employees substantially all of whose work is
in essential governmental functions that are not commercial activities
(governmental ITG employees) and to employees who perform services
substantially in the performance of commercial activities (commercial
ITG employees), the Notices provide that the ITG plan will be treated
as satisfying the reasonable, good faith standard if certain steps are
taken, which include adopting a separate plan covering commercial ITG
employees effective as of the beginning of the first plan year
beginning on or after August 17, 2006, the enactment of PPA '06. The
commercial ITG plan, beginning on the same effective date, must comply
with the qualification requirements for plans that are not governmental
plans.
These proposed regulations would provide guidance relating to ITG
plans under section 414(d). The transitional relief provided under
Notices 2006-89 and 2007-67 would end six months after the effective
date of the final regulations published in the Federal Register.
The transitional relief in Notices 2006-89 and 2007-67 is
conditioned on the ITG plans involved not being amended, for periods
before the extended date, to reduce benefits unless the reduction does
not distinguish between reductions for commercial ITG employees and
governmental ITG employees or the reduction for commercial ITG
employees is the minimum amount necessary to satisfy any requirement
under the Code. If any reduction occurs that does not satisfy these
conditions, the transitional relief provided under Notices 2006-89 and
2007-67 ends on the date that the reduction goes into effect.
Executive Order 13175
Executive Order 13175 requires that Federal departments and
agencies engage in consultation procedures in certain circumstances
where regulations are issued which have substantial direct effects with
respect to the Federal government and Indian tribes. While these
regulations when issued as final regulations would not have such
substantial direct effects, the IRS and Treasury Department have
followed similar procedures. Further, the Treasury Department and the
IRS participated in a series of telephone listening meetings with the
ITG community following the passage of PPA '06 and these proposed
regulations also take into account the comments that were provided in
response to Notices 2006-89 and 2007-67, including the related open and
direct consultations with the Indian tribal community.
Judicial Determinations
The few court cases that discuss section 906 of PPA '06 primarily
relate to welfare benefit plans. One reason for the legislative change
to section 414(d) of the Code and section 3(32) of ERISA is ``to
clarify the legal ambiguity regarding the status of employee benefit
plans established and maintained by tribal governments.'' \13\ In
Bolssen v.
[[Page 69193]]
Unum Life Insurance Company of America, 629 F.Supp. 2d 878 (E.D. Wis.
2009), Mr. Bolssen sued the Unum Life Insurance Company for failing to
provide disability insurance benefits. He argued that the case should
be remanded to state court because the insurance plan sponsored by his
employer, an Indian tribal casino, was a governmental plan within the
meaning of section 3(32) of ERISA. In analyzing whether the welfare
benefit plan was a governmental plan, the Bolssen court looked to
another case involving an Indian tribal casino, San Manuel Indian Bingo
& Casino v. NLRB, 475 F.3d 1306 (DC Cir. 2007). In San Manuel Indian
Bingo & Casino, the court held that the National Labor Relations Act
applied to an Indian tribal casino because the operation of the casino
was a commercial function. The court reasoned that ``it can be argued
any activity of a tribal government is by definition `governmental,'
and even more so an activity aimed at raising revenue that will fund
governmental functions. Here, though, we use the term `governmental' in
a restrictive sense to distinguish between the traditional acts
governments perform and collateral acts that, though perhaps in some
way related to the foregoing, lie outside their scope.'' \14\
---------------------------------------------------------------------------
\13\ See Dobbs v. Anthem Blue Cross & Blue Shield, 475 F.3d
1176, 1178 (10th Cir. 2007) (citing 150 Cong. Rec. S9526, 9533),
rev'd in part 600 F.3d 1275 (2010). See also Bolssen v. Unum Life
Insurance Company of America, 629 F.Supp. 2d 878, 881 (E.D. Wis.
2009).
\14\ San Manuel Indian Bingo & Casino, 475 F.3d at 1313.
---------------------------------------------------------------------------
The court, in San Manuel Indian Bingo & Casino, held that the
operating a casino is not a traditional act of government, but is
commercial in nature.\15\ The court in Bolssen applied the same
reasoning to conclude that disability plan of the casino was not a
governmental plan within the meaning of section 3(32) of ERISA.
---------------------------------------------------------------------------
\15\ Id. at 1315.
---------------------------------------------------------------------------
Explanation of Provisions
These proposed regulations would provide special rules for purposes
of the definition of a ``governmental plan'' under section 414(d) of
the Code, as it relates to plans of ITGs. The Treasury Department and
IRS also expect to issue separate proposed regulations under section
414(d) to define a governmental plan for purposes other than the
special rules applicable to ITGs. However, these proposed regulations
relating to ITGs would provide Indian tribal governments with guidance
in determining whether an ITG plan is a governmental ITG plan or a
commercial ITG plan. As discussed in the background of this preamble,
under the heading ``Exemption of Governmental ITG Plans from Certain
Qualified Plan Rules,'' governmental plans receive special treatment
with respect to certain qualification rules. Thus, the determination of
whether an ITG plan is a governmental ITG plan is essential in ensuring
compliance with the qualified plan rules because an ITG must be able to
ascertain which of its plans are governmental plans under section
414(d) and which of its plans must comply with the requirements for a
plan that is not a governmental plan. These proposed regulations take
into account comments received in response to Notices 2006-89 and 2007-
67 and a number of open and direct consultations with the Indian tribal
community. Those comments received from Notices 2006-89 and 2007-67 and
during the consultations were considered in drafting these proposed
regulations.
Determination of Governmental and Commercial Activities
As discussed earlier in the background section of this preamble, a
governmental plan, as it relates to ITGs, may include a plan
established and maintained by an ITG, but such a plan is a governmental
plan under section 414(d) only if all of its participants are employees
substantially all of whose services are in the performance of essential
governmental functions (but not in the performance of commercial
activities whether or not an essential governmental function). Key to
determining whether a plan of an ITG is a governmental plan within the
meaning of section 414(d) is the determination of the terms ``essential
governmental function'' and ``commercial activity.''
These proposed regulations would use the concepts of ``governmental
activity'' and ``commercial activity,'' instead of the terms
``essential governmental function'' and ``commercial activity.'' The
terms ``governmental activity'' and ``commercial activity'' would apply
only for purposes of the governmental plan rules under section 414(d)
and not for any other purpose under the Code, including section 7871.
The use of these terms is meant to provide guidance on the requirements
of section 414(d) with respect to ITG plans, while maintaining
flexibility and without directly impacting future guidance on section
7871.
These proposed regulations would define a governmental ITG plan as
any plan that is established and maintained by an Indian tribal
government, a subdivision of an Indian tribal government, or an agency
or instrumentality of either, and all of its participants are employees
substantially all of whose services are in the performance of
governmental activities. The regulations would define a commercial ITG
plan as a plan covering any ITG employees who perform substantial
services in a commercial activity, such as a hotel, casino, service
station, convenience store, or marina, which are examples of commercial
activities that are listed in the Joint Committee on Taxation Technical
Explanation to section 906 of PPA `06.\16\ A plan would also be a
commercial plan if it covers any individual who is not an employee of
an ITG.
---------------------------------------------------------------------------
\16\ Joint Committee on Taxation, Technical Explanation of H.R.
4, the ``Pension Protection Act of 2006'' as passed by the House on
July 28, 2006, and considered by the Senate on August 3, 2006 (JCX-
38-06), August 3, 2006, 109th Cong., 2nd Sess. 244 (2006).
---------------------------------------------------------------------------
Governmental and Commercial Activities
Under the proposed regulations, whether a plan of an ITG is a
commercial plan or a governmental plan within the meaning of section
414(d) is based in part on (1) a determination of which activities are
commercial activities and (2) a determination of whether employees of
the Indian tribal government covered by the plan are employees who
perform substantial services in commercial activities (and are thus
commercial employees).
Under the first step, the proposed regulations would provide
guidance for determining whether an activity operated by an ITG is a
governmental activity or a commercial activity for purposes of section
414(d). This is achieved by listing certain specific activities that
are deemed to be governmental or commercial for purposes of section
414(d). Specific governmental activities would include the following:
(1) Activities that are related to public infrastructure, such as the
building and maintaining of public roads and buildings; (2) activities
that involve providing criminal protection services to the public (such
as police and fire departments) or providing civil or public
administrative service (such as providing public housing and operating
public schools and hospitals, as well as managing the ITG's civil
service system); and (3) activities subject to a treaty or special
rules that pertain to trust land ownership and use. Under the
regulations, operations involving a hotel, casino, service station,
convenience store, and marina would be commercial activities. As
discussed above, these activities are examples that are identified as
commercial activities in Notices 2006-89 and 2007-67, as well as in the
Joint Committee on
[[Page 69194]]
Taxation Technical Explanation to section 906 of PPA '06.
In addition to listing certain specified activities, the proposed
regulations would provide a facts and circumstances test for
determining whether an activity is a governmental or commercial
activity. The proposed regulations provide that, in making a
determination of whether an activity is a governmental activity, the
factors to be considered include whether--
The activity provides a public benefit to members of the
Indian tribal government (not treating the generation of profits from
commercial acts as providing a public benefit); and
The absence of one or more of the relevant factors listed
for a commercial activity as provided in these proposed regulations.
The proposed regulations also provide that, in making a
determination of whether an activity is a commercial activity, the
factors to be considered include whether--
The activity is a type of activity that is operated to
earn a profit;
The activity is a type of activity that is typically
performed by private businesses; and
The activity is a type of activity where the customers are
substantially from outside of the Indian tribal community, including
whether the activity is located or conducted outside of Indian tribal
land.
These proposed regulations also provide examples illustrating the
application of the facts and circumstances tests to particular
activities. Some examples of activities of an Indian tribal government
that are commercial might include: (1) Operating a bank for a profit,
serving tribal and non-tribal customers; (2) operating a trucking
business for a profit; and (3) operating a factory producing goods for
sale primarily to non-tribal customers. Conversely, examples of
activities of an Indian tribal government that are governmental could
include: (1) A community swimming pool on tribal land used primarily by
tribal members; and (2) the operation of a cultural center and a museum
on tribal land.
The proposed regulations would also delegate to the Commissioner of
Internal Revenue the authority to publish guidance under section 414(d)
that the Commissioner determines to be necessary or appropriate with
respect to determining whether a plan of an Indian tribal government is
a commercial ITG plan because the tribe's employees are performing
services in an activity that the Commissioner determines to be a
commercial activity. Any such guidance would be published in the form
of revenue rulings, notices, or other guidance published in the
Internal Revenue Bulletin (see Sec. 601.601(d)(2)).
Determination of Governmental ITG Employees
These proposed regulations would also provide rules for the second
step, namely determining whether employees covered by an ITG plan are
employees who perform substantially all of their services in activities
that are governmental. For this purpose, the determination of whether
an employee's services are for governmental or commercial activities
would generally be based on the employee's assigned duties and
responsibilities. In making this determination, the rules in these
regulations would not require that a plan keep track of the individual
hours worked by any employee or that the compensation of any particular
employee be traced through the hours worked by that employee. The
proposed regulations would provide that an employee whose assigned
duties and responsibilities are in the performance of a governmental
activity is treated as performing substantially all of his or her
services in a governmental activity, and not treated as performing
services for a commercial activity, even though the performance of
those services for the governmental activity may temporarily involve
significant time working in the commercial activity. For example, the
chief financial officer (CFO) for an ITG may be expected to spend a
substantial amount of time working on the financing for any casino,
marina, or hotel to be built on the ITG's tribal lands, but, despite
temporarily working in a commercial activity, the proposed regulations
would provide that the CFO is a governmental employee of the ITG all of
whose services are in that capacity.
Determination of Commercial ITG Employees
The proposed regulations set forth rules for determining an
employee's assigned duties and responsibilities, and thus when his or
her services are substantially in the performance of a governmental or
commercial activity. The analysis would start with the location of the
employee's services in relation to the activity. The regulations
provide that if a commercial activity has a specific location that is
identifiable and is not associated with a governmental activity, any
employee performing services at the location of activity is a
commercial employee. One example is a security guard whose work is
providing security services at a location which is an Indian tribal
casino. In the case of an employee who works at a location other than a
location where a commercial activity is being performed, the result
would depend on the employee's assigned duties and responsibilities.
Another key part of the analysis is who pays the employee. If an
employee is on the payroll of an ITG entity that is engaged in a
commercial activity, the employee's assigned duties and
responsibilities are treated as being for a commercial activity and,
thus, the employee is a commercial ITG employee. For example, if a
cashier is on the payroll of a convenience store (which is a commercial
activity) owned by an ITG, the cashier is a commercial ITG employee.
However, in the case of an employee who is not on a payroll of an ITG
that engages in a commercial activity, the result would depend on the
employee's assigned duties and responsibilities.
Where an employee neither works at a location where a commercial
activity is being performed nor is on the payroll of a commercial
entity, the result would depend on the employee's assigned duties and
responsibilities, taking into account the facts and circumstances.
Thus, for example, a bookkeeper located in a governmental building and
paid through the general payroll of the ITG would nevertheless be a
commercial employee if the facts and circumstances indicate that his or
her assigned duties and responsibilities are to maintain the books and
records for a hotel owned and operated by an ITG.
The statutory language in section 414(d) makes it clear that a plan
is not a governmental ITG plan if it covers any employee who is a
commercial ITG employee. There is no de minimis exception relating to
this rule under section 414(d). In light of these circumstances, an ITG
may choose to use caution when covering employees in a governmental
plan. If, after applying the rules, an ITG plan sponsor is not certain
whether an employee is a governmental ITG or commercial ITG employee,
the ITG may choose to provide coverage for the employee in its
commercial ITG plan in order to ensure the preservation of the status
of the governmental ITG plan. Coverage of a governmental employee in a
commercial plan would not adversely affect the qualified status of the
commercial plan.
Reasonable, Good Faith Interpretation
The proposed regulations provide that, in general, an ITG plan will
not be treated as failing to satisfy the assignment of employee rules
if the plan complies with those rules under a
[[Page 69195]]
standard that constitutes a reasonable, good faith interpretation of
the statute, taking into account the final regulations and any other
published guidance that relates to the application of section 414(d) to
ITGs. The reasonable, good faith interpretation standard for the
assignment of employees to governmental and commercial plans would only
apply if the benefit levels between the separate governmental and
commercial plans are uniform. Thus, this reasonable, good faith
interpretation standard would not apply if the benefit level for
employees under a plan purporting to be a governmental plan is higher
than that of the benefit level under a separate plan covering employees
who include commercial employees.
Assignment of Shared Employees
Under these rules, there may be cases in which an employee is
transferred from one ITG employer to another. An employee may also
perform substantially all of his or her services in the performance of
a governmental activity and later the employee's assigned duties and
responsibilities may change, so that the employee is subsequently
performing substantially all of his or her duties in the performance of
a commercial activity. In addition, an employee may work two separate
and distinct jobs, one in a commercial activity of an ITG and another
in a governmental activity of an ITG (for example, an ITG employee who
works as a full-time police officer and also works at the front desk in
the lobby of a hotel over the weekends). For all of these scenarios,
assuming the ITG maintains separate plans for its governmental and
commercial employees, the ITG should assign the employee to either plan
based on prorating service credits and allocating compensation between
the governmental and commercial activities.
Application of the Controlled Group Rules to ITG Plans
These proposed regulations do not address the rules under which,
for purposes of sections 401, 408(k), 408(p), 410, 411, 415, and 416,
all employees of all corporations that are members of a controlled
group of corporations are treated as employed by a single employer for
purposes of these controlled group rules. Note that, under current
guidance, a reasonable, good faith interpretation standard applies with
respect to governments. See Notice 89-23 (1989-1 CB 654) and Notice 96-
64 (1996-2 CB 229), see Sec. 601.601(d)(2) of this chapter.
Proposed Effective Date
The proposed regulations would apply to plan years beginning 6
months after publication of these regulations as final regulations. For
plan years after the statutory effective date of the PPA '06 amendment
of section 414(d) and prior to the effective date of these regulations
as final regulations, a plan of an ITG would be treated as a
governmental plan for purposes of section 414(d), providing that a
reasonable, good faith effort is made to ensure that the plan satisfy
the conditions for being a governmental plan under section 414(d),
taking into account relevant guidance, including Notices 2006-89 and
2007-67. To the extent that a plan of an Indian tribal government
complies with the requirements under either the notices or the proposed
regulations, the plan will be treated as making a reasonable, good
faith effort to satisfy the requirements of section 414(d).
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required. It has also
been determined that section 553(b) of the Administrative Procedure Act
(5 U.S.C. chapter 5) does not apply to these regulations. In addition,
because no collection of information is imposed on small entities, the
provisions of the Regulatory Flexibility Act (5 U.S.C. chapter 6) do
not apply, and therefore, a Regulatory Flexibility Analysis is not
required. Pursuant to section 7805(f) of the Code, this notice of
proposed rulemaking will be submitted to the Small Business
Administration for comment on its impact on small business.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (a signed original
and eight (8) copies) or electronic comments that are submitted timely
to the IRS. The Treasury Department and the IRS specifically request
comments on the clarity of the proposed rules and how they can be made
easier to understand. Comments are specifically requested on whether a
correction mechanism under the Employee Plans Compliance Resolution
System (EPCRS), as set forth in Rev. Proc. 2008-50 (2008-35 IRB 464),
see Sec. 601.601(d)(2), might be helpful for cases in which an
employee substantially all of whose services are not in the performance
of a governmental activity has nevertheless inadvertently become a
participant in a plan purporting to be a governmental plan. For
example, assuming the various conditions for self correction have been
satisfied (see section 4.09 of Rev. Proc. 2008-50, which provides that
the failure must be an operational failure which occurred by mistake or
oversight, even though the plan had established practices and procedure
to ensure qualification, and which is promptly corrected), the plan's
assets and liabilities with respect to the employee might be
transferred to a similar plan covering commercial employees under which
the employee would accrue benefits up to the level that would have
applied if he or she had participated in that commercial plan during
the period when he or she was a commercial employee. All comments will
be available for public inspection and copying.
A public hearing has been scheduled for (date to be provided when
proposed regulations are published), beginning at 10 a.m. in the
Auditorium, Internal Revenue Building, 1111 Constitution Avenue NW.,
Washington, DC. Due to building security procedures, visitors must
enter at the main entrance, located at 1111 Constitution Avenue NW. 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. For information about having your name placed on the
building access list to attend the hearing, see the FOR FURTHER
INFORMATION CONTACT portion of this preamble.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to present oral comments must submit written or electronic
comments and an outline of the topics to be discussed and time to be
devoted to each topic (signed original and eight (8) copies) by (date
to be provided when proposed regulations are published). A period of 10
minutes will be allotted to each person for making comments. An agenda
showing the scheduling of the speakers will be prepared after the
deadline for receiving comments has passed. Copies of the agenda will
be available free of charge at the hearing.
Drafting Information
The principal author of these proposed regulations is Pamela R.
Kinard, Office of Division Counsel/Associate Chief Counsel (Tax Exempt
and Government Entities), Internal Revenue Service. However, personnel
from other offices of the IRS and
[[Page 69196]]
Treasury Department participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in
part:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.414(d)-1 is amended by adding paragraph (g) to
read as follows:
Sec. 1.414(d)-1 Definition of governmental plan.
* * * * *
(g) Special rules for plans of Indian tribal governments--(1)
Definition of governmental plan as it relates to Indian tribal
governments. For purposes of applying paragraph (a)(3) of this section,
a governmental plan as it relates to an Indian tribal government is a
plan that is established and maintained for its employees by an Indian
tribal government, a subdivision of an Indian tribal government, or an
agency or instrumentality of either (ITG), provided that the employees
covered under the plan provide substantially all of their services in
the performance of governmental activities as determined in paragraph
(g)(6) of this section.
(2) Definition of commercial ITG plans. For purposes of paragraph
(g) of this section, the term commercial ITG plan means a plan of an
ITG that covers any ITG employee who is not a governmental ITG employee
under paragraph (g)(8) of this section or that covers any individual
who is not an employee of an ITG.
(3) Definition of an Indian tribal government. For purposes of this
paragraph (g), the term Indian tribal government has the meaning set
forth in section 7701(a)(40).
(4) Definition of subdivision of an Indian tribal government. For
purposes of this paragraph (g), the term subdivision of an Indian
tribal government has the meaning set forth in section 7871(d).
(5) Definition of agency or instrumentality of an Indian tribal
government or subdivision of an Indian tribal government. For purposes
of this paragraph (g), the term agency or instrumentality of an Indian
tribal government or subdivision of an Indian tribal government means
an entity that would be treated as an ``agency or instrumentality of a
State or political subdivision of a State'' under paragraph (f) of this
section if the related Indian tribal government or subdivision of an
Indian tribal government were treated as a State or political
subdivision of a State, respectively.
(6) Definition of governmental activities--(i) In general. The
following activities are governmental activities for purposes of
paragraph (g)(1) of this section:
(A) Activities that are related to the building and maintaining of
public roads; public sidewalks, public buildings, and related areas,
such as parking lots.
(B) Activities that are related to public sewer and drainage
facilities, and related facilities such as a waste-water treatment
plant.
(C) Activities relating to public works projects, such as schools
and government buildings.
(D) Activities relating to public utilities, such as electricity
and other power sources, including the development of newer and
emerging technologies.
(E) Activities related to providing criminal protection services,
such as police and fire departments, providing civil and public
administrative services, such as operating and managing public housing,
libraries, judiciary buildings, and administrative buildings, teaching
in and managing public schools, managing and providing services at
public hospitals and health clinics, operating the government's civil
service system, and other related public services.
(F) Activities subject to a treaty or special rules that pertain to
trust land ownership and use.
(ii) Facts and circumstances test. Whether any other activity is a
governmental activity for purposes of section 414(d) is based on facts
and circumstances. In making this determination, the facts to be
considered include the following:
(A) Whether the activity provides a public benefit to members of
the Indian tribal government; and
(B) Whether there is the absence of one or more of the relevant
factors listed for a commercial activity as provided in paragraph
(g)(7) of this section.
(iii) Examples. The following examples illustrate the application
of this paragraph (g)(6):
Example 1. (i) Facts. Indian tribal government C owns and
operates a community swimming pool on tribal land. Indian tribal
members of Indian tribal government C may use the pool for free.
Other local community members pay a fee to use the pool. Due to its
location, this pool is used primarily by tribal members of Indian
tribal government C.
(ii) Conclusion. Based on the facts and circumstances and the
factors in paragraph (g)(6)(ii) of this section, the operation of
the community swimming pool is a governmental activity of Indian
tribal government C because it is a type of activity that is
operated on a nonprofit basis and is similar to an activity that
other non-tribal local governments operate for their communities. In
addition, the pool is located inside tribal land and provides
recreational benefits to tribal members.
Example 2. (i) Facts. Indian tribal government D owns and
operates a cultural center and a museum on tribal land. The purpose
of the cultural center and museum is to preserve and showcase items
related to the culture of Indian tribal government D, including
crafts and artistry. The center contains an exhibit area, a lobby
and reception area, a small gift shop, a theater and various
activity rooms. A variety of civic functions are held in the
activity rooms. The other areas display and sell local handicraft
items produced locally by members of Indian tribal government D.
(ii) Conclusion. Based on the facts and circumstances and the
factors in paragraph (g)(6)(ii) of this section, the operation of
the cultural center and museum is a governmental activity of Indian
tribal government D even though the majority of its visitors are
individuals who are not members of the tribe. Its purpose is to
promote and display the culture of Indian tribal government D, which
is a type of activity that is generally operated on a nonprofit
basis (similar to municipal museums operated by public authorities)
and not by private businesses. In addition, the center and museum
are located inside tribal land and provide a public benefit by
educating the public and preserving and highlighting the culture of
the tribe.
(7) Definition of commercial activities--(i) In general. The
following activities are commercial activities for purposes of
paragraph (g)(2) of this section:
(A) Activities relating to the operation of a hotel.
(B) Activities relating to the operation of a casino.
(C) Activities relating to the operation of a service station.
(D) Activities relating to the operation of a convenience store.
(E) Activities relating to the operation of a marina.
(ii) Facts and circumstances test. Whether any other activity is a
commercial activity for purposes of section 414(d) is based on facts
and circumstances. In making this determination, the facts to be
considered include the following:
(A) Whether the activity is a type of activity that is operated to
earn a profit.
(B) Whether the activity is a type of activity that is typically
performed by private businesses.
[[Page 69197]]
(C) Whether the activity is a type of activity where the customers
are substantially from outside of the Indian tribal community,
including whether the activity is located or conducted outside of
Indian tribal land.
(iii) Delegation of authority to the Commissioner. Any activity
that the Commissioner of the Internal Revenue Service determines is a
commercial activity under section 414(d), in revenue rulings, notices,
or other guidance published in the Internal Revenue Bulletin (see Sec.
601.601(d)(2) of this chapter).
(iv) Examples. The following examples illustrate the application of
this paragraph (g)(7)(ii):
Example 1. (i) Facts. Indian tribal government A owns and
operates a recreational RV park and campground facility, serving
transient non-tribal customers, primarily tourists. Other RV parks
and campgrounds in the area operated by non-tribal private entities
also attract the same type of customers. Very few, if any, tribal
members of Indian tribal government A use this RV park and
campground facility. Indian tribal government A charges a fee to
customers to use the RV park and campground.
(ii) Conclusion. Based on the facts and circumstances and the
factors in paragraph (g)(7)(ii) of this section, the operation of
the recreational RV park and campground facility is a commercial
activity of Indian tribal government A because it is the type of
activity that is operated to earn a profit and is the type of
activity that is performed by other private businesses. In addition,
the facility includes customers who are substantially from outside
of the Indian tribal community.
Example 2. (i) Facts. Indian tribal government B owns and
operates a bank. This bank serves both tribal and non-tribal
customers primarily living in the local area (either on or off the
tribal land). No distinction is made between the services and fees
provided to any customer based on whether or not he or she is a
tribal member of Indian tribal government B.
(ii) Conclusion. Based on the facts and circumstances and the
factors in paragraph (g)(7)(ii) of this section, the operation of a
bank is a commercial activity of Indian tribal government B because
it is the type of activity that is operated to earn a profit and is
the type of activity that is performed by other private businesses.
Example 3. (i) Facts. Indian tribal government E entered into a
lease with Company X, which is in the trucking business. The lease
provides that Indian tribal government E will purchase tractors,
trailers and other equipment and lease such equipment to Company X
on a long-term basis.
(ii) Conclusion. Based on the facts and circumstances and the
factors in paragraph (g)(7)(ii) of this section, the leasing
transactions relate to a commercial activity of Indian tribal
government E because it is the type of activity that is operated to
earn a profit and is the type of activity that is performed by other
private businesses.
Example 4. (i) Facts. Indian tribal government G operates a
factory on tribal land that produces goods for sale primarily to
non-tribal customers, intended to earn a profit.
(ii) Conclusion. Based on the facts and circumstances and the
factors in paragraph (g)(7)(ii) of this section, this is a
commercial activity of Indian tribal government G because the
activity is operated to earn a profit and is the type of activity
that is performed by private businesses. In addition, the customers
are substantially from outside of the Indian tribal community. The
result could be different if the factory produced goods to promote
and display the culture of Indian tribal government G, even if non-
tribal customers primarily purchase the goods. This could be a
governmental activity, depending on the factors.
(8) Determination of ITG employees--(i) Governmental and commercial
ITG employees. This paragraph (g)(8) applies to determine whether an
employee is an employee substantially all of whose services are in the
performance of a governmental activity of an ITG (a governmental ITG
employee), or is instead an employee who renders a significant portion
of his or her services in the performance of a commercial activity of
an ITG (a commercial ITG employee), for purposes of this paragraph (g).
As provided in paragraph (g)(8)(iv) of this section, this determination
is based on the employee's assigned duties and responsibilities.
(ii) Location of the activity. If a commercial activity (within the
meaning of paragraph (g)(7) of this section) of an ITG has a specific
location that is readily identifiable and is not associated with a
governmental activity, an employee performing substantial services at
such a location is treated as having assigned duties and
responsibilities for that commercial activity and, thus, the employee
is a commercial ITG employee within the meaning of paragraph (g)(8) of
this section. For example, a guard who is assigned to provide security
services for an Indian tribal government at an Indian tribal casino
(which is a commercial activity under paragraph (g)(7)(i)(B) of this
section) is a commercial ITG employee within the meaning of paragraph
(g)(8) of this section. However, where an employee is not on a payroll
of an ITG that engages in a commercial activity, the result would
depend on the other rules in this paragraph (g)(8).
(iii) Payroll records. If an employee is on the payroll of an ITG
entity that is engaged in a commercial activity (within the meaning of
paragraph (g)(7) of this section), the employee's assigned duties and
responsibilities are being treated as for the commercial activity and,
thus, the employee is a commercial ITG employee. For example, if a
cashier is on the payroll of a convenience store (which is a commercial
activity under paragraph (g)(7)(i)(D) of this section) owned by an ITG,
the cashier is a commercial ITG employee within the meaning of
paragraph (g)(8) of this section.
(iv) Duties and responsibilities. Subject to the specific rules in
paragraph (g)(8)(ii) or (iii) of this section, whether an employee is a
governmental or commercial ITG employee within the meaning of this
paragraph (g)(8) is based on the employee's assigned duties and
responsibilities, taking into account facts and circumstances. Thus,
whether an employee is a governmental or commercial ITG employee
depends on whether the facts and circumstances indicate that the
employee's assigned duties and responsibilities are substantially in
the performance of a governmental or commercial activity. Thus, for
example, a bookkeeper located in a governmental building and on the
payroll of the general ITG government would nevertheless be a
commercial employee if the facts and circumstances indicate that his or
her assigned duties and responsibilities are to maintain the books and
records for the hotel owned and operated by an ITG. However, an
employee whose assigned duties and responsibilities are in the
performance of a governmental activity, based on all the facts and
circumstances, in accordance with the standards set forth in this
paragraph (g)(8), is not treated as performing services for a
commercial activity, even if the performance of services for the
governmental activity may temporarily involve significant time working
in a commercial activity in furtherance of the employee's duties and
responsibilities for the governmental activity. For example, although,
over a six-month period, the chief financial officer (CFO) for an ITG
may spend a substantial amount of time working on the financing for a
casino to be built on the ITG's tribal lands, the CFO would not be a
commercial employee within the meaning of this paragraph (g)(8) because
the CFO's duties and responsibilities are for a governmental activity.
(v) Reasonable, good faith interpretation. Except as provided in
paragraph (g)(8)(ii) and (iii) of this section, an ITG plan will not be
treated as failing to satisfy the rules in this paragraph (g)(8) if it
complies with those rules under a standard that
[[Page 69198]]
constitutes a reasonable, good faith interpretation of the statute,
taking into account the rules in this paragraph (g) and any other
published guidance that relates to the application of section 414(d) to
ITGs. However, this paragraph (g)(8)(v) applies with respect to the
assignment of employees to governmental and commercial plans only if
the benefit levels provided by the separate governmental and commercial
plans are uniform. Thus, this paragraph (g)(8)(v) would not apply if
the benefit level for employees under a plan purported to be a
governmental plan is higher than that provided under a separate plan
which covers commercial ITG employees.
(vi) Examples. The following examples further illustrate the
application of this paragraph (g)(8):
Example 1. (i) Facts. Employee A, who is an attorney, works at
the Attorney General's office of Indian tribal government B.
Employee A's job location is in a government office building on
tribal lands. The assigned duties and responsibilities of Employee A
are principally to review the operations of marina boat operators to
ensure that they comply with tribal rules and regulations as
applicable to marina boat operators. Employee A provides some
services for the marina, such as speaking at conferences or meetings
with marina boat operators. Employee A's area of expertise is
contract law.
(ii) Conclusion. Based on the facts and circumstances and the
factors in paragraph (g)(8)(ii) through (iv) of this section,
Employee A is a governmental ITG employee within the meaning of this
paragraph (g)(8). Employee A primarily performs services for Indian
tribal government B at a government building which is a governmental
location and Employee A is on the payroll of Indian tribal
government B. In addition, Employee A's assigned duties and
responsibilities are primarily to provide government oversight
services for Indian tribal government B.
Example 2. (i) Facts. Employee C is a police officer providing
services for Indian tribal government D. Employee C's job location
is the tribal police station located in a government building on
tribal lands. The assigned duties and responsibilities of Employee C
indicate that Employee C is expected to maintain public order,
detect crime, and apprehend offenders on tribal lands of Indian
tribal government D. Occasionally, while on patrol, Employee C must
go to the casino operated by Indian tribal government D to restore
order relating to a disturbance. Employee C's area of expertise is
in general law enforcement.
(ii) Conclusion. Based on the facts and circumstances and the
factors in paragraph (g)(8)(ii) through (iv) of this section,
Employee C is a governmental ITG employee within the meaning of this
paragraph (g)(8). Employee C primarily performs services for Indian
tribal government D at either a government building or while on
patrol, even though Employee C's patrol duties include providing law
enforcement services at the casino, which is a commercial activity
under paragraph (g)(7)(i)(B) of this section. In addition, the
assigned duties and responsibilities of Employee C, as well as
Employee C's area of expertise, relate to general law enforcement
and do not substantially relate to a commercial activity.
[FR Doc. 2011-28858 Filed 11-7-11; 8:45 am]
BILLING CODE 4830-01-P