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Per Capita Payments from Settlement Proceeds are Not Taxable Income

September 7, 2012 | Posted by Seffernick, Aubrey | Print this page

The IRS issued Notice 2012-60 this week regarding settlement proceeds from litigation in which the tribes allege that the Department of the Interior and the Department of the Treasury mismanaged monetary assets and natural resources the United States holds in trust for the benefit of the tribes. The IRS guidance affirms that if those certain settlement proceeds are distributed in per capita payments to tribal members, the payments will be excluded from the tribal members' taxable income. Any interest later earned on the settlement proceeds invested in private banks, however, will be taxable.

The IRS notice confirms the position tribes have taken, stating:

Under 25 U.S.C. § 117b(a), per capita payments made from the proceeds of an agreement between the United States and an Indian tribe settling the tribes' claims that the United States mismanaged monetary assets and natural resources held in trust for the benefit of the tribe by the Secretary of the Interior are excluded from the gross income of the members of the tribe receiving the per capita payments.