Christie: Hi there. This is Christie Jacobs, the director of the Indian Tribal Governments Office the Internal Revenue Service. As many of you know, the IRS established the office of Indian Tribal Governments, ITG as we call it, to help Indian tribal governments comply with their federal tax obligations and to enable the IRS to better understand their specialized needs. The overall goal of the office is to work with Indian tribal governments, tribal associations, and other federal agencies to respectfully and cooperatively meet the needs of both the Indian tribal governments and the federal government and to simplify the tax administration process.

We recognize the importance of the historic level of settlement activity taking place in Indian Country at this time and we want to ensure that we communicate the information needed for individuals to address any tax issues the settlements may raise. With me is Telly Meier, an attorney, who is a tax law specialist in the ITG office. He will be walking us through several important settlements and explaining how to get any additional information you may need. I want to thank all of you for participating in this phone forum on Indian Tribal Trust Settlement and now I will turn it over to Kelly.

Telly: As Christie mentioned, my name is Telly Meier and I am a tax law specialist in the IRS office of Indian Tribal Governments. Let me also welcome each of you to the Indian tribal settlements phone forum. Today's presentation will focus on three types of settlements, some which you may be receiving payments. The Cobell settlement, the settlements covered in Notice 2013-1, which I will refer to as the type of trust settlements and the Keepseagle settlement. We are not taking live questions today but have been receiving questions for the past few weeks and we'll answer the ones that we've received.

We're recording the sessions so if you want to listen to it in the future, you will receive an email link with the recording. Feel free to pull it up. Let's get started. Cobell; Cobell can be broken up into two classes of claims. The first class is known as the historical accounting class and the claims here are the federal government violated its trust duties by not providing a proper historical accounting as Individual Indian Money accounts or IIM accounts and other trust assets. To receive settlement funds based on historical accounting claims, you must satisfy the following requirements.

You must have been alive on September 30, 2009, had an open IIM account anytime between October 25, 1994 and September 30, 2009 and had at least one cash transaction that was not later reversed. The individuals who are eligible to receive payments, and there are over 300,000, will each receive $1000. The payments began the week of December 17, 2012. According to www.indiantrust.com, a website that contains lots of information about the Cobell settlement, the website states that over 88% of the payments have been distributed. You may have already received these funds. As I mentioned, Cobell involves two classes of claims. I just talked about the historical accounting class. The second class is what's known as the trust administration class. The claims involved here, and there are two of them. First that the federal government violated its trust duties and mismanaged individual Indian trust funds and the second one that the federal government violated its trust responsibilities for management of land, oil, natural gas, timber, grazing, and other resources. Now there are a couple different ways of being eligible for the trust administration class. The first way to be an individual Indian beneficiary and then the second thing is to have proof of an eligible IIM account. That's the first way.

The second way of being eligible is to be an individual Indian beneficiary and have proof of ownership of qualified land in trust or restricted status and have proof you own that land on September 30, 2009. There are multiple deadlines for submitting documents to be part of the trust administration class. If you believe you are eligible and would like more information, I urge you to go to www.indiantrust.com. I'll repeat that again; www.indiantrust.com. It might not answer all your questions but I think it's a good place to start and get general information. As for the timing of the distributions, according to the website that I just mentioned, the soonest that claims will be payments will be made on these claims is the fall of 2013.

According to indiantrust.com, each person should receive around $800. Now we've got this historical accounting class where claimants will receive $1000 and the trust administration class where successful claimants will receive $800. What about the taxes? The Cobell settlement contained language addressing this issue. The settlement provides that payments received by an individual are not included in gross income which means the money is exempt from federal income taxation. Further, the settlement goes on to say that for purposes of determining initial eligibility, ongoing eligibility, or level of benefits under any federal or federal assisted program, those amounts received from the settlement will not be treated as income or as accountable resource.

For example, the Social Security Administration provides on its website that payments received from the historical accounting class will not be used when determining eligibility for supplemental security income or SSI. It also provides the payments received from the trust administration class will not be counted for one year from the date of receipt. An example, if a payment is received from the trust administration on October 5, 2013, the money would be excluded from November of 2013 until October 2014. However, the money would be countable as a resource in November of 2014. Now we've covered the historical accounting class, the trust administration class.

There is a third way an individual may receive money under the Cobell settlement. The settlement provides that the federal government will be buying back fractionated land or parcels of land that have many, sometimes hundreds of owners. The payments received from fractionated land will also be exempt from federal income taxation. However, this is because of an IRS ruling, Revenue Ruling 57-407. Like the trust administrative class, payments under the fractionated land, those payments the social security administration will treat them as not counting for one year.

They'll be exempt from the time of payment for the first year. Using the example I just used, if you receive a payment for fractionated land on October 5, 2013, the money would be excluded from November 2013 to October of 2014 but will be countable as a resource in November of 2014.

Christie: Let me see if I understand what you're saying about Cobell. If an individual gets a settlement amount under Cobell, that money does not have to be reported on the tax return, is that right?

Telly: That's correct.

Christie: If DOI buys back an individual's fractionated land interest, the money they receive for that land is not something they need to report on their tax return either?

Telly: Right.

Christie: This is all good news. Individuals do not need to worry about any federal taxes on Cobell payments, right?

Telly: That is correct.

Christie: Let's move on to the tribal trust cases.

Telly: the tribal trust settlements. Many tribes have sued the Department of Interior and the Department of Treasury claiming mismanagement of trust account land and natural resources. There are still some cases going on but at this time, 68 cases have been settled. After most of these settlements have been reached, we the IRS, learn that tribes were planning on making payments to tribal members from settlement proceeds. In other words, tribal members were going to receive a portion of the settlement proceeds to per capita payments.

This might be a good place to take a step back and compare Cobell and the tribal trust settlements. They're similar in that both involve claims and mismanagement or trust assets, but there are two crucial differences. First, Cobell was one lawsuit brought by individuals. The tribal trust settlements, on the other hand, were multiple lawsuits brought by tribes. Second, the Cobell settlement contained language concerning the tax ramifications of receiving part of the settlement, specifically that trust payments were excluded from federal income taxation. The tribal trust settlements, however, contain no such language. Naturally, there are questions about the tax consequences of these payments that were going to be made to tribal members. We issued a notice that concluded payments made to tribal members from the settlement proceeds were excluded from federal income taxation. The notice applied only to the settlements entered into what the tribes listed in the appendix of the notice. This is Notice 2013-1.

At the time of the initial notice, 55 tribes had settled their cases and were listed in the appendix. However, cases have continued to settle. As I mentioned earlier, there are now 68 settlements. As we learn of new settlements, we update the appendix. The last update listed 66 tribes. That update was published on June 10 in Internal Revenue Bulletin 2013-24. We also provide updated information on our website at www.irs.gov/tribes. I'll repeat that; www.irs.gov/tribes. Look for the following link. Per capita payments from certain tribal trust settlement proceeds excluded from income. I'll repeat that; per capita payments from certain tribal trust settlement proceeds excluded from income.

As I noted, there are 68 and only 66 have been accounted for in the last updated publication. There are two more that have come in since then. If you part of the Miami Tribe of Oklahoma or the Yakima Nation, you will be included in the next update. We received some general questions about whether tribal member payments from these settlement proceeds will be taken into account for social security purposes. The Social Security Administration has provided that determining eligibility for supplemental security income, or SSI, and Medicare part D extra help will not be taken account. Funds paid out according to the tribal trust settlement will not be taken into account for either SSI or Medicare part D extra help. However, this exclusion is limited.

The exclusion is limited to initial purchases made with the funds. For instance, if you receive funds from a settlement proceed and buy an item, whatever that item might be, that initial, either the funds or that initial purchase will be excluded. However, if you sell that item and you keep the fund or use it to purchase some other item, those funds or that later purchase will be counted for eligibility purposes. The Social Security Administration has published all this information on its website. If you need any help finding those pages, we'd be happy to help. Our address, tege.itg.askus@irs.gov. I'll repeat that; tege.itg.askus@irs.gov.

Christie: Once again, let's be sure I understand. If a tribe listed in the IRS notice is having one of the recent tribal trust settlements and that tribe decides to distribute some of the settlement funds per capita to tribal members, those payments do not need to be reported on the tribal members' tax return, correct?

Telly: That is correct.

Christie: Again, this is good news.

Telly: This is great news.

Christie: Let's move on then to the Keepseagle settlement.

Telly: Keepseagle was a lawsuit claiming that the United States Department of Agriculture or the USDA denied thousands of Indian farmers and ranchers the same opportunities to get farm loans that were provided to other farmers and ranchers. In addition, the lawsuit claimed that the USDA lacked sufficient outreach to provide Indian farmers and ranchers with the technical assistance needed to prepare applications for loans and loan servicing which negatively affected those operations. Who is eligible to make a claim under Keepseagle? Individuals seeking eligibility need to meet the following requirements:

Have farmed or ranched or attempted to do so between January 1, 1984 and November 24, 1999, sought or attempted to seek a farm loan from the USDA during that period, and complained about discrimination to the USDA either orally or in writing on their own or through a representative such as a tribal government during that January 1, 1984 to November 24, 1999 time period. I should note that I believe that the deadline for filing claims has already passed. I believe it passed December 27, 2011. Many of you probably already know if you are in this class are not eligible for a settlement. For these purposes [inaudible 00:15:27] farm loans will mean operating loans or emergency loans including economic emergency loans and farm ownership loans.

Keepseagle has two settlement options. You either can file under Track A or Track B. I think it's worth pointing out right here that Keepseagle is very different from Cobell and the tribal trust settlements. The payments under Keepseagle are taxable, but it's not quite that simple and not all is lost. Let's go through each option and discuss how they'll be handled. Starting with Track A, those filing under Track A can receive a payment up to $50,000. In addition, those filing under Track A can have or will have an amount equal to 25% of their award paid directly to the IRS on their behalf to offset the taxes due.

For example, an individual makes a claim under Track A and receives $50,000. That person would also have 25% of that $50,000 or 12,500 paid on his or her behalf to the IRS to offset the taxes due on that $50,000 payment. In all, they're actually receiving a $62,500 benefit. That's Track A. Moving to Track B. Track B provides the potential payment of up to $250,000. However, successful individuals are not, and let me repeat that, are not eligible for the 25% tax offset payment. If an individual makes a claim under Track B and receives a $250,000 payment, there will be no tax offset payment. They will have to account for the taxes wholly on their own. I think it's worth noting that they may have to file estimated tax returns. If you received your payment during the year, don't wait until April 15 of the following year to account for the taxes. Talk to your tax professional and see if you need to file estimated tax returns during the year. Now we've reviewed Track A and Track B.

Those successfully found under either Track A or Track B can also take advantage of the debt forgiveness program. Keepseagle provides up to $80 million in debt forgiveness. Generally under tax law, when a debt is forgiven, the amount of debt forgiven is taxable income to the person. To use me as an example, if I owe the bank $80,000 and the bank decides to forgive my debt, that $80,000 will be taxable income. The general rule is followed here, but it's not all bad news. The good news is that like Track A, individuals receiving debt forgiveness will have an amount equal to 25% of the amount forgiven paid into the IRS on their behalf to reduce the income taxes owed.

An example, if an individual had an $80,000 debt forgiven, $20,000 or 25% of that $80,000 will be paid to the IRS on their behalf to reduce the taxes owed.

Christie: This seems a little more complicated. Under Keepseagle, all the settlement payments are taxable, right?

Telly: That's right.

Christie: For some of those payments, a deposit is made to the individual's account at the IRS to offset the taxes owed. If an individual gets a settlement under Track A or if they qualify for the debt forgiveness piece of the settlement, a payment is made toward offsetting their taxes, right?

Telly: That's right.

Christie: If they get a settlement under Track B, there is no payment to help offset the taxes and those people might have to make estimated payments. Do I have this right?

Telly: Yes, spot on.

Christie: One other question is do they have to do anything to get the funds deposited toward their tax account?

Telly: No. The payment administrators will take care of that.

Christie: Great. I think now maybe we could start answering some of the questions we've been receiving.

Telly: That's right. As I mentioned, we are not taking live questions but I do urge you to feel free to send in any questions you may have after or during this program. Our email address tege.itg.askus@irs.gov. I think we've received five questions to this point. The first question: Does Keepseagle count as income or a resource for social security purposes? We have not seen anything published by the Social Security Administration regarding Keepseagle. I encourage you all to follow up with Social Security Administration if you're interested.

Second question: How do I know if my tribe is included in the tribal trust settlement? Our notice, 2013-1, has an appendix listing the tribes who have settled trust mismanagement cases with the United States. This appendix is updated periodically. As I mentioned the most recent one earlier this month and that you can find it on our website at www.irs.gov/tribes and I can give you that link again, Per Capita Payments for Certain Tribal Trust Settlement Proceeds Excluded from Income. The most recent appendix lists 66 tribes. I mentioned there are two more but look to that appendix, that list, to see if your tribe is on the list. That's how you would find out if your tribe has settled a case.

Third question: Have payments been made in Keepseagle or the tribal trust settlement? In Keepseagle, I believe the payments at the end of 2012 and are ongoing.

As for the tribal trust settlement, those proceeds are generally paid to the tribe. Then, the tribe decides whether and when to make payments to the tribal members. We know some tribes have indeed made payments to their tribal members while others have not. If you know that your tribe is one of the tribes that has settled a case, I would urge you if you haven't received a payment. I'd urge you to check with your tribal leadership.

Fourth question: If I received a Keepseagle settlement payment, do I have to file a tax return? It's a good question. As discussed, individuals receiving a settlement payment under Track A or loan forgiveness will have a 25% tax offset penalty made on their behalf to the IRS.

However, you still need to file a tax return. You may owe more or be eligible for a refund depending on your particular circumstances. I also just want to note that if you're in Track B, the taxes are not paid on your behalf. Again, you may have estimated tax payments due so talk to your tax professional.

Our last question: Will I receive a form 1099? I think we've answered this but we'll go over it one more time. For the Cobell and tribal trust settlements, those are excludable from income tax. You shouldn't be receiving a form 1099. If you do, it is likely in error and feel free to reach out to us for further clarification. For Keepseagle, however, you will receive a form 1099 and if you're in track A or loan forgiveness, the amount you receive in benefits, it will be indicated in box three. That will be the taxable income, either the proceeds under track A or the amount forgiven under loan forgiveness. The amount paid on your behalf will be indicated in box four. I think that's the end of our questions.

Christie: We hope this has been helpful and we would be happy to continue to answer any questions you have and would like to hear your comments also on whether this type of communication, meaning a phone forum, is helpful. For both questions and comments please email us at tege.itg.askus@irs.gov. Also our website is www.irs.gov/tribes. Thank you again for taking the time to attend our phone forum and have a great day.