IRS Section 7871 Tribal Nonprofit Organizations

HISTORY & LEGAL STATUS OF 7871 ORGANIZATIONS
In 1982, Congress passed the Indian Tribal Governmental Tax Status Act, codified as Section 7871 of the Internal Revenue Code, treating Tribal Governments as State governments for a variety of specified tax purposes. One of these purposes was to allow Tribal Governments (and their political subdivisions) to receive tax-deductible donations.

IRS SECTION 7871 DEFINED
Generally, private foundations and public charities fall under section 501(c)(3) of the Internal Revenue Code. For tribal governments, however, the Indian Tribal Governmental Tax Status Act of 1982 is recognized as an appropriate legal, political and economic means for Indian nations to establish, regulate and control philanthropic activities within their communities. This act, codified as the Internal Revenue Code (IRC), §7871, treats tribal governments as state governments, allowing tribal governments, their political subdivisions, or any tribal governmental fund, to receive tax-deductible donations.

WHY ESTABLISH A 7871?
Establishing tax-exempt tribal governmental organizations under IRC §7871, allows tribes to maintain a greater degree of sovereignty than they would under the more ubiquitous 501(c)(3) designation. Even the United States Supreme Court has held that Indian nations possess a status higher than states. Thus, the more traditional 501(c)(3) designation unfairly subjects Indian nations (and their political subdivisions) to the oversight of state Attorney Generals' offices, where jurisdiction over “expressly public and charitable purposes” is generally housed.

DONATIONS TO 7871s ARE TAX DEDUCTIBLE UNDER THE LAW
7871 offers many of the same tax benefits for donors as 501(c)(3) nonprofits, for practical tax purposes, meaning: All donations to a 7871 tribe or organization are tax deductible, and Foundations can make grants to such organizations. 7871 organizations establish their own accountability to their donors. The code specifically conditions deductibility on the gift being “for exclusively public purposes.”

 
7871 ACCOUNTABILITY
Reporting requirements are not imposed by the Federal Government. IRC 7871 assumes that tribes, their political subdivisions, and tribal colleges will provide fiscal accountability for charitable contributions, as they manage all finances. However, it is important to donors that their contributions are documented and that fiscal procedures are transparent. It is required practice for 501(c)(3) organizations to acknowledge each donation in writing, to report fiscal activities by submitting reports to the state and federal governments (i.e. 990 Forms) and to forbid any substantial part (i.e. greater than 5 percent) of the organization’s budget to contribute to lobbying activities (or any portion whatsoever to political contributions). Because donors are familiar with these requirements, they may be worth considering when creating a tribal restricted fund.

TO LEARN MORE ABOUT 7871s, CLICK ON THE RESOURCES BELOW.

Is Philanthropy Redlining Indian Country? An article co-written by Michael E. Roberts, President of First Nations, and Raymond Foxworth, Research & Program Officer for First Nations, about mainstream philanthropy's continued ignorance and opposition to supporting or learning about 7871 organizations.
 
What every tribe, corporation, foundation, and financial planner should know about charitable giving to tribes and tribal organizations. This pamphlet explains the nature of §7871 organizations and provides a printer-ready document for organizations to use.

IRS Letters sent to First Nations.This file contains two letters received from the IRS clarifying key questions related to the tax code treatment of tribal governments for philanthropic purposes. The first letter confirms that corporations created under tribal law can qualify for 501(c)(3) status. The second letter clarifies that grants made by private foundations to Indian tribal governments, and tribally created §7871 organizations, are “qualifying distributions” and not “taxable expenditures.” Therefore, donations to tribal governments and §7871 organizations are considered tax deductible.

7871 awareness: a two-way stream, Indian Giver, Winter/Spring 2001