formalized philanthropic structures signifies exclusion.”
by Raymond Foxworth and Michael E. Roberts
First Nations Development Institute
At a time when mainstream philanthropy is claiming to conduct outreach to demonstrate their diversity, some of its policies do not allow legally-recognized Native American nonprofits in the front door. Unfortunately, private philanthropy continues to send mixed messages to Indian Country: asking for partnerships with tribal governments, yet employing technology and/or requirements that exclude them.
Mainstream philanthropy has been slow in its willingness to learn about the legal tax status of tribal nonprofit organizations and their critical role in revitalizing civil society in Native communities. By refusing to work with §7871 organizations, philanthropy is essentially asking Indian nations to abdicate their inherent right to tribal sovereignty in return for what has historically been paltry funding support for Indian programs. Indian nations understand that the omission of §7871 organizations from formalized philanthropic structures signifies exclusion.
This perceived “red-lining” by private and corporate giving programs comes at a precarious time for the philanthropic sector. Case in point, the House Ways and Means Oversight Subcommittee Chairman, John Lewis (D-GA), held a hearing in September 2007 to review whether tax-exempt charitable organizations are serving the needs of diverse communities. Similarity, state assemblies and regulators are also more actively examining and scrutinizing philanthropy. For example, in February 2007,
The philanthropic sector, seemingly mesmerized by the unfounded and erroneous myth that Indian gaming has made tribes rich, is now falling in-line with state governments in championing the absurd and unrealistic expectation that Indian tribes should become “partners” in philanthropy and bear the majority of the responsibility for charitable giving to Native America. The very idea that Indian nations should become “partners” in funding philanthropy is ironic given that, with few exceptions, the inherent rights to American Indian sovereignty and self-governance (even those rights spelled out in generally accepted IRS nonprofit codes) have been largely ignored by philanthropic organizations.
Those familiar with mainstream philanthropy understand that 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.
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
While many individuals and large private and corporate foundations would argue that having tribal organizations and programs incorporate under 501(c)(3) provides for methods of continuity within the giving community, Indian nations see the omission of IRC §7871 organizations from formalized philanthropic structures as a means for exclusion. Further, the unwillingness of mainstream philanthropy, and other businesses, to acknowledge the legitimacy of Indian nations within larger American society continues to hamper the ability of organizations to forge lasting relationships and partnerships with Indian constituencies.
A common misconception about tribal IRC §7871 programs and organizations is that they lack appropriate structures to ensure oversight and accountability. The truth is much to the contrary –§7871 status allows Indian nations to regulate and control philanthropic activities on their reservations, and on their own terms. In other words, §7871 status provides a means for tribal nations to create culturally-appropriate structures for philanthropy on their reservations. Tribal oversight allows Indian nations to assert their sovereignty, without the encroachment of state powers while at the same time properly ensuring methods of tribal and federal oversight.
Moreover, other myths about §7871 organizations need also to be dispelled: in the eyes of the IRS, IRC §7871 organizations offer many of the same tax-exempt benefits as 501(c)(3) organizations; this means that all donations to an IRC §7871 organization are tax deductible; and philanthropic foundations and corporate giving programs can make grants and donations to such organizations, and these donations are considered to be for “expressly public and charitable purposes.”
The reality is that tribal programs and organizations established under the IRC §7871 have become important vehicles for community change, development and cultural preservation. Indian nations that have established programs and/or organizations under IRC §7871 recognize that this separate federal recognition acknowledges and protects their sovereign status, accurately recognizing them as domestic dependent nations. Unfortunately, in spite of these benefits, many tribal governments have opted out of classifying organizations and programs under the §7871. In large part, the reluctance to incorporate under §7871 is a direct result of the significant lack of understanding surrounding this status within mainstream business and philanthropy. This lack of understanding is thus directly responsible for creating a variety of structural and institutional barriers. These barriers in turn fail to fully respect and acknowledge the significance of Indian sovereignty and nationhood.
American Indian nations are defined as sovereign nations, or more accurately, “domestic dependent nations,” and an entire body of federal law and policy has recognized this unique political, economic and social status. Given this unique status, many layers of complexity are added when trying to understand and work with the Native American nonprofit sector. Because of their sovereign status, Indian nations may design, operate, and regulate their own charitable programs, drawing on a broad range of organizational structures, including §7871, that require little oversight from federal or state governmental agencies.
The Laguna Education Foundation, an organization created by the Laguna Pueblo Tribe, for example, was established in 1995 by the board of the Laguna Department of Education. The foundation initially operated under §7871; however, this status proved confusing to outside corporate, foundation and individual donors. As a result, in 1998, the foundation was forced to incorporate under IRS 501(c)(3). Unfortunately, the Laguna Education Foundation is not an isolated case. In large part because of ignorance on the part of many donors, and the restrictions written into the bylaws of many foundations that limit grantmaking to 501(c)(3) organizations, several Indian nations have opted to apply for 501(c)(3) status rather than §7871to improve their chances of receiving grants from outside donors.
Recognizing the sovereignty of Indian nations and their philanthropic programs is more than just social justice, it is good business. Private philanthropic and corporate giving programs can learn from their counterparts in the business community, specifically the financial service industry. Some financial service providers, like Bank of America, have created key positions and developed training materials to specifically address and provide services in Indian Country. While these actions have gone a long way in formulating collaboration and respect with tribal nations, Indian nations understand that many service providers are looking to preserve their own interests (financial and otherwise), rather than take significant steps to appropriately support the wholeness of Indian economic development through the acknowledgment and support of tribal sovereignty.
Conversely, there are also those corporations and foundations that have gone to great lengths to respect and acknowledge the sovereign status of Indian nations and promote Indian development. For instance, Washington Mutual has instituted policies that allow tribal §7871 organizations and programs to apply and receive grant funding. As a result, Washington Mutual has been able to effectively forge many lasting relationships with reservation-based community and economic development organizations. Similarly, the Native American Bank has effectively instituted measures to promote and protect tribal sovereignty, thus capitalizing Indian communities and doubling its profits while also increasing assets along the way. Indeed, the acknowledgement of Indian sovereignty has the potential to increase levels of trust and camaraderie, capitalizing on business ventures for all parties, Indian and non-Indian.
At First Nations Development Institute, we understand that good business and social justice go hand-in-hand. In 1998, First Nations released a landmark study titled, The Emerging Sector in Indian County, which in-part analyzed the size, scope and impact of the reservation-based nonprofit industry. In addition to noting that tribal nonprofits accounted for three percent of reservation employment (compared to six percent in the overall U.S. nonprofit sector), this report estimated that reservation-based nonprofit organizations accounted for over $178 million in reservation-based economic impact and development. Given that only .05 percent of mainstream philanthropic dollars go to “American Indian issues,” these statistics demonstrate that reservation-based nonprofit organizations are making significant inroads in promoting cultural and economic development and capitalizing community development though community building and empowerment. In addition, a recent research report by First Nations revealed that there are over 53 Native-controlled charitable grantmaking funds, and the majority of these are directly affiliated with tribal governments. Tribal governments are indeed giving back – and becoming active players in the charitable grantmaking sector.
Naturally, the experience of Indian nations guides and informs their senses when it comes to development activities on their homelands. It was during the mid-1800s, starting around the time Alexis de Tocqueville wrote, “Nothing, in my opinion, is more deserving of our attention than the intellectual and moral associations of America,” that most American Indians were being organized into a reservation system as a result of treaties and other agreements with the U.S. government. This system superimposed governmental and other structures on Native peoples, denying and sometimes destroying their traditional societal structures in the process. What resulted and continued over the next century was a centrally planned and controlled economy for Native peoples with the federal government at the head. It has only been within the past 30 years that Native tribes and peoples are breaking free of the federal government as their central planning authority.
As all of this demonstrates, much work remains to be done for non-Indian business and philanthropic providers to form cooperative and supporting relationships with Indian nations. As Indian nations continue to fight the exclusionary policies of the nonprofit and business sectors, tribes will surely continue to assert their sovereign authority by utilizing §7871 status for tribal organizations.
If the mainstream business and nonprofit sectors are seriously committed to forging relationships with Indian constituencies, creating economic opportunity and assisting Indian nations in reaching financial self-sufficiency to build economic vitality, the Indian nonprofit sector must be engaged and included in community development initiatives. Recognizing and acknowledging tribal §7871 status is a critical step in initiating this process. If, however, the business and philanthropic sectors of American society are unwilling to engage, acknowledge and support Indian sovereignty and nationhood, the opportunity for effectively engaging Indian constituencies and capitalizing Indian communities will be missed.
The potential danger of asking philanthropic and corporate giving programs to recognize IRC §7871 organizations as viable recipients of their charitable donations is this: By asking them to take a just few minutes to investigate the viability of this option, we might instead provide the convenient excuse du jour for busy foundation officers to continue the under-funding of Indian Country nonprofits.
For more information about American Indian Philanthropy, IRC §7871 or First Nations Development Institute, please visit our website at www.firstnations.org.
