Tribal Bonds: Indian Sovereignty and the Tax Legislative Process

Abstract

In tax law, as elsewhere, the federal government has treated native Americans and their tribal governments ineffectively and inconsistently. Examining the treatment of Indian tribal government under the Internal Revenue Code through the early 1990's demonstrates again their unique position in our federal system. The saga of how these tax laws affected tribal governments, however, also illustrates in dramatic microcosm the relationship between ambiguous statutory language, administrative discretion, and legislative oversight.

This article begins by reviewing IRS rulings that preceded any legislative action. Part II explores the forces that produced the Tribal Tax Act of 1982 and analyzes the legislative benefits of a vague statutory standard in connection with a key provision of the legislation, that giving the tribes authority to issue tax-exempt bonds for "essential governmental functions." Part II describes the response of the IRS to this statutory provision. It explains the impact of the tribal governments on the regulatory process and the significance of such participation on administrative discretion. Part IV considers the bond offerings undertaken by the tribes, all but one of which were leveraged buy-outs involving off-reservation businesses, as well as congressional action to halt such offerings and the consequences of the legislative changes. The articles concludes by observing that however one evaluates the result in the tribal bond case, this series of events demonstrates the need for active oversight by members of Congress who wish both to prevent lenient regulations under broad statutory delegations and to avoid costly ex post action, such as passing new legislation.