Promoters offering Tribal Tax Credits at up 40% discount

ARTICLE | December 18, 2024

Executive summary

Various promoters have offered to sell taxpayers “Tribal Tax Credits” under the Indian Self-Determination and Education Assistance Act at 60 cents on the dollar. The allure of saving 40% on cash tax payments is compelling. However, the promoters have not provided the legal mechanisms behind such credits to allow us to endorse the opportunity or even verify the program actually exists. Taxpayers should reach out to their advisors to discuss all the risks and concerns when approached by promoters of tax credits.

Several promoters have reached out taxpayers offering to sell them Native American Tax Credits (NATCs) at significant discounts. The NATCs are an instrument proposed by various financial promoters purported to reduce taxes paid by 40% with direct payments to the IRS from qualifying tribal entities by the US Treasury Department. However, the promoters have not provided a legal basis on the mechanics of the program or even been able to cite to the legal authority for the existence of the program.

The promoters of the NATC program provide to the taxpayer a sales contract with a registration number. Taxpayers are then provided with instructions that indicate that the taxpayer should claim the “tax credit” on Form 1040, schedule 3, Part I, line 6z or other nonrefundable credit. Some promoters even suggest that clients can get a refund of unused credits.

The promoters indicate that they are working with White River Energy Corp (White River) which was allegedly granted five billion in NATCs to sell to the public, with future opportunities to sell another $59 billion in NATCs. The supporting documentation and legal authority provided by the promoters either contain vague statements on the right for tribes for self-governance or cite to bills that were not passed into law. In White River’s Form 8-K dated April 29, 2024, they indicated that they have a legal opinion in support of the NATCs. The SEC filing goes on to state that “White River considers the contents of this legal opinion a trade secret and only plans to disclose it to selected prospective purchasers of material amounts of these Credits and certain other representatives under a mutually executed Non-Disclosure Agreement.” In addition, White River’s Form 10-Q dated Dec. 31, 2023, indicates that the company has a law firm also pursuing a private letter ruling with the IRS. To date, neither the private letter ruling, nor the tax opinion, have been provided to RSM US.

The main statutory support for NATC comes from the Indian Self-Determination and Education Assistance Act (“The Act”). The Act references to specific grants that may be given to applicable tribal governments out of funds appropriated by US Treasury Department. See 25 USC section 5322. However, the Act does not appear in the Internal Revenue Code. The Act also makes no mention of tax or tax credits. Instead, the Act allows the transfer of grants to tribal governments for the strengthening or improvement of tribal governments; the planning, training, and evaluation of other activities to enter into self-determination contracts (defined in 25 USC 5321); and the acquisition of land in connection with the previous items.

Promoters advertise that Native American Tribes may monetize federal income tax credits by having Treasury grant tax credits as a conveyance to raise capital for programs that benefit the tribe. However, there is no direct legal foundation for this mechanism in the Act, nor in the final rules implementing the Act. Additionally, promoters advertise a discount of 40 cents on the dollar for these investments, meaning one would only need to pay tribal governments 60% of the tax credit they would claim, realizing a 40% gain in this transaction. The presence of a 40% discount normally indicates a higher risk profile for these credits than other transferable federal income tax credits, such as energy credits under the Inflation Reduction Act or the Low-Income Housing Tax Credits which generally have a discount of 5-20%. Additionally, there are no regulations implementing the use of these credits, nor detailing procedures for claiming these credits. Calls with the US Treasury Department, IRS Office of Chief Counsel, and other divisions of the IRS cannot confirm the existence of the program or that NATCs exist at all.

Washington National Tax takeaways

Promoters have not provided the legal mechanisms behind NATCs to allow us to endorse the opportunity or even verify the program actually exists. Please consult your tax advisor if you are approached regarding the purchase of NATCs to discuss tax risks and concerns about investing in this opportunity.

This article was written by Christian Wood, Niven Hemraj and originally appeared on 2024-12-18. Reprinted with permission from RSM US LLP.
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