IRS tax attorney Telly Meier breaks down the tax requirements for participants in Cobell vs. Salazar, most tribal trust settlement suits and Keepseagle vs. Vilsack.
WASHINGTON – In an effort to clear up lingering tax questions over federal settlement payments, the Internal Revenue Service hosted a conference call Wednesday afternoon.
“We understand the unprecedented settlement activity in Indian Country,” said Christie Jacobs, director of the IRS’ Office of Indian Tribal Governments. “This will hopefully clarify the tax obligations.”
Within an hour, IRS tax attorney Telly Meier broke down the tax requirements for participants in Cobell vs. Salazar, most tribal trust settlement suits and Keepseagle vs. Vilsack.
Payments began going out last year in the landmark Cobell case, with another round of checks tentatively slated to go out this fall for trust administration class participants. Recipients will not have to account for the checks on their federal income tax returns.
“The settlement provides that payments received are non-taxable income,” Meier said. “Those funds are exempt from federal taxation. They will not be treated as income or a…resource. They will not be used to determine eligibility for additional benefits.”
Participants in the Cobell settlement’s fractionated land buyback program will not be taxed on their payments for one year.
Per capita payments from 68 tribal trust settlements is considered non-taxable income and does not impact participants’ eligibility for Medicaid or Supplemental Security Income benefits. Since it is non-taxable income, recipients would not receive a 1099 form for tribal trust settlement payments.
Oklahoma tribes included in the settlement list are the Eastern Shawnee Tribe of Oklahoma, Miami Tribe, Otoe-Missouria Tribe, Pawnee Nation and Seminole Nation of Oklahoma. A full list is available through the IRS’ tribal portal at www.irs.gov/tribal.
The tax-free status does not extend to all class action participants, however.
“Keepseagle is very different from Cobell and tribal trust settlements,” Meier said. “Those payments are taxable.”
The class action suit against the U.S. Department of Agriculture divided its claimants into two tracks. Track A participants were able to receive up to $50,000, including a 25 percent direct payment to the IRS to offset the applicable taxes.
Track B participants could receive up to $250,000. However, Track B participants are not eligible for an offset payment to the IRS, making them squarely responsible come tax time.
Additionally, the settlement provided $80 million for loan forgiveness programs. Meier said claimants who receive a portion of those funds will partially be on the hook for the applicable taxes.
“Generally, when a debt is forgiven, it’s taxable income,” he said. “That general rule is followed here, but like Track A, people getting debt forgiveness will automatically have a 25 percent payment sent to IRS on their behalf.”
To date, the Social Security Administration has not published anything on whether Keepseagle payments will impact a recipient’s eligibility for Medicaid or Supplemental Security Income benefits.
