Indian Tax Credit

Underutilization of Indian Employment Tax Credit in Oklahoma

Jackson, Fox & Richardson PC has found through experience that the Federal Indian Employment Tax Credit is under-utilized in Oklahoma. Many firms understand and use the Indian land depreciation tables, but the credits offer immediate cash flow benefit to most Oklahoma employers in addition to any State credits taken.

For every employee who is a Native American, or the spouse of a Native American, you, the employer, are entitled to claim a federal tax credit of 20% of the first $20,000 of wages and medical insurance expense. This means you have a tax credit of up to $4,000 per employee per year. In our experience, approximately 22% of the Tulsa area workforce are Native American or the spouse of a Native American.

The law, part of the Omnibus Budget Reconciliation Act of 1993, allows the credit from January 1, 1994 to December 31, 2007. In addition, you may go back and file amended returns for at least three years. If the credits are unused, they carry forward for 15 years.

Jackson, Fox & Richardson PC has been in the forefront of helping employers maximize the credits. We found that by interviewing the employees we were able to find additional qualifying tribal members. Also, by using trained genealogists on our staff, we provide direct support to enable employees to be in touch with their Native American heritage. These team members have been responsible for maintaining tribal membership rolls thus giving them unique qualifications to insure the maximum credit available to you under the law.

Our firm has led the way in research on this issue and been heavily involved in the legislative process that has reaffirmed and clarified the issues in the Tax Relief Act of 1997. We are qualified to provide your company the service and consultation necessary for your Oklahoma operation.

Located in Ardmore, Oklahoma, the historic center of a Native American population, Jackson& Fox is uniquely qualified to provide this interview and research service to you. We offer our services contingent on the number of qualified employees we identify in your work force. This means that no fee is incurred unless your company receives a credit to be used on your return.

Indian Employment Tax Credit:

IRC Section 45A Update

Prepared by Fox & Richardson PC

Certified Public Accountants

Ardmore, Oklahoma

To further inform you regarding the tax incentives, and especially the Indian Employment Tax Credits, consider the following:


1. Legislative Update:
In 1991, the Honorable Peterson Zah of the Navaho Tribe, wrote to Sen. John McCain and explained the plight of so many of the Native Americans: unemployment or underemployment, and lack of business opportunities in and around reservations. With unemployment on reservations is between 150 and 300 percent of the national average, Sen. McCain responded by offering the McCain-Inouye amendment into H.R. 11 – Indian Employment and Investment Act of 1992. Though passed by both the House and the Senate, President Bush vetoed this legislation.

The Omnibus Reconciliation Act of 1993 revived the benefits and included IRS Code Section 168(j) providing accelerated lives for assets placed in service on Indian reservations and an Indian Employment Tax Credit. It amended IRC Section 38 to make reference to a new section, 45(a), which allows a 20% credit for qualified wages and health insurance cost paid to a Native American employee, or an employee who is the spouse of a Native American. The 20% credit applies for wages up to $20,000 paid employees earning less than $30,000 for 2000 and earlier; $35,000 for 2001; $40,000 for 2002 and 2003; $41,000 for 2004; $42,000 for 2005. It is in effect from 1994 to 2015.

In 1997, H.R.2014 and Taxpayer Relief Act of 1997 were enacted. Because the magnitude of potential benefits created concern within the IRS, the agency demanded to know the clear intent of Congress as concerned how much Oklahoma was to benefit. Sec. 1604 of the Act clarified the definition of “Reservation”.

It stated: For purposes of the preceding sentence, such section 3(d) shall be applied by treating the term `former Indian reservations in Oklahoma’ as including only lands which are within the jurisdictional area of an Oklahoma Indian tribe (as determined by the Secretary of the Interior) and are recognized by such Secretary as eligible for trust land status under 25 CFR Part 151 (as in effect on the date of the enactment of this sentence).

This settled the legislative issue and provided that those former reservations of Oklahoma, approximately two-thirds of the state, were areas where employers could benefit from the provisions of the act. It is also important to note that this legislation applies to all 544 federally recognized tribes in over thirty states, not just Oklahoma tribes. However, because of the unique status of the tribes in Oklahoma, it has much more benefit here.

2. IRS Update:
Even with the clarifying legislation, the IRS refused to act. It waited, demanding a statement from the Department of the Interior, Bureau of Indian Affairs that clarified the former tribal boundaries. That formal document came from the Interior’s Assistant Chief Counsel in a memo dated March 20, 1998. The memo reiterated that “Indian reservations” include the former Indian reservations of Oklahoma but agreed that the areas in the central part of the state are excluded.

Finally, in a news release dated August 13, 1998, the IRS conceded the position regarding the former reservations and issued a map of areas wherein the benefits of the legislation may be claimed.

The IRS concedes that all assets placed in service in the qualifying areas of Oklahoma are entitled to the rapid write-off through depreciation. There is no longer a depreciation issue.

However, the IRS did not concede on the question of the employment tax credits: it attacked the question of who is a qualifying employee. The agency demanded that employees or spouses not only be Native Americans, but also have official membership status with the tribe. (Not all Native Americans are officially members of their respective tribes.)

The IRS has been refunding money for claims where documentation for the tribal members is complete.

3. Determination of Tribal Status:
The only issue now before the IRS is tribal status. Employers should feel free to claim all credits available. However, only personal interviews with employees reveal the full extent of enrollment. These interviews determine tribal status of the employee or the employee’s spouse.

Of course, we conduct those interviews for employers on a consulting basis. Using trained genealogists familiar with tribal issues, we help employees understand the benefits to them of their membership. If they are not members, we have the forms to help them become members. If they need help proving tribal status, our genealogists are prepared to help the employees seek out their ancestry and become enrolled tribal members.

4. Benefits of Claiming the Credits:

a. Employees’ Benefits:
Being an enrolled tribal member has many potential opportunities for the employee. While all tribes are different, we have seen the following benefits made available to members, depending on the rules of the individual tribe:

  • Health Care
  • Eyeglass Exams
  • Hearing Exams
  • Prescription Drugs
  • Housing Assistance
  • Local Cultural Activities
  • Utility Assistance
  • Educational Benefits
  • College Scholarships
  • Job Opportunities
  • Senior Citizen Assistance
  • Additional Federal Support for Schools
  • Burial Assistance

While not every tribe provides all of the above to all members, it is important to remember that once tribal affiliation is established, not only the employee benefits, but all the family members of the associate can connect to the tribes and enroll.

b. Tribal Benefits:
The tribes also benefit from this legislation and the resulting follow-up and survey of the workforce. Because many Native Americans are not formally enrolled in the their respective tribes, our efforts lead to increased enrollment. This qualifies the tribe for additional federal support dollars for JTPA programs, medical assistance, and other funding programs.

Increased enrollment creates a greater presence in the local communities and opens participation and representation in the communities and in the tribes.

c. Employer Benefits:
Employers benefit because employees see this as additional company support of their respective cultures. Employees often obtain better benefits than those that the company offers thus reducing the cost of providing benefits.

in addition, the employer receives a tax credit of 20% of the first $20,000 of qualifying wages and medical benefits of qualifying employees (up to $4,000 per year for the years from 1994-2015).
We feel these tax incentives available for the former Indian reservations of Oklahoma represent an opportunity to bring a group of underemployed and unemployed workers into the economic mainstream, which is the intent of the legislation. Congress, by such legislation, encouraged employers to locate facilities on or near Native American lands and to hire associates from the tribes.

We have been successful in meeting the IRS challenges and feel our work product stands any scrutiny that may come. The result has been many thousands of dollars in refunds for our clients.

However, time is important and the laws will expire. We urge you to consider immediate, decisive, corporate action to benefit the employees, the tribes and employers.