Attorneys discuss a proposed Internal Revenue Service regulation that would address income earned from tribal members who exercise their fishing rights:
On November 15, 2013, the Internal Revenue Service published a notice of proposed rule making (NPRM) along with proposed regulations regarding the treatment of certain income derived from Indian fishing rights-related activity when it is contributed to a qualified retirement plan such as a 401(k) or other employer-sponsored pension plan. The notice can be viewed at https://www.federalregister.gov/articles/2013/11/15/2013-27331/treatment-of-income-from-indian-fishing-rights-related-activity-as-compensation. The proposed regulations clear one of the current hurdles to including employees of an Indian fishing rights operation in a typical employer-sponsored retirement plan, such as a 401(k) plan. Unlike most types of employee compensation, Indian fishing rights-related income is exempt from both income and employment taxes under Internal Revenue Code (IRC) Section 7873(a)(1) and (a)(2). Therefore, Indian fishing rights-related income is not included in a taxpayer’s gross income. The IRS has traditionally taken the position that in order to make a contribution to an individual retirement account (IRA) or a 401(k) plan, an individual must have “compensation” that is included in gross income. The proposed regulations clarify that payments received by Indian tribe members as remuneration for services they perform in fishing rights-related activities will not be excluded from the definition of “compensation” for purposes of IRC Section 415 and underlying regulations, merely because such payments are not subject to income or employment taxes. Consequently, the proposed regulations allow employees receiving such payments to participate in and contribute to a retirement plan qualified under IRC Section 401(a).
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Kathleen M. Nilles, Ariadna Alvarez and Robert B. Bersell: IRS Proposes New Rules On Indian Fishing Rights Income For Retirement Plans (Mondaq.com 11/20)
Username: firstname.lastname@example.org. Password: indianz Federal Register Notice:
Treatment of Income From Indian Fishing Rights-Related Activity as Compensation (November 15, 2013)