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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
Witnesses at a July 10, 2012 IRS hearing asked the government to revise its anticipated proposed regulations to limit the classification of tribal government activities as commercial activities. This change would allow more tribal pension plans to be treated as governmental plans under Code Sec. 414(d) and ERISA.
Governmental plans are subject to fewer restrictions and requirements than retirement plans of nongovernmental employers ("private" pension plans). Governmental plans historically were defined as a plan of the federal government, a state or political subdivision of a state, or an agency or instrumentality of a government. The Pension Protection Act of 2006 (P.L. 109-280) amended Code Sec. 414(d) to include certain plans of Indian tribal governments (ITG) and related entities.
However, the amended law requires that all of the plan participants perform all of their services in "essential government functions…but not in the performance of commercial activities (whether or not an essential government function)." The advance proposed regulations use the broader concept of "governmental activity," instead of "essential government function." However, the regulations would follow the views of the Joint Committee on Taxation, which deem certain activities to be inherently commercial, including hotels, casinos, service stations, convenience stores and marinas.
The witnesses at the hearing objected that these "deemed commercial" activities are performed by many states and are treated as governmental activities of those states. These activities are linked to generating "resources" (revenues) for tribal governments and promoting tribal self-sufficiency, testified Brian Gabbard on behalf of the Chickasaw Nation of Oklahoma. The revenues allow tribal governments to provide services to their members, including health, education, police, employment and social welfare programs. To define these tribal activities as commercial would erode tribal sovereignty and would treat tribes as private businesses, Gabbard said.
Gabbard cited reasons of parity, policy and precedent for his position. Parity would put tribal activities on a par with state and local governments, which own and operate hotels, lotteries, convention centers and golf courses, among other things, without the loss of government status. States and tribes are both earning resources for government operations; the tribes are performing these activities for the same reason as the states.
Moreover, the proposed regulations do not reflect federal policy toward tribes. The federal government is a trustee of the tribes and is supposed to promote their well-being, including economic health and self-determination, according to Gabbard. Classifying an activity as commercial limits tribal resources and is contrary to this policy. Gabbard also cited Supreme Court decisions as precedent for supporting the tribe’s interpretation. The Court has found that laws should be construed in favor of Indian tribes.
As an alternative, Gabbard proposed a facts-and-circumstances test with maximum flexibility. The regulations should consider whether the money earned by the activity inures to private parties (and is taxed by the federal government), in contrast to funds earned by a tribe.
The government panel asked about the difference between essential government functions and commercial functions. Gabbard said that all "resource activity" that inures to the tribal government should be seen as a function of government. Pamela Kinard of the Associate Chief Counsel (Tax Exempt and Government Entities) asked about the statute’s parenthetical, which seems to treat certain activities as commercial, even if they are essential government activities. Gabbard replied that the statute is vague, that there was no debate about this provision, that the regulations do not represent the statute or congressional intent, and that the same activities are performed by states.
Michael Willis, representing the Inter-Tribal Tax Initiative, agreed that the final regulations must maximize parity between states and tribes. He said the tribes recognize that the statute is flawed, but would like the regulations to go further. The regulations should consider whether the activity is generating revenue for the tribal government, which he said is essential to tribal government.
Willis also proposed a facts-and-circumstances test that would limit commercial activity to private gain. The government should provide interim relief and apply a good-faith standard to tribal activities. He added that it was difficult to square the treatment of government activities as commercial functions; these are usually not distinguished, and the parenthetical phrase in the statute is difficult to decipher. He stressed that revenue generation is an essential government function and that it should not be necessary to identify activities that meet that test.
Source: July 10, 2012 IRS hearing.
For more information, visit http://www.wolterskluwerlb.com/rbcs.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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