SECTION 2. BACKGROUND

.01 Indian tribes and their members have requested guidance on determining the taxable years in which beneficiaries must include in gross income amounts transferred to, or earned by, an IGRA trust, and under what circumstances a tribe will be considered the grantor and owner of an IGRA trust.

.02 Under § 451 and §§ 1.451–1(a) and 1.451–2 of the Income Tax Regulations, a taxpayer using the cash receipts and disbursements method of accounting must include gains, profits, and income in gross income for the taxable year in which those items are actually or constructively received. In addition, under the economic benefit doctrine, a taxpayer using the cash receipts and disbursements method of accounting must include in gross income currently any financial or economic benefit derived from the absolute right to receive property in the future that has been irrevocably and unconditionally set aside for the taxpayer in a trust or fund. Sproull v. Commissioner, 16 T.C. 244 (1951), aff’d per curiam, 194 F.2d 541 (6 ^th Cir. 1952); Pulsifer v. Commissioner, 64 T.C. 245 (1975).

.03 Section 671 provides that, when specified under subpart E, part 1, subchapter J, chapter 1, subtitle A (subpart E) that a grantor or another person is treated as the owner of any portion of a trust, then the taxable income and credits of the grantor or other person includes the items of income, deductions, and credits of the trust attributable to that portion of the trust to the extent that these items are included in computing an individual’s taxable income or credits.

.04 IGRA provides rules regarding the conduct of class II and class III gaming on Indian lands within an Indian tribe’s jurisdiction and an Indian tribe’s use of revenues from that gaming. Under IGRA, an Indian tribe may use net revenues from any class II and class III gaming activities it conducts or licenses to make per capita payments to members of the Indian tribe only if: (1) the Indian tribe has prepared a plan to allocate revenues to authorized uses; (2) the Secretary of the Interior approves the plan as adequate; (3) the interests of minors and other legally incompetent persons who are entitled to receive any of the per capita payments are protected and preserved and the per capita payments are disbursed to the parents or legal guardians of the minors or legal incompetents in such amounts as may be necessary for the health, education, or welfare of the minors or other legally incompetent persons under a plan approved by the Secretary of the Interior and the governing body of the Indian tribe; and (4) the per capita payments are subject to federal taxation and the Indian tribe notifies members of that tax liability when payments are made. Section 11(b)(3) and (d)(1)(A) of IGRA, 25 U.S.C. § 2710(b)(3) and (d)(1)(A).