tribalfinance.org

Senators Smith and Baucus sponsor a bill in the senate to remove the "essential government function test for financing tribal debt. Clarkson reconciles the audit figures dispute by explaining that the IRS definition of a "bond" differs and is more broad than the financial sector's specific definition of a bond. Clarkson maintains that direct tribally issued bond indentures are 30 times more likely to be audited.

The IRS disputes Clarkson's figures regarding bond audit rates, while restating that the legal standard for funding tax-free bonds is different for tribes and municipalities.

Witnesses before the senate finance committee assert that the "essential government function" test for tribal governments to issue tax-free bonds amounts to racism. Senator Smith vows to fix the problem. Clarkson also introduces figures that the IRS disproporionately audits tribal bonds.

Yakama Indian Nation is informed by the IRS that their 1997 sawmill bond is taxable, a claim they dispute. Separately, the IRS disputes Clarkson's figure of a 40% audit rate for bonds, stating it is closer to 2-6%.

Legal experts from tribes, law firms, and law schools testify before a Senate subcommittee that the federal laws governing the taxation of tribes is unfair and harmful to economic development in Indian Country. The primary target of the criticism was the "essential government function" test and the IRS' implementation it - requiring tribes to prove their bonds serve an "essential government function" a proof of burden that is not applied to state or local governments that issue bonds.