IRS Tax Rules and Native American Producers: One Size Does Not Fit All

Laser leveling field. (Photo by Edwin Remsberg)
Laser leveling field. (Photo by Edwin Remsberg)

Tax matters for American Indian/Alaska Native (AI/AN) farmers and ranchers have long been an issue. In recent years, however, they have surfaced as a bigger problem. The tax environment in Indian Country is underpinned by virtue of Indian lands belonging in the federal estate. The increased use of tax returns in the USDA program eligibility determination, the USDA’s targeting of a larger number of AI/AN participants, and the Internal Revenue Service’s increased use of Form 1099 have increased the complexities that can arise for an individual AI/AN producer.

There are many factors, such as income tax exemption and land ownership, that complicate federal income and self-employment taxes for AI/AN farmers and ranchers within Indian Country (defined by 18 United States Code [U.S.C.] 1151). However these factors extend beyond just tax issues by limiting tribal producers’ access to many of the common USDA programs. For example, the Risk Management Agency’s Adjusted Gross Revenue (AGR) and AGR-Lite programs require a federal income tax return (Schedule F) to participate, but if the AI/AN producer’s income was not subject to federal taxes, tax returns probably do not exist. Without a tax return, the producer cannot present a legally acceptable method of verifying income to qualify for the programs. Agricultural income verification through filing a Schedule F is also required for many of the other USDA agencies’ programs.

Determining precisely what income is or is not subject to taxes adds to the confusion about program eligibility and non-filing issues for AI/AN producers. In many cases, lands under the AI/AN producer’s control have different ownership, such as USDA-Bureau of Land Management, private/fee simple, or state. In these cases, income derived from the mix of lands will have different tax profiles. This complexity is exacerbated by not having adequate access to agricultural and tribal tax issues training for professional tax preparers working within Indian Country. In some of the more remote areas of reservations, very few options for professional tax preparation exist at all, let alone easy access to tax preparation training. There are a few exceptions. When the communities have access to either the Federally Recognized Tribal Extension Program (FRTEP) or the 1994 tribal institution with an active extension component, either can coordinate training for tribal agricultural producers or point them to other resources such as, a website created by extension specialists with information on agriculture tax issues. However, the FRTEP is limited in its geographic scope to less than 30 reservations, but it is affiliated with the 1862 land-grant colleges with their long-running Extension programs. As for the 32 1994 tribal colleges, not all of them have an active Extension component so, when possible, FRTEP agents work with tribal college personnel to deliver programs.

Clear IRS guidelines are lacking on how AI/AN producers can correctly address tax-reporting requirements, including determining what income is subject to income and SE taxes. A lack of clarity surrounding these issues combined with obscure federal tax rules for income from trust lands can place AI/AN agricultural producers at both legal and financial risk.

Read the rest of this article in the 2nd Quarter 2013 issue of Choices: The Magazine of Food, Farm, and Resource Issues. Trent Teegerstrom, specialist in our Department of Agricultural and Resource Economics, and Joseph G. Hiller, assistant dean emeritus in the College of Agriculture and Life Sciences, both contributed to this examination of tax issues and the contribution that Indian County Extension programs and FRTEP agents are making in coordinating tax preparation training for farmers and ranchers.

Date released: 
Oct 20 2013
Trent Teegerstrom