rp-11-56.pdf

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Part III

Administrative, Procedural, and Miscellaneous

26 CFR 601.601: Rules and regulations.
(Also Part I, §§ 61, 451, 671; 1.61-1; 1.451-1; 1.671-1.)

Rev. Proc. 2011-56

SECTION 1. PURPOSE AND CHANGES
.01 Purpose.
(1) This revenue procedure clarifies, modifies, and supersedes Rev. Proc. 2003-
14, 2003-1 C.B. 319, which provides a safe harbor under which the Internal Revenue
Service treats an Indian tribe as the grantor and owner of a trust for the receipt of
gaming revenues under the Indian Gaming Regulatory Act (25 U.S.C. §§ 2701-2721)
(IGRA) for the benefit of minors or legal incompetents. Under the safe harbor,
beneficiaries of an IGRA trust are not required to include amounts in gross income
under the economic benefit doctrine when transferred to, or earned by, the IGRA trust,
but must include trust distributions in income when actually or constructively received.
(2) Rev. Proc. 2003-14 requested public comments. In response to those
comments, this revenue procedure revises sections 5.02(5), 5.02(6), 5.02(8)(a),
5.02(8)(b), and 5.02(8)(e) of Rev. Proc. 2003-14, and adds a new section 5.02(9).

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.02 Changes.
(1) Section 6 of Rev. Proc. 2003-14 added to Rev. Proc. 2003-3, 2003-1 C.B.
113, certain areas under § 451 and §§ 671-679 of the Internal Revenue Code in which
the Service will not issue ruling or determination letters concerning IGRA trusts.
Guidance superseding Rev. Proc. 2003-3 incorporates these no-rule areas. See
sections 4.01(34), 4.01(41), 5.08, and 5.10 of Rev. Proc. 2011-3, 2011-1 I.R.B. 111, and
its successors. Therefore, section 6 of Rev. Proc. 2003-14 is obsolete.
(2) Section 5.02(5) removes the references to federal and local trust law because
the validity of trusts is governed by state or tribal law.
(3) Section 5.02(6) clarifies that an IGRA trust must be an ordinary trust for
purposes of the federal tax laws.
(4) Section 5.02(8)(a) expressly allows a trust instrument to provide that the
distributions to or for the benefit of minors or legal incompetents at the discretion of the
trustee must comply with the requirements of 25 U.S.C. § 2710(b)(3) and 25 CFR §
290.12(b)(3).
(5) Section 5.02(8)(b) removes the term “contractual” because the rights created
under an IGRA trust instrument are not contractual.
(6) Section 5.02(8)(e) expands the class of persons who may receive a deceased
beneficiary’s share of the trust to include persons who receive property or interests
under the beneficiary’s will or trust, or in accordance with state or tribal intestacy law.
(7) Section 5.02(9) expressly allows a trust instrument to provide for trust
distributions at a specified age or ages or upon the occurrence or nonoccurrence of a

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specified event or events.
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

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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).
SECTION 3. SCOPE
This revenue procedure applies to Indian tribes, IGRA trusts, and beneficiaries of
IGRA trusts.
SECTION 4. DEFINITIONS
For purposes of this revenue procedure:
.01 Indian tribe. The term "Indian tribe" has the same meaning as in 25 U.S.C.
§ 2703(5).
.02 IGRA trust. An "IGRA trust" is a trust that an Indian tribe establishes under IGRA
to receive and invest per capita payments for its members who are minors or legal

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incompetents pending distribution of the trust assets to those members after they attain
the age of majority or cease to be legal incompetents.
.03 Minor and legal incompetent. The terms "minor" and "legal incompetent" have
the same meaning as in 25 CFR § 290.2 (relating to review of Indian tribal revenue
allocation plans adopted under IGRA).
.04 Per capita payment. The term "per capita payment" has the same meaning as in
25 CFR § 290.2, but does not include compensation for services.
SECTION 5. APPLICATION
.01 In general. For any period in which each of the requirements of section 5.02 of
this revenue procedure is met:
(1) The Service will treat an Indian tribe that establishes (or has established) an
IGRA trust as the grantor and owner of the trust under subpart E, and
(2) The Service will not require beneficiaries of an IGRA trust to include per capita
payments received by the trust, and any earnings on the per capita payments, in gross
income until the taxable year that the beneficiaries actually or constructively receive the
amounts under § 451 and the regulations thereunder.
.02 Requirements and Options for IGRA trusts.
(1) The Indian tribe has complied with the requirements of § 11(b)(3) of IGRA, 25
U.S.C. § 2710(b)(3), regarding the disbursement of per capita payments to members of
the Indian tribe.
(2) All contributions to the trust are per capita payments disbursed under a
revenue allocation plan that complies with the requirements of § 11(b)(3) of IGRA, 25
U.S.C. § 2710(b)(3).

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(3) Each trust beneficiary is a member of the Indian tribe that establishes the
trust.
(4) Each trust beneficiary is a minor or legal incompetent at the time of the
establishment of a trust interest for the beneficiary, and all contributions to the trust for
that beneficiary are made for the period that the beneficiary is a minor or legal
incompetent.
(5) The trust is a valid trust under applicable state or tribal law and all of the
material terms and provisions of the trust are enforceable under that law.
(6) The trust satisfies the definition of an ordinary trust in § 301.7701-4(a) of the
Procedure and Administration Regulations and the governing trust instrument states
that the trust is intended to be a grantor trust, that the Indian tribe is the grantor of the
trust (within the meaning of subpart E), and that the trust will be construed accordingly.
(7) The governing trust instrument grants to the Indian tribe a power, an interest,
or a combination thereof, described in §§ 673 through 677, that would cause the Indian
tribe to be treated as owner of the trust under subpart E.
(8) The governing trust instrument includes the following provisions.
(a) Trust assets are not available to or for the benefit of a beneficiary until the
beneficiary ceases to be a minor or legal incompetent, except for distributions for the
health, education, or welfare of the beneficiary made at the discretion of the trustee
pursuant to the governing trust instrument. The trust instrument may provide that these
discretionary distributions are made under a plan approved by the governing body of the
Indian tribe meeting the requirements of 25 CFR § 290.12(b)(3) (requiring criteria for

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distributions and a dispute resolution process).
(b) Beneficiaries have no preferred claim on, or any beneficial ownership
interest in, any assets of the trust; any rights created under the trust instrument are
mere unsecured rights of beneficiaries against the Indian tribe; and at all times during
the continuance of the trust, the principal and income of the trust are subject to claims of
general creditors of the Indian tribe under applicable federal, state, local, and tribal law.
(c) The trustee shall cease payments to or for the benefit of beneficiaries and
shall hold the assets of the trust for the benefit of the Indian tribe's general creditors
throughout any period during which the trustee believes or has reason to believe that
the Indian tribe is unable to pay its debts as they become due, or is subject to a pending
insolvency or bankruptcy proceeding.
(d) Amounts payable to or for the benefit of beneficiaries under the governing
trust instrument may not be anticipated, assigned (either at law or in equity), alienated,
pledged, encumbered or subjected to attachment, garnishment, levy, execution, or other
legal or equitable process.
(e) The beneficiary’s share will be paid to the Indian tribe if the beneficiary dies
while a minor, legal incompetent, or before the conditions for full distribution provided in
the governing trust instrument occur. However, the governing trust instrument may
provide that the beneficiary’s share may be paid pursuant to a valid will or trust of the
beneficiary, or to persons who may inherit from the beneficiary under applicable state or
tribal intestacy laws.
(9) The trust instrument may provide that after the beneficiary ceases to be a
minor or legal incompetent, the trust may make distributions to or for the benefit of the

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beneficiary at a specified age or ages or upon the occurrence or nonoccurrence of a
specified event or events.
SECTION 6. EFFECTIVE DATE
This revenue procedure is effective for IGRA trusts established or amended on or
after November 14, 2011. Taxpayers may apply this revenue procedure to IGRA trusts
established before November 14, 2011, for taxable years for which the period of
limitation on refund or credit under § 6511 has not expired.
SECTION 7. TRANSITION RELIEF
The Service will not treat as a taxable event under § 1001 a modification or
amendment of an IGRA trust made to come within this revenue procedure.
SECTION 8. EFFECT ON OTHER DOCUMENTS
Rev. Proc. 2003-14 is clarified, modified, and superseded.
DRAFTING INFORMATION
The principal author of this revenue procedure is Christina Glendening of the Office
of the Associate Chief Counsel (Income Tax and Accounting). For further information
regarding this revenue procedure, contact Ms. Glendening at (202) 622-4920 (not a toll-
free call).