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Hobbs Straus successfully defended a former casino workers’ suit against a Tribe in a Tenth Circuit case finding absence of federal jurisdiction over non-Indian contract and tort disputes arising in Indian country. (2009)

General Memorandum 11-130

General Memorandum 11-130
IRS Provides for Second Issuance Extension of Tribal Economic Development Bonds; Seeks Comments on Reallocation of Unused Allocations

The Internal Revenue Service (IRS) has determined, via Announcement 2011-71, that tribes who were allocated bond authority to issue Tribal Economic Development Bonds (TEDBs) in both the first and second tranche of allocations may request to receive a three-month extension to issue such bonds. Additionally the IRS seeks comments from tribes on how to reallocate the nearly 95 percent of unused bond authority. Tribes wishing to take advantage of the extended issuance deadline must submit a written request to the IRS by November 30, 2011. Comments on the reallocation process must be submitted to the IRS by December 12, 2011. In addition to accepting written comments on the reallocation process, the IRS will hold consultations by telephone on November 17, 2011 and December 7, 2011.

Under the American Recovery and Reinvestment Act (PL 111-5, ARRA), tribal governments were given the chance to waive the "essential government function" restriction when issuing TEDBs – putting them on equal footing with local and state governments who are not bound by such restrictions. TEDBs were, in a sense, designed as a way for Congress and the Treasury Department to determine if this restriction on tribal governments should be permanently eliminated or, at a minimum, modified to be less onerous. In the first of its congressionally mandated reports published on June 9, 2010, the IRS Advisory Committee on Tax Exempt and Government Entities (ACT) stated that "there is a demonstrable need for TEDBs" and noted that "the initial applications for TEDB allocations exceeded the available volume." The IRS in Announcement 2011-71, however, reports that nearly 95 percent of the $2 billion TEDB volume cap has not been issued. The ACT report published on June 15, 2011, describes the main reasons for the lack of allocation as the "misunderstanding about the TEDB program, misinformation about the allocation process, and simply bad timing for a wary capital market." The 2011 ACT report maintains that the tremendous need for tax exempt bond financing for tribes remains and recommends that the Treasury Department and the IRS consult with tribes regarding the reallocation of this unused bond authority.

As explained in the attached Announcement, the IRS is considering methods of reallocating this bond authority and will potentially use an application process and criteria similar to those used for the original allocation under IRS Notice 2009-51. However, the IRS is seeking additional input on the processes and criteria used for this reallocation. For example, the IRS is considering requesting additional information from applicants in the following areas: project cost, plan for financing, and evidence of readiness to issue. Additionally, the IRS is considering implementing a two-step allocation process wherein the IRS would provide applicants with a written commitment of an allocation award and then at a later date provide the actual allocation. The request for comments and consultation calls present an important opportunity for tribes to weigh in on these matters and have a hand in shaping the reallocation process. Given the overwhelming need for economic development in Indian Country, as well as the unusual chance to finance major infrastructure development, this is an opportunity that should not be missed.

Further information on the consultation call and the text of IRS Announcement 2011-71 are attached. IRS Notice 2009-51 may be found here: http://www.irs.gov/irb/2009-28_IRB/ar09.html and the IRS Advisory Committee on Tax Exempt and Government Entities reports may be found here: http://www.irs.gov/charities/article/0,,id=98353,00.html

Please let us know if we may provide additional information regarding Announcement 2011-71 or Tribal Economic Development Bonds generally.

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Inquiries may be directed to:
Moriah K. O'Brien (mobrien@hobbsstraus.com)
Chris Stearns (cstearns@hobbsstraus.com)

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