Rev. Rul. 68-231

Advice has been requested whether the interest on obligations issued by the Swinomish Indian Tribal Community of the Swinomish Reservation in the State of Washington is excludable from the gross income of the recipient under section 103(a) of the Internal Revenue Code of 1954.

The Swinomish Indian Tribal Community of the Swinomish Reservation in the State of Washington is a recognized Indian Tribe organized under a Constitution and By-Laws ratified by the Indians of the Swinomish Reservation on November 23, 1935. On January 27, 1936, the Secretary of the Interior approved the Constitution and By-Laws of the Swinomish Indian Tribal Community under the authority of section 16 of the Act of June 18, 1934 (48 Stat. 984), as amended by the Act of June 15, 1935 (49 Stat. 378).

The Tribe was incorporated on July 2, 1936, also by the authority vested in the Secretary of the Interior. The land of the Tribal Community is held in trust by the United States Government.

The obligations in question are bonds issued by the Swinomish Indian Tribal Community under the laws of the United States of America, the Corporate Charter, the Constitution and By-Laws and Ordinance No. 24 of the Swinomish Indian Tribal Community. The proceeds of the bonds were used to construct a community hall as authorized by Ordinance No. 22 of the Swinomish Indian Tribal Community. The Department of Housing and Urban Development of the United States of America purchased the bonds for sale to the general public.

Section 103(a)(1) of the Code provides that gross income does not include interest on the obligations of a State, a Territory, or a possession of the United States, or any political subdivision of any of the foregoing, or of the District of Columbia.

An Indian Tribal Community is not a Territory or possession of the United States nor a political subdivision thereof. Therefore, in order for the interest on the obligations of the Swinomish Indian Tribal Community to be excludable from the gross income of the recipients under section 103(a)(1) of the Code, the Tribal Community must qualify as a political subdivision of a State within the meaning of this section.

Section 1.103-1 of the Income Tax Regulations provides in part as follows:

* * * Obligations issued by or on behalf of the State, Territory, or possession of the United States, or a duly organized political subdivision acting by constituted authorities empowered to issue such obligations, are the obligations of a State, Territory, or possession of the United States, or a political subdivision thereof. * * * The term "political subdivision," for purposes of this section, denotes any division of the State, Territory, or possession of the United States which is a municipal corporation, or to which has been delegated the right to exercise part of the sovereign power of the State, Territory, or possession of the United States. * * *

The Constitution and By-Laws of the Swinomish Indian Tribal Community provide that the governing body of the Tribal Community shall have police powers and power to levy taxes over members of the Tribal Community. These powers are sovereign powers within the meaning of the regulations. However, the powers of the Tribal Community are delegated to it by the United States Government rather than the State of Washington in which it is located. The Tribe is not a division of the State, and since it exercises its governing powers by virtue of Federal, rather than State authority, the bonds in question are not issued on behalf of the State within the meaning of the regulations.

Section 103(a)(3) of the Code provides that gross income does not include interest on the obligations of a corporation organized under Act of Congress, if such corporation is an instrumentality of the United States and if under the respective Acts authorizing the issue of the obligations the interest is wholly exempt from the taxes imposed by the subtitle.

There is nothing in the Acts establishing Indian Tribes or in the Charter of Incorporation or the Constitution and By-Laws of the Swinomish Indian Tribal Community which provides that interest on obligations issued by the Swinomish Indian Tribal Community is excludable from the gross income of the recipient.

Accordingly, the interest on obligations issued by the Swinomish Indian Tribal Community of the Swinomish Reservation in the State of Washington is not excludable from the gross income of the recipient under section 103(a) of the Code.