IRS Offers Inisght on Essential Government Function

In a recently released private letter ruling, the IRS loosens the definition of “essential government functions” to allow tribes to be treated as states for the purpose of issuing tax exempt bonds to finance utility projects if they provide all or a substantial amount of their services on tribal land. Read more about it at Native American Legal Update.

The letter, released March 13, offers this insight into how the IRS will determine if an activity is an “essential government function”:

1. There are numerous state and local governments with general taxing powers that have been conducting such activity and financing it with tax-exempt government bonds

2. State and local governments with general taxing powers have been conducting the activity and financing it with tax-exempt bonds for many years and

3. The activity is not a commercial or industrial activity.