Natives who owe IRS risk losing corporate dividends

Posted: Friday, June 17, 2005

ANCHORAGE - Alaska Natives who owe the federal government money now face losing their corporate dividends, under a policy change by the Internal Revenue Service.

The agency has ended a longstanding practice of exempting Native shareholder dividends from federal tax levies. A levy is like a lien on property and it gives the lienholder - in this case, the IRS - authority to seize assets to pay debts.

The new policy took effect June 1, although IRS officials say they have not started enforcing it yet so corporations have time to notify shareholders.

The agency decided to go after dividends in part because some corporations have paid their shareholders significant amounts in recent years, said Harry T. Manaka, IRS director of collections for the Western region.

It's also a question of fairness, he said.

"Other taxpayers are subject to levy when they don't pay their taxes," Manaka said.

He also noted a multibillion-dollar gap between the amount of taxes Americans owe and what the IRS collects every year. The agency wants to close that gap, Manaka said.

About 57,000 Alaska Natives receive dividends from more than 200 corporations established by Congress in 1971 under a land claims settlement, he said.

The IRS honored a 20-year moratorium on seizing dividends of Native shareholders who were delinquent on their tax bills. The idea was to give the new corporations time to mature in handling their financial matters. After the moratorium expired in 1991, the IRS continued to follow it informally.

Recently, the IRS started taking notice of the fat wads of cash some corporations have handed out. Manaka was prohibited from naming specific companies that caught his attention, but he said the media have reported on the payouts.

Cook Inlet Region Inc., for example, paid the average shareholder with 100 shares $65,000 between 2000 and 2001 after cashing out a wireless telecom investment.

Since then, many Native corporations have aggressively moved into government contracting and some are making big money. The corporations parlay their minority and economically disadvantaged status to get federal contracts of unlimited size, sometimes without competition.

"The perception of Native corporations has changed dramatically," said Bruce Edwards, a Seattle attorney who represents several Native firms. "They are viewed by the IRS as being sufficiently wealthy that IRS can no longer ignore them."

Several Native corporation executives said they just recently became aware of the new IRS policy and are reviewing it. Some are concerned that the IRS may be contemplating more than just garnisheeing dividends.

"If it opens the doors to seizing shares, all the corporations would be up in arms," said Barbara Donatelli, CIRI executive vice president.

CIRI attorneys are reviewing the tax policy change to see how it squares with the Alaska Native Claims Settlement Act, which exempts shareholder dividends from levy except in limited circumstances, such as delinquent child support payments, Donatelli said.

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