Native American Finance Officers Association
Growing tribal economies. Strengthening tribal finance.
1101 30th Street, NW, Suite 500 • Washington, DC

December 19, 2018

Mr. Scott Dindwiddle
Office of the Associate Chief Counsel
Income Tax & Accounting
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, D.C. 20224

RE: IRS REG-115420-18
Recommendations for the Proposed Opportunity Zones Regulations
Dear Mr. Scott Dinwiddle:
In representing the economic interests of over one hundred tribal governments, NAFOA has a
clear mission to build and grow tribal government economies by advocating for effective
economic policy solutions. In furtherance of our mission, we welcome the opportunity to
comment on the proposed Opportunity Zones regulations. Our recommendations will ensure
that this new initiative is successful for economically distressed communities in Indian Country,
where 366 designated Opportunity Zones areas overlap with tribal lands. We also believe that
our recommendations are necessary for the successful implementation of the program by the
Department of the Treasury (Treasury) and the Internal Revenue Service (IRS).
Since the passage of the Tax Cuts and Jobs Act of 2017 (Pub. L. 115-97), NAFOA has been active
in disseminating information to tribal governments and facilitating discussions about
Opportunity Zones. NAFOA has hosted webinars and in-person discussions with tribal
government representatives, as well as with the investment community, the community
development finance field, and other related organizations. Through these outreach efforts,
NAFOA has received significant feedback critical to developing clear recommendations on how
to modify the proposed Opportunity Zones regulations to ensure that tribal governments can

 successfully benefit from the program. Tribal governments occupy some of the most distressed
areas in the United States, including eight of the ten most distressed areas in our nation. As the
regulations currently are written, tribal governments are at risk of being excluded from what
promises to be significant investment in distressed communities.
Background
Tribal governments are in some of the most economically disadvantaged areas in the country,
with high levels of generational poverty and unemployment. Despite past federal programs and
policies aimed at improving the quality of life in America, such as Enterprise Zones, Promise
Zones, and the New Markets Tax Credits program, none have met their goal of impacting tribal
communities in significant ways. These federal programs have fallen short in Indian Country
because they lack adequate access to capital and incentives to do business in Indian Country, and
most troubling, tax credits and other programs fail to include requirements that meet the needs
of tribal governments. This failure to include tribal governments is often an oversight, but a very
costly one to Indian Country. Unless tribal governments are specifically listed and accounted for
in laws and regulations, they are often considered excluded in practice.
Economic development, specifically through tribal enterprises, is especially important in Indian
Country since tribal governments are on federal trust lands making property taxes – which most
governments rely upon – unusable for tribal governments. The lack of a property tax base means
that tribal governments rely on revenue from their enterprises to provide government services
such as public safety, education, housing, and cultural programs. It also makes programs that
invest capital – like Opportunity Zones - even more valuable for Indian Country.
Finally, tribal governments also lack access to effective and affordable capital. Financing for
needed healthcare centers, tourism projects, and infrastructure is difficult to come by. Even
when financing is obtained, it is often inadequate, meaning that projects are often delayed, not
built to their full capacity, funded in more costly ways, or, in some cases, never built at all.
Recommendations
1. Lease Valuation Clarification - Leases of tangible property must be considered Qualified
Opportunity Zone Business Property and count towards the 70% tangible property
requirement in the business property definition (1400Z-2(d)(3)(A)(i)).
2. Eligible Entities Inclusion - Tribal governments must be included in the eligible entities
that can form a corporation or partnership for Qualified Opportunity Funds.

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 3. Tribal Consultation - Treasury and IRS must conduct tribal consultation as soon as possible
to ensure that they satisfy Treasury’s Consultation Policy and gather input directly from
tribal governments.

Lease Valuation Clarification - Rules for Qualified Opportunity Zone Property in Qualified
Opportunity Funds
The proposed regulations on property requirements may have the unintended consequence of
excluding investments on tribal lands. Tribal governments occupy federal trust lands and these
lands are, more often than not, leased for economic development purposes. Lease agreements
are used to generate revenue for the tribe through ranching, energy development, tourism,
external business partnerships and many other development projects. Therefore, it is essential
that the Opportunity Zones regulations modify the Qualified Opportunity Zone business
proposed property rules to include leased property.
For background, the Secretary of the Department of the Interior manages the use and benefit of
approximately 60 million acres of Indian land. This “right” to use reservation land generally
resulted from treaties, executive orders, and similar arrangements between a tribe and the U.S.
government. These trust arrangements provide a tribe with the beneficial use of the lands, but
they do not convey ownership. As a result, most reservation land does not have a value and is
not reported on a tribe’s financial statements. The proposed regulations currently state that an
Opportunity Fund must have 90% of its assets in Opportunity Zone property and 70% of it must
be tangible or real property. Trust lands may not be sold or encumbered, therefore, valuing the
lease of trust lands for the purposes of Qualified Opportunity Zone property is not an appropriate
measure of tangible assets for tribal governments. Leases of land and buildings as tangible
property is essential. Without immediate correction, the tax benefits may be too small for an
investor to justify the startup capital to invest in Indian Country.
The foundational principle of leases is that they are financings – the right to use the underlying
asset for more than a 12-month period. NAFOA recommends that the financing agreement
secured by a leasehold interest count towards the 70% asset test as long as the lease met the
definition as defined by GASB 87 and FASB ASC 842.
To illustrate why this is problematic for tribal governments, assume that on January 20, 2018,
Tribal Invest Fund (a Qualified Opportunity Fund) will lease land and a building on a reservation
with the intent of turning it into a grocery store. The value of the land and building lease is $500k
($380k attributed to land and $120k attributed to the building). Again, keep in mind that the legal
title of the reservation land is held by the federal government. The Tribal Invest Fund would

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 record a one-time “Right of Use Asset” on their financial statements for the value of the lease at
$800k. If the lease of tangible property in this example did not qualify, the investor would need
to inject an additional $1.17m into the Opportunity Fund to meet the 70% tangible property
requirement. This hurdle will deter potential investors unless there is clarity that leases of real
property qualify. As illustrated, the exclusion will devastate tribal government participation in
Opportunity Zones and is inconsistent with the policy objectives of the program – to encourage
economic growth and investment in distressed communities.
An additional point that further demonstrates the importance of leases counting towards the
tangible property requirement lies in one of the most substantial expenses to a business –
operating costs. For businesses locating on a reservation, many investments create intangible
assets that are necessary such as salaries, health insurance, liability insurance, software,
marketing, website fees for e-commerce, and other uses that will not be considered qualified
opportunity zone business property. Likely the extent to tangible property without lease
considerations would only include computer equipment and furniture. Again, the proposed rules
unfairly prioritizes tangible property, and without clarity on leases, it is unrealistic that any
business located on a reservation would meet the 70% asset test.
Leases of tangible property must be considered Qualified Opportunity Zone Business Property
and count towards the 70% property requirement in the business property definition (1400Z2(d)(3)(A)(i)).

Eligible Entities Inclusion - Rules for a Qualified Opportunity Fund
Another major concern is the exclusion of tribal governments as eligible entities for creating
Qualified Opportunity Fund corporations or partnerships. Currently, the proposed regulations
state that a Qualified Opportunity Fund must be a corporation or partnership created or
organized within the 50 states, the District of Columbia, or a U.S. possession. The U.S. possession
is further defined as any jurisdiction outside of the 50 states and the District of Columbia and
may include U.S. territories such as Guam, Puerto Rico, the U.S. Virgin Islands, Northern Mariana
Islands, and American Samoa.
Tribal governments are distinct political entities that have the power to self-govern and exercise
sovereignty over their citizens and territory. As sovereign nations, tribal governments have
powers and capabilities not available to other individuals in the United States. This sovereignty is
recognized in the Constitution, treaties, and judicial decisions. As such, tribal governments can
form a governmental entity to perform business functions to generate revenue for funding
government functions and programs. As mentioned above, revenues from economic enterprises

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 act as a replacement for tax revenues, since tribes do not have a tax base. Many tribes conduct
business activities through tribally-chartered corporations or federally-chartered corporations
formed under Section 17 of the Indian Reorganization Act. Due to their unique status, if a tribal
government cannot create a Qualified Opportunity Fund entity within its jurisdiction, tribes will
be unable to participate in creating Opportunity Funds. This lack of self-determination means
tribal governments may miss out on lease and potential tax revenue and may have more difficulty
aggregating projects to meet the needs of their communities.
The ability of tribal governments to charter corporations and partnerships as Qualified
Opportunity Funds, like their state and territorial government counterparts, will define the
success of Opportunity Zones in Indian Country. The selection of structure will significantly
influence the way the Opportunity Zone Fund at a tribal government operates, impacting
everything from legal liabilities, to tax treatment, to governance and financial reporting – all
critical factors in attracting potential investors. Tribal governments must be included in the
eligible entities that can form a corporation or partnership for Qualified Opportunity Funds.

Meaningful Tribal Consultation
Opportunity Zones has the potential to direct much-needed capital to Indian Country, which
includes some of the most distressed low-income communities in the United States. Given the
large number of tribal governments located within designated Opportunity Zones, 366 in total
and 190 in middle America, we recommend that Treasury and the IRS host a consultation session
with tribal leaders prior to releasing the final regulations. Failing to consult directly with tribal
governments on this matter before deciding on the final regulations is inconsistent with
Treasury’s adopted Tribal Consultation Policy 80 Fed. Reg. 57434-57436 (Sept. 23, 2015), which
states that “Treasury will consult with Tribal Officials before implementing Policies that have
Tribal Implications.” Id. at 57435 (2015).
Consultation has led to favorable outcomes for both the federal government and for tribal
governments in recent years and we believe that would be true in the case of Opportunity Zones.
NAFOA appreciates the continued commitment, dedication, and outreach of Treasury and the
IRS. This partnership has proven to be effective in making sure tribal governments are included
in federal initiatives and for ensuring programs are effective in Indian Country. Treasury and the
IRS should conduct tribal consultation as soon as possible to ensure that they satisfy Treasury’s
Consultation Policy and gather input directly from tribal governments that is sure to make this
program successful for tribal governments.

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 We greatly appreciate the opportunity to submit comments and recommendations to ensure the
program’s success for all communities and clarify guidance for investors in economically
distressed communities.
Sincerely,

Dante Desiderio
Executive Director, NAFOA

Attachments: List of designated opportunity zones located within tribal lands.

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