Tribal casino offices do not house gaming

Plain-English summary

A tribal political subdivision planned to issue tribal economic development bonds to finance an office and conference facility. Casino executives would work there and oversee casino operations, but no patrons would gamble there, and no gaming machines, supplies, or servers would be located there. The IRS ruled that these executive activities do not constitute conducting or housing class II or class III gaming. Section 7871(f)(3)(B)(i) therefore does not prohibit using the bond proceeds to finance the facility's capital costs.

Ruling snapshot

• Question: May tribal economic development bond proceeds finance an office facility used by employees who oversee casino operations?
• Outcome: Approved, the facility does not conduct or house class II or class III gaming
• Key authorities: IRC §§ 103, 141, and 7871(f); Indian Gaming Regulatory Act § 4

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201630002 Third Party Communication: Government
Release Date: 7/22/2016 Agency
Date of Communication: April 26, 2016
Index Number: 7871.03-00
Person To Contact:
------------------- -----------------, ID No. --------------
-------------- Telephone Number:
------------------------------------------------------------ ----------------------
-------------------------------- Refer Reply To:
------------------------ CC:FIP:B05
------------------------------------------ PLR-104502-16
Date:
April 26, 2016

LEGEND:

Issuer = -----------------------------------------------------------------------

                                         --------------------------------

Tribe = -----------------------------------------------------

Bonds = -----------------------------------------------------------------------

                                         ------------------------------------------------------------------------
                                         -----------------

State = ---------------

a = ----------

b = ----------

Casino = ---------------------

Dear -----------------:

This is in response to your request for a ruling that activities occurring within a facility
which will be financed with the proceeds of tribal economic development bonds issued
under § 7871(f) of the Internal Revenue Code (the “Code”) will not cause the facility to
be a building in which class II or class III gaming (as defined in § 4 of the Indian Gaming
Regulatory Act) is conducted or housed.

PLR-104502-16 2

Facts and Representations

Issuer is a political subdivision of Tribe, recognized as such by a private letter ruling
previously issued by the Service. Tribe is recognized as an Indian tribal government in
Rev. Proc. 2002-64, 2002-2 C.B. 717.

Issuer will issue tribal economic development bonds (the “Bonds”) under § 7871(f) and
use the proceeds of the Bonds to finance capital costs of the Facility. The Facility will
consist of a building of approximately a square feet, of which approximately 20 percent
(approximately b square feet) will be used as offices and conference rooms for
employees of Issuer and of an LLC that is wholly owned by Issuer.

Many of the employees whose offices will be located in the Facility will perform
functions directly related to the operations of the Casino.

No patrons of the Casino will engage in gaming within the Facility. Nor will any
machines or supplies used in the conduct of gaming be located within the Facility, either
for storage or maintenance purposes. Nor will the servers used to operate gaming
activities be located within the Facility.

The Facility will contain the offices of the General Manager of the Casino and the
following executives who have responsibilities that, in whole or in part, relate to Casino
operations: (1) the Financial Controller, (2) the Director of Marketing, (3) the Table
Games Director, (4) the Human Resource Director, (5) the Director of Information
Technology, (6) the Casino Compliance Officer, and (7) the Facilities Director. The
General Manager and each of the executives listed in this paragraph is an employee of
Issuer. The activities performed or supervised by these individuals in the Facility are
referred to herein as the “Designated Activities.”

Law and Analysis

Section 103(a) provides that gross income does not include interest on any State or
local bond. Section 103(c)(1) provides that the term “State or local bond” means an
obligation of a state or political subdivision thereof.

Section 7871 sets forth the various purposes for which an Indian tribal government may
be treated as a State. Section 7701(a)(40)(A) defines the term “Indian tribal
government” as the governing body of any tribe, band, community, village, or group of
Indians, or (if applicable) Alaska Natives, which is determined by the Secretary of the
Treasury, after consultation with the Secretary of the Interior, to exercise governmental
functions. The Secretary of the Treasury’s determination is set forth in Rev. Proc. 2002-

PLR-104502-16 3

64, which contains a modified and supplemented list of Indian tribal governments that
are to be treated similarly to states for specified purposes under the Code.

Section 7871(a)(4) treats an Indian tribal government as a State for purposes of § 103
subject to § 7871(c). Section 7871(d) treats a subdivision of an Indian tribal
government as a political subdivision of a State if (and only if) the Secretary of the
Treasury determines (after consultation with the Secretary of the Interior) that such
subdivision has been delegated the right to exercise one or more of the substantial
governmental functions of the Indian tribal government. A previously issued private
letter ruling recognizes Issuer as a political subdivision of Tribe.

Section 7871(f)(1)(A) provides that the Secretary of the Treasury shall allocate the
national tribal economic development bond limitation among the Indian tribal
governments in such manner as the Secretary, in consultation with the Secretary of the
Interior, determines appropriate. Section 7871(f)(2) provides in part that a tribal
economic development bond shall be treated in the same manner as if such bond were
issued by a State, and the Indian tribal government issuing such bonds and any
instrumentality of such Indian tribal government shall be treated as a State for purposes
of § 141.

Section 7871(f)(3)(A) defines a tribal economic development bond to mean any bond
issued by an Indian tribal government the interest on which would be exempt from tax
under § 103 if issued by a State or local government, and which is designated by the
Indian tribal government as a tribal economic development bond. However,
§ 7871(f)(3)(B)(i) provides that no portion of the proceeds of an issue of tribal economic
development bonds may be used to finance any portion of a building in which class II or
class III gaming (as defined in § 4 of the Indian Gaming Regulatory Act) is conducted or
housed or any other property actually used in the conduct of such gaming.

Section 4 of the Indian Gaming Regulatory Act (the “Act”) defines class II gaming to
mean (i) the game of chance commonly known as bingo (whether or not electronic,
computer, or other technologic aids are used in connection therewith) - (I) which is
played for prizes, including monetary prizes, with cards bearing numbers or other
designations, (II) in which the holder of the card covers such numbers or designations
when objects, similarly numbered or designated, are drawn or electronically determined,
and (III) in which the game is won by the first person covering a previously designated
arrangement of numbers or designations on such cards, including (if played in the same
location) pull-tabs, lotto, punch boards, tip jars, instant bingo, and other games similar to
bingo, and (ii) card games that – (I) are explicitly authorized by the laws of the State, or
(II) are not explicitly prohibited by the laws of the State and are played at any location in
the State, but only if such card games are played in conformity with those laws and
regulations (if any) of the State regarding hours or periods of operation of such card
games or limitations on wagers or pot sizes in such card games.

PLR-104502-16 4

Section 4 of the Act further provides that the definition of class II gaming does not
include (i) any banking card games, including baccarat, chemin de fer, or blackjack (21),
or (ii) electronic or electromechanical facsimiles of any game of chance or slot machines
of any kind.

Class III gaming is defined under § 4 of the Act to mean all forms of gaming that are not
class I gaming or class II gaming. Section 4 defines class I gaming to mean social
games solely for prizes of minimal value or traditional forms of Indian gaming engaged
in by individuals as a part of, or in connection with, tribal ceremonies or celebrations.
The Indian Gaming Regulatory Act, Pub. L. No. 100-497, 102 Stat. 2467.

Under § 7871(f)(3)(B)(i), no portion of the proceeds of a tribal economic development
bond may be used to finance any portion of a building in which class II or class III
gaming is conducted or housed or any other property actually used in the conduct of
such gaming. By plain meaning, the “conduct” of gaming must involve the presence of
customers, and a building “housing” gaming can only be a building in which customers
actually are present and engaged in gaming. However, no customer of any type of
gaming, including class II and class III gaming, will ever engage in gaming within the
Facility. Furthermore, the Designated Activities, i.e., the activities of the General
Manager and executives of the Casino overseeing the operation of the Casino from
offices and conference rooms located in the Facility, are not activities that constitute
gaming conduct and therefore also do not cause the Facility to be treated as housing or
otherwise used in the conduct of class II or class III gaming. Section 7871(f)(3)(B)(i)
thus does not prohibit the use of Bond proceeds to finance capital costs of the Facility.

Conclusion

Under the facts and circumstances of this case, we conclude that the conduct of the
Designated Activities in the Facility will not result in the conduct or housing of class II or
class III gaming as defined in § 4 of the Indian Gaming Regulatory Act in the Facility
within the meaning of § 7871(f)(3)(B)(i).

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any transaction or item discussed or referenced in this letter.

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.

In accordance with a Power of Attorney on file with this office, a copy of this letter is
being sent to Issuer’s authorized representative.

PLR-104502-16 5

The ruling contained in this letter is based upon information and representations
submitted by Issuer and accompanied by a penalty of perjury statement executed by an
appropriate party. While this office has not verified any of the materials submitted in
support of the request for a ruling, it is subject to verification upon examination.

                                    Sincerely,

                                    Associate Chief Counsel
                                    (Financial Institutions & Products)

                                                  /s/

                                    By: _________________________
                                        Timothy L. Jones
                                        Senior Counsel, Branch 5