WASHINGTON — The Internal Revenue Service appeared Friday to back off a recent assertion that proceeds from timber sales on tribal lands are taxable.

Leaders of the Confederated Tribes of Warm Springs became concerned that the IRS was reversing decades of precedent after receiving a letter in April from Joe Kincaid, a group manager with the Portland branch of the IRS Office of Indian Tribal Governments.

“(T)he IRS position is that per capita (payments) are taxable to member when they are sourced in timber revenues from unallotted Tribal lands held in trust,” Kincaid’s letter states.

Generally, tribal lands are held in trust by the federal government, and any proceeds from the trust assets belong to the tribe. The Interior Department’s Office of Special Trustee distributes stumpage proceeds to the Confederated Tribes via periodic payments to every member called per capita payments.

Traditionally, per capita payments have been treated as tax-exempt by the IRS. Members of the Indian community feel this is settled law based on the Per Capita Act passed by Congress in 1983, which codified payments of funds held in trust by the Interior Department.

However, a recent $1 billion settlement among 55 Indian tribes — but not including Warm Springs — and the federal government over alleged mismanagement of Indian trusts and natural resources by the Department of the Interior and Treasury Department caused the IRS to revisit the taxability issue. If proceeds from the settlement are taxable, then perhaps per capita payments might be also.

Last week, after considerable outcry from the Indian community, the IRS published a notice that clarified that payments stemming from the settlement are tax-exempt.

Friday, during a hearing before the House Subcommittee on Indian and Alaska Native Affairs, Christie Jacobs, the director of the IRS Office of Indian Tribal Governments, would not categorically state that all per capita payments derived from monetizing a natural resource found on tribal lands — as the Warm Springs tribes do when they sell timber cut from their lands — are tax-exempt.

Instead, she said the legal rationale that applies to the trust settlement payments described in the notice would support a position that per capita payments are also tax-exempt.

Ron Suppah, the vice chairman of the Warm Springs Tribal Council, urged the members of the subcommittee to reaffirm Congress’ intent that per capita payments are not taxable by the IRS.

“The membership utilize their per capita payments mainly for paying back loans that they get from our tribal credit department,” he said, noting that 60 percent of the members on the reservation are unemployed. Members take out loans so they can pay their bills, he said.

Suppah and other witnesses cited executive order 13175, signed by President Clinton in 2000, which instructs federal agencies to consult with tribes when developing policy that affects them. Failure to do so is an affront to the tribes’ status as sovereign nations with signed treaties with the U.S. dating to the mid-19th century, the witnesses said.

“The IRS said that they consulted with some tribes, but nobody knows who those tribes are,” Suppah said. “Well, Springs isn’t one of them. (The Confederated Tribes and Bands of the) Yakama (Nation, in Washington State) isn’t one of them.”

When Warm Springs officials asked for a consultation, the IRS declined, saying it can’t enter discussions with someone being audited, he said.

“Our hope is that the committee will take some sort of action that will resolve this, maybe by directing the IRS to the appropriate, applicable law, and the IRS will adhere to that,” he said. Otherwise, “this may well end up in litigation.”