457(b) top hat for tribal entity

[Guest AWL]

Non profit corporation owned by a native tribal entity is thinking of establishing a 457(B) top hat plan. The 457 regulations do not define "government" or "state" in a way that incorporates native tribal entities. Should I assume that they must just be treated as a non-profit in setting up this plan? Concerns are the rollover rules and the "unfunded" nature of the plan.

[Carol V. Calhoun]

You're right, a tribal government is not covered by 457 at all. Whether a corporation run by the tribal government was subject to 457 or not would depend on how it got its tax-exempt status--e.g., as an arm of the tribal government, or as a 501© organization of some type.

If the corporation is merely an arm of the tribal government, it would not be subject to 457, because 457 covers a governmental plan only to the extent the government involved is a state or local government.

If the corporation is not governmental at all, but has tax-exempt status only due to one of the purposes enumerated in section 501(a), it would be subject to section 457(B) in the same way as a private tax-exempt organization.

If the corporation is an instrumentality of tribal government, but not an arm of tribal government, and also has tax-exempt status under 501©, the situation gets totally murky. Some very old GCMs suggested that an entity that was both governmental instrumentality and 501© tax-exempt status might lose some of the advantages of instrumentality status (in that case, exemption from UBIT) due to its election of 501© tax-exempt status. But those are not official precedent, and are in any event not directly applicable here. And to the best of my knowledge, IRS has not issued any guidance at all on this issue in recent years.