Prizes, Powwows and 1099s

Watch or listen to the associated podcast: https://podcasts.dinesenmedia.com/show/information-return-intelligence-1/powwows-prizes-and-1099s-lessons-from-a-2026-irs-ruling/

Catching up on some other 1099 news so far in 2026, back in January, the IRS released an interesting private letter ruling (PLR) in which it dived into whether or not a Native American tribe needed to issue a 1099 to a winner at a powwow. We had mentioned this a while back in a “What’s New” brief, but let’s dive deeper now.

Background

The IRS letter ruling didn’t specify which tribe requested the ruling; the IRS simply referenced a “tribe.” The tribe held a powwow each year, at which it held dance and drum contests and awarded cash prizes. Sometimes, those prizes exceeded $600 (the reporting threshold until 2026).

The question was: Does the tribe need to issue a 1099-MISC (box 3) for the prizes that were $600 or more? The tribe said it did not, and made three arguments to the IRS:

1. The tribe is not subject to income tax;

2. The tribe is not a “person” under tax law (section 6041 says “persons” engaged in a trade or business must issue 1099s); and

3. Related to argument 2, the tribe also argued that the powwow is not a trade or business.

Argument 1

Tribes are not subject to income taxes. This has been established over the decades, and the IRS agrees. Therefore, the tribe argued, it is not subject to issuing information forms. The IRS disagreed with this.

Prior rulings and court cases have determined that tribes are exempt from income tax, but must comply with other parts of tax law. For example, tribes that pay wages must deal with FICA taxes and issuing W-2s. Tribes must also, generally, pay excise taxes. And, the IRS says, this means tribes must also comply with the rules of section 6041 – the requirement to issue 1099s.

Argument 2

The tribe also argued that it is not a “person” under tax law. Section 6041 says: “All persons engaged in a trade or business and making payment in the course of such trade or business to another person” must issue 1099s.

Here, we must examine what the law means by the term “person.” The tax-law definition of “person” comes from section 7701(a)(1), which says: The term “person” shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation.”

Ah, the tribe says – we are not an individual, a trust, an estate, a partnership, an association, a company or a corporation. Therefore, we are not a “person” under tax law, and section 6041 doesn’t apply to us.

Not so fast, the IRS said. The IRS pointed out that a Supreme Court case in 2000 determined that tribes are a part of the definition of a person under 7701(a)(1). And, the IRS pointed to a revenue ruling from 1985, in which the Service determined that tribes are subject to section 6041.

That’s two strikes against the tribe. And here comes strike three.

(Break)

Argument 3

The tribe also argued that the powwow is a cultural event that does not make money. In fact, it loses money. Thus, the argument went, we are not engaged in any trade or business.

The tribe referenced a famous Supreme Court tax case from the 1980s called the Groetzinger case, in which the Court ruled that a trade or business required that “the taxpayer must be involved in the activity with continuity and regularity and that the taxpayer’s primary purpose for engaging in the activity must be for profit.”

The IRS says the Groetzinger case only involves a specific part of the code dealing with tax deductions (section 162). The IRS says section 6041 is much broader:

“§ 6041 and its regulations apply to organizations the activities of which are not for the purpose of gain or profit. Thus, even if Taxpayer’s activities are not for the purpose of gain or profit, Taxpayer’s payments to the powwow dance contest winners are subject to the information reporting requirements of § 6041 and the regulations thereunder.”

In Closing

This letter ruling doesn’t break any new ground, but it serves us a few reminders:

● For all organizations, you are a “person” in the eyes of tax law.

● For nonprofits and tax-exempt entities: you might not be “in business,” and you might even be operating at a loss, but you still have a Form 1099 reporting requirement.

Plus, for your author, it gives him something else to dive into: when the IRS writes “organizations the activities of which are not for the purpose of gain or profit,” are they limiting this view to nonprofits and other tax-exempt entities? What about hobbies? My instinct says it probably doesn’t mean that someone with a hobby needs to issue 1099s, but it is a point to ponder and something I have on my list to research.

Final note: private letter rulings are only applicable to the requester (in this case, this particular tribe) and cannot be used as precedent. However, PLRs can provide us an interesting window into the IRS’s perspective on things.