Generally, foundations and public charities fall under Section 501(c)(3) of the Internal Revenue Code. For tribal governments, however, the Indian Tribal Governmental Tax Status Act of 1982 is recognized as an appropriate legal, political, and economic means for Indian nations to establish, regulate, and control philanthropic activities within their communities. This act, codified as the Internal Revenue Code (IRC), §7871, treats tribal governments as state governments, allowing tribal governments, their political subdivisions, or any tribal governmental fund, to receive tax-deductible contributions.

Establishing tax-exempt tribal governmental organizations under IRC §7871 allows tribes to maintain a greater degree of sovereignty than they would under the more customary 501(c)(3) designation. Even the U.S. Supreme Court has held that Indian nations possess a status higher than states. Thus, the more traditional 501(c) (3) designation subjects Indian nations (and their political subdivisions) to the oversight of the offices of state attorney generals, where jurisdiction over “expressly public and charitable purposes” is generally housed.

Section 7871 of the IRS Code offers many of the same tax benefits for donors as 501(c) (3) nonprofits, for practical tax purposes, meaning: All donations to a 7871 tribe or organization are tax deductible, and foundations can make grants to such organizations. The 7871 organizations establish their own accountability to their donors. The code specifically conditions deductibility on the gift's being “for exclusively public purposes.”