These synopses are intended only as aids to the reader in

Agency decision

Ask Donna

What actually matters in this document.

Text

HIGHLIGHTS

OF THIS ISSUE

Bulletin No. 2026–5

January 26, 2026

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

ADMINISTRATIVE

REG-112829-25, page 452.

These proposed regulations would amend regulations under

section 3406 to change the threshold for when certain third

party settlement organizations (TPSOs) are required to perform backup withholding. These proposed regulations would

clarify that in the case of certain payments made through

third parties, the amount subject to backup withholding

under section 3406 is determined by taking into account

the exception for de minimis payments by TPSOs in section

6050W(e). These proposed regulations would also clarify the

amount subject to backup withholding and clarify situations

when the threshold does not apply. The proposed regulations

reflect recent changes to the statutory law.

ADMINISTRATIVE, INCOME TAX

REG-113515-25, page 455.

This document contains proposed regulations regarding the

deduction for certain taxpayers for an amount up to $10,000

of qualified passenger vehicle loan interest. This document

also contains proposed regulations regarding new information reporting requirements for certain persons who, in a

trade or business, receive from any individual interest aggregating $600 or more for any calendar year on a specified

passenger vehicle loan, including applicable penalties for failures to file information returns or furnish payee statements

as required. The proposed regulations would affect taxpayers that may deduct qualified passenger vehicle loan interest, and also persons subject to these information reporting

requirements. This document also provides notice of a public

hearing on these proposed regulations.

Finding Lists begin on page ii.

ADMINISTRATIVE, EMPLOYMENT TAX,

EXCISE TAX, INCOME TAX

T.D. 10039, page 403.

These final regulations contain amendments to provisions

of 26 CFR part 1 (Income Tax Regulations) under section

6417 of the Internal Revenue Code (Code) and 26 CFR part

301 (Procedure and Administration Regulations) under

section 7701 of the Code that address the Federal tax

treatment of an entity wholly owned by one or more Indian

Tribal governments within the meaning of section 7701(a)

(40) that is organized or incorporated under the laws of

the Tribe or Tribes that own it (final regulations). Specifically, the final regulations provide that such an entity is

not recognized as an entity separate from its owner for

Federal income tax purposes, but is recognized as separate for employment and excise tax purposes. Additionally, the final regulations provide that such entities, as

well as corporations incorporated under section 17 of

the Indian Reorganization Act of 1934, as amended, 25

U.S.C. 5124, or under section 3 of the Oklahoma Indian

Welfare Act, as amended, 25 U.S.C. 5203, are treated

solely for purposes of section 6417 (“Elective payment of

applicable credits”) as instrumentalities of the Indian Tribal

government(s) that own them.

EXCISE TAX

Announcement 2026-2, page 447.

Announcement 2026-2 provides important information for

taxpayers who are liable for the tax on petroleum under

§ 4611 of the Internal Revenue Code.

REG-103430-24, page 447.

These proposed regulations would amend the Branded Prescription Drug Fee Regulations regarding the annual fee

imposed on covered entities engaged in the business of

manufacturing or importing certain branded prescription

drugs by section 9008 of the Patient Protection and Affordable Care Act, as amended. These proposed regulations

reflect statutory changes made to Medicare Part D that,

in turn, affect the calculation of the branded prescription

drug fee.

INCOME TAX

T.D. 10040, page 416.

This document contains final regulations regarding the exclusion from gross income of certain Tribal general welfare benefits. The regulations address the requirements that apply to

determine whether the benefits an Indian Tribal government

program provides qualify as Tribal general welfare benefits.

These regulations affect Indian Tribal governments, agencies

or instrumentalities of such governments, Federally recognized

Tribes, members of such Tribes, such members’ spouses and

dependents, and other Tribal program participants.

The IRS Mission

Provide America’s taxpayers top-quality service by helping

them understand and meet their tax responsibilities and

enforce the law with integrity and fairness to all.

Introduction

The Internal Revenue Bulletin is the authoritative instrument

of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service

and for publishing Treasury Decisions, Executive Orders, Tax

Conventions, legislation, court decisions, and other items of

general interest. It is published weekly.

It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application

of the tax laws, including all rulings that supersede, revoke,

modify, or amend any of those previously published in the

Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of

internal practices and procedures that affect the rights and

duties of taxpayers are published.

Revenue rulings represent the conclusions of the Service

on the application of the law to the pivotal facts stated in

the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,

identifying details and information of a confidential nature are

deleted to prevent unwarranted invasions of privacy and to

comply with statutory requirements.

Rulings and procedures reported in the Bulletin do not have the

force and effect of Treasury Department Regulations, but they

may be used as precedents. Unpublished rulings will not be

relied on, used, or cited as precedents by Service personnel in

the disposition of other cases. In applying published rulings and

procedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,

and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unless

the facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on provisions

of the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A,

Tax Conventions and Other Related Items, and Subpart B,

Legislation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to these

subjects are contained in the other Parts and Subparts. Also

included in this part are Bank Secrecy Act Administrative

Rulings. Bank Secrecy Act Administrative Rulings are issued

by the Department of the Treasury’s Office of the Assistant

Secretary (Enforcement).

Part IV.—Items of General Interest.

This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative index

for the matters published during the preceding months. These

monthly indexes are cumulated on a semiannual basis, and are

published in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

January 26, 2026

Bulletin No. 2026–5

Part I

26 CFR 1.6417-1: Elective payment election of

applicable credits; 26 CFR 301.7701-1: Classification of organizations for federal tax purposes

T.D. 10039

DATES: Effective date: These regulations

are effective on January 15, 2026.

Applicability dates: For dates of applicability, see §§ 301.7701-1(f) and 1.64171(q).

DEPARTMENT OF THE

TREASURY

Internal Revenue Service

26 CFR Parts 1 and 301

FOR FURTHER INFORMATION

CONTACT: Concerning the final regulations, contact Iris Chung of the Office of

Associate Chief Counsel (Passthroughs,

Trusts, and Estates) at (202) 317-5279

(not a toll-free number).

Entities Wholly Owned by

Indian Tribal Governments

SUPPLEMENTARY INFORMATION:

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final rule.

SUMMARY: This document contains

final regulations regarding the Federal tax

classification of entities wholly owned by

Indian Tribal governments (Tribes). The

final regulations provide that entities that

are wholly owned by Tribes and organized

or incorporated under the laws of one or

more of the Tribes that own them generally

are not recognized as separate entities for

Federal tax purposes. The final regulations

also provide that such entities, as well as

certain Tribal corporations chartered by

the Department of the Interior (DOI), are

recognized as separate entities for Federal

employment and certain Federal excise

tax purposes. In addition, the final regulations provide that, for purposes of making elective payment elections (including

determining eligibility for and the consequences of such elections) for energy

credits under the Inflation Reduction Act

of 2022, each of these types of Tribal entities is treated as an instrumentality of one

or more Indian Tribal governments.

Authority

This document contains amendments

to provisions of 26 CFR part 1 (Income

Tax Regulations) under section 6417 of

the Internal Revenue Code (Code) and

26 CFR part 301 (Procedure and Administration Regulations) under section 7701

of the Code that address the Federal tax

treatment of certain Tribal entities wholly

owned by one or more Indian Tribal governments1 (final regulations).

Section 6417(h) provides an express

delegation of authority to the Secretary of

the Treasury or the Secretary’s delegate

(Secretary) relating to elective payment

elections under section 6417 (section 6417

elections), stating, “[t]he Secretary shall

issue such regulations or other guidance

as may be necessary to carry out the purposes of this section, including guidance

to ensure that the amount of the payment

or deemed payment made under this section is commensurate with the amount of

the credit that would be otherwise allowable (determined without regard to section

38(c)).”

Section 7701(a)(40) provides an express

delegation of authority to the Secretary

related to identifying Indian Tribal gov-

ernments for Federal tax purposes, stating,

“[t]he term ‘Indian tribal government’

means the governing body of any tribe,

band, community, village, or group of

Indians, or (if applicable) Alaska Natives,

which is determined by the Secretary, after

consultation with the Secretary of the Interior, to exercise governmental functions.”

Finally, section 7805(a) of the Code

provides an express delegation of authority to the Secretary to “prescribe all needful rules and regulations for the enforcement of [the Code], including all rules and

regulations as may be necessary by reason

of any alteration of law in relation to internal revenue.”

Background

I. Overview of Prior Guidance

The Federal government has long

recognized the unique aspects of Tribal

sovereignty and Tribal sovereign immunity. Tribes themselves are not subject to

Federal income tax under the Code.2 IRS

guidance on the issue in the 1960s raised

questions about the extent to which Tribal

corporations incorporated under section

17 of the Indian Reorganization Act of

1934 (IRA), as amended, 25 U.S.C. 5124

(section 17 corporations) or under section

3 of the Oklahoma Indian Welfare Act,

as amended, 25 U.S.C. 5203 (section 3

corporations) should share the Tribe’s

Federal income tax status. In response,

the IRS published further guidance and

issued proposed regulations in 1996 on

the treatment of section 17 corporations

and section 3 corporations for Federal

tax purposes. See the notice of proposed

rulemaking, Simplification of Entity Classification Rules (PS–43–95), published in

the Federal Register (61 FR 21989) on

May 13, 1996 (explaining the basis for the

The term “Indian Tribal government,” also referred to as a “Tribe” herein, is defined as a federally recognized Tribe pursuant to the Federally Recognized Indian Tribe List Act of 1994,

Public Law 103-454, 108 Stat. 4791 (List Act). Pursuant to the List Act, the Secretary of the Interior is required to publish annually a list of all federally recognized Tribes. This definition is

also consistent with Revenue Procedure 2008-55 (2008-39 I.R.B. 768), which provides that the Treasury Department and the IRS utilize current or future lists of federally recognized Tribes

published annually under the List Act by the DOI Bureau of Indian Affairs, for identification of Indian Tribal governments for purposes of section 7701(a)(40). See 89 FR 944 (January 8,

2024) for the most current list published by the DOI, Bureau of Indian Affairs.

See Rev. Rul. 67-284, 1967-2 C.B. 55. However, Tribes generally are subject to Federal employment taxes. Employment taxes refers to Federal Insurance Contributions Act (FICA) (consisting of both social security and Medicare taxes), Federal Unemployment Tax Act (FUTA), and Income Tax Withholding. Section 3306(c)(7) of the Code provides an exception from FUTA

taxes under certain circumstances. Further, subject to applicable law, including statutes (such as section 7871 of the Code) and treaties or agreements with the United States, Tribes are subject

to Federal excise taxes. See Rev. Rul. 94-81, 1994-2 C.B. 412.

Bulletin No. 2026–5

403

January 26, 2026

proposed rule later adopted in § 301.77011(a)(3)).

On December 18, 1996, the Department of the Treasury (Treasury Department) and the IRS published final

regulations (TD 8697) in the Federal

7701, known as the entity classification regulations. These regulations (at

§ 301.7701-1(a)(3)) make clear that

entities formed under local laws are not

always recognized as separate entities

for Federal tax purposes. For example,

an organization wholly owned by a State

is not recognized as a separate entity for

Federal tax purposes if it is an integral

part of the State. Similarly, these regulations (until their amendment by this Treasury decision) provided that section 17

corporations and section 3 corporations

are not recognized as separate entities for

Federal tax purposes. These regulations,

however, did not specifically address

whether an entity organized or incorporated under Tribal law and wholly owned

by a Tribe (that is, a wholly owned Tribal

entity) is recognized as a separate entity

for Federal tax purposes.

The preamble to TD 8697 stated that

the IRS received a number of comments

asking for clarification of the tax treatment of wholly owned Tribal entities. 61

FR 66584. The preamble also indicated

that the Treasury Department and the IRS

continued to study the issue and would

issue additional guidance, if necessary. Id.

at 66585-86.

II. Tribal Consultation

Over the past several decades, Tribes

have sought clarity concerning the Federal tax status of wholly owned Tribal

entities, in part to provide certainty for

Tribal economic development and to support the generation of revenue for Indian

Tribal governments. To obtain Tribal

input on the issue before publishing the

proposed regulations, and in accordance

with Executive Order 13175 (November

6, 2000), “Consultation and Coordination

with Indian Tribal Governments,” and the

Treasury Department’s Tribal Consultation Policy (80 FR 57434, September 23,

2015), superseded by Treasury Order 11204 (November 22, 2023), the Treasury

Department and the IRS held Tribal con-

January 26, 2026

sultations on the issue on June 21 and June

22, 2023, October 8 and 10, 2019, and a

listening session on December 3, 2019.

During Tribal consultations, Tribes

have explained that they view incorporating corporations under Tribal law as

an exercise of their inherent sovereign

authority to generate governmental revenue, self-govern the use of that revenue

according to their own laws, and self-determine the use of that revenue for their

citizenry. Tribes highlighted that incorporating corporations under Tribal law

enables Tribes to create entities that meet

their emerging revenue opportunities,

establish guidelines for the operation of

these entities that are culturally appropriate and protect Tribal assets, and dissolve

them when they are no longer needed.

Tribes also highlighted that clarifying the

status of corporations incorporated under

Tribal law is consistent with recent Federal policy to promote Tribal sovereignty,

self-governance, and self-determination in

economic development activities.

In contrast, Tribes highlighted that section 17 and section 3 corporations are not

always sufficient to meet their needs. The

incorporation process for these entities is

a lengthy multi-step Federal process that

subjects Tribal authority to Federal oversight and approval and results in increased

administrative costs to Tribes. In addition,

an act of Congress is required to dissolve

the chartered entity.

This issue has taken on increased

salience in recent years with the enactment of laws that extend greater access

to capital and new economic opportunities to certain governments (including

Indian Tribal governments), tax-exempt

organizations, and other entities. Tribes

have reiterated their requests for guidance

through meetings of the Treasury Tribal

Advisory Committee and other Tribal

consultations.

III. Proposed Regulations

In light of the considerations of Tribal

sovereignty

and

self-determination

described previously, on October 9, 2024,

the Treasury Department and the IRS published a notice of proposed rulemaking

(REG-113628-21) in the Federal Register

(89 FR 81871), which provided proposed

guidance under sections 6417 and 7701

404

(proposed regulations). See the preamble

to the proposed regulations for additional

information regarding the developments

leading to this rulemaking.

The proposed regulations proposed to

amend the existing section 7701 regulations to make clear that entities wholly

owned by Tribes and organized, incorporated, or authorized under the laws of

the Tribes that own them generally are not

recognized as separate entities for Federal tax purposes. As has been the case

with Tribes and section 17 corporations

or section 3 corporations, the proposed

regulations proposed that an entity wholly

owned by one or more Indian Tribal governments, within the meaning of section

7701(a)(40), that is organized or incorporated under the laws of the Tribe or

Tribes that own the entity, or organized

or incorporated under the laws of one or

more of the owning Tribes and authorized

by all of the other owning Tribes (wholly

owned Tribal entity), would not be recognized as a separate entity for Federal tax

purposes (and thus not subject to Federal

income tax). The use of the term “organized” includes the creation of Tribal entities other than corporations. For instance,

a single member limited liability company (LLC) organized under the laws of

the Tribe that owns the LLC would be a

wholly owned Tribal entity covered by the

proposed regulations. Accordingly, such

wholly owned entities generally would be

viewed as one and the same as the Tribes

that own them for Federal income tax purposes and therefore are not subject to Federal income tax.

In addition, the proposed regulations

proposed to amend the existing section

6417 regulations to provide that wholly

owned Tribal entities, section 17 corporations, and section 3 corporations are

treated, for purposes of making section

6417 elections (including determining

eligibility for and the consequences of

such elections), as instrumentalities of

the Indian Tribal government(s) that

wholly own them. As a result, the wholly

owned Tribal entity itself, rather than the

Indian Tribal government(s) owning the

entity, would be required to make a section 6417 election for an applicable credit

determined with respect to any applicable

credit property held directly by the wholly

owned Tribal entity.

Bulletin No. 2026–5

A. Wholly Owned Tribal Entity

Requirements Under Proposed

Regulations

1. Tribal law

The proposed regulations recognized

that Tribal law is established by each

individual Tribe. The notice of proposed

rulemaking stated that, where multiple

Tribes work together to establish an entity

that is owned by more than one Tribe,

each Tribe would need to provide for the

entity under its own laws.

2. Wholly owned

The notice of proposed rulemaking

noted that, as is the case for determining

the ownership of all corporations (including a corporation wholly owned by a State

or other government), the determination

of whether an outside investor (a person

other than a Tribe) holds equity in a Tribal

entity, such that it would fail to be wholly

owned by one or more Indian Tribal governments for Federal tax purposes, would

take into account principles of Federal tax

law, such as the substance over form doctrine, debt versus equity analyses, and the

economic substance doctrine.

Under the proposed regulations, an

entity could satisfy the wholly owned

requirement through a multi-Tribe ownership structure, so long as the entity is organized or incorporated under each Tribe’s

laws. Proposed § 301.7701-1(a)(4)(iii)(D)

(Example 4) illustrates an example of the

organizational structure of such an entity.

The proposed regulations did not

address an entity formed under Tribal law

that was not also wholly owned by one or

more Indian Tribal governments for Federal tax purposes.

IV. Elective Payment Elections

Under 26 CFR 1.6417-1(f) as of April

1, 2025, section 17 corporations and section 3 corporations were treated as “disregarded entities” for purposes of section

6417, and the applicable entity owner of

a disregarded entity that directly holds

applicable credit property was required

to make a section 6417 election for applicable credits determined with respect to

such property pursuant to § 1.6417-2(a)

Bulletin No. 2026–5

(1)(ii). Under the proposed regulations,

for purposes of making a section 6417

election (including determining eligibility for and the consequences of such

election), entities described in proposed

§ 301.7701-1(a)(4)(i) (that is, section 17

corporations, section 3 corporations, and

wholly owned Tribal entities), would

be treated as instrumentalities of Indian

Tribal governments. This change would

mean that an entity described in proposed

§ 301.7701-1(a)(4)(i) that directly owns

applicable credit property, rather than the

entity’s owner or owners, would make the

section 6417 election. Such an entity generally would do so by filing a Form 990T, Exempt Organization Business Income

Tax Return, as described in § 1.6417-1(b)

(2), using its own name and employer

identification number.

Given that proposed § 301.7701-1(a)

(4)(i) generally provided that an entity

owned by multiple Tribes is not recognized

as a separate entity from those Tribes for

Federal income tax purposes, treating the

entity as a “disregarded entity” for section

6417 purposes would have required each

of the entity’s owners to make a section

6417 election with respect to an applicable credit determined with respect to an

applicable credit property owned directly

by the entity. That approach would have

been administratively burdensome and

complex for the Tribes that own the entity

as well as for the IRS. Given the need for

coordination among these Tribes in making consistent tax filings, that approach

could also have resulted in cases in which

the amount of the total payments or

deemed payments claimed under section

6417 might not be commensurate with the

amount of the underlying credit. In addition, even for an entity owned by a single

Tribe, the entity directly owning the applicable credit property may be better positioned to fulfill the pre-filing registration

and other requirements to make the section 6417 election. Accordingly, the proposed regulations were intended to simplify the filing obligations for Tribes and

their wholly owned entities and ensure

that the amount of any payment or deemed

payment made under section 6417 will be

commensurate with the amount of the

credit that would be otherwise allowable.

In general, the determination of

whether an entity is an agency or instru-

405

mentality is analyzed on a facts and circumstances basis. In determining whether

an entity is an agency or instrumentality

for Federal tax purposes, Federal courts

have applied the six-factor test in Rev.

Rul. 57-128, 1957-1 C.B. 311, which generally provides guidance on whether an

entity is an instrumentality for purposes

of the exemptions from employment taxes

under sections 3121(b)(7) and 3306(c)(7)

of the Code. See, e.g., Rose v. Long Island

Railroad Pension Plan, 828 F.2d 910, 918

(2d Cir. 1987), cert. denied, 485 U.S. 936

(1988); Berini v. Federal Reserve Bank of

St. Louis, Eighth District, 37 Employee

Benefits Cas. 1072, 420 F. Supp. 2d 1021

(E.D. Mo. 2005).

The special rule in proposed § 1.64171(c)(7) is informed in part by administrative considerations and would be issued

under the express delegation of authority

in section 6417(h) to promulgate rules that

carry out the purposes of section 6417 and

ensure that the amount of the payment or

deemed payment made thereunder is commensurate with the amount of the underlying credit. No inferences should be drawn

from the instrumentality treatment in proposed § 1.6417-1(c)(7) as to whether any

particular entity is or is not an instrumentality for any other Federal tax purpose.

Summary of Comments and

Explanation of Revisions

The Treasury Department and the IRS

conducted Tribal consultations on December 16 -18, 2024, to obtain additional input

on questions involving the proposed regulations. The content of these consultations

is published in a Tribal consultation summary available at: https://home.treasury.

gov/system/files/136/Tax-Status-of-Tribally-Chartered-Corporations-Consultation-Summary.pdf. In addition, the Treasury Department and the IRS received

written comments in response to the proposed regulations. A public hearing on the

proposed regulations was held on January

17, 2025. Copies of written comments and

the list of speakers at the public hearing

are available at https://www.regulations.

gov or upon request.

After full consideration of all comments received on the proposed regulations, including through the Tribal consultations, and the testimony presented at

January 26, 2026

the public hearing, this Treasury decision

adopts the proposed regulations as final

regulations with clarifying changes and

modifications as described in this Summary of Comments and Explanation of

Revisions. Overall, commenters largely

supported the proposed regulations’ recognition of a Tribe’s inherent authority

to create businesses under Tribal law and

that wholly owned Tribal entities should

have parity with federally chartered Tribal

corporations.

Section I of this Summary of Comments and Explanation of Revisions

addresses the comments and revisions

applicable to § 301.7701-1. Section II of

this Summary of Comments and Explanation of Revisions addresses the comments

and revisions applicable to § 1.6417-1.

Unless otherwise indicated in this

Summary of Comments and Explanation

of Revisions, provisions of the proposed

regulations for which no comments were

received are adopted without substantive

change. Comments that merely summarize the proposed regulations, recommend

statutory revisions to section 7701, section 6417, or other statutes, address issues

that are outside the scope of this rulemaking (such as proposed changes to other

guidance), or recommend changes to IRS

forms are beyond the scope of these regulations and are not adopted. In addition,

comments that are related to executive

orders and prior guidance described in

the preamble to the proposed regulations

are beyond the scope of these regulations

and are not adopted. The final regulations

include non-substantive modifications,

including modifications that promote consistency across rules and examples, rearrange provisions, and improve the overall

clarity of the guidance. Such non-substantive modifications are not addressed in

this Summary of Comments and Explanation of Revisions.

I. Wholly Owned Tribal Entities Under

the Final Regulations

The final regulations under section

7701 provide that a wholly owned Tribal

entity (including a single member LLC

organized under the laws of the Tribe that

owns it) is not recognized as a separate

entity for Federal income tax purposes,

but is recognized as separate and treated

January 26, 2026

as a corporation for Federal employment

tax purposes and certain Federal excise

tax purposes. The final regulations also

provide that section 17 corporations and

section 3 corporations are recognized as

entities separate from the Tribe(s) that own

these entities for Federal employment and

certain Federal excise tax purposes.

A. Multi-Tribe ownership

The majority of commenters expressed

support for the recognition that Tribes may

organize or incorporate an inter-Tribal

entity serving multiple Tribes. However,

some commenters stated that it is impractical and unworkable to require that an

inter-Tribal entity wholly owned by more

than one Indian Tribal government (within

the meaning of section 7701(a)(40) of the

Code) be organized or incorporated under

the laws of each of the Indian Tribal governments with an ownership stake in the

entity. Commenters stated that the rules

should provide that an inter-Tribal entity

with a single charter authorized by each

Tribe’s governing body, or other body or

official acting pursuant to authority delegated by the Tribe’s governing body,

shares the tax status of the Tribe(s) that

own it. These commenters recommended

that, although authorized under each

Tribe’s legislative or administrative process, the inter-Tribal entity charter should

allow for a choice of law or forum clause

that subjects the inter-Tribal entity to the

corporate or limited liability company

laws of just a single Tribe. To clarify the

proposed regulations, the same commenters requested amendments to the language

of the regulations to require that the interTribal entity be authorized under each

owner Tribe’s law and to allow Tribes

to adopt their choice of law and forum.

Additionally, a commenter requested the

regulations be amended to allow Tribes

to enter into co-ownership arrangements

with respect to existing entities previously

organized and incorporated under the laws

of one or more Tribes.

Other commenters suggested that entities owned solely by multiple Tribal governments should be disregarded where (a)

the entity is formed under the laws of one

of the member Tribes, (b) the Tribe’s laws

permit ownership by the other Tribes, and

406

come by resolution or other suitable document.

Based on these comments, the final

regulations provide that an inter-Tribal

entity is not recognized as a separate

entity when organized or incorporated

exclusively under the laws of one or more

of the Indian Tribal governments that own

it. The final regulations also add a sentence that clarifies that whether an entity

is organized or incorporated under the

laws of one or more Indian Tribal government(s) is determined without regard

to any specified choice of law or forum.

These changes are intended to minimize

the administrative burden on Tribes seeking to form or acquire interests in interTribal entities that would generally not be

recognized as separate entities under these

final regulations.

The word “exclusively,” as used in

these regulations, means that the entity

must be formed under the laws of one or

more of the Indian Tribal governments

that own it and not the laws of an Indian

Tribal government that does not have

an interest in the entity or the laws of a

state or foreign government. Therefore,

an entity formed solely under the laws

of one owning Indian Tribal government

that is also owned by several other Indian

Tribal governments would be considered

as organized or incorporated exclusively

under the laws of one or more of the Indian

Tribal governments that own it and would

generally not be recognized as a separate

entity for Federal tax purposes.

B. State-recognized Tribes

One commenter expressed concern

that entities organized or incorporated

under the laws of a Tribe that is not federally recognized but recognized by a

State (State- recognized Tribe) would not

be covered under these proposed regulations and requested clarity as to how the

result might change, if at all, in proposed

§ 301.7701-1(a)(4)(iii)(D) (Example 4)

if one or more of the four participating

Tribes were State‑recognized Tribes.

The United States has a government-to-government relationship with

and recognizes the sovereignty of federally recognized Tribes. Revenue Procedure 2008-55 (2008-39 I.R.B. 768) treats

all federally recognized Tribes as Indian

Bulletin No. 2026–5

Tribal governments under section 7701(a)

(40). Federally recognized Tribes are not

subject to Federal income taxes. Section

301.7701-1(a)(3) has long provided that

section 17 corporations and section 3 corporations chartered under Federal law and

wholly owned by federally recognized

Tribes are not recognized as separate entities for Federal tax purposes. These final

regulations extend the same treatment to

entities organized or incorporated under

Tribal law and wholly owned by Tribes.

Because section 17 corporations, section

3 corporations, and wholly owned Tribal

entities are not recognized as separate

entities, they, like the Tribes that own

them, are not subject to Federal income

tax.

Corporations wholly owned by

State-recognized Tribes were not covered

by the proposed regulations and are not

covered by these final regulations. If one

or more of the four participating Tribes

in § 301.7701-1(a)(4)(iii)(D) (Example 4)

were a State-recognized Tribe or an entity

created by a State-recognized Tribe, then

the jointly owned corporation would not

satisfy the requirements of § 301.77011(a)(4) and would be respected as a separate legal entity that could be subject to

Federal income taxation.

C. State-chartered Tribally owned entities

Some commenters suggested that not

only entities wholly owned by Indian

Tribal governments and organized or

incorporated under the laws of their

Indian Tribal government owner, section

3, or section 17, but also Tribally owned

entities organized under State law should

be treated as not separate from the Tribe

for Federal tax purposes. The Treasury

Department and the IRS have previously

ruled that a corporation organized by an

Indian Tribe under State law is subject to

Federal income tax on the income earned

in the conduct of a commercial business

on and off the Tribe’s reservation. See Rev.

Rul. 94-16, situation 3, 1994-1 C.B. 19

(1994). The commenters proposed that the

relevant consideration for Federal income

tax purposes is not which government

created the corporate entity but, rather,

the tax status of the owner. Commenters

explained the advantages of State-chartered entities to include that their structure

Bulletin No. 2026–5

is more familiar to outside investors and

offers a broader spectrum of opportunities, particularly for business ventures

outside of the Tribe’s reservation. These

regulations only address the Federal tax

treatment of entities chartered by DOI or

under Tribal law. Accordingly, the Federal

tax treatment of State-chartered entities

is outside the scope of these regulations,

and, therefore, the final regulations do not

adopt this comment.

D. Majority-owned entities

Many commenters recommended

extending Federal income tax exemption

to entities with 51 percent or greater ownership by Tribes so that they are on parity with State and local governments to

receive the same tax advantages afforded

to State and local government entities in

public-private partnerships. Commenters

also requested clarifying guidance on the

tax treatment of partially owned entities,

including distinctions between wholly

owned, partially owned, and majority

owned entities.

As these matters are outside the scope

of the guidance contained in the proposed

regulations that these regulations finalize,

the final regulations do not adopt these

comments. The Treasury Department

and the IRS continue to consider possible

guidance on the Federal tax treatment of

corporations incorporated under Tribal

law that are owned in part by persons other

than Tribes. The Treasury Department and

the IRS would conduct Tribal consultation

prior to issuing any guidance in that area.

E. Wholly owned Tribal entities as

separate from the Tribe(s)

Some commenters suggested that

wholly owned corporations incorporated

under Tribal law should be considered

exempt from Federal income tax without the fiction that such corporations are

not separate from the parent Tribe. These

commenters explained that Revenue Ruling 94-16, 1994-1 C.B. 19, does not rely

on this concept. The commenters indicated that section 17 corporations share

the same tax status as the Tribe without

relying on a fiction that the section 17

corporation is not separate from the Tribe.

As support, the commenters indicated that

407

Federal law permits a Tribe to organize

both section 16 corporations and section

17 corporations, separate classes of entities with differing powers, purpose, and

function. Commenters further explained

that if a corporation incorporated under

Tribal law is not distinct from the Tribal

government, this could prohibit Tribes

from qualifying a wholly owned Tribal

entity for section 501(c)(3) status and,

thus, would require Tribes to charter nonprofit corporations under State law, contrary to Federal policy.

Under the existing framework of the

section 7701 regulations, an entity recognized as separate from the Tribe does

not share the same tax status as the Tribe.

Thus, in order to be an entity not subject

to Federal income tax under those regulations, section 17 corporations and section 3 corporations cannot be recognized

as separate and distinct from the Tribe for

Federal income tax purposes. These final

regulations treat wholly owned Tribal

corporations similarly to section 17 corporations and section 3 corporations. The

commenter is correct that a wholly owned

corporation incorporated under Tribal

law that is not separate and distinct from

the Tribal government cannot qualify for

section 501(c)(3) status. However, there

is nothing in these regulations to prevent

Tribes from creating non-stock Tribal

law entities that are described in section

501(c)(3), nor would doing so be contrary

to Federal policy.

F. Limited liability companies

Commenters requested the addition of

clarifying language to confirm that LLCs

that qualify as wholly owned Tribal entities are not recognized as separate entities for Federal income tax purposes and,

therefore, would not be subject to Federal

income tax. The commenters indicated

that confusion arises because an entity can

be classified as one type of entity for local

law purposes such as an LLC or partnership, and then make an entity classification election by filing Form 8832, Entity

Classification Election, with the IRS to be

taxed differently for Federal tax purposes.

A majority of commenters supported

the addition to the final regulations of a

separate illustrative example of an LLC

that qualifies as a wholly owned Tribal

January 26, 2026

entity that is not regarded as a separate

entity and, therefore, not subject to Federal income tax. Other commenters suggested that it is unnecessary for the proposed regulations to apply to entities other

than corporations that qualify as wholly

owned Tribal entities. Those commenters explained that since the section 7701

regulations treat a domestic eligible entity

with a single owner as disregarded unless

the owner otherwise elects, many Tribes

have created LLCs that qualify as wholly

owned Tribal entities with the understanding that the rules under the existing regulations apply. Commenters expressed

concern that adopting a rule that automatically disregards the separateness of all

wholly owned Tribal entities for Federal

tax purposes disrupts that understanding.

The treatment of limited liability companies for Federal tax purposes is determined under the general classification

rules of § 301.7701-3(a). However, the

term “organized” used in § 301.7701-1(a)

(4)(i) is meant to apply to LLCs organized

under Tribal law that are wholly owned by

one or more Tribe(s) (Tribally organized

LLC), which is consistent with both the

preamble to the proposed regulations and

proposed § 301.7701-1(a)(4)(iii)(C).

Comments indicate that taxpayers

understand that the proposed regulations

would treat a Tribally organized LLC with

a single member as not separate from the

Tribe for Federal tax purposes, and therefore not subject to Federal income tax under

these final regulations. Therefore, the final

regulations do not adopt these comments.

However, the Treasury Department

and the IRS understand the need for certainty in this area. Therefore, the final regulations adopt the general comments that

the examples provided in the regulation

should explicitly state that the rules apply

equally to Tribally organized LLCs.

subsidiary. A few commenters also suggested adding an example of a multi-tier

partnership entity similar to proposed

§ 301.7701-1(a)(4)(iii)(B) (Example 2).

Proposed § 301.7701-1(a)(4) did not

expressly state that entities that are owned

through a chain of entities that themselves are not recognized for Federal tax

purposes are not recognized as separate

entities for Federal tax purposes. In order

to ensure clarity on this point, the final

regulations add language in § 301.77011(a)(4) to clarify that the wholly owned

requirement can be met through ownership by other entities not recognized as

separate under § 301.7701-1(a)(4).

The final regulations, in § 301.77011(a)(4)(iii)(B) (Example 2), illustrate that

in a tiered structure where Corporation Z

is wholly owned by Corporation X and

Corporation X is wholly owned by Tribe

B, where both Corporation Z and Corporation X are organized or incorporated

exclusively under the laws of Tribe B,

both entities are not recognized as separate from Tribe B for Federal tax purposes

and are not subject to Federal income tax.

This example was intended to be a general illustration of the proposed rule that

subsidiaries in a tiered entity structure of

wholly owned Tribal entities are not recognized as separate entities for Federal

tax purposes and are, therefore, exempt

from Federal income tax. Revising the

example as suggested by the commenters

to specify that proposed § 301.7701-1(a)

(4)(iii)(B) (Example 2) involves a holding

company and a subsidiary would unnecessarily narrow the scope and relevancy

of this example, which was intended to be

a general illustration. Therefore, the final

regulations do not adopt this comment.

G. Multi-tier entity structures

One commenter requested adding an

example to confirm that a Tribally organized LLC would retain its status as not

regarded when it enters into a partnership

with a third-party for-profit corporation

formed under State law. Though the final

regulations do not add such an example,

the Treasury Department and the IRS confirm that the Federal tax status of a Tribally organized LLC would not be affected

by holding an interest in a partnership

Many commenters requested clarification in the final regulations that the

treatment of wholly owned Tribal entities

as not separate entities from their Tribal

owners applies equally to subsidiary entities. Similarly, many commenters also

suggested revising proposed § 301.77011(a)(4)(iii)(B) (Example 2) to indicate

that it involves a holding company and a

January 26, 2026

H. Partnerships with non-Tribally owned

entities

408

regardless of who the other partners in the

partnership were.

I. Section 17 corporation

A commenter recommended clarifying

that a section 17 corporation is a federally

chartered corporation created through a

lengthy incorporation process for a corporation with the DOI and the eventual

approval of such corporation’s charter.

These final regulations do not adopt

the recommendation in this comment concerning detailing the processes by which a

section 17 corporation is created because

the regulations do not modify or otherwise affect the incorporation process of

section 17 corporations and section 3 corporations. They do provide certainty that

wholly owned Tribal entities are accorded

the same tax treatment as section 17 corporations and section 3 corporations. The

final regulations do, however, adopt the

recommendation to change the description

of section 17 corporations and section 3

corporations to reflect that they are federally chartered corporations.

J. Tribal entity formation

Several commenters also requested

clarification that entities formed under

resolutions or interim measures, rather

than formal ordinances, are also afforded

Federal income tax exemption if established under Tribal law. The proposed

regulations did not address the specific

mechanisms or administrative processes

by which Tribes organize or incorporate

a wholly owned entity under their sovereign laws. While the final regulations do

not specifically adopt these comments by

providing the requested clarification, the

Treasury Department and the IRS confirm

that any acts to organize or incorporate a

wholly owned Tribal entity under the laws

of the Tribes would satisfy the requirements of being “organized under Tribal

law” for such entity to not be recognized

as a separate entity from the Tribe under

§ 301.7701-1(a)(4)(i).

K. Not subject to Federal income tax

A commenter recommended expressly

stating in the text of proposed § 301.77011(a)(4)(i) that section 17 corporations,

Bulletin No. 2026–5

section 3 corporations, and wholly owned

Tribal entities are not subject to Federal

income tax on income earned by them

in the conduct of commercial business,

investment, and/or other activities on or

off the organizing Tribe’s reservation or

Tribes’ reservations (as applicable). The

commenter suggested that, although proposed § 301.7701-1(a)(4)(iii)(A) through

that entities wholly owned by one or more

Tribes and organized or incorporated

exclusively under the laws of such Tribe

or Tribes are both not recognized as separate entities for Federal tax purposes and

not subject to Federal income tax, additional language explicitly stating that such

entities are not subject to Federal income

tax is necessary in proposed § 301.77011(a)(4)(i) for consistency and to avoid any

ambiguity on this issue.

This commenter also indicated that

the use of the phrase “in the conduct of

commercial business” in connection with

the statement of exemption from Federal

income tax in the preamble to the proposed regulations creates uncertainty as

to the scope of the exemption from Federal income tax of section 17 corporations

and section 3 corporations, creating the

possibility of disputes regarding whether

income from investments or other activities or sources is excluded from the

exemption from Federal income tax.

Thus, the commenter requests clarification in the final regulations on the scope

of the exemption from Federal income tax

for section 17 corporations and section 3

corporations.

The Treasury Department and the IRS

adopt the recommendation and added language to § 301.7701-1(a)(4)(i) to clarify

that such entities are not subject to Federal

income tax. As such, the source of their

income is not relevant because their Federal tax status is not based on the source or

type of income earned. Accordingly, the

final regulations do not comment on the

nature or source of income excluded from

Federal income tax derived by section 17

corporations, section 3 corporations, or

wholly owned Tribal entities.

L. Federal income tax refunds

Some commenters requested that the

IRS defer to Tribes’ sole discretion to

Bulletin No. 2026–5

determine whether wholly owned Tribal

entities that have been in existence

for decades have consistently applied

§ 301.7701-1(a)(4) and relied on that provision for tax years prior to the final regulations’ publication date. By providing such

deference, these commenters suggest, the

IRS would respect Tribal sovereignty and

self-governance, and reduce administrative burdens. To that effect, some commenters suggested developing a specific

streamlined refund process for wholly

owned Tribal entities that may have paid

Federal income taxes for a period before

the final regulations’ publication date.

While the final regulations do not

adopt the foregoing comments, the Treasury Department and the IRS confirm that

Federal income tax refund requests may

be processed under the general principles of tax administration. In particular,

wholly owned Tribal entities that choose

to apply the final regulations retroactively

may seek income tax refunds by filing

Form 1120-X, Amended U.S. Corporation Income Tax Return, for tax years for

which the applicable period of limitations

is open and obtain the assistance of the

Indian Tribal Governments office of the

Tax Exempt and Government Entities

Division of the IRS to process their refund

requests.

M. Federal excise tax

1. Entity classification

The majority of commenters recommended that the final regulations treat section 17 corporations, section 3 corporations, and wholly owned Tribal entities as

entities that are separate from the Tribe(s)

that own these entities for Federal excise

tax purposes because Tribes create these

entities to limit the risk of liability to the

Tribes themselves. The commenters’ suggestion would be consistent with the treatment of disregarded entities as separate

from their owners for purposes of certain

Federal excise taxes under the special rule

in § 301.7701-2(c)(2)(v). Additionally, the

Background section of the preamble to the

proposed regulations notes at footnote 2

that while Tribes are not subject to Federal

income tax, they generally are subject to

Federal excise taxes absent a rule (such as

section 7871 of the Code) providing oth-

409

erwise. Other commenters requested that

the final regulations allow Tribes to elect

to treat a wholly owned entity as either

regarded or disregarded for Federal excise

tax purposes. These commenters asserted

that Tribes have a sovereign right to elect

specific Federal tax treatment.

In addition, several commenters

expressed concern that the rules applying

to “business entities” in § 301.7701-2(c)

(2)(i) and (v) may not include section

17 corporations, section 3 corporations,

or wholly owned Tribal entities. Section

301.7701-2(a) defines a “business entity”

as an entity recognized for Federal tax purposes, and § 301.7701-1(a)(3), as of April

1, 2025, provided that section 17 corporations and section 3 corporations were not

“recognized” for Federal tax purposes.

Similarly, proposed § 301.7701-1(a)(4)

(i) generally would not have recognized

section 17 corporations, section 3 corporations, or wholly owned Tribal entities as

separate entities for Federal tax purposes.

These commenters requested that the final

regulations explicitly treat these three

types of Tribal entities as separate entities

for Federal excise tax purposes. Specifically, commenters suggested modifying

§ 301.7701-2(c)(2)(v) to apply both to

business entities described in § 301.77012(c)(2)(i) and to Tribal entities described

in proposed § 301.7701-1(a)(4)(i). In

conjunction with this change, commenters also suggested modifying proposed

§ 301.7701-1(a)(4)(i) to provide an exception for cases where the (newly modified)

special rule relating to Federal excise

taxes at § 301.7701-2(c)(2)(v) applies to

Tribal entities.

The Treasury Department and the IRS

agree with the recommendation of the

majority of commenters to treat section 17

corporations, section 3 corporations, and

wholly owned Tribal entities as entities

separate from the Tribe(s) that own them

for Federal excise tax purposes. The final

regulations do not adopt these commenters’ specific recommendation to amend

§ 301.7701-2(c)(2)(v) because the rules

of § 301.7701-2 apply solely to “business

entities.” Instead, the final regulations

provide for this separate entity treatment

in § 301.7701-1. Specifically, while the

final regulations in § 301.7701-1(a)(4)

(i) provide the general rule that section

17 corporations, section 3 corporations,

January 26, 2026

and wholly owned Tribal entities are not

recognized as separate entities for Federal tax purposes, the final regulations in

§ 301.7701-1(a)(4)(iii) provide an exception under which such entities are treated

as separate entities for certain Federal

excise tax purposes under rules identical

to those of § 301.7701-2(c)(2)(v). This

aligns the rules applicable to section 17

corporations, section 3 corporations, and

wholly owned Tribal entities with the

existing rules under § 301.7701-2(c)(2)

(v) that treat disregarded entities as separate from their owners for certain Federal

excise tax purposes.

The Treasury Department and the IRS

decline to adopt the suggestion of some

commenters that Tribes be allowed to

elect the treatment of wholly owned Tribal

entities for Federal excise tax purposes.

Instead, as explained in the previous paragraph, the final regulations provide that

wholly owned Tribal entities (as well as

section 17 corporations and section 3 corporations) will, in all cases, be regarded as

separate entities for the Federal excise tax

purposes identified in § 301.7701-2(c)(2)

(v). This approach is consistent with most

commenters’ requests and aligns with the

existing Federal excise tax regime under

§ 301.7701‑2(c)(2)(v).

This approach also avoids a number

of administrative difficulties that taxpayers and the IRS have experienced with

respect to disregarded entities generally,

due to the interaction of the disregarded

entity rules and certain Federal excise tax

provisions. Many Federal excise tax provisions rely on State law, rather than Federal law, to determine when tax attaches

or whether to allow an excise tax credit

or refund. Federal excise taxes are generally transaction-based, and State law

often governs one or more aspects of a

transaction, such as when title to an article passes. As such, difficulties arose prior

to the 2007 regulations, TD 9356 (72 FR

45891, August 16, 2007), when an entity

that was regarded under State law, but disregarded under Federal tax law, engaged

in transactions subject to a Federal excise

tax. To address these problems, in 2007,

the Treasury Department and the IRS promulgated § 301.7701-2(c)(2)(v) to treat

wholly owned business entities otherwise

disregarded for Federal tax purposes as

separate from their owners for certain

January 26, 2026

Federal excise tax purposes. See TD 9356

(72 FR 45891, August 16, 2007) (adopting

final regulations and stating no comments

were received regarding the excise tax

provisions of the proposed regulations);

REG‑114371‑05 (70 FR 60475-60476,

October 18, 2005) (preamble to proposed

§ 301.7701-2(c)(2)(v), explaining reasons

for the change).

To prevent similar problems with

respect to Tribal entities, the final regulations adopt separate Federal excise tax

treatment, identical to that of § 301.77012(c)(2)(v), for section 17 corporations,

section 3 corporations, and wholly owned

Tribal entities. Having all wholly owned

Tribal entities on a uniform system for

Federal excise tax purposes that conforms

with the existing § 301.7701-2(c)(2)(v)

rules avoids inconsistency and promotes

sound tax administration.

Finally, other commenters requested

that wholly owned Tribal entities be not

recognized as separate entities for excise

tax exemption purposes but recognized

as separate entities for excise tax liability

purposes. These commenters requested

that the final regulations allow Tribes to

extend their sovereign privileges, such as

a tax exemption, to their wholly owned

entities while also permitting Tribes to

shield their assets from potential liabilities

by forming business entities. The Treasury Department and the IRS decline to

adopt this suggestion because excise tax

exemptions, such as those provided in

section 7871, are outside the scope of this

rulemaking.

2. Section 7871

In expressing their views on the classification of Tribal entities as separate

from the Tribe for Federal excise tax purposes, some commenters expressed concern about the potential impact of such

treatment on the section 7871 exemption

from certain Federal excise taxes. Those

commenters stated that section 17 corporations, section 3 corporations, and wholly

owned Tribal entities should be explicitly

permitted to claim Federal excise tax

exemptions to the same extent as Tribes

under section 7871. Some of those commenters suggested that language be added

to proposed § 301.7701-1(a)(4) to provide

that section 17 corporations, section 3 cor-

410

porations, and wholly owned Tribal entities are treated as an “Indian Tribal government” for purposes of section 7871 and

obsolete § 305.7871-1. Other commenters

requested that such entities be deemed

a “subdivision” for purposes of section

7871.

The final regulations do not adopt these

commenters’ suggestions, as section 7871

and any regulations thereunder are outside

the scope of this rulemaking. The proposed regulations did not address section

7871 or obsolete § 305.7871-1. Accordingly, the final regulations do not address

the existing law under section 7871 or

the availability of the section 7871(a)(2)

exemption from certain Federal excise

taxes for Tribes, section 17 corporations,

section 3 corporations, or wholly owned

Tribal entities.

N. Employment tax

Prior to the publication of this Treasury

decision, § 301.7701-1(a)(3) provided that

section 17 corporations and section 3 corporations are not recognized as separate

entities for Federal tax purposes. However, the regulations did not specifically

address whether a wholly owned Tribal

entity is recognized as a separate entity for

Federal employment tax purposes.

In general, employment tax responsibilities rest with an employer. Employers

are required to deduct and withhold Federal income taxes and Federal Insurance

Contributions Act (FICA) taxes from their

employees’ wages under sections 3402(a)

and 3102(a) of the Code, and are separately

liable for their share of FICA taxes as well as

for Federal Unemployment Tax Act (FUTA)

taxes under sections 3111 and 3301 of the

Code. These Federal income tax withholding, FICA, and FUTA taxes are collectively

referred to herein as “Federal employment

taxes.” Sections 3403, 3102(b), 3111, and

3301 provide that the employer is the person liable for the withholding and payment

of Federal employment taxes. In addition,

the employer is required to make timely

tax deposits, file Federal employment tax

returns, and issue wage statements (Forms

W-2) to employees, which are collectively

referred to herein as “other Federal employment tax obligations.”

An employer is generally defined as

the person for whom an individual per-

Bulletin No. 2026–5

forms services as an employee. See sections 3401(d), 3121(d), and 3306(a) of

the Code. If an entity were not recognized

as separate from its owner for Federal

employment tax purposes, the owner of

the entity would be treated as the employer

for purposes of Federal employment tax

liabilities and all other Federal employment tax obligations related to wages

paid to employees performing services for

the disregarded entity. In the context of

wholly owned Tribal entities, the IRS has

not previously issued guidance regarding

their employment tax treatment.

Outside the context of wholly owned

Tribal entities, § 301.7701-2(c)(2)(iv)(A)

and (B) treat business entities that are disregarded for Federal tax purposes as separate corporations for purposes of Federal

employment taxes and related reporting

requirements. Specifically, certain other

single-owner eligible entities (under

§§ 301.7701-1 through 301.7701-3) that

are disregarded as entities separate from

their owners for other Federal tax purposes are treated as entities separate from

their owners for Federal employment tax

purposes. See § 301.7701-2(c)(2)(iv)(A)

and (B).

Several commenters requested a provision treating wholly owned Tribal entities

separately for employment tax purposes

to ensure that such entities can assume

direct responsibility without burdening

the Tribes that own them. The final regulations adopt these comments and treat

wholly owned tribal entities as separate from their Tribal owners for Federal

employment tax purposes. As discussed

above, this approach is consistent with

the treatment of disregarded entities in

§ 301.7701-2(c)(2)(iv)(A) and (B), which

generally are disregarded as separate from

their owners for Federal tax purposes, but

regarded as separate for Federal employment tax purposes. Further, this approach

would generally not subject Tribes to liability for Federal employment taxes owed

with respect to employees performing

services for their wholly owned Tribal

entities, a result that many commenters

support. This approach also minimizes

administrative burdens, particularly for

inter-Tribal entities.

Other commenters expressly requested

that FICA and FUTA tax benefits applicable to Tribes be applied to wholly owned

Bulletin No. 2026–5

Tribal entities. Another commenter suggested that the final regulations should

confirm that wholly owned Tribal entities

share their owner’s Federal tax exemption

benefits from certain Federal employment

taxes and provide a wide range of hypothetical examples.

There are some Federal employment

tax provisions that specifically apply to

services performed in the employ of a

Tribe. For example, an exception from

FUTA taxes exists for service performed

in the employ of a Tribe, or any instrumentality that is wholly owned by a Tribe.

See section 3306(c)(7). Section 3306(u)

provides that, for FUTA purposes, the

term “Indian tribe” has the meaning given

to such term by section 4(e) of the Indian

Self-Determination and Education Assistance Act (codified at 25 U.S.C. 5304(e)),

and includes any subdivision, subsidiary,

or business enterprise wholly owned by

such an Indian tribe. 25 U.S.C 5304(e)

provides that “Indian Tribe” means,

inter alia, any Indian tribe, band, nation,

or other organized group or community

which is recognized as eligible for the

special programs and services provided

by the United States to Indians because of

their status as Indians.

Accordingly, even though wholly

owned Tribal entities are treated as separate from the Tribes for employment tax

purposes, they remain eligible for the

FUTA tax exception in section 3306(c)

(7) because section 3306(u) makes it clear

that for purposes of FUTA tax, the term

“Indian Tribe” has the meaning given

to such term by 25 U.S.C. 5304(e) and

includes “any subdivision, subsidiary, or

business enterprise wholly owned by such

an Indian tribe.”

As an example, if a Tribe establishes a

wholly owned Tribal entity, under the final

regulations, it will generally be treated as

a separate corporation for Federal employment tax purposes, but it will be treated as

an Indian Tribe for purposes of the FUTA

tax exception provided by section 3306(c)

(7) because it is a subdivision, subsidiary,

or business enterprise wholly owned by

the Tribe as defined in section 3306(u).

II. Elective Payment Elections

The final regulations provide that

wholly owned Tribal entities, section 17

411

corporations, and section 3 corporations

are treated, for purposes of making section 6417 elections (including determining eligibility for and the consequences of

such elections), as instrumentalities of the

Indian Tribal government(s) that wholly

own them. This is the same rule contained

in proposed § 1.6417-1, which stated that

an entity described in § 301.7701-1(a)(4)

(i) is treated as an instrumentality of the

Indian Tribal government(s) or subdivision(s) thereof that own(s) it.

Commenters generally supported the

proposed rule treating wholly owned

Tribal entities as instrumentalities of the

Tribes that own them for purposes of the

section 6417 elective payment election.

Some commenters requested clarification

on the application of the elective payment

election rules when an applicable credit is

generated by a wholly owned Tribal entity

jointly owned by multiple Tribes. As a

clarification, a wholly owned Tribal entity

that is jointly owned by multiple Tribes

would be treated as an instrumentality

for purposes of section 6417. The wholly

owned Tribal entity will determine any

applicable credit generated by the Tribal

entity’s activities and make the elective

payment election for any applicable credit

so determined. This avoids each Tribe

having to separately determine a credit

and separately make an elective payment

election. By following the procedural

rules in the section 6417 final regulations,

TD 9988 (89 FR 17584, March 11, 2024),

the wholly owned Tribal entity generally

will make the elective payment election

by completing pre-filing registration and

then filing a return including a completed

Form 990-T, Exempt Organization Business Income Tax Return, as described in

§ 1.6417-1(b)(2), using its own name and

employer identification number, any relevant source credit form(s), Form 3800,

General Business Credit (or its successor),

and any additional information, including supporting calculations, required in

instructions to the relevant forms. Any

refund resulting from the elective payment election would be paid to the wholly

owned Tribal entity. This treatment should

reduce overall complexity for Tribes and

the IRS as it reduces the number of necessary credit calculations and elective

payment elections and also helps ensure

any elective payment amount is commen-

January 26, 2026

surate with the amount of the otherwise

allowable credit.

Another commenter suggested that the

proposed regulations be revised to allow

Tribes the choice of having the Tribe or

the wholly owned Tribal entity make the

elective payment election because in some

cases it may be impractical for the wholly

owned Tribal entity to do so. The final regulations do not adopt this suggestion, consistent with the view of most commenters

who supported the rule providing that the

wholly owned Tribal entity that is treated

as an instrumentality must make the election. There also are additional administrative benefits gained for both Tribes and

the IRS by having certainty on how to

file elective payment elections. For example, it will be clear that the wholly owned

Tribal entity makes the elective payment

election when an entity is wholly owned

by multiple tribes. Thus, the final regulations provide that a wholly owned Tribal

entity is treated as an instrumentality of

an Indian Tribal government and such

instrumentality (and not the Indian Tribal

government) would make the elective

payment election.

A commenter suggested that, rather

than being treated as a payment of tax,

the elective payment amount should be

treated as a grant and paid prior to the

time a project is placed in service. The

statutory text of section 6417(a) expressly

requires the entity making an elective payment election with respect to an applicable credit to be treated as making a payment of tax equal to the amount of such

credit. Furthermore, the statutory text of

section 6417(d)(4) controls the timing of

an elective payment and provides that the

payment is treated as being made by the

applicable entity on the later of the due

date for the return or the date the return

is actually filed. As this comment could

only be adopted if statutory revisions were

made, these final regulations do not adopt

the commenter’s suggestions.

Several commenters recommended

that Tribes be given the option to monetize credits through transferability under

section 6418 of the Code, rather than only

being able to make elective payment elections under section 6417. The commenters

also suggested additional changes to the

section 6418 rules if Tribes were allowed

to make transfers. Tribal governments

January 26, 2026

(and their instrumentalities, pursuant to

§1.6417-1(c)(7)) are listed as applicable

entities under section 6417(d)(1)(A)(iv)

and section 6418(f)(2) expressly provides that an eligible taxpayer for section

6418 is any taxpayer not listed in section

6417(d)(1)(A). Thus, Tribal governments

(and their instrumentalities) are only

allowed to make elective payment elections under section 6417. As the comment

requesting the option to use section 6418

and the other comments suggesting additional section 6418 changes would require

statutory revisions, these final regulations

do not adopt the commenters’ suggestions.

Applicability Dates

The final regulations apply to taxable

periods, or taxable years for purposes of

section 6417, beginning on or after January 1, 2026. The final regulations provide that section 17 corporations, section

3 corporations, and wholly owned Tribal

entities are treated as instrumentalities

for purposes of making a section 6417

election, and as entities separate from

their owners for the Federal employment

and excise tax purposes identified in

§ 301.7701-2(c)(2)(iv) and (v). Accordingly, each such entity must have its own

employer identification number (EIN)

for these purposes. Each such entity must

separately calculate, report, and pay all

employment tax obligations identified in

§ 301.7701-2(c)(2)(iv) with respect to

its employees under its own name and

EIN for wages paid on or after January

1, 2026. With respect to taxable periods

beginning on or after January 1, 2026,

each such entity must separately report,

calculate, and pay taxes for any purpose

identified in § 301.7701-2(c)(2)(v) under

its own name and EIN. To ensure that

taxpayers have sufficient time to make

any necessary changes to their systems

in response to these final regulations, the

final regulations apply only to taxable

periods beginning on or after January 1,

2026.

For Federal income tax purposes only,

an entity may choose to apply § 301.77011(a)(4) to taxable periods beginning before

January 1, 2026, for which the applicable

period of limitations is open.

For section 6417 purposes, an entity

described in § 301.7701-1(a)(4)(i) may

412

choose to apply § 1.6417-1(c)(7) and (f)

to taxable years beginning before January

1, 2026, but only if the Indian Tribal government(s) that own the entity also apply

§ 1.6417-1(c)(7) and (f) consistently with

such entity for all such taxable years.

Special Analyses

I. Executive Order 13175: Consultation

and Coordination With Indian Tribal

Governments

Executive Order 13175 (Consultation and Coordination With Indian Tribal

Governments) prohibits an agency from

publishing any rule that has Tribal implications if the rule either imposes substantial, direct compliance costs on Indian

Tribal governments and is not required

by statute, or preempts Tribal law, unless

the agency meets the consultation and

funding requirements of section 5 of the

Executive order. This final rule would neither impose substantial, direct compliance

costs on Indian Tribal governments nor

preempt Tribal law within the meaning of

the Executive order.

II. Regulatory Planning and Review

The Office of Management and Budget’s Office of Information and Regulatory Analysis has determined that this regulation is not significant and is not subject

to review under section 6(b) of Executive

Order 12866. Therefore, a regulatory

impact assessment is not required.

The Executive Order 14192 designation for this final rule is anticipated to be

deregulatory.

III. Paperwork Reduction Act

The Paperwork Reduction Act of 1995

(44 U.S.C. 3501-3520) (PRA) generally

requires that a Federal agency obtain the

approval of the Office of Management and

Budget (OMB) before collecting information from the public, whether such

collection of information is mandatory,

voluntary, or required to obtain or retain

a benefit. An agency may not conduct or

sponsor, and a person is not required to

respond to, a collection of information

unless the collection of information displays a valid control number.

Bulletin No. 2026–5

The collection of information in these

regulations contain reporting and recordkeeping requirements. The recordkeeping requirements mentioned within these

final regulations are considered general

tax records under § 1.6001-1(e). These

records are required for the IRS to validate that taxpayers have met the regulatory requirements and are entitled to make

an elective payment election and to verify

the Federal tax classification of entities

described in these final regulations. For

PRA purposes, general tax records are

already approved by OMB under 15450047 for tax-exempt organizations and

government entities.

These regulations also mention reporting requirements related to making elections under section 6417. These elections

will be made by taxpayers on Forms 990T, and credit calculations will be made on

Form 3800 and supporting forms. These

forms are approved under 1545-0047 for

tax-exempt organizations and government

entities.

Pursuant to section 7805(f) of the Code,

the notice of proposed rulemaking preceding this Treasury decision was submitted to

the Chief Counsel for the Office of Advocacy of the Small Business Administration

for comment on its impact on small business, and no comments were received.

IV. Regulatory Flexibility Act

VI. Executive Order 13132: Federalism

Pursuant to the Regulatory Flexibility

Act (5 U.S.C. chapter 6), the Secretary of

the Treasury hereby certifies that the final

regulations will not have a significant

economic impact on a substantial number

of small entities pursuant to the Regulatory Flexibility Act. These final regulations would affect entities that are wholly

owned by Tribes. Additionally, no added

burden is created through these final regulations; rather, these final regulations

would expand the definition of an eligible entity for section 6417 of the Code

but does not expand the requirements for

entities to make the elective payment election. Although data is not readily available

about the number of small entities that are

potentially affected by this rule, it is possible that a substantial number of small

entities may be affected.

To the extent the entities described in

these regulations make elections under

section 6417, the Treasury Department

and the IRS certify the final regulatory

flexibility analysis undertaken in TD 9988

(89 FR 17584, March 11, 2024).

For the reasons stated, a regulatory

flexibility analysis under the Regulatory

Flexibility Act is not required.

Executive Order 13132 (Federalism)

prohibits an agency from publishing any

rule that has federalism implications if

the rule either imposes substantial, direct

compliance costs on State and local governments, and is not required by statute,

or preempts State law, unless the agency

meets the consultation and funding

requirements of section 6 of the Executive

order. These final regulations do not have

federalism implications and do not impose

substantial, direct compliance costs on

State and local governments or preempt

State law within the meaning of the Executive order.

Bulletin No. 2026–5

V. Unfunded Mandates Reform Act

Section 202 of the Unfunded Mandate

Reform Act of 1995 requires that agencies

assess anticipated costs and benefits and

take certain other actions before issuing a

final rule that includes any Federal mandate that may result in expenditures in any

one year by a State, local, or Indian Tribal

government, in the aggregate, or by the

private sector, of $100 million (updated

annually for inflation). These final regulations do not include any Federal mandate

that may result in expenditures by State,

local, or Indian Tribal governments or by

the private sector in excess of that threshold.

VII. Congressional Review Act

Pursuant to the Congressional Review

Act (5 U.S.C. 801 et seq.), the Office of

Information and Regulatory Affairs designated this rule as not a major rule, as

defined by 5 U.S.C. 804(2).

Statement of Availability of IRS

Documents

The Revenue Rulings and Revenue

Procedure cited in this preamble are pub-

413

lished in the Internal Revenue Bulletin

and are available from the Superintendent

of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by

visiting the IRS website at https://www.

irs.gov.

Drafting Information

The principal author of these final

regulations is the Office of Associate

Chief Counsel (Passthroughs, Trusts, and

Estates). However, other personnel from

the Treasury Department and the IRS participated in their development.

List of Subjects

26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 301

Employment taxes, Estate taxes,

Excise taxes, Gift taxes, Income taxes,

Penalties, Reporting and recordkeeping

requirements.

Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 301

are amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation

for part 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

*****

Par. 2. Section 1.6417-1 is amended

by:

1. Revising paragraph (c) introductory

text;

2. Removing the semicolons from the

end of paragraphs (c)(1)(ii) and (c)(2)

through (5) and adding periods in their

places;

3. Removing the language “; and” from

the end of paragraph (c)(6) and adding a

period in its place; and

4. Revising paragraphs (c)(7), (f), and

(q).

The revisions read as follows:

January 26, 2026

§ 1.6417-1 Elective payment election of

applicable credits.

§ 1.6417-1 as contained in 26 CFR part 1,

revised April 1, 2025.

*****

paragraphs (c)(1) through (7) of this section.

*****

(7) An agency or instrumentality of any

applicable entity described in paragraph

(c)(1)(ii) or (c)(2) or (3) of this section.

For purposes of making an elective payment election under section 6417 (including determining eligibility for and the

consequences of such election), an entity

described in § 301.7701-1(a)(4)(i) of this

chapter is treated as an instrumentality of

the Indian Tribal government(s) or subdivision(s) thereof that own(s) it.

*****

(f) Disregarded entity. The term disregarded entity means an entity that is

disregarded as, or not recognized as, an

entity separate from its owner for Federal

income tax purposes under § 301.77011(a)(3) or §§ 301.7701-2 and 301.7701-3

of this chapter. See paragraph (c)(7) of

this section regarding entities described in

§ 301.7701-1(a)(4)(i) of this chapter.

*****

(q) Applicability dates—(1) In general.

Except as provided in paragraph (q)(2) of

this section, this section applies to taxable

years ending on or after March 11, 2024.

For taxable years ending before March

11, 2024, taxpayers may choose to apply

the rules of this section and §§ 1.6417-2

through 1.6417-4 and 1.6417-6, provided

the taxpayers apply the rules in their

entirety and in a consistent manner.

(2) Paragraphs (c)(7) and (f) of this

section. Paragraphs (c)(7) and (f) of this

section apply to taxable years beginning

on or after January 1, 2026. For taxable

years beginning before January 1, 2026,

an entity described in § 301.7701-1(a)(4)

(i) of this chapter may choose to apply

paragraphs (c)(7) and (f) of this section,

but only if the Indian Tribal government(s)

that own the entity also apply paragraphs

(c)(7) and (f) of this section consistently

with such entity for all such taxable years.

For the rules that apply to entities that

do not choose to apply paragraphs (c)(7)

and (f) of this section in accordance with

the preceding sentence for taxable years

beginning before January 1, 2026, see

PART 301—PROCEDURE AND

ADMINISTRATION

January 26, 2026

Par. 3. The authority citation for part

301 is amended by adding an entry for

§ 301.7701-1(a)(4) in numerical order to

read in part as follows:

Authority: 26 U.S.C. 7805.

*****

Section 301.7701-1(a)(4) also issued

under 26 U.S.C. 7701(a)(40).

*****

Par. 4. Section 301.7701-1 is amended

by:

1. Revising paragraph (a)(3);

2. Redesignating paragraph (a)(4) as

paragraph (a)(5);

3. Adding a new paragraph (a)(4); and

4. Revising paragraph (f).

The revisions and addition read as follows:

§ 301.7701-1 Classification of

organizations for federal tax purposes.

(a) * * *

(3) Certain State and local law entities

not recognized. An entity formed under

State or local law is not always recognized as a separate entity for Federal tax

purposes. For example, an organization

wholly owned by a State is not recognized

as a separate entity for Federal tax purposes if it is an integral part of the State.

(4) Certain Tribal entities—(i) In general—(A) Rule. Except as provided in

paragraphs (a)(4)(ii) and (iii) of this section, section 17 corporations, section 3 corporations, and wholly owned Tribal entities

(as defined, respectively, in paragraphs (a)

(4)(i)(B) through (D) of this section) are

not recognized as separate entities for Federal tax purposes and, therefore, are not

subject to Federal income tax.

(B) Definition of section 17 corporation. The term section 17 corporation

means a federally chartered corporation

incorporated under section 17 of the

Indian Reorganization Act of 1934, as

amended (25 U.S.C. 5124), by the Bureau

of Indian Affairs, as the authorized delegate of the Secretary of the Interior.

414

means a federally chartered corporation

incorporated under section 3 of the Oklahoma Indian Welfare Act, as amended (25

U.S.C. 5203), by the Bureau of Indian

Affairs, as the authorized delegate of the

Secretary of the Interior.

(D) Definition of wholly owned Tribal

entity. The term wholly owned Tribal entity

means an entity wholly owned by one or

more Indian Tribal governments (within

the meaning of section 7701(a)(40) of the

Code), directly or through other entities

that are not recognized as separate entities for Federal income tax purposes, that

is organized or incorporated exclusively

under the laws of one or more of the owning Indian Tribal governments. Whether an

entity is organized or incorporated under

the laws of one or more Indian Tribal government(s) is determined without regard to

any specified choice of law or forum.

(ii) Elections under section 6417. See

§ 1.6417-1(c)(7) of this chapter for the

treatment of section 17 corporations, section 3 corporations, and wholly owned

Tribal entities described in paragraph (a)

(4)(i) of this section for the purposes of

making an elective payment election under

section 6417 of the Code (section 6417

election), including determining eligibility

for and the consequences of such election.

(iii) Federal employment taxes and

excise taxes. Section 17 corporations,

section 3 corporations, and wholly owned

Tribal entities are treated as separate entities for Federal employment and certain

Federal excise tax purposes in a manner

identical to the treatment described in

§ 301.7701-2(c)(2)(iv) and (v).

(iv) Examples. The following examples

illustrate the application of paragraphs (a)

(4)(i) through (iii) of this section. For purposes of these examples, all references to

a Tribe are references to an Indian Tribal

government within the meaning of section

7701(a)(40).

(A) Example 1. Tribe B incorporates Corporation X pursuant to Tribe B’s Corporations Ordinance,

which governs the purpose, formation, and operation

of commercial entities. Tribe B owns all the shares

of Corporation X. Corporation X is therefore wholly

owned by Tribe B and organized or incorporated under

the laws of Tribe B. As a result, Corporation X is not

recognized as a separate entity from Tribe B for Federal tax purposes, except for the purposes described

in § 1.6417-1(c)(7) of this chapter and paragraph (a)

(4)(iii) of this section. Accordingly, Corporation X is

not subject to Federal income tax. Under § 1.64171(c)(7) of this chapter, Corporation X is treated as an

Bulletin No. 2026–5

instrumentality of Tribe B for purposes of making a

section 6417 election (including determining eligibility for and the consequences of such election).

Thus, Corporation X, rather than Tribe B, would be

the applicable entity for purposes of making a section

6417 election for any applicable credit (as defined in

section 6417(b)) relating to property held or activities

conducted by Corporation X. Corporation X is treated

as a corporation separate from its owner for Federal

employment tax purposes governed under subtitle C

of the Internal Revenue Code, and as separate from its

owner for the Federal excise tax purposes identified in

§ 301.7701-2(c)(2)(v)(A). The analysis would be the

same if Tribe B had organized its business as a single

member limited liability company (LLC) pursuant

to the Tribe’s business code instead of incorporating

Corporation X.

(B) Example 2. The facts are the same as in

paragraph (a)(4)(iv)(A) of this section (Example

1), except that the board of Corporation X, pursuant to Tribe B’s Corporations Ordinance, organizes

a subsidiary, Corporation Z, to pursue a limited line

of new business. Corporation X owns all the shares

of Corporation Z. Corporation Z is therefore wholly

owned by Tribe B and organized or incorporated

under the laws of Tribe B. As a result, neither Corporation X nor Corporation Z is recognized as an entity

separate from Tribe B for Federal tax purposes,

except for the purposes described in § 1.6417-1(c)

(7) of this chapter and paragraph (a)(4)(iii) of this

section. Accordingly, Corporation Z is not subject

to Federal income tax. Under § 1.6417-1(c)(7) of

this chapter, Corporation X and Corporation Z are

each treated as an instrumentality of Tribe B for the

purposes of making a section 6417 election (including determining eligibility for and the consequences

of such election). Thus, Corporation Z, rather than

Corporation X or Tribe B, is the applicable entity for

purposes of making a section 6417 election for any

applicable credit relating to property held or activities conducted by Corporation Z. As in paragraph

(a)(4)(iv)(A) of this section (Example 1), Corporation X would continue to be the applicable entity for

purposes of making a section 6417 election for any

applicable credit relating to property held or activities conducted by Corporation X. Both Corporation

X and Corporation Z are treated as corporations separate from their owner for Federal employment tax

purposes governed under subtitle C of the Internal

Revenue Code, and as separate from their owner

for the Federal excise tax purposes identified in

§ 301.7701-2(c)(2)(v)(A). The analysis would be the

same if Tribe B had organized its businesses as single member LLCs pursuant to the Tribe’s business

code instead of incorporating Corporations X and Z.

corporation. The section 17 corporation subsequently

incorporates Corporation J pursuant to Tribe B’s

Corporations Ordinance, which governs the purpose,

formation, and operation of commercial entities. The

section 17 corporation owns all the shares of Corporation J. Corporation J is therefore treated as wholly

owned by Tribe B and organized or incorporated under

the laws of Tribe B. As a result, Corporation J is not

recognized as a separate entity from Tribe B for Federal tax purposes, except for the purposes described in

§ 1.6417-1(c)(7) of this chapter and paragraph (a)(4)

(iii) of this section. Accordingly, neither the section

Bulletin No. 2026–5

17 corporation nor Corporation J is subject to Federal income tax. Under § 1.6417-1(c)(7) of this chapter, the section 17 corporation and Corporation J are

each treated as an instrumentality of Tribe B for the

purposes of making a section 6417 election (including determining eligibility for and the consequences

of such election). Thus, the section 17 corporation,

rather than Tribe B, would be the applicable entity for

purposes of making a section 6417 election for any

applicable credit relating to property held or activities

conducted by the section 17 corporation. In addition,

Corporation J, rather than Tribe B or the section 17 corporation, would be the applicable entity for purposes

of making a section 6417 election for any applicable

credit relating to property held or activities conducted

by Corporation J. Both the section 17 corporation and

Corporation J are treated as corporations separate from

their owner for Federal employment tax purposes governed under subtitle C of the Internal Revenue Code,

and as separate from their owner for the Federal excise

tax purposes identified in § 301.7701-2(c)(2)(v)(A).

The analysis would be the same if the section 17 corporation had organized its business as a single member

LLC pursuant to the Tribe’s business code instead of

incorporating Corporation J.

(D) Example 4. Tribe A, Tribe B, Tribe C, and

Tribe D through resolutions approved by their

respective Indian Tribal governments incorporate

Corporation K which is chartered under the Corporations Ordinance of Tribe A. Each Tribe owns 25% of

the shares of Corporation K. Corporation K is incorporated under the laws of one of its owners, Tribe A.

As a result, Corporation K is a wholly owned Tribal

entity and is not recognized as a separate entity from

the Tribes for Federal tax purposes, except for the

purposes described in § 1.6417-1(c)(7) of this chapter and paragraph (a)(4)(iii) of this section. Accordingly, Corporation K is not subject to Federal income

tax. Under § 1.6417-1(c)(7) of this chapter, Corporation K is treated as an instrumentality of Tribe A,

Tribe B, Tribe C, and Tribe D for the purposes of

making a section 6417 election (including determining eligibility for and the consequences of such

election). Thus, Corporation K, rather than Tribe A,

Tribe B, Tribe C, or Tribe D, would be the applicable

entity for purposes of making a section 6417 election

for any applicable credit relating to property held or

activities conducted by Corporation K. Corporation

K is treated as a corporation separate from its owners for Federal employment tax purposes governed

under subtitle C of the Internal Revenue Code, and

as separate from its owners for the Federal excise tax

purposes identified in § 301.7701-2(c)(2)(v)(A). The

analysis would be the same if Tribe A, Tribe B, Tribe

C, and Tribe D had organized their business as an

LLC pursuant to Tribe A’s business code instead of

incorporating Corporation K.

(E) Example 5. Tribe A incorporates Corporation L pursuant to Tribe A’s Corporations Ordinance, which governs the purpose, formation, and

operation of commercial entities. Corporation L

subsequently incorporates Corporation M pursuant

to Tribe A’s Corporations Ordinance. Tribe A owns

all the shares of Corporation L, and Corporation L

owns all the shares of Corporation M. Corporations

L and M are therefore wholly owned by Tribe A and

organized or incorporated under the laws of Tribe

A. In a later year, Tribe B, in agreement with Tribe

415

A, acquires some, but not all, shares of Corporation

M. Corporations L and M continue to be considered

as wholly owned by Indian Tribal governments and

were incorporated under the laws of an Indian Tribal

government that owns them. As a result, neither Corporation L nor Corporation M is recognized as a separate entity from the Tribes that own them for Federal tax purposes, except for the purposes described

in § 1.6417-1(c)(7) of this chapter and paragraph (a)

(4)(iii) of this section. Accordingly, Corporations L

and M are not subject to Federal income tax. Under

§ 1.6417-1(c)(7) of this chapter, Corporation L is

treated as an instrumentality of Tribe A, and Corporation M is treated as an instrumentality of Tribe A

and Tribe B, for the purposes of making a section

6417 election (including determining eligibility for

and the consequences of such election). Thus, Corporations L and M, rather than Tribe A or Tribe B,

would be the applicable entities for purposes of making a section 6417 election for any applicable credit

relating to property held or activities conducted by

Corporations L and M, respectively. Both Corporation L and Corporation M are treated as corporations

separate from their owners for Federal employment

tax purposes governed under subtitle C of the Internal Revenue Code, and as separate from their owners for the Federal excise tax purposes identified in

§ 301.7701-2(c)(2)(v)(A). The analysis would be

the same if Tribe A had organized its businesses as

LLCs pursuant to Tribe A’s business code instead of

incorporating Corporations L and M, and had Tribe

B acquired a membership interest instead of stock.

*****

(f) Applicability dates—(1) In general.

Except as provided in paragraph (f)(2) of

this section, the rules of this section are

applicable as of January 1, 1997.

(2) Exceptions—(i) Paragraph (a)(4)

of this section. The rules of paragraph (a)

(4) of this section apply to taxable periods

beginning on or after January 1, 2026. An

entity may choose to apply paragraph (a)

(4) of this section to taxable periods beginning before January 1, 2026, for which the

applicable period of limitations is open.

(ii) Paragraph (c) of this section. The

rules of paragraph (c) of this section are

applicable on January 5, 2009.

Frank J. Bisignano,

Chief Executive Officer.

Approved: November 12, 2025.

Kenneth J. Kies,

Assistant Secretary of the Treasury

(Tax Policy).

(Filed by the Office of the Federal Register December 15, 2025, 8:45 a.m., and published in the issue

of the Federal Register for December 16, 2025, 90

FR 58151)

January 26, 2026

26 CFR 1.139E-1: Tribal General Welfare Benefits

T.D. 10040

DEPARTMENT OF THE

TREASURY

Internal Revenue Service

26 CFR Part 1

Tribal General Welfare

Benefits

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final rule.

SUMMARY: This document contains

final regulations regarding the exclusion from gross income of certain Tribal

general welfare benefits. The regulations

address the requirements that apply to

determine whether the benefits an Indian

Tribal government program provides

qualify as Tribal general welfare benefits. These regulations affect Indian Tribal

governments, agencies or instrumentalities of such governments, Federally recognized Tribes, members of such Tribes,

such members’ spouses and dependents,

and other Tribal program participants.

DATES: Effective date: These final regulations are effective on December 16,

2025.

Applicability date: These final regulations apply for taxable years beginning

after December 16, 2025.

FOR FURTHER INFORMATION

CONTACT: Jonathan A. Dunlap at (202)

317-4718 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Authority

This document contains amendments

to the Income Tax Regulations (26 CFR

part 1) under sections 139E and 7872 of

the Internal Revenue Code (Code).

Section 139E(c)(3) provides an express

delegation of authority for the Secretary

of the Treasury or the Secretary’s dele-

January 26, 2026

gate (Secretary), “in consultation with

the Tribal Advisory Committee (as established under section 3(a) of the Tribal

General Welfare Exclusion Act of 2014),

[to] establish guidelines for what constitutes lavish or extravagant benefits with

respect to Indian tribal government programs.”

The regulations are also issued under

the express delegations of authority under

sections 7805(a) and 7872(i) of the Code.

Section 7805(a) authorizes the Secretary

to “prescribe all needful rules and regulations for the enforcement of [the Code],

including all rules and regulations as may

be necessary by reason of any alteration

of law in relation to internal revenue.”

Section 7872(i) authorizes the Secretary

to “prescribe such regulations as may be

necessary or appropriate to carry out the

purposes of this section, including…regulations exempting from the application of

this section any class of transactions the

interest arrangements of which have no

significant effect on any Federal tax liability of the lender or the borrower.”

Background

I. The Tribal General Welfare Exclusion

Act of 2014

The Tribal General Welfare Exclusion

Act of 2014 (Act), Public Law 113-168,

128 Stat. 1883 (2014), as enacted on September 26, 2014, among other things,

amended the Code by adding section

139E. Under section 139E, gross income

of an individual does not include the value

of any “Indian general welfare benefit.”

Section 139E(b) defines an Indian general welfare benefit as any payment made

or services provided to or on behalf of

a member of a Tribe (or any spouse or

dependent of such a member) pursuant

to an Indian Tribal government program,

but only if: (1) the program is administered under specified guidelines and does

not discriminate in favor of members of

the governing body of the Tribe, and (2)

the benefits provided under such program

are (A) are available to any Tribal member

who meets such guidelines, (B) for the promotion of general welfare, (C) not lavish

or extravagant, and (D) not compensation

for services. Further, section 139E(c)(5)

provides that any items of cultural signif-

416

icance, reimbursement of costs, or cash

honorarium for participation in cultural or

ceremonial activities for the transmission

of Tribal culture “shall not be treated as

compensation for services” for purposes

of section 139E. This preamble and the

final regulations refer to an Indian general

welfare benefit as a “Tribal General Welfare Benefit.”

Section 2(c) of the Act provides that

ambiguities in section 139E are to be

resolved in favor of Indian Tribal governments. Section 2(c) of the Act also

requires that deference be given to Indian

Tribal governments for the programs

administered and authorized by the Tribe

to benefit the general welfare of the Tribal

community.

Section 2(d)(1) of the Act provides that

section 139E applies to taxable years for

which the period of limitation on refund

or credit under section 6511 of the Code

has not expired. Section 2(d)(2) of the Act

provides that if the period of limitation on

a credit or refund resulting from the enactment of section 139E expires before the

end of the 1‑year period beginning on the

date of the enactment of the Act, refund or

credit of such overpayment (to the extent

attributable to such amendments) may,

nevertheless, be made or allowed if claim

therefor is filed before the close of such

1-year period.

Section 3 of the Act requires the Secretary of the Treasury to establish a Tribal

Advisory Committee. The Department of

the Treasury Tribal Advisory Committee (TTAC) held its inaugural meeting

on June 20, 2019. Under section 3(b) of

the Act, the TTAC’s mandate is to advise

the Secretary of the Treasury on matters

relating to the taxation of Indians, and

the Secretary of the Treasury is required

to consult with the TTAC to establish and

require training and education for internal revenue field agents who administer

and enforce internal revenue laws. This

includes (A) training and education with

respect to Federal Indian law and the Federal Government’s unique legal treaty and

trust relationship with Indian Tribal governments, and (B) training of such internal revenue field agents, and provision of

training and technical assistance to Tribal

financial officers, about implementation of

the Act and the amendments made by the

Act.

Bulletin No. 2026–5

Section 4(a) of the Act requires the

Secretary of the Treasury to temporarily

suspend “all audits and examinations of

Indian tribal governments and members of

Tribes (or any spouse or dependent of such

a member), to the extent such an audit or

examination relates to the exclusion of a

payment or benefit from an Indian tribal

government under the general welfare

exclusion” until the training and education previously described is completed.

Section 4(a) further provides that the

running of the period of limitation under

section 6501 of the Code with respect to

Indian Tribal governments and members

of Indian Tribes is suspended during the

period in which such audits and examinations are suspended.

II. Prior Guidance

Revenue Procedure 2014-35 (201426 I.R.B. 1110), which was issued before

section 139E was enacted, provided safe

harbors under which the IRS conclusively

presumed the individual need requirement of the administrative general welfare exclusion is met for benefits provided

under Indian Tribal government programs

that meet the safe harbor requirements. In

addition, the revenue procedure provided

that the IRS will not assert that recipients of benefits under a safe harbor must

include the value of those benefits in gross

income or that the benefits are subject to

the information reporting requirements of

section 6041 of the Code.

Following the enactment of section

139E, the Department of Treasury (Treasury Department) and the IRS published

Notice 2015-34 (2015-18 I.R.B. 942),

providing guidance to taxpayers regarding the effect of section 139E on Revenue

Procedure 2014-35. Notice 2015-34 provides that taxpayers can rely on Revenue

Procedure 2014-35 for the safe harbors

under which certain benefits provided by

Indian Tribal government programs may

be excluded from gross income under the

administrative general welfare exclusion.

Additionally, Notice 2015-34 requested

comments on issues that future guidance

might address regarding the implementation of section 139E and other parts of the

Act.

On June 16, 2021, the TTAC’s General

Welfare Exclusion Subcommittee (TTAC

Bulletin No. 2026–5

GWE Subcommittee) submitted to the

TTAC a report (TTAC Report) containing

the TTAC GWE Subcommittee’s interpretation of the core principles underlying

section 139E, and an Appendix containing draft proposed regulations interpreting

section 139E (TTAC draft proposed regulations), consistent with those core principles. On October 26, 2022, the TTAC

formally recommended and approved

the TTAC Report to be submitted for the

record and published for Tribal comment.

The Treasury Department sent a Tribal

consultation letter, dated October 27, 2022

(2022 Dear Tribal Leader Letter), to Tribal

leaders to request consultation on the Act

and the TTAC Report. The 2022 Dear

Tribal Leader Letter announced consultation meetings to be held on December 14,

15, and 16, 2022 (December 2022 Consultations), to discuss the Act and the TTAC

Report. In response to the 2022 Dear Tribal

Leader Letter, and after the December

2022 Consultations, the Treasury Department received 65 written comments from

Tribes and two Tribal organizations (collectively, 2022 Tribal Comments).

On September 17, 2024, following

extensive consultation with TTAC, the

Treasury Department and the IRS published a notice of proposed rulemaking

(REG-106851-21) in the Federal Register

(89 FR 75990) under section 139E (proposed regulations). The proposed regulations reflect consideration of the TTAC

Report, December 2022 Consultations,

2022 Tribal Comments, and consultation

with the TTAC and the TTAC GWE Subcommittee.

The Treasury Department sent a Tribal

consultation letter, dated September 13,

2024 (2024 Dear Tribal Leader Letter), to

Tribal leaders to request consultation on

the proposed regulations. The 2024 Dear

Tribal Leader Letter announced consultation meetings to be held on November 18,

19, and 20, 2024 (November 2024 Consultations), to discuss the proposed regulations. In response to the 2024 Dear Tribal

Leader Letter and after the November

2024 Consultations, the Treasury Department received 103 written comments from

Tribes and Tribal organizations (collectively, 2024 Tribal Comments).

A public hearing on the proposed regulations was held on January 13, 2025, at

which five speakers provided testimony.

417

The Treasury Department and the IRS

received 41 public comments in response

to the notice of proposed rulemaking.

Copies of the comments are available for

public inspection at http://www.regulations.gov or upon request.

After considering all of the public comments, 2024 Tribal Comments, speaker

outlines, and testimony (collectively,

comments) received in response to the

proposed regulations, and extensive consultation with the TTAC GWE Subcommittee, the Treasury Department and the

IRS adopt the proposed regulations, as

revised in response to such comments, as

final regulations. The comments and the

revisions are discussed in the following

Summary of Comments and Explanation

of Revisions section of this preamble.

The Treasury Department and the IRS

emphasize that the scope of tribal general welfare under section 139E and these

regulations is broader than the scope of

general welfare under the administrative

general welfare doctrine, which is generally limited to governmental programs

providing benefits based on need. This

broader scope is due both to specific language in section 139E itself, such as the

language in section 139E(c)(5) providing

that certain benefits for participating in

certain cultural or ceremonial activities

shall not be treated as compensation, and

to the language in section 2(c) of the Act

providing that ambiguities in the Act are

to be resolved in favor of Indian Tribal

governments and that deference must be

given to Indian Tribal governments with

respect to the programs they determine are

to benefit the general welfare of the tribal

community. Accordingly, section 139E

and these final regulations do not provide

any basis for analyzing the applicability

of the administrative general welfare doctrine to any benefit.

Summary of Comments and

Explanation of Revisions

I. Overview

This Summary of Comments and

Explanation of Revisions summarizes

the formal written public comments submitted in response to the proposed regulations; comments made at the public

hearing announced in the preamble to the

January 26, 2026

proposed regulations and held on January

13, 2025; written Tribal comments provided in connection with Treasury Tribal

consultations; and comments made in

connection with the TTAC GWE Subcommittee consultations addressing the

proposed regulations. Comments merely

summarizing or interpreting the proposed

regulations generally are not discussed in

this preamble.

Most of the commenters expressed general approval of the proposed regulations

and support for the deference provided

for Tribal sovereignty; Tribal self-determination; Tribal self-governance; and the

diverse traditions, governance structures,

cultures, geographies, and economic conditions of Tribal Nations and their citizens. Several commenters appreciated

the clarity provided in the proposed regulations, noting that the lack of guidance

on this topic has hampered Tribal general

welfare programs and that the regulations

will enable Tribes to review and update

existing Tribal general welfare programs

to meet the requirements of section

139E. One commenter underscored the

importance of excluding benefit amounts

for housing and education, which are

designed to address the negative impacts

of prior policies, from tax.

A few commenters expressed opposition to all Federal taxation of Tribes;

opposition to what a commenter describes

as the proposed regulations’ “racist, paternalistic, ethnocentric, contrary to international law, and contrary to self-determination” character and the proposed

regulations’ purported failure to put Tribal

general welfare issues under the sole jurisdiction of Tribes; opposition to purported

interference with Congressional intent

regarding the taxation, self-determination,

and self-governance of Tribes; opposition

to changes to current regulations; and

opposition to the placement of arbitrary

barriers on Tribal general welfare.

The Treasury Department and the IRS

have engaged in extensive consultation

with the TTAC and Tribal leaders, prior to

and following the issuance of the proposed

regulations. The Treasury Department and

the IRS have worked to address all concerns expressed in public comments and

consultation to the extent permitted by

the Act and section 139E. The comments

received are addressed in more detail in

parts II through X of this Summary of

Comments and Explanation of Revisions.

Many commenters supported the deference provided to Indian Tribal governments in the proposed regulations and the

acknowledgment that Tribal governments

are best positioned to define, establish,

and administer general welfare programs

for their citizens, particularly with regard

to Tribal determinations of the promotion of the general welfare and the identification of activities as having cultural

significance. These commenters further

appreciated that this approach recognizes

the Indian Tribal governments’ inherent

sovereignty, right to self-determination,

and right to self-governance.

A few commenters referred to section

2(c) of the Act as evincing Congressional

intent for deference to be given to Indian

Tribal governments in the design and

implementation of their general welfare

programs without undue interference from

the Federal government. Some commenters recommended that section 2(c) of the

Act be specifically included in the final

regulations because it is a key foundation of the Act and would be important to

understanding section 139E and the regulations in the future.

The Treasury Department and the

IRS agree with commenters that section

2(c) of the Act is central to the interpretation of section 139E and that ambiguities in section 139E must be resolved

in favor of Indian Tribal governments

and deference to Indian Tribal governments must be provided for the programs

that are administered and authorized by

the Tribe to benefit the general welfare

of the Tribal community. The Treasury

Department and the IRS applied section

2(c) of the Act when drafting these regulations in a manner that provides deference to Indian Tribal governments and

interprets ambiguities in section 139E in

favor of the Indian Tribal governments.

Notwithstanding that section 2(c) of the

Act supplied these central principles that

were used when drafting these final regulations, the Treasury Department and

the IRS agree with commenters that it is

helpful to include the language from section 2(c) of the Act in new §1.139E-1(f)

and remaining paragraphs are renumbered accordingly. Section 1.139E-1(f)

thus ensures the Congressional intent of

deference to Tribes for programs administered and authorized under the Act

is preserved when interpreting section

139E.

II. Section 139E Definitions

A. Definition of Indian Tribal

Government

Under section 7701(a)(40)(A) of the

Code, the term “Indian Tribal government” when used in the Code and “where

not otherwise distinctly expressed or

manifestly incompatible with the intent

thereof,”1 means “the governing body of

any tribe, band, community, village, or

group of Indians, or (if applicable) Alaska

Natives, which is determined by the Secretary, after consultation with the Secretary

of the Interior, to exercise governmental functions.” Section 7701(a)(40)(B)

further provides that “[n]o determination

under subparagraph (A) with respect to

Alaska Natives shall grant or defer any

status or powers other than those enumerated in section 7871 [of the Code]. Nothing in the Indian Tribal Governmental Tax

Status Act of 1982, or in the amendments

made thereby, shall validate or invalidate

any claim by Alaska Natives of sovereign

authority over lands or people.”

Section 139E(c)(1) of the Code

expressly provides a broader meaning of

the term “Indian Tribal government” for

purposes of section 139E. The broader

meaning is arrived at by adding two additional sets of entities to the Code’s general definition of “Indian Tribal government.” The first set of additional entities

includes “any agencies or instrumentalities of an Indian Tribal government.” The

second set of additional entities includes

“any Alaska Native regional or village

corporation, as defined in, or established

pursuant to, the Alaska Native Claims

Settlement Act (43 U.S.C. 1601 et seq.).”

An entity described in this second set of

Per the flush language of section 7701(a), each definition provided therein is generally applicable under provisions of the Code “where not otherwise distinctly expressed or manifestly

incompatible with the intent thereof.”

January 26, 2026

418

Bulletin No. 2026–5

additional entities is referred to in this

preamble as an “Alaska Native regional

or village corporation.”

Proposed §1.139E-1(b)(4) addressed

only the first set of entities included in

the definition of Indian Tribal government

in section 139E(c)(1) and clarified that

for purposes of proposed §1.139E-1, the

term “Indian Tribal Government” has the

meaning provided in section 7701(a)(40)

of the Code, and, as provided in section

139E(c)(1), also includes agencies and

instrumentalities of such Indian Tribal

governments. The proposed regulations

did not address Alaska Native regional

or village corporations in the definition

of Indian Tribal government for purposes

of the rules in §1.139E-1. Instead, the

proposed regulations reserved proposed

§1.139E-2 for future rules to clarify the

application of section 139E to benefits

provided by Alaska Native regional or village corporations.

While one commenter expressed support for the application of the proposed

regulations to “Alaska Native Americans,”

several commenters objected to the omission of Alaska Native regional or village

corporations from the definition of Indian

Tribal government and from consultation

prior to the issuance of the proposed regulations. These commenters argued that

Alaska Native regional or village corporations should have been included in the

definition in proposed §1.139E-1 and

invited to participate in the Tribal consultation, and that their omission is contrary

to Congressional intent, the statutory language of section 139E, the holding in Yellen v. Confederated Tribes of the Chehalis Reservation, 594 U.S. 338 (2021), the

Indian Self-Determination and Education

Assistance Act (ISDEAA), Public Law

93-638, 88 Stat. 2203 (1975), and Executive Order 13175, Consultation and Coordination with Indian Tribal Governments

(November 9, 2000).

These commenters expressed concern that the omission of Alaska Native

regional or village corporations from this

definition may suggest section 139E is not

applicable to Alaska Native regional or

village corporations, with one commenter

suggesting shareholders of Alaska Native

regional or village corporations who are

not otherwise members of Tribes could be

disproportionately impacted.

Bulletin No. 2026–5

One commenter requested consultation with Alaska Native regional or village corporations be held immediately

and that the Treasury Department and the

IRS publish a proposed regulation under

§1.139E-2 with notice and comment on

such regulation prior to issuing final regulations under §1.139E-1.

The Treasury Department and the IRS

understand the concerns raised by these

comments and agree with commenters

that section 139E(c)(1) includes Alaska

Native regional or village corporations in

the definition of Indian Tribal government

for purposes of section 139E. The omission of Alaska Native regional or village

corporations from the definition of Indian

Tribal government in proposed §1.139E-1

was never intended to suggest Indian general welfare benefits cannot be provided

by an Alaska Native regional or village

corporation to or on behalf of its members

(or any spouse or dependent of such members). Thus, the Treasury Department and

the IRS agree that section 139E permits

Alaska Native regional or village corporations to provide Indian general welfare

benefits, and that other provisions of the

Act also apply to Alaska Native regional

or village corporations.

The Treasury Department and the IRS

therefore held consultation with Alaska

Native regional or village corporations

on section 139E on July 29, 2025. The

feedback received during this consultation will help the Treasury Department

and the IRS determine what customizations of the rules in §1.139E-1 may be

useful in promulgating regulations under

§1.139E-2 that will apply specifically to

Alaska Native regional or village corporations and make more clear their ability

to provide benefits under section 139E.

As part of this consultation, the Treasury

Department and the IRS asked questions of Alaska Native regional or village corporations, the answers to which

will inform the drafting of regulations

tailored to the needs of Alaska Native

regional or village corporations to implement section 139E more effectively. The

Treasury Department and the IRS expect

the process of promulgating additional

final regulations under §1.139E-2 will be

similar to the process used to promulgate

§1.139E-1 applicable to Federally recognized Tribes.

419

Accordingly, these final regulations

under §1.139E-1 do not include Alaska

Native regional or village corporations in

the definition of Indian Tribal government

found in §1.139E-1(b)(4). However, see

part X.B. of this Summary of Comments

and Explanation of Revisions for a discussion of the consultation and the ability of Alaska Native regional or village

corporations to choose to apply the rules

of §1.139E-1 as included in this Treasury

decision pending the promulgation of

additional regulations under §1.139E-2.

B. Definition of Tribe

Proposed §1.139E-1(b)(7) would

define “Tribe” as any Indian Tribe, band,

nation, pueblo, or other organized group

or community, including any Alaska

Native village as defined in 43 U.S.C.

1602(c), that is recognized as eligible

for the special programs and services

provided by the United States to Indians

because of their status as Indians. Alaska

Native regional or village corporations are

excluded from this definition of Tribe.

Two commenters requested Alaska

Native regional or village corporations

be included in the definition of Tribe in

§1.139E-1(b)(7) of the final regulations.

The Treasury Department and the IRS

decline to modify the definition of Tribe in

§1.139E-1(b)(7) of these final regulations

because subsequent guidance promulgated

at §1.139E-2 will specifically address the

application of the requirements of section

139E to Alaska Native regional or village

corporations. The Treasury Department

and the IRS acknowledge that Alaska

Native regional or village corporations

can have programs that qualify to provide

general welfare benefits that are excludible from gross income under section

139E. However, the Treasury Department

and the IRS intend to issue future guidance specific to the unique circumstances

of Alaska Native regional or village corporations. See, however, part X.B. of this

Summary of Comments and Explanation of Revisions for further discussion

of the consultation with Alaska Native

regional or village corporations and the

ability of an Alaska Native regional or

village corporation to choose to apply

the rules of §1.139E-1 as included in this

Treasury decision pending the promulga-

January 26, 2026

tion of additional final regulations under

§1.139E-2.

C. Definition of Tribal Program

Participant

1. In General

Proposed §1.139E-1(b)(8) would provide that the term “Tribal program participant” means a Tribal member, spouse

of a Tribal member within the meaning

of §301.7701-18 of the Procedure and

Administration Regulations (26 CFR part

301), spouse of a Tribal member under

applicable Tribal law, dependent of a

Tribal member, or other individual who

has been determined by the Indian Tribal

government to be eligible for a Tribal general welfare benefit because such individual is, with respect to a Tribal member,

an ancestor, descendant, former spouse,

widow or widower, legally recognized

domestic partner or former domestic partner.

Most commenters supported the

breadth of, and deference provided by, the

definition of Tribal program participant in

proposed §1.139E-1(b)(8) and supported

the use of Tribal law to determine eligible

program participants. Some commenters

requested that Indian Tribal government

programs be able to cover additional categories of recipients, including unenrolled

individuals in the community; step-parents, custodians, guardians, and foster

parents of an Indian child; and other members of the same household. Commenters

broadly requested Tribes be able to define

the categories listed in the Tribal program

participant definition in the proposed regulations.

The Treasury Department and the IRS

generally decline to expand the definition

of Tribal program participant in these final

regulations to individuals that are unenrolled members of the Tribal community.

These individuals are neither members of

an Indian Tribe (or any spouse or dependent of such a member) as described under

section 139E(b), nor “qualified nonmembers” under Revenue Procedure 2014-35.

The Treasury Department and the IRS

have determined the statutory language

and legislative history generally do not

support an extension of section 139E

beyond the individuals provided in the

January 26, 2026

definition of Tribal program participant

under proposed §1.139E-1(b)(8).

However, the Treasury Department and

the IRS have determined the definition of

Tribal program participant should be clarified to include an individual for whom a

Tribal member is a caregiver authorized

under Tribal or State law. The Treasury

Department and the IRS understand a

Tribal member may be legally authorized

or required to be a caregiver for an individual even though such individual is not

otherwise eligible to receive payments

under the Indian Tribal government program. This definitional change from the

proposed regulations is a clarification of

the deference given to Indian Tribal government programs to determine whether

providing benefits to a Tribal member to

care for such individuals is for the promotion of general welfare.

2. Special rule for Ceremonial or Cultural

Activities

Proposed §1.139E-1(b)(8)(ii) would

provide that, solely for purposes of proposed §1.139E-1(e), the definition of

Tribal program participant may include

a member or citizen of a Tribe other than

the Tribe that establishes or maintains the

Indian Tribal government program that

provides the Tribal general welfare benefit.

One commenter recommended that

proposed §1.139E-1(b)(8)(ii) should be

revised to include benefits provided by

an Indian Tribal government program,

according to the custom of certain Tribes,

to the spouse of a member or citizen of

a different Tribe. Other commenters

requested that final §1.139E-1(b)(8)(ii)

apply to indigenous people from outside

the United States, including Canada, Mexico, and South America, if these individuals participate in a Tribe’s ceremonial and

cultural activities for the transmission of

Tribal culture.

Accordingly, §1.139E-1(b)(8)(ii) of

these final regulations provides that,

solely for purposes of §1.139E-1(e), relating to cultural or ceremonial activities, the

definition of “Tribal program participant”

includes, in addition to a member or citizen of a different Tribe, other individuals

described in §1.139E-1(b)(8)(i). For purposes of this addition, in applying para-

420

graph §1.139E-1(b)(8)(i), such member

or citizen of another Tribe will be treated

as a Tribal Member. The Treasury Department and the IRS understand that a member or citizen of another Tribe, the spouse

and certain other family members of the

member or citizen of another Tribe, may

also participate in another Tribe’s cultural

or ceremonial activities. As such, these

final regulations broaden the special rule

of §1.139E-1(b)(8)(ii), which continues to

apply solely for purposes of §1.139E-1(e).

However, the Treasury Department

and the IRS have determined that the benefits that section 139E refers to are those

provided to or on behalf of members of a

Tribe (or any spouse or dependent of such

a member). “Tribe” is defined by reference

to section 45A(c)(6) of the Code, which

generally refers to Federally recognized

Tribes. Accordingly, §1.139E-1(b)(8)(ii)

of these final regulations does not expand

the reference to members or citizens of a

different Tribe to include members or citizens of non-Federally recognized Tribes

whether located in or outside of the United

States.

D. Definition of Dependent

Proposed §1.139E-1(b)(10) would

define the term “dependent” in accordance

with section 139E(c)(2). However, for

ease of readability, the proposed regulations would not cite the specific Code sections but instead would describe the rules

for determining who is a dependent under

section 152(a) of the Code without regard

to section 152(b)(1), (b)(2), and (d)(1)(B).

Several commenters recommended that

Tribes should be given broad deference,

or “sole discretion,” to define the term

dependent under Tribal law for purposes

of section 139E and the final regulations,

or otherwise provide a presumption that

the Indian Tribal government’s definition

of dependent is valid. These commenters highlighted that dependent may be

defined differently under the law of each

Indian Tribal government, or that a Tribe

may lack sufficient information to determine whether a general welfare program

recipient, including a non-member child,

is eligible for benefits under section 139E

and the proposed regulations.

The Treasury Department and the IRS

decline to change the definition of depen-

Bulletin No. 2026–5

dent in these final regulations, as this term

is expressly defined in section 139E(c)(2).

The statute unambiguously defines dependent, as provided in section 152 as modified by section 139E(c)(2). However,

these final regulations clarify that for

purposes of section 139E the term dependent has the meaning provided in section

152 determined without regard to section

152(b)(1), (b)(2), and (d)(1)(B).

III. Indian Tribal Government Program

Proposed §1.139E-1(c) would provide

certain requirements that a program must

meet to constitute an “Indian Tribal government program” for purposes of section

139E and the proposed regulations. These

requirements are: (1) the program must be

established by an Indian Tribal government, (2) the program must be administered under specified guidelines, and (3)

the program cannot discriminate in favor

of members of the governing body. Each

requirement is discussed in more detail in

this part III.

A. Program Must be Established

Proposed §1.139E-1(c)(2) would provide that a program must be established

by an Indian Tribal government. The

program may be established by Tribal

custom, government practice, or formal

action of the Indian Tribal government

under applicable Tribal law. The proposed

regulations also would provide that, to the

extent permitted by applicable Tribal law,

an Indian Tribal government may delegate

authority to establish general welfare programs to a designated individual or entity

of the Indian Tribal government. Moreover, the proposed regulations would provide that an Indian Tribal government is

not required to set forth the program in a

written document unless applicable Tribal

law requires a writing as part of the formal

actions of the Indian Tribal government.

Many commenters approved of the

flexible program documentation requirements, noting that this flexibility reflects

respect for the diverse traditions and

governance structures of Tribal nations

by allowing programs to be established

through Tribal customs, practices, or

formal written policies. These commenters noted that such respect is essential to

Bulletin No. 2026–5

meaningful self-determination. However,

one commenter recommended that the

final regulations include guidance on what

documentation is necessary for programs

established before the documentation

standards provided in the proposed regulations, and recommended that Indian

Tribal governments be permitted to affirm

or establish multiple existing programs

with a single, blanket action. The commenter also requested the final regulations

recognize Tribal laws that provide a less

formal path to establish programs.

The Treasury Department and the IRS

have determined that no modifications

are needed in these final regulations to

the text used in proposed §1.139E-1(c)

(2). Section 139E(c)(4) and §1.139E-1(c)

(2) allow a program to be established by

Tribal custom or government practice,

and defer to Tribal law to determine what

formal action, if any, of the Indian Tribal

government is necessary to establish a

program. Section 1.139E-1(c)(2) provides

deference to the Indian Tribal government

to determine whether a program is to be

established by Tribal custom or government practice, or by formal action of the

Indian Tribal government. Thus, in general, the Treasury Department and the IRS

would respect an Indian Tribal government’s action of affirming or establishing

multiple existing programs with a single

formal action as satisfying §1.139E-1(c)

(2) if such action is permitted by Tribal

law.

The Treasury Department and the IRS

also decline to depart from the language

of the proposed regulation to provide

examples of less formal ways that may

be used to establish a program because

§1.139E-1(c)(2) already provides that

“formal action” means authorization of

the program pursuant to Tribal law. The

Treasury Department and the IRS intend

that §1.139E-1(c)(2) provides deference

to the Indian Tribal government, subject

to the application of its Tribal laws, to

determine the process required to establish programs.

B. Program Must be Administered Under

Specified Guidelines

Proposed §1.139E-1(c)(3) would provide the requirements for the administration of the program under specified guide-

421

lines. In general, the specified guidelines

of the program represent the framework

for the program’s operations. Under proposed §1.139E-1(c)(3), the specified

guidelines of the program must include, at

a minimum, a description of the program

to provide Tribal general welfare benefits, the benefits provided by the program

(including how the benefits are determined), the eligibility requirements for

the program, and the process for receiving

benefits under the program. While Indian

Tribal governments may choose to set

forth the specified guidelines in writing,

an Indian Tribal government program is

not required to memorialize the specified

guidelines in a writing.

Many commenters approved of the

flexibility in the proposed regulations

to develop program guidelines, which

is essential to meaningful self-determination, and recommended that the final

regulations not add additional requirements that could negatively impact the

deference to Tribes and the recognition of

their varied and unique governance structures. To that end, one commenter recommended that the final regulations provide

that Indian Tribal governments have the

sole discretion to determine the form and

content of specified guidelines, consistent

with Tribal law.

Section 139E(b)(1) provides that an

Indian Tribal government program must

be administered under specified guidelines. However, the Treasury Department

and the IRS acknowledge that Indian

Tribal governments are entitled to deference for the programs they establish

and administer. Proposed §1.139E-1(c)

(3) would also provide that in addition to

the minimum details described above, the

Indian Tribal government may provide

additional details in the program’s specified guidelines and choose to memorialize

this information in a writing. However,

proposed §1.139E-1(c)(3) would not

require the specified guidelines to be in

writing.

Several commenters requested clarification or removal of one of the minimum

requirements for specified guidelines in

proposed §1.139E-1(c)(3). Specifically,

these commenters considered the parenthetical phrase, “(including how benefits are determined),” to be ambiguous.

The commenters suggested the phrase is

January 26, 2026

either redundant with the requirement for

a description of the “eligibility requirements,” or alternatively requires an Indian

Tribal government to provide detailed

justification of any benefits provided, contrary to the general deference provided to

Indian Tribal governments in the proposed

regulations.

The parenthetical phrase in proposed

§1.139E-1(c)(3), “(including how benefits are determined),” was intended by

the Treasury Department and the IRS to

require the specified guidelines of a program to include information as to how the

type of benefit provided under the program

would promote the Indian Tribal government’s general welfare goal. The Treasury

Department and the IRS acknowledge

many commenters found the language to

be unclear and have determined that the

language is unnecessary because its intent

is adequately addressed by the other specified guidelines. Thus, §1.139E-1(c)(3)

of the final regulations states in relevant

part that the “specified guidelines must

include, at a minimum, a description of the

program to provide Tribal General Welfare Benefits, the eligibility requirements

for the program, a description of the type

of benefits authorized by the program, and

the process for receiving benefits under

the program.”

One commenter expressed further

concern that proposed §1.139E-1(c)(3) is

ambiguous in its application or applicability to programs created prior to the issuance of proposed or final regulations under

section 139E, or programs for which the

requirements are set forth in several documents or actions, as may be required to

meet the acute needs of the community.

The specified guidelines provided in

§1.139E-1(c)(3) are minimum program

guidelines that are fundamental to the

operation of a Tribal general welfare program under section 139E. The Treasury

Department and the IRS understand that

some transition time may be necessary

to ensure Indian Tribal government programs meet both the establishment and

the administration requirements (including the specified guidelines requirement).

Section 1.139E-1(c)(3) does not provide guidance on transition for existing

programs because transitional rules are

more broadly provided elsewhere in these

regulations. Specifically, §1.139E-1(h)

January 26, 2026

provides that Indian Tribal governments

and Tribal program participants will be

required to apply the final regulations to

taxable years of Tribal program participants that begin on or after January 1,

2027, while also allowing Indian Tribal

governments the ability to choose to apply

the rules of §1.139E-1, in their entirety, to

benefits provided to Tribal program participants in prior taxable years. The Treasury Department and the IRS believe this

applicability date provides Indian Tribal

governments a reasonable transition

period to make any program adjustments

or updates that may be necessary for their

programs to satisfy the requirements of

§1.139E-1.

The Treasury Department and the IRS

emphasize that §1.139E-1(c)(3) does not

require the specified guidelines to be in

writing or otherwise prescribe how the

Indian Tribal government program retains

its specified guidelines. Thus, the program may satisfy the specified guidelines

requirement in §1.139E-1(c)(3) with a

single written document, several documents, or non-written guidelines. Section

1.139E-1(c)(3) is intended to provide

broad deference to Indian Tribal governments to determine how such specified

guidelines are created, maintained, or

modified.

C. Program Cannot Discriminate in

Favor of Members of the Governing Body

of the Tribe

Proposed §1.139E-1(c)(4) would provide that an Indian Tribal government

program may not discriminate in favor

of members of the governing body of the

Tribe (non-discrimination requirement). A

governing body is generally the legislative

body of the Tribe, such as the Tribal council, or the representative equivalent of the

legislative body of the Tribe. However,

proposed §1.139E-1(c)(4)(ii) would treat

a program as being in compliance with

the non-discrimination requirement if the

governing body of the Tribe consists of

the entire adult membership of the Tribe,

referred to as a “general council Tribe.”

Proposed §1.139E-1(c)(4)(iii) would

provide a facts and circumstances test to

determine whether a program, either by

its terms or in its administration, discriminates in favor of members of the gov-

422

erning body of the Tribe. For example,

the administration of a program would

discriminate in favor of members of the

governing body if, based on the facts

and circumstances, the benefits provided

during the taxable year disproportionately

favor members of the governing body of

the Tribe. Thus, for example, a program

established to provide benefits solely to

the children of members of the governing body of the Tribe (unless the Tribe is

a general council Tribe) and thus defrays

costs otherwise borne by the members of

the governing body would fail to satisfy

the non-discrimination requirement.

Commenters indicated that it is unlikely

that an Indian Tribal government would

differentiate benefits or establish a general

welfare program solely for its governing

body because it contradicts the intent of a

general welfare program to provide for the

well-being of Tribal members. In addition,

commenters recommended changes from

the language of proposed §1.139E-1(c)

(4) to prevent potential unintended consequences for situations where a program

benefit would be available to any eligible

Tribal member but, in a particular point

of time, the only eligible beneficiaries of

a particular Tribal general welfare benefit

are members of the Indian Tribal government or their family members. The commenters provided an example of a tuition

assistance program in which one individual beneficiary may qualify for benefits

in the taxable year, and such individual is

a family member of a Tribal government

official. Commenters requested clarification on the application of proposed

§1.139E-1(c)(4) where benefit distributions vary annually but may have the

appearance in any given year that distributions disproportionately benefit certain Tribal members. These commenters

emphasized that §1.139E-1(c)(4) should

evaluate an Indian Tribal government

program based on its structure and historical administration, and whether such

program is designed and administered to

avoid discrimination in favor of a Tribe’s

governing body. Finally, one commenter

requested clarification that benefits provided to former members of Tribal governing bodies to compensate for sacrificing Social Security benefit credits during

their terms of service are not considered

either compensation for current services

Bulletin No. 2026–5

or discriminatory in favor of such recipients such that they would fail to satisfy

section 139E under the final regulations.

The Treasury Department and the IRS

agree with commenters that clarification

would be helpful on how the facts and

circumstances test in proposed §1.139E1(c)(4) applies in certain situations. The

Treasury Department and the IRS understand that there may be instances when, in

a given year, a program distributes benefit

payments disproportionately to members

of the governing body or their families

even though the program does not by its

terms disproportionately favor members

of the governing body and, in most other

years, does not disproportionately favor

members of the governing body. The facts

and circumstances test provides flexibility

to account for an anomalous year where

a program otherwise does not disproportionately favor members of the governing

body. Nevertheless, the Treasury Department and the IRS agree that clarifying

language in §1.139E-1(c)(4) would be

helpful. Accordingly, these final regulations revise §1.139E-1(c)(4)(iii) to provide that a program discriminates in favor

of members of the governing body of the

Tribe if, based on the totality of the facts

and circumstances, the benefits provided

during the year disproportionately favor

members of the governing body of the

Tribe because of their status as members

of the governing body.

The Treasury Department and the IRS

do not provide any clarification in response

to the comment regarding a specific fact

pattern involving benefits provided to former members of Tribal governing bodies

because there are not sufficient facts to

address the comment. However, the Treasury Department and the IRS affirm that

section 139E(b)(1) and §1.139E-1(c)(4)

provide that an Indian Tribal government

program cannot discriminate in favor of

members of the governing body.

D. No Limitation on Source of Funds

Proposed §1.139E-1(c)(5) would provide that benefits under the Indian Tribal

government program may be funded by

any source of revenue or funds, including funds derived from levies, taxes, and

service fees; settlements; revenues from

Tribally-owned businesses, including

Bulletin No. 2026–5

casino revenues; funds from Federal,

State, or local governments; and funds

from other sources, including grants and

loans, to provide benefits under an Indian

Tribal government program. Proposed

§1.139E-1(c)(5)(ii) also specifically

would permit the funding of Indian Tribal

government programs with net gaming

revenues. However, the preamble to the

proposed regulations noted that an Indian

Tribal government is permitted to restrict

the source and amount of funds available

to provide benefits under the Indian Tribal

government program.

Several commenters appreciated that

the enumeration of permissible sources in

proposed §1.139E-1(c)(5) was not all-inclusive or limiting but recommended that

the list explicitly include “grantor trusts”

and deferred benefit accounts as permissible sources of funding. See part III.D.2.

of this Summary of Comments and Explanation of Revisions for a discussion of the

use of trusts in Tribal general welfare programs.

1. Benefits Funded by Net Gaming

Revenues

Proposed §1.139E-1(c)(5)(ii) would

provide that benefits under the Indian

Tribal government program may be

funded by net gaming revenues as permitted under the Indian Gaming Regulatory Act (25 U.S.C. 2701-2721) (IGRA).

However, per capita payments, as defined

under IGRA, are subject to Federal taxation under IGRA and are not excludable

from gross income under section 139E or

the regulations. Proposed §1.139E-1(c)

(5)(ii) further would provide that, for purposes of section 139E, a payment is a per

capita payment if it is identified by the

Indian Tribal government as a per capita

payment in a Revenue Allocation Plan

(RAP) that is approved by the Department

of the Interior (DOI).

Several commenters approved of proposed §1.139E-1(c)(5) providing that

Tribes may use any revenue source for

general welfare programs, including gaming revenue, because the rule supports

Tribal sovereignty regarding the use of

a Tribe’s financial resources. However,

several commenters requested that the

final regulations confirm the Treasury

Department and the IRS will defer to, or

423

give sole discretion to, Indian Tribal governments with respect to allocations under

an approved RAP as between per capita

payments and Tribal general welfare programs. Conversely, some commenters

expressed concern that DOI may evaluate a program’s compliance under section

139E and urged the Treasury Department

and the IRS to communicate these concerns with DOI and the National Indian

Gaming Commission (NIGC).

In response to the comments received,

these final regulations differ from proposed §1.139E-1(c)(5)(ii) in providing

that for purposes of section 139E and

these regulations, the determination of

whether a payment is a per capita payment is based on the RAP that is in effect

(that is, approved by DOI) at the time the

per capita payment is made to the recipient. The clarification is made because

the Treasury Department and the IRS are

aware that Indian Tribal governments

may modify a RAP and IGRA trusts over

the years. As discussed in part III.D.2. of

this Summary of Comments and Explanation of Revisions, for purposes of section 139E, whether a distribution from a

grantor trust owned by the Indian Tribal

government is a general welfare payment

is determined when the payment is distributed to the Tribal program participant.

In the view of the Treasury Department

and the IRS, the language in proposed

§1.139E-1(c)(5)(ii) would provide deference to an Indian Tribal government’s

determinations of how net gaming revenue

is allocated. Specifically, §1.139E-1(c)(5)

(ii) provides that, for purposes of section

139E and these regulations, a payment is a

per capita payment if it is identified by the

Indian Tribal government as a per capita

payment in a RAP that is approved by the

DOI. Similarly, for an Indian Tribal government without a RAP, the determination

of the Indian Tribal government that the

payment is not a per capita payment is

controlling for Federal income tax purposes. Thus, for purposes of section 139E

and §1.139E-1(c)(5)(ii), the IRS will defer

to the Indian Tribal government’s determination that the allocation of net gaming

revenues is classified as general welfare,

or conversely a per capita payment made

pursuant to a RAP.

The Treasury Department and the

IRS confirm that DOI and NIGC do not

January 26, 2026

have jurisdiction over the determination

of whether a program satisfies section

139E and these regulations. The Treasury

Department and the IRS have jurisdiction over interpretation of the Internal

Revenue Code (26 U.S.C. 1 et seq.), and

the IRS is the agency responsible for

determining whether a program satisfies

the requirements of section 139E and

these regulations. The Treasury Department and the IRS plan to communicate

the commenters’ concerns with DOI and

NIGC and ensure open dialogue will

continue in the future over jurisdictional

responsibilities of the respective agencies.

2. Benefits Paid as Distributions from a

Grantor Trust

The proposed regulations would not

provide guidance on distributions from

grantor trusts. In part V.C. of the Explanation of Provisions section of the preamble

to the proposed regulations, the Treasury

Department and the IRS requested comments on whether additional guidance

under section 139E or other Code sections

is needed to address the tax treatment of

deferred benefits or benefits paid from

trust arrangements, and, if so, what specific fact patterns should be addressed.

Most commenters requested that

the final regulations include guidance

on grantor trusts because many Tribes

use grantor trusts and deferred benefit

arrangements for flexibility and for the

ability to leverage the principal amount

of general welfare benefits over a longer

period of time, such as with elder care,

mortgage, and education benefits. Commenters generally disagreed that Revenue

Procedure 2011-56 (2011-49 I.R.B. 834)

adequately addresses the use of grantor

trusts for excluded Tribal general welfare

benefits because that guidance refers to

taxable, but tax-deferred, per capita payments under IGRA.

Several commenters recommended

that, for purposes of section 139E,

amounts held in grantor trusts owned

by the Indian Tribal government should

be treated like any other Tribal accounts

because the Tribe is the owner of the

Tribal general welfare benefits until they

are disbursed. Commenters note grantor

trusts are a tool that may be used to deliver

January 26, 2026

Tribal general welfare benefits if the trust

distributions are administered pursuant to

the Indian Tribal government program.

Many commenters requested that the final

regulations confirm that Tribes may use

grantor trusts to fund Indian Tribal government programs, and that any interest

and capital gains earned by the trust also

are treated as Tribal general welfare payments at the time the program distributes

a payment from the grantor trust to the

Tribal program participant. For example, one commenter requested clarity on

whether distributions from grantor trust

accounts that are paid out at the age of

majority are Tribal general welfare benefits under section 139E such that distributions of the grantor trust’s interest and

earnings are also excludable from income

at the time of distribution.

Some commenters discussed grantor

trusts and IGRA. For example, some commenters suggested that grantor trust distributions should be excluded under section

139E if the grantor trust distributions are

Tribal general welfare benefits under section 139E and not otherwise treated as

per capita distributions under the Tribe’s

RAP. The commenter requested that final

regulations provide that Tribes may place

funds in a grantor trust, identified to specific member subaccounts, that generally

conform to existing guidance for IGRA

minors’ trusts, for future use for general

welfare purposes, without Federal income

tax consequence to the beneficiary. One

commenter also requested guidance on

whether a distribution from such a trust

could be excluded under section 139E

if made pursuant to a plan under section

529, a medical savings plan, a plan under

an Indian Tribal government program, or

other similar plan.

One commenter recommended that

Revenue Procedure 2011-56 be modified to expand the safe harbor to provide

additional provisions that can satisfy the

safe harbors for trust programs that provide taxable benefits to minors and certain other individuals. Additionally, many

commenters requested guidance on how

trusts involving taxable income can be

restructured to provide Tribal general welfare benefits.

Finally, some commenters requested

that the language of proposed §1.139E1(c)(5) be expanded to include grantor

424

trusts as a permissible funding source for

an Indian Tribal government program.

Commenters noted grantor trusts are an

important tool used to care for Tribal

members, and it is a glaring omission

to not include grantor trusts in proposed

§1.139E-1(c)(5) that could lead to possible negative inferences. Several commenters described using gaming revenues

to fund grantor trusts for minors and members with legal disabilities and being permitted under IGRA to make distributions

to their parents or legal guardians to pay

health, education, and welfare benefits for

the benefits of such minors and certain

other individuals. One of these commenters noted that this use of trusts indicates

Tribes are free to use trust funds to provide Tribal general welfare benefits just

as they are free to use any other revenue

source.

The Treasury Department and the IRS

agree with commenters that a benefit distributed from certain grantor trusts can

be a Tribal general welfare benefit under

section 139E if the benefit otherwise satisfies the requirements of §1.139E-1(d),

and that additional guidance on the use of

grantor trusts would be helpful. Accordingly, these final regulations include

express language regarding distributions

from grantor trusts in new §1.139E-1(c)

(5)(iii). New §1.139E-1(c)(5)(iii), which

applies to a trust or the portion of a trust

of which the Indian Tribal government is

treated as the owner under sections 671

through 677 of the Code, provides that a

benefit distributed by a trust that otherwise

satisfies the requirements of §1.139E-1(d)

is a Tribal General Welfare Benefit under

section 139E. Conversely, a distribution

from a grantor trust, or portion thereof,

will not be considered a Tribal general

welfare benefit to the extent the distribution, or portion thereof, fails to satisfy

section 139E and the regulations. Section

1.139E-1(c)(5)(iii) further provides that

the determination of whether a benefit

distributed by a grantor trust is a Tribal

general welfare benefit is made at the time

the benefit is distributed from the grantor

trust to the Tribal program participant.

Thus, for example, a distribution from the

grantor trust that is paid to an individual

as compensation (determined at the time

of distribution) would not be excludible

under section 139E (unless the exception

Bulletin No. 2026–5

relating to cultural or ceremonial activities

applies).

The Treasury Department and the IRS

have determined that providing additional

safe harbors under Revenue Procedure

2011-56 is outside the scope of this regulation. Revenue Procedure 2011-56 provides a safe harbor under which the IRS

treats a Tribe as the grantor and owner

of a trust for the receipt of Tribal gaming

revenues under IGRA for the benefit of

minors and certain other individuals. That

guidance provides rules addressing trusts

under IGRA that are not affected by these

final regulations.

Commenters requested clarification

on the Federal income tax treatment of

grantor trust distributions when the Indian

Tribal government has previously set up

a minor’s trust under IGRA for per capita payments but subsequently distributes

general welfare payments from such trust

to the Tribal program participant. The

Treasury Department and the IRS have

generally determined that where an IGRA

trust satisfies Revenue Procedure 201156 and is treated as owned by the Indian

Tribal government, the Indian Tribal government may subsequently determine distributions from the trust are for general

welfare purposes under section 139E to

the extent that DOI approval is otherwise

received to modify a RAP or IGRA trust,

as applicable. In general, the date of distribution from the IGRA trust is the relevant

time at which to determine whether the

payment is a Tribal general welfare benefit

or a per capita payment. The Indian Tribal

government, subject to DOI approvals of

RAPs or IGRA trusts, has sole discretion

to determine whether a payment is a per

capita payment for purposes of section

139E and these regulations.

3. Deferred Benefits

Some commenters requested that the

final regulations provide that Tribal members have the right to defer or disclaim

current, smaller, general welfare benefits

in exchange for the Tribe funding future,

larger general welfare benefits for morecostly needs. One of these commenters

noted the importance of flexibility to allow

Tribal members to prioritize assistance

that meets their specific needs. Some commenters noted they agree with the TTAC

Bulletin No. 2026–5

proposal that complex IRS deferred compensation rules, like constructive receipt,

should not apply to deferred general welfare benefits.

The Treasury Department and the IRS

do not agree with the suggestion that Federal income tax principles, such as the

constructive receipt doctrine, should be

inapplicable to deferred general welfare

benefits. The language of section 139E

does not provide an exception for treating amounts that, under ordinary Federal

income tax principles (such as principles

of constructive receipt), are actually or

constructively transferred to or for the

benefit of a Tribal program participant in

one taxable year as being transferred in a

later taxable year. The Treasury Department and the IRS note that, as a general

matter, a Tribal program participant’s

election to defer a Tribal general welfare

benefit that is made before the Tribal program participant would have rights to the

Tribal general welfare benefit under Tribal

law would not be treated as constructively

received by the Tribal program participant

for Federal income tax purposes.

E. Recordkeeping Requirements of the

Tribal Program Participant

The preamble to the proposed regulations stated, under the general recordkeeping requirements of section 6001, that

Tribal program participants are required

to maintain records sufficient to show that

the value of a Tribal general welfare benefit received from an Indian Tribal government program is excludible from gross

income. Under section 6001 and §1.60011(a), taxpayers are required to maintain

records sufficient to establish the amount

of gross income or other matters required

to be shown by them in any return of

income tax.

Many commenters expressed confusion regarding substantiation requirements

that Tribal program participants may have

for benefits received from Indian Tribal

government programs. One commenter

expressed appreciation that Tribes and

Tribal program participants, in the commenter’s interpretation of the proposed

regulations, were not required to keep

receipts to substantiate benefits. However, other commenters recommended

that the final regulations expressly pro-

425

vide that Tribal program participants will

not be subject to additional substantiation

requirements such as maintaining receipts

or other proof not otherwise required by

the Indian Tribal government program.

Further, some of these commenters pointed

out that the Treasury Department stated at

Tribal consultations that receipts were not

needed to substantiate the benefit. In general, commenters explained that imposing

additional substantiation requirements

on Indian Tribal governments and Tribal

program participants would create administrative burdens and contradict the Act’s

objective of streamlining Tribal program

administration.

Some commenters referred to the TTAC

Report, which proposes that individual

members should not be required to submit

receipts to prove general welfare expenses

if there is sufficient documentation of an

Indian Tribal government’s general welfare program, including written program

guidelines, and that compliance should be

presumed for Tribal program participants

where the Indian Tribal government can

show benefit amounts are reasonably calculated to meet general welfare needs and

the method of distribution to members is

reasonably expected to achieve program

goals. Other commenters proposed that

the IRS should use an Indian Tribal government’s year-end compliance certificates confirming general welfare expenses

at or above program benefit levels and

any corroborating program documentation as sufficient substantiation of a Tribal

program participant’s benefits. Finally, a

commenter recommended that complete

deference be given to Indian Tribal government determinations for the administration of program benefits such that the

Tribal program participant’s substantiation of Tribal general welfare benefits for

Federal income tax purposes is satisfied.

Many commenters requested that the

Treasury Department and the IRS maintain the deference to Indian Tribal government program methods for substantiation of general welfare program benefits

so long as an Indian Tribal government

implements its general welfare program

consistent with written program guidelines that meet the criteria of section 139E.

These commenters suggested addressing

only situations where additional substantiation may be required. Some commenters

January 26, 2026

noted that substantiation requirements for

benefits add administrative costs to Indian

Tribal governments.

These final regulations do not impose

additional recordkeeping requirements

on Tribal program participants. However,

section 6001 and §1.6001-1 generally

require a taxpayer to maintain records

to establish the amount of gross income

reported on the taxpayer’s tax return. This

requirement is independent of the exclusion provided under section 139E. Notwithstanding the previous sentence, the

Treasury Department and the IRS confirm

that individuals are not required to maintain personal receipts to substantiate that

a benefit provided under an Indian Tribal

government program was used by the

recipient for the purpose for which it was

provided. Deference is given to the Indian

Tribal government with regard to the general welfare programs it administers and,

accordingly, what requirements a Tribal

program participant may need to satisfy in

order to receive program benefits.

Accordingly, the Treasury Department

and the IRS do not prescribe any specific types of documentation that a Tribal

program participant would be required

to retain to substantiate that a particular

benefit is a Tribal general welfare benefit excludable from gross income under

section 139E. Nonetheless, corroborating program documentation, such as a

written description of the Indian Tribal

government program, an application or

acceptance letter into the program, or any

year-end compliance certificates of the

Indian Tribal government may satisfy the

requirements of section 6001 and §1.60011. Moreover, Tribal program participants

may choose to ask the Indian Tribal government for clarification on whether the

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