# 89 FR 75990: Tribal General Welfare Benefits

> Federal · Regulations · In force

URL: https://www.frixlaw.com/law-library/statutes/FR_PRORULE_2024-20826

## Section

- **Citation:** 89 FR 75990
- **Heading:** Tribal General Welfare Benefits
- **Jurisdiction:** Federal
- **Kind:** Regulations
- **Status:** In force
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** Federal Register / Vol. 89 / 89 FR 75990

## Text

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [REG-106851-21] RIN 1545-BQ95 Tribal General Welfare Benefits AGENCY:
Internal Revenue Service (IRS), Treasury.

ACTION:
Notice of proposed rulemaking and notice of public hearing.

SUMMARY:
This document contains proposed regulations regarding the exclusion from gross income of certain Tribal general welfare benefits. The proposed regulations address the requirements that would apply to determine whether the benefits that an Indian Tribal government program provides qualify as Tribal general welfare benefits. These proposed regulations would 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. This document also requests comments on certain provisions and provides a notice of a public hearing on the proposed regulations that will be in addition to Tribal consultation on the proposed regulations.

DATES:

Comments: Electronic or written comments on this proposed rule from the public must be received by December 16, 2024.
Public Hearing: The public hearing is scheduled to be held on January 13, 2025, at 10 a.m. Eastern time (ET). Requests to speak and outlines of topics to be discussed at the public hearing must be received by December 16, 2024. If no outlines are received by December 16, 2024, the public hearing will be cancelled. Requests to attend the public hearing must be received by 5 p.m. ET on January 9, 2025. Requests for special assistance during the hearing must be received by 5 p.m. ET on January 8, 2025. See the Comments and Public Hearing section of the SUPPLEMENTARY INFORMATION for additional information.

ADDRESSES:
Commenters are strongly encouraged to submit public comments electronically
be cancelled. Requests to attend the public hearing must be received by 5 p.m. ET on January 9, 2025. Requests for special assistance during the hearing must be received by 5 p.m. ET on January 8, 2025. See the Comments and Public Hearing section of the SUPPLEMENTARY INFORMATION for additional information.

ADDRESSES:
Commenters are strongly encouraged to submit public comments electronically. Submit electronic submissions via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-106851-21) by following the online instructions for submitting comments. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn. The Department of the Treasury (Treasury Department) and the IRS will publish any comments to the IRS's public docket. Send paper submissions to: CC:PA:PR:01 (REG-106851-21), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT:
Concerning the proposed regulations, Jonathan A. Dunlap of the Office of Associate Chief Counsel (Income Tax and Accounting), (202) 317-4718 (not a toll-free number); concerning submissions of comments or outlines, the hearing, or any questions to attend the hearing by teleconferencing, Publication and Regulations Section at (202) 317-6901 (not a toll-free number) or preferably by email to publichearings@irs.gov. If emailing, please include the following information in the subject line: Attend, Testify, or Question and REG-106851-21.

SUPPLEMENTARY INFORMATION:
Authority
This document contains proposed amendments to the Income Tax Regulations (26 CFR part 1) under section 139E of the Internal Revenue Code (Code)
2) 317-6901 (not a toll-free number) or preferably by email to publichearings@irs.gov. If emailing, please include the following information in the subject line: Attend, Testify, or Question and REG-106851-21.

SUPPLEMENTARY INFORMATION:
Authority
This document contains proposed amendments to the Income Tax Regulations (26 CFR part 1) under section 139E of the Internal Revenue Code (Code). Section 139E(c)(3) provides an express delegation of authority for the Secretary of the Treasury or her delegate (Secretary) to, “in consultation with the Tribal Advisory Committee (as established under section 3(a) of the Tribal General Welfare Exclusion Act of 2014), establish guidelines for what constitutes lavish or extravagant benefits with respect to Indian tribal government programs.” The proposed regulations are also issued under the express delegation of authority under section 7805(a) of the Code.
Background
This notice of proposed rulemaking contains proposed amendments to the Income Tax Regulations (26 CFR part 1) to implement section 139E of the Internal Revenue Code (Code).
Section 61 of the Code provides that, except as otherwise provided by law, the term “gross income” means all income from whatever source derived. The term “income” is broadly defined as “instances of undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion.” Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955). As a general rule, exclusions from income are construed narrowly, and taxpayers must bring themselves within the clear scope of the exclusion for the exclusion to apply. Commissioner v. Schleier, 515 U.S. 323, 328-329 (1995). Tribal members are subject to the same requirement to pay Federal income taxes as non-Tribal members, unless exempted by a treaty or agreement between the United States and the Tribal member's Tribe or an Act of Congress dealing with Indian affairs. Squire v. Capoeman, 351 U.S. 1, 6 (1956)
ar scope of the exclusion for the exclusion to apply. Commissioner v. Schleier, 515 U.S. 323, 328-329 (1995). Tribal members are subject to the same requirement to pay Federal income taxes as non-Tribal members, unless exempted by a treaty or agreement between the United States and the Tribal member's Tribe or an Act of Congress dealing with Indian affairs. Squire v. Capoeman, 351 U.S. 1, 6 (1956).
Generally, if the provision of a benefit satisfies the requirements of section 139E (discussed in part IV of this Background), section 139E will apply to exclude the value of the benefit from the See Notice 2015-34 (2015-18 I.R.B. 942), discussed in part V of this Background.
I. Administrative General Welfare Exclusion
The IRS generally has determined that payments made to or on behalf of individuals by governmental units under legislatively provided social benefit programs for the promotion of the general welfare are not includible in an individual recipient's Federal gross income; this concept is referred to in this preamble as the “administrative general welfare exclusion.” See, e.g., Rev. Rul. 78-170, 1978-1 C.B. 24 (concluding that amounts paid under the laws of the State of Ohio to low-income elderly and disabled persons to help alleviate their cost of winter energy consumption are made for the promotion of general welfare, and are not includible in the recipients' gross income for Federal income tax purposes); see also Rev. Rul. 76-395, 1976-2 C.B. 16 (applying the general welfare exclusion to home rehabilitation grants to low-income families to correct substandard conditions).
To qualify under the administrative general welfare exclusion, payments must (1) be paid from a governmental fund, (2) be for the promotion of the general welfare (that is, based on the need of the individual or family receiving such payments), and (3) not represent compensation for services absent a specific Federal income tax exclusion. See Notice 2023-56, 2023-38 I.R.B. 824
ndard conditions).
To qualify under the administrative general welfare exclusion, payments must (1) be paid from a governmental fund, (2) be for the promotion of the general welfare (that is, based on the need of the individual or family receiving such payments), and (3) not represent compensation for services absent a specific Federal income tax exclusion. See Notice 2023-56, 2023-38 I.R.B. 824.
Payments that are based on some criteria other than individual or family need do not qualify for the administrative general welfare exclusion. Compare Rev. Rul. 76-395, 1976-2 C.B. 16 (home rehabilitation grants received by low-income homeowners residing in a defined area of a city under the city's community development program funded under the Housing and Community Development Act of 1974 are in the nature of general welfare and are not includible in their gross income) with Rev. Rul. 76-131, 1976-1 C.B. 16 (payments made by the State of Alaska to individuals at least 65 years of age who have maintained an Alaska domicile for at least 25 years to encourage them to continue their residence in the State did not qualify under the general welfare exclusion because the payments were made to residents regardless of financial status, health, educational background, or employment status).
The administrative general welfare exclusion does not generally apply to permit a business to exclude payments from gross income because such payments are not based on individual or family need. See Bailey v. Commissioner, 88 T.C. 1293, 1300-1301 (1987), acq. 1989-2 C.B. 1; Revenue Ruling 2005-46 (2005-2 C.B. 120).
II. Application of the Administrative General Welfare Exclusion to Indian Tribal Governments
Indian Tribal governments have a unique legal status. They have sovereignty that pre-dates the United States and therefore have a government-to-government relationship with the United States. Indian Tribal governments have developed a broad range of programs to address their unique social, cultural, and economic issues
of the Administrative General Welfare Exclusion to Indian Tribal Governments
Indian Tribal governments have a unique legal status. They have sovereignty that pre-dates the United States and therefore have a government-to-government relationship with the United States. Indian Tribal governments have developed a broad range of programs to address their unique social, cultural, and economic issues. The administrative general welfare exclusion applies to benefits provided by Indian Tribal governments no less favorably than it applies to benefits provided by Federal, State, or local governments. Thus, benefits provided by Indian Tribal governments qualify for the administrative general welfare exclusion if the benefits are (1) made pursuant to a governmental program of the Tribe; (2) for the promotion of general welfare (that is, based on individual or family need); and (3) not compensation for services.
III. Revenue Procedure 2014-35
In 2014, the Treasury Department and the IRS issued Revenue Procedure 2014-35 (2014-26 I.R.B. 1110), 1 which provides safe harbors under which the IRS conclusively presumes that the individual need requirement of the administrative general welfare exclusion is met for benefits provided under Indian Tribal governmental programs that meet the safe harbor requirements. The revenue procedure provides 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
ral welfare exclusion is met for benefits provided under Indian Tribal governmental programs that meet the safe harbor requirements. The revenue procedure provides 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. The safe harbors apply if the following requirements are met: (1) the benefit is provided pursuant to a specific Indian Tribal government program, (2) the program has written guidelines specifying how the individual qualifies for the benefit; (3) the benefit is available to any Tribal member and certain other individuals who satisfy the program's guidelines; (4) the program does not discriminate in favor of members of the governing body; (5) the benefit is not lavish or extravagant under the circumstances, and (6) the benefit is not compensation for services. See section 5.02(1) of Revenue Procedure 2014-35. Categories of qualifying benefits include housing, education, elder and disabled person care, and cultural activities. See section 5.02(2) of Revenue Procedure 2014-35. In addition, nominal cash honoraria and items of cultural significance that are not lavish or extravagant provided to religious or spiritual officials or leaders in connection with their participation in cultural, religious, and social events, are not treated as compensation for services (and therefore are not gross income) under the revenue procedure. See section 5.03 of Revenue Procedure 2014-35.
1 Revenue Procedure 2014-35 was preceded by Notice 2012-75 (2012-51 I.R.B. 715). The IRS received over 40 comments in response to Notice 2012-75, which informed the drafting of Revenue Procedure 2014-35.
IV. The Tribal General Welfare Exclusion Act of 2014
On August 2, 2013, H.R. 3043, 113th Cong
re not gross income) under the revenue procedure. See section 5.03 of Revenue Procedure 2014-35.
1 Revenue Procedure 2014-35 was preceded by Notice 2012-75 (2012-51 I.R.B. 715). The IRS received over 40 comments in response to Notice 2012-75, which informed the drafting of Revenue Procedure 2014-35.
IV. The Tribal General Welfare Exclusion Act of 2014
On August 2, 2013, H.R. 3043, 113th Cong. (2013), whose short title was the Tribal General Welfare Exclusion Act of 2013, was introduced in the United States House of Representatives and referred to the Committee on Ways and Means. On that same date, an identical bill was introduced in the United States Senate and referred to the Committee on Finance. On September 16, 2014, after its short title was revised to the “Tribal General Welfare Exclusion Act of 2014,” H.R. 3043 was passed by the House of Representatives after a floor debate (House Debate). See Cong. Rec. H7599-7603 (September 16, 2014). On September 17, 2014, after being received by the Senate, H.R.3043 was the subject of a colloquy (Senate Colloquy). See Cong. Rec. S5686-5687 (September 17, 2014). On September 18, 2024, H.R. 3043 was passed by the Senate by unanimous consent. See Cong. Rec. S5862 (September 18, 2014). On September 26, 2014, the President of the United States approved the United States Congress's enactment of the Tribal General Welfare Exclusion Act of 2014 (Act), Public Law 113-168, 128 Stat. 1883 (2014).
The Act, among other things, amended the Code by adding section 139E. Under section 139E, gross income does not include the value of any “Indian general welfare benefit,” which this notice of proposed rulemaking
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
ian general welfare benefit,” which this notice of proposed rulemaking
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 shall apply to taxable years for which the period of limitation on refund or credit under section 6511 of the Code of 1986 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
al 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.
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 described above is completed. Section 4(a) further provides that the period of limitation under section 6501 of the Code is suspended during the period of suspension.
V. Notice 2015-34
Following the addition of section 139E to the Code, 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 section 139E codifies (but does not supplant) the administrative general welfare exclusion for certain benefits provided under Indian Tribal government programs. 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
es (but does not supplant) the administrative general welfare exclusion for certain benefits provided under Indian Tribal government programs. 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 (1) what guidelines may be helpful to Indian Tribal governments to determine whether benefits are lavish or extravagant under section 139E(b); (2) what Tribal customs or government practices may establish an Indian Tribal government program administered through specific guidelines under section 139E(b)(1) and (c)(4) and how such programs may be identified; and (3) how items of cultural significance, cash honoraria, and cultural or ceremonial activities for the transmission of Tribal culture under section 139E(c)(5) should be defined.
VI. TTAC Report and Tribal Consultations on Section 139E
Members of the TTAC formed a Subcommittee on the Act's General Welfare Exclusion (GWE Subcommittee) in 2019 to provide the TTAC with technical expertise on recommendations for the implementation of the Act. On June 16, 2021, the GWE Subcommittee submitted to the TTAC a report (TTAC Report) containing the 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 (Dear Tribal Leader Letter), to Tribal leaders to request consultation on the Act and the TTAC Report
C 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 (Dear Tribal Leader Letter), to Tribal leaders to request consultation on the Act and the TTAC Report. The 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. The Dear Tribal Leader Letter also requested responses to certain questions related to the interpretation of particular provisions of section 139E, as well as comments on the TTAC Report. In response to the Dear Tribal Leader Letter, and after the December 2022 Consultations, the Treasury Department received 65 written comments from Tribes and two Tribal organizations (collectively, Tribal Comments).
The Tribal Comments were broadly supportive of the recommendations in the TTAC Report, 2 including the TTAC draft proposed regulations. In general, the Tribal Comments emphasized that the Act, particularly section 2(c) of the Act, requires the Treasury Department to recognize the sovereignty of Tribes by granting broad deference to Indian Tribal governments in the design and implementation of their general welfare programs, as well as with respect to any ambiguities in the statute. Deference to Indian Tribal governments was a guiding principle in the Tribal Comments addressing each of the questions for which the Treasury Department requested comment. For example, many Tribal Comments stated that any Treasury Department and IRS guidance imposing specific requirements for a general welfare program, such as what constitutes “the promotion of the general welfare,” what is a “lavish or extravagant” benefit, or what are “cultural or ceremonial activities,” would infringe upon Indian Tribal sovereignty
which the Treasury Department requested comment. For example, many Tribal Comments stated that any Treasury Department and IRS guidance imposing specific requirements for a general welfare program, such as what constitutes “the promotion of the general welfare,” what is a “lavish or extravagant” benefit, or what are “cultural or ceremonial activities,” would infringe upon Indian Tribal sovereignty. Many Tribal
2 However, a few Tribal Comments argued that Congress has not specifically directed the Treasury Department and the IRS to publish regulations under section 139E.
Another area of significant concern raised in the Tribal Comments was ensuring that the regulations under section 139E do not presumptively treat benefits as outside the scope of section 139E solely because the benefits are provided to all eligible recipients in an equal amount, or that the benefits are funded from gaming revenues. This concern was primarily raised in relation to amounts that are set aside and paid from net gaming revenues to provide for the general welfare of the Indian Tribe and its members. See 25 U.S.C. 2710(b).
Finally, the Tribal Comments addressed various other issues, including the effective date of the proposed regulations, training of IRS agents, and coordination with other Federal agencies. After considering these and other Tribal Comments and the TTAC Report, and after consultation with the TTAC and the GWE Subcommittee, the Treasury Department and the IRS propose to adopt new § 1.139E-1 to provide guidance under section 139E (proposed § 1.139E-1). The following Explanation of Provisions discusses the Tribal Comments in more detail in relation to each proposed provision in proposed § 1.139E-1.
Explanation of Provisions
The proposed regulations would provide that the gross income of a Tribal program participant does not include the value of any Tribal general welfare benefit provided by an Indian Tribal government program
sed § 1.139E-1). The following Explanation of Provisions discusses the Tribal Comments in more detail in relation to each proposed provision in proposed § 1.139E-1.
Explanation of Provisions
The proposed regulations would provide that the gross income of a Tribal program participant does not include the value of any Tribal general welfare benefit provided by an Indian Tribal government program.
The provisions of proposed § 1.139E-1 would provide (1) definitions of terms used in section 139E and proposed § 1.139E-1 ( see proposed § 1.139E-1(b)); (2) requirements for a program to qualify as an “Indian Tribal Government Program” ( see proposed § 1.139E-1(c)); (3) requirements for a benefit to qualify as a “Tribal General Welfare Benefit” ( see proposed § 1.139E-1(d)); (4) special rules related to cultural or ceremonial activities ( see proposed § 1.139E-1(e)); (5) clarification of the audit suspension required by section 4(a) of the Act (proposed § 1.139E-1(f)); and (6) the proposed date of applicability of the final regulations ( see proposed § 1.139E-1(g)). The Treasury Department and the IRS will publish final regulations under section 139E after consideration of oral and written comments received in connection with Tribal consultation on these proposed regulations, consideration of any other comments received in response to the proposed regulations, and further consultation with the TTAC, including through the GWE Subcommittee.
I. Section 139E Definitions
Section 139E(a) provides that gross income does not include the value of any Tribal general welfare benefit. Section 139E(b) defines a Tribal general welfare benefit, in relevant part, 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 a program that is established by an Indian Tribal government and that satisfies specified requirements
that gross income does not include the value of any Tribal general welfare benefit. Section 139E(b) defines a Tribal general welfare benefit, in relevant part, 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 a program that is established by an Indian Tribal government and that satisfies specified requirements. Proposed § 1.139E-1(b) would define an Indian Tribal government, a Tribe, and the individuals, including a Tribal member, spouse, and dependent, who may be determined by the Indian Tribal government to be eligible for a general welfare benefit under section 139E.
A. Definition of Indian Tribal Government
Section 139E(c)(1) provides that the term “Indian Tribal government” includes any agencies or instrumentalities of an Indian Tribal government and any Alaska Native regional or village corporation, as defined in, or established pursuant to, the Alaska Native Claims Settlement Act (ANCSA) (43 U.S.C. 1601 et seq. ) (Alaska Native Corporations). Revenue Procedure 2014-35 provides that the term “Indian Tribal government” has the same meaning as in section 7701(a)(40)(A) but for purposes of the revenue procedure includes agencies or instrumentalities of the Indian Tribal government. The TTAC Report and the Tribal Comments did not provide any recommendations on the definition of Indian Tribal government and did not specifically address Alaska Native Corporations.
If used in a provision of the Code and not otherwise distinctly expressed or manifestly incompatible with the intent thereof, section 7701(a)(40)(A) defines the term “Indian Tribal government” to mean 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. Under the Federally Recognized Indian Tribe List Act of 1994, Public Law 103-454, 108 Stat
701(a)(40)(A) defines the term “Indian Tribal government” to mean 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. Under the Federally Recognized Indian Tribe List Act of 1994, Public Law 103-454, 108 Stat. 4791 (List Act), the Secretary of the Interior is required to publish annually a list of all Federally-recognized Tribes. In Revenue Procedure 2008-55 (2008-39 I.R.B. 768), after consultation with the Department of Interior (DOI), the Treasury Department and the IRS determined that the Indian Tribal entities that appear on the current or future lists of Federally-recognized Tribes published annually under the List Act by the DOI, Bureau of Indian Affairs, are designated as 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.
Proposed § 1.139E-1(b)(4) would define the term “Indian Tribal Government” by reference to section 7701(a)(40). In addition, in accordance with section 139E(c)(1), the definition of Indian Tribal government for purposes of proposed § 1.139E-1(b)(4) also would include agencies and instrumentalities of the Indian Tribal government. This definition is consistent with Revenue Procedure 2014-35.
Although the definition of Indian Tribal government under section 139E(c)(1) includes Alaska Native Corporations, these proposed regulations would not include Alaska Native Corporations in the definition of Indian Tribal government for purposes of these rules and instead reserve proposed § 1.139E-2 for the rules to apply section 139E to benefits provided by Alaska Native Corporations. The Treasury Department and the IRS intend on holding consultation before issuing future guidance on issues related to the application of section 139E to benefits provided by Alaska Native Corporations.
B
efinition of Indian Tribal government for purposes of these rules and instead reserve proposed § 1.139E-2 for the rules to apply section 139E to benefits provided by Alaska Native Corporations. The Treasury Department and the IRS intend on holding consultation before issuing future guidance on issues related to the application of section 139E to benefits provided by Alaska Native Corporations.
B. Definition of Tribe
Section 139E does not define the term “Indian Tribe,” but section 4(c)(2) of the Act defines it by cross-reference to that term as defined in section 45A(c)(6) of the Code. Revenue Procedure 2014-35 also defines “Indian Tribe” by cross-reference to section 45A(c)(6). The TTAC Report and the Tribal Comments did not provide any recommendations on the definition of “Indian Tribe,” which, for purposes of these proposed regulations, is referred to as simply “Tribe.”
Section 45A relates to the Indian employment credit, which was applicable for taxable years prior to January 1, 2022. Section 45A(c)(6) defines “Indian Tribe” to mean any Indian Tribe, band, nation, pueblo, or other organized group or community, including any Alaska Native village, or regional or village corporation, as defined in, or established pursuant to, ANCSA that is recognized as eligible for the special programs and services provided by the United States to Indians because of their status as Indians.
Proposed § 1.139E-1(b)(7) generally would define “Tribe” using the
C. Definition of Tribal Program Participant
Section 139E(b) provides that a Tribal general welfare benefit means any payment made or services provided to or on behalf of a member of the Tribe (or any spouse or dependent of such a member) pursuant to a program that satisfies specified requirements
e of their status as Indians.
Proposed § 1.139E-1(b)(7) generally would define “Tribe” using the
C. Definition of Tribal Program Participant
Section 139E(b) provides that a Tribal general welfare benefit means any payment made or services provided to or on behalf of a member of the Tribe (or any spouse or dependent of such a member) pursuant to a program that satisfies specified requirements. Revenue Procedure 2014-35 allows benefits to be provided to a member of the Tribe, as well as a “qualified nonmember,” meaning a spouse, former spouse, legally recognized domestic partner or former domestic partner, ancestor, descendant, or dependent of a member of a Tribe.
The TTAC Report and many Tribal Comments recommend that the proposed regulations provide that individuals eligible for benefits not be limited to Tribal members and their spouses and dependents, instead supporting the use of the more expansive term “qualified nonmember” from Revenue Procedure 2014-35. The TTAC Report and many Tribal Comments state that using this more expansive definition of “qualified nonmember” would be consistent with the House Debate and Senate Colloquy that explain the Act, and that section 139E should be viewed no less favorably than Revenue Procedure 2014-35. Moreover, several Tribal Comments suggest that the language “to or on behalf of” in section 139E(b) is ambiguous and thus supports the proposed regulations adopting the definition of “qualified nonmember” from Revenue Procedure 2014-35. In addition, the TTAC Report explains that depending on Tribal culture, custom, or tradition, a member of a Tribe may have obligations to care for extended family, and that existing Tribal general welfare programs may provide assistance to these extended family members.
The Treasury Department and the IRS have considered the TTAC Report and the Tribal Comments and agree that an expansive definition of eligible individuals is appropriate
depending on Tribal culture, custom, or tradition, a member of a Tribe may have obligations to care for extended family, and that existing Tribal general welfare programs may provide assistance to these extended family members.
The Treasury Department and the IRS have considered the TTAC Report and the Tribal Comments and agree that an expansive definition of eligible individuals is appropriate. Accordingly, proposed § 1.139E-1(b)(8) would define the term “Tribal Program Participant” to mean a Tribal member, spouse of a Tribal member (including a spouse of a Tribal member within the meaning of § 301.7701-18, or a 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, or legally recognized domestic partner or former domestic partner. This definition is intended to encompass the categories of “qualified nonmember” that are covered by Revenue Procedure 2014-35, with the clarification that a spouse may be a spouse under applicable Tribal law.
The Treasury Department and the IRS note that the phrase “on behalf of” in section 139E(b) does not make the section 139E exclusion applicable to the direct recipient of a payment which was made by the Indian Tribal government “on behalf of” the Tribal program participant. For example, a Tribal program participant who receives a Tribal general welfare benefit from an Indian Tribal government program to provide rental assistance can exclude the payment from the Tribal program participant's gross income under section 139E regardless of whether the assistance is paid directly to the Tribal program participant or paid to the landlord on behalf of the Tribal program participant
mple, a Tribal program participant who receives a Tribal general welfare benefit from an Indian Tribal government program to provide rental assistance can exclude the payment from the Tribal program participant's gross income under section 139E regardless of whether the assistance is paid directly to the Tribal program participant or paid to the landlord on behalf of the Tribal program participant. In either case, however, section 139E does not apply to permit the landlord to exclude the rental assistance payment from the landlord's gross income.
D. Definition of Tribal Member
Section 139E does not define who is a “member of an Indian Tribe” or “Tribal member.” Revenue Procedure 2014-35 defines who is a member of a Tribe by cross-reference to 25 CFR 290.2, which defines a member of a Tribe as an individual who meets the requirements established by applicable Tribal law for enrollment in the Tribe and (1) is listed on the Tribal rolls of that Tribe if such rolls are kept, or (2) is recognized as a member by the Tribal governing body if Tribal rolls are not kept. The TTAC Report and the Tribal Comments did not provide any recommendations on the definition of a member of a Tribe.
Proposed § 1.139E-1(b)(9) would define the term “Tribal Member” in a manner similar to Revenue Procedure 2014-35's definition of “member of an Indian Tribe.” The proposed regulations would adopt the same definition but, for ease of readability, would incorporate the language from 25 CFR 290.2 rather than providing a cross-reference. Thus, the proposed regulations would define “Tribal Member” as an individual who is a member or citizen of the Tribe that establishes or maintains the Indian Tribal government program because the individual meets the requirements established by applicable Tribal law for enrollment in the Tribe and (1) is listed on the Tribal rolls of that Tribe if such rolls are kept, or (2) is recognized as a member by the Tribal governing body if Tribal rolls are not kept
s an individual who is a member or citizen of the Tribe that establishes or maintains the Indian Tribal government program because the individual meets the requirements established by applicable Tribal law for enrollment in the Tribe and (1) is listed on the Tribal rolls of that Tribe if such rolls are kept, or (2) is recognized as a member by the Tribal governing body if Tribal rolls are not kept. In addition, the Treasury Department and the IRS are aware that some Tribes temporarily close their rolls for enrollment or do not enroll children until they reach a certain age. These Tribes may provide benefits to an individual on the basis that the individual may be eligible for benefits, even though not formally a Tribal member. In particular, Tribes may provide benefits to an Indian child under the Indian Child Welfare Act of 1978, Public Law 95-608, 92 Stat. 3069 (1978), codified at 25 U.S.C. 1903(4). The Indian Child Welfare Act defines “Indian child” as any unmarried person who is under age eighteen and is either (a) a member of a Tribe or (b) is eligible for membership in a Tribe and is the biological child of a member of a Tribe. To ensure that Indian Tribal governments may provide general welfare benefits to an Indian child under section 139E, the proposed regulations also would include in the definition of Tribal member an “Indian child” as defined in 25 U.S.C. 1903.
The Treasury Department and the IRS recognize that an Indian Tribal government generally develops programs with the intention of providing general welfare benefits to or for the benefit of its own Tribal members. The Treasury Department and the IRS interpret section 139E(b) as providing a relationship nexus between the Indian Tribal government providing the general welfare benefit and the individual receiving the benefit. Thus, the proposed regulations would define the term Tribal member to mean a member of the Tribe that establishes or maintains the Indian Tribal government program
its own Tribal members. The Treasury Department and the IRS interpret section 139E(b) as providing a relationship nexus between the Indian Tribal government providing the general welfare benefit and the individual receiving the benefit. Thus, the proposed regulations would define the term Tribal member to mean a member of the Tribe that establishes or maintains the Indian Tribal government program. However, solely for purposes of the rule in section 139E(c)(5) relating to benefits provided for participation in ceremonial or cultural activities, proposed § 1.139E-1(b)(8)(ii) would
E. Definition of Spouse
Section 139E does not define the term “spouse,” nor does Revenue Procedure 2014-35. The TTAC Report and the Tribal Comments did not provide any recommendations on the definition of spouse for purposes of section 139E.
Section 301.7701-18(a) of the Procedure and Administration Regulations (26 CFR part 301) provides that, for Federal tax purposes, the term spouse means an individual lawfully married to another individual. Section 301.7701-18(b) generally provides that a marriage of two individuals is recognized for Federal tax purposes if the marriage is recognized by the state, possession, or territory of the United States in which the marriage is entered into, regardless of domicile. Section 301.7701-18(a) does not specifically refer to a marriage recognized under Tribal law because Tribal lands are not states, possessions or territories of the United States or foreign jurisdictions. However, the term “spouse” would include individuals married under Tribal law if the marriage would be recognized under the laws of any state, possession, or territory of the United States. See also 1 U.S.C. 7.
Because § 301.7701-18(a) defines spouse for Federal tax purposes, that definition applies for purposes of section 139E and would apply by default under proposed regulations. However, as noted in part I.C
m “spouse” would include individuals married under Tribal law if the marriage would be recognized under the laws of any state, possession, or territory of the United States. See also 1 U.S.C. 7.
Because § 301.7701-18(a) defines spouse for Federal tax purposes, that definition applies for purposes of section 139E and would apply by default under proposed regulations. However, as noted in part I.C. of this Explanation of Provisions section, the proposed regulations would include in the definition of Tribal program participant the spouse of a Tribal member, as determined under applicable Tribal law, whether or not recognized under § 301.7701-18(a) and 1 U.S.C. 7.
F. Definition of Dependent
Section 139E(c)(2) defines the term “dependent” to mean a dependent as defined in section 152 of the Code, determined without regard to section 152(b)(1), (b)(2), and (d)(1)(B). Revenue Procedure 2014-35 does not define dependent, and the TTAC Report and the Tribal Comments did not provide any recommendations on the definition of dependent for purposes of section 139E.
Section 152(a) defines dependent to mean an individual who is a qualifying child or qualifying relative of the taxpayer. Section 152(b) provides that an individual who is a qualifying child or a qualifying relative of a taxpayer is not a taxpayer's dependent in certain circumstances. Section 152(b)(1) provides that if an individual is a dependent of a taxpayer, that individual is treated as having no dependents. Section 152(b)(2) provides that, to be a dependent of a taxpayer, an individual must not have filed a joint return with his or her spouse. Section 152(d)(1)(B) provides that qualifying relative does not include an individual whose income is not less than the exemption amount set forth in section 151(d) of the Code
al is a dependent of a taxpayer, that individual is treated as having no dependents. Section 152(b)(2) provides that, to be a dependent of a taxpayer, an individual must not have filed a joint return with his or her spouse. Section 152(d)(1)(B) provides that qualifying relative does not include an individual whose income is not less than the exemption amount set forth in section 151(d) of the Code. 3 For purposes of section 139E, an individual who for the year is a dependent of a taxpayer who is him or herself a dependent, who files a joint return with the individual's spouse, or whose income is not less than the applicable limit for section 152(d)(1)(B) ($5,050 for 2024) is a dependent of a Tribal member if the other requirements of section 152 are satisfied, pursuant to section 139E(c)(2).
3 For taxable years in which the exemption amount is zero, the section 151(d) exemption amount is generally the inflation-adjusted section 152(d)(1)(B) exemption amount in the annual revenue procedure setting forth inflation-adjusted items that is published in the Internal Revenue Bulletin.
Proposed § 1.139E-1(b)(10) would define the term “dependent” in accordance with the definition in 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 without regard to section 152(b)(1), (b)(2), and (d)(1)(B).
II. Indian Tribal Government Program
Under section 139E(b), a benefit is a Tribal general welfare benefit if it meets certain requirements and is provided pursuant to an Indian Tribal government program, but only if the program is administered under specified guidelines and does not discriminate in favor of members of the governing body of the Tribe. Section 139E(c)(4) provides that a program will not fail to be treated as an Indian Tribal government program solely by reason of the program being established by Tribal custom or government practice
ed pursuant to an Indian Tribal government program, but only if the program is administered under specified guidelines and does not discriminate in favor of members of the governing body of the Tribe. Section 139E(c)(4) provides that a program will not fail to be treated as an Indian Tribal government program solely by reason of the program being established by Tribal custom or government practice. Revenue Procedure 2014-35 provides that, to qualify for the safe harbors provided therein, there must be a specific Tribal program, the program must have written guidelines specifying how an individual qualifies for the benefit, and the program cannot discriminate in favor of members of the governing body.
Some Tribal Comments suggest that programs established by Tribal custom or government practice without written documentation (that is, programs established under oral and unwritten customs or traditions) should satisfy the statutory requirement in section 139E(b)(1) that the program be administered under specified guidelines. These Tribal Comments recommend that the proposed regulations allow Indian Tribal governments to demonstrate the existence of “specified guidelines” for these programs through statements, affidavits, or declarations that describe how the Tribe has operated the program in the past. Other Tribal Comments argue that section 139E(b)(1) neither specifies who establishes the “specified guidelines” nor defines the term “specified,” and that the proposed regulations should presume that a program administered by or pursuant to Tribal resolution or other action by a Tribe's governing body is “administered under specified guidelines.” The TTAC Report and the Tribal Comments did not specifically address the requirement that the program not discriminate in favor of members of the governing body.
The Treasury Department and the IRS read section 139E(b) as requiring both that a program be established by an Indian Tribal government, and that the program be administered under specified guidelines
stered under specified guidelines.” The TTAC Report and the Tribal Comments did not specifically address the requirement that the program not discriminate in favor of members of the governing body.
The Treasury Department and the IRS read section 139E(b) as requiring both that a program be established by an Indian Tribal government, and that the program be administered under specified guidelines. This reading is similar to the requirements in Revenue Procedure 2014-35 that there must be a specific Tribal program, and that the program must have guidelines specifying how an individual qualifies for the benefit. Proposed § 1.139E-1(c) generally would adopt these two requirements and would explain how an Indian Tribal government program can meet these requirements. The proposed regulations also would address the requirement that the program not discriminate in favor of members of the governing body.
A. Program Must Be Established
Proposed § 1.139E-1(c)(2) would provide that a program must be established by an Indian Tribal government and that 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.
While an Indian Tribal government may find it helpful to set forth the creation of a program through a written document, the proposed regulations
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 guidelines. In general, the specified guidelines of the program represent the framework for the program's operations
y find it helpful to set forth the creation of a program through a written document, the proposed regulations
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 guidelines. In general, the specified guidelines of the program represent the framework for the program's operations. Thus, the proposed regulations would provide that 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 benefits are determined), the eligibility requirements for the program, and the process for receiving benefits under the program.
The Treasury Department and the IRS agree with the TTAC Report and the Tribal Comments that section 139E does not require the specified guidelines of the program to be memorialized in a written document. However, Indian Tribal governments are encouraged to set forth the specified guidelines in writing to assist recipients in determining whether a benefit received under the program is excludable from gross income under section 139E. In particular, recipients of Tribal general welfare benefits who are contacted by the IRS will need to substantiate that the benefit is excludable from gross income under section 139E and may not have any written documentation in their possession to do so. If the Indian Tribal government has documented in writing the specific guidelines of the program, the individual recipient of the benefit may use the written documentation to substantiate that the benefit received is intended to be a Tribal general welfare benefit that is excludable from gross income under section 139E.
C
E and may not have any written documentation in their possession to do so. If the Indian Tribal government has documented in writing the specific guidelines of the program, the individual recipient of the benefit may use the written documentation to substantiate that the benefit received is intended to be a Tribal general welfare benefit that is excludable from gross income under section 139E.
C. Program Cannot Discriminate in Favor of Members of the Governing Body
In accordance with section 139E(b)(1), proposed § 1.139E-1(c)(4) would provide that one of the requirements for an Indian Tribal government program is that the program not discriminate in favor of members of the governing body of the Tribe (non-discrimination requirement). Proposed § 1.139E-1(c)(4)(i) would generally define a governing body as the legislative body of the Tribe, such as the Tribal Council, or the representative equivalent of the legislative body of the Tribe. However, the Treasury Department and the IRS are aware that the form and membership of the governing body of a Tribe may vary between Tribes. For example, a Tribe may form its governing body to include all Tribal members, known as a general council Tribe. To ensure that a general council Tribe is not prevented from satisfying this requirement, proposed § 1.139E-1(c)(4)(ii) would provide that a program is treated 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.
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 governing body of the Tribe
at a program is treated 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.
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 governing 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 because of their status as members of the governing body. 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 members of the governing body would fail to satisfy the non-discrimination requirement.
D. No Limitation on Source of Funds
Section 139E does not provide restrictions on how an Indian Tribal government may fund an Indian Tribal government program. Section 2.03 of Revenue Procedure 2014-35 provides that revenues that the Indian Tribal government derives from levies, taxes, service fees, tribally-owned businesses, or other sources are permissible to fund a Tribal general welfare program.
The TTAC Report and the Tribal Comments argue that the source of funds used for general welfare benefits does not matter for compliance with section 139E. The TTAC Report and the Tribal Comments request that the proposed regulations confirm that the source of funding is irrelevant and, in particular, that a Tribe's gaming revenues may be used to fund Tribal general welfare benefits under an Indian Tribal government program
ibal Comments argue that the source of funds used for general welfare benefits does not matter for compliance with section 139E. The TTAC Report and the Tribal Comments request that the proposed regulations confirm that the source of funding is irrelevant and, in particular, that a Tribe's gaming revenues may be used to fund Tribal general welfare benefits under an Indian Tribal government program.
The Treasury Department and the IRS agree with the TTAC Report and the Tribal Comments that section 139E does not prohibit an Indian Tribal government from funding a general welfare program with net gaming revenues, or revenues from any other particular source. Thus, 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 net gaming revenues. However, an Indian Tribal government is permitted to restrict the source and amount of funds available to provide benefits under an Indian Tribal government program.
E. Benefits Funded by Net Gaming Revenues
Under the Indian Gaming Regulatory Act, 25 U.S.C. 2701-2721 (IGRA), a Federally-recognized Tribe is permitted to engage in gaming activities and provide net gaming revenues to its members. See 25 U.S.C. 2710(b). Section 25 CFR 502.16 defines “net gaming revenue” as gross gaming revenues of an “Indian gaming operation” less: (a) amounts paid out as, or paid for, prizes; and (b) total gaming-related operating expenses, including all those expenses of the gaming operation commonly known as operating expenses and non-operating expenses consistent with professional accounting pronouncements, excluding management fees
25 CFR 502.16 defines “net gaming revenue” as gross gaming revenues of an “Indian gaming operation” less: (a) amounts paid out as, or paid for, prizes; and (b) total gaming-related operating expenses, including all those expenses of the gaming operation commonly known as operating expenses and non-operating expenses consistent with professional accounting pronouncements, excluding management fees. IGRA allows Tribes to use their net gaming revenues consistent with one or more of the following purposes: (1) to fund Tribal government operations or programs; (2) to provide for the general welfare of the Tribe or its members; (3) to promote Tribal economic development; (4) to donate to charitable organizations; or (5) to help fund operations of local government.
IGRA also allows Tribes to use their net gaming revenues to distribute per capita payments. See 25 U.S.C.
Under IGRA, a Tribe cannot distribute per capita payments unless it has a Revenue Allocation Plan (RAP) that is approved by the DOI prior to distributing per capita payments. See 25 U.S.C. 2710(b)(3) and 25 CFR 290.11. A Tribe does not need a RAP if no per capita payments are made or planned to be made to its members. See 25 CFR 290.10. Thus, no RAP is required if a Tribe intends to use its gaming revenues solely for special purposes or programs, such as payments made for social welfare, medical assistance, education, housing, or other similar, specifically identified needs. These types of payments are not per capita payments as defined under IGRA.
Section 25 U.S.C. 2710(b)(3)(D) provides that net revenues may be used to make per capita payments to members of the Tribe only if the per capita payments are subject to Federal taxation and Tribes notify members of such tax liability when payments are made. Under section 6041 and § 1.6041-1, the Tribe generally is required to report per capita payments of $600 or more in any taxable year on Form 1099-MISC, Miscellaneous Information
ides that net revenues may be used to make per capita payments to members of the Tribe only if the per capita payments are subject to Federal taxation and Tribes notify members of such tax liability when payments are made. Under section 6041 and § 1.6041-1, the Tribe generally is required to report per capita payments of $600 or more in any taxable year on Form 1099-MISC, Miscellaneous Information.
Section 3402(r)(1) requires every person, including an Indian Tribe, making a payment to a member of an Indian Tribe from the net revenues of any class II or class III gaming activity conducted or licensed by such tribe to deduct and withhold from such payment a tax in an amount equal to such payment's proportionate share of the annualized tax. A payment that constitutes a per capita payment under IGRA is gross income under section 61 and continues to be subject to withholding under section 3402(r)(1) to the extent not otherwise excepted. See 25 U.S.C. 2701-2721 and 25 CFR part 290. These provisions, which are intended to ensure adequate withholding on gross income arising from the distribution of class II and class III gaming activity, are not intended to and do not extend the scope of what is gross income. Thus, withholding under section 3402(r) is not imposed merely by reason of the payment being sourced in class II or class III gaming activities but rather by reason of the payment being gross income and made in the form described in section 3402(r). Accordingly, if a payment is made under an Indian Tribal government program and meets the requirements to qualify as an excludable Tribal general welfare benefit under section 139E and these proposed regulations, then such payment is not subject to the withholding requirements of section 3402(r).
Section 139E does not address IGRA or the Federal tax treatment of per capita payments
tion 3402(r). Accordingly, if a payment is made under an Indian Tribal government program and meets the requirements to qualify as an excludable Tribal general welfare benefit under section 139E and these proposed regulations, then such payment is not subject to the withholding requirements of section 3402(r).
Section 139E does not address IGRA or the Federal tax treatment of per capita payments. Revenue Procedure 2014-35, however, specifically provides that per capita payments are gross income under section 61, and are subject to the information reporting and withholding requirements of sections 6041 and 3402(r). Thus, under the revenue procedure, per capita payments are not excludable from income under the administrative general welfare exclusion.
The TTAC Report argues that a distribution with a general welfare purpose under IGRA should be presumed to be a Tribal general welfare benefit under section 139E and not be treated as a taxable per capita payment under IGRA. In addition, the TTAC Report provides that a Tribe's RAP should be relied upon when determining whether a payment is a per capita payment or a general welfare payment under section 139E. Finally, the TTAC Report states that the IRS should not be allowed to challenge an approved RAP with respect to any perceived conflict with IGRA and section 139E. Rather, the TTAC Report argues, the IRS must engage in consultation with the Tribe to resolve the perceived conflict. Finally, the TTAC Report requests that any enforcement by the IRS contrary to the RAP be prospective only, and that Tribes be given time to amend their RAPs with the DOI.
Some Tribal Comments argue that IGRA makes clear that not all equal distributions of gaming revenue are necessarily “per capita payments” to the extent that they are set aside for social welfare, medical assistance, education, housing, or similar purposes
uests that any enforcement by the IRS contrary to the RAP be prospective only, and that Tribes be given time to amend their RAPs with the DOI.
Some Tribal Comments argue that IGRA makes clear that not all equal distributions of gaming revenue are necessarily “per capita payments” to the extent that they are set aside for social welfare, medical assistance, education, housing, or similar purposes. Some Tribal Comments recommend that the proposed regulations focus on the purpose and methodology used to calculate the distributions, rather than the source of the funding or the value of the benefit. Finally, some Tribal Comments request that the IRS defer to a Tribe's RAP and not recharacterize general welfare payments as per capita payments.
The Treasury Department and the IRS are of the view that IGRA defines per capita payments and provides that those payments are includible in gross income for Federal income tax purposes. However, the Treasury Department and the IRS agree with the TTAC Report and the Tribal Comments noting that IGRA distinguishes between taxable per capita payments and other types of payments, such as general welfare payments. The Treasury Department and the IRS also are of the view that Indian Tribal governments are in the best position to determine whether net gaming revenues should be used to fund per capita payments or general welfare payments.
The Treasury Department and the IRS do not agree with the TTAC Report that a distribution with a general welfare purpose under IGRA should be presumed to be a Tribal general welfare benefit under section 139E. Even if a payment is treated as having a general welfare purpose under IGRA, as designated in a RAP or otherwise, that purpose, by itself, is not sufficient to conclude that the payment is excludable from gross income under section 139E. Instead, the Indian Tribal government program must satisfy the requirements of section 139E (or other exclusion provision) for the payment to be excluded from the recipient's gross income
ted as having a general welfare purpose under IGRA, as designated in a RAP or otherwise, that purpose, by itself, is not sufficient to conclude that the payment is excludable from gross income under section 139E. Instead, the Indian Tribal government program must satisfy the requirements of section 139E (or other exclusion provision) for the payment to be excluded from the recipient's gross income.
Accordingly, 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 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 these proposed regulations. Proposed § 1.139E-1(c)(5)(ii) would further provide that, for purposes of section 139E and the proposed 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. This language is intended to mean that, if the Indian Tribal government has an approved RAP, the provisions of the RAP determine whether a payment is a per capita payment for purposes of Federal income taxation. In contrast, if the Indian Tribal government does not have a RAP, the determination of the Indian Tribal government that payments are not per capita payments is controlling for Federal income tax purposes. Whether or not the Indian Tribal government has a RAP, deference will be given to the Indian Tribal government's determination of whether net gaming revenues are being used to make payments. The DOI is the Federal agency with sole authority to approve
In drafting these proposed regulations, the Treasury Department and the IRS have considered recent litigation addressing per capita payments made by one Tribe to its members. In United States v
a RAP, deference will be given to the Indian Tribal government's determination of whether net gaming revenues are being used to make payments. The DOI is the Federal agency with sole authority to approve
In drafting these proposed regulations, the Treasury Department and the IRS have considered recent litigation addressing per capita payments made by one Tribe to its members. In United States v. Jim, 891 F.3d 1242 (2018), the 11th Circuit affirmed the district court's conclusion that section 139E did not apply to exclude per capita payments from a Tribal member's gross income. The court held that per capita payments are taxable under IGRA, a specific statute addressing Tribal net gaming revenues. The court also held that section 139E, a more general statute, does not control or nullify IGRA. The Treasury Department and the IRS agree that section 139E does not control or nullify IGRA, and that per capita payments under IGRA cannot be excluded from gross income under section 139E. However, as noted in parts II.D and III.A.3 of this Explanation of Provisions, there is no prohibition in section 139E on Tribal general welfare benefits being paid from net gaming revenues, nor is there is a prohibition on Tribal general welfare benefits being paid in equal amounts to Tribal members. Thus, an Indian Tribal government may use net gaming revenues to provide benefits, whether or not uniform, to Tribal members. Further, those benefits may be excluded from gross income as Tribal general welfare benefits if (1) they are not designated, including under a RAP, as per capita payments by the Indian Tribal government, and (2) they otherwise meet the requirements in section 139E. For example, to be an excludable Tribal general welfare benefit, the benefit cannot be lavish or extravagant and must be provided under a program that is established by the Indian Tribal government and administered under specified guidelines.
III
esignated, including under a RAP, as per capita payments by the Indian Tribal government, and (2) they otherwise meet the requirements in section 139E. For example, to be an excludable Tribal general welfare benefit, the benefit cannot be lavish or extravagant and must be provided under a program that is established by the Indian Tribal government and administered under specified guidelines.
III. Tribal General Welfare Benefits
Under section 139E(b), benefits provided under an Indian Tribal government program are Tribal general welfare benefits only if the benefits (1) are for the promotion of general welfare; (2) are available to any Tribal member who meets the guidelines; (3) are not lavish or extravagant; and (4) are not compensation for services. Proposed § 1.139E-1(d) would describe each of these requirements.
A. Benefits Must Be for the Promotion of General Welfare
1. Deference to Tribes in Determining Promotion of General Welfare
Section 139E(b)(2)(B) requires that a benefit provided under an Indian Tribal government program be for the promotion of general welfare but does not define “promotion of general welfare.” The TTAC Report recommends that promotion of general welfare should be presumed when the Indian Tribal government can substantiate that the benefit meets general welfare needs or purpose, and the method of distributing the benefit is expected to achieve program goals. Further, the TTAC Report states that an Indian Tribal government may substantiate that benefits meet general welfare needs or purposes by relying on data or studies corroborating the expenses. In addition, the TTAC Report recommends that an Indian Tribal government may show that the method of distribution is expected to achieve program goals by establishing Indian Tribal government-approved verification procedures such as direct pay arrangements, applications in which recipients agree to specified program requirements, or end-of-year certifications
or studies corroborating the expenses. In addition, the TTAC Report recommends that an Indian Tribal government may show that the method of distribution is expected to achieve program goals by establishing Indian Tribal government-approved verification procedures such as direct pay arrangements, applications in which recipients agree to specified program requirements, or end-of-year certifications. Finally, the TTAC Report states that Indian Tribal governments must be afforded flexibility with regard to substantiating expenses that relate to Tribal cultural traditions, religious expenses, or historical need (such as benefits paid to elders to make up for historic economic deprivation and shorter life expectancy).
Many Tribal Comments request that deference be given to Tribes and Indian Tribal governments on whether the types and amounts of benefits are for the promotion of general welfare. These Tribal Comments state that the Indian Tribal government is best suited to address the unique needs of its members, with many insisting that such discretion should be unfettered. The Tribal Comments noted that many programs may not reflect how the Treasury Department and the IRS would traditionally view general welfare, including benefits such as wellness centers, health coaches, and access to dieticians.
Other Tribal Comments state that an official determination by the Indian Tribal government, such as a Tribal resolution or other formal action, should be sufficient to demonstrate that a benefit or program is for the promotion of general welfare. With respect to benefits provided, some Tribal Comments request that the regulations defer to Indian Tribal governments on determining whether benefits provided to Tribal members are considered “for the promotion of general welfare,” particularly when the Indian Tribal government relies on its own data or other empirical data (for example, private studies, or based on Federal or state statistics)
With respect to benefits provided, some Tribal Comments request that the regulations defer to Indian Tribal governments on determining whether benefits provided to Tribal members are considered “for the promotion of general welfare,” particularly when the Indian Tribal government relies on its own data or other empirical data (for example, private studies, or based on Federal or state statistics). Many Tribal Comments argue that the Treasury Department and the IRS should avoid listing specific criteria required for a benefit to satisfy the promotion of general welfare requirement.
The Treasury Department and the IRS agree with the TTAC Report and the Tribal Comments that deference should be given to the Indian Tribal government in determining whether a benefit is for the promotion of the general welfare of its Tribal members or other eligible individuals. The Indian Tribal government is in the best position to determine which general welfare benefits are best suited to meet the needs of its Tribal members and other eligible individuals. As a result, these proposed regulations would not define the term “for the promotion of general welfare” or specifically provide requirements that a benefit must meet in order to satisfy section 139E(b)(2)(B). Instead, proposed § 1.139E-1(d)(2) would provide deference to the Indian Tribal government to determine, at the time the program is established, whether a benefit is for the promotion of general welfare of its Tribal members or other eligible individuals. Proposed § 1.139E-1(d)(2) would provide further that an Indian Tribal Government has sole discretion to determine whether a benefit is for the promotion of general welfare and that the IRS will defer to the Indian Tribal Government's determination that a benefit is for the promotion of general welfare
efit is for the promotion of general welfare of its Tribal members or other eligible individuals. Proposed § 1.139E-1(d)(2) would provide further that an Indian Tribal Government has sole discretion to determine whether a benefit is for the promotion of general welfare and that the IRS will defer to the Indian Tribal Government's determination that a benefit is for the promotion of general welfare. These proposed rules would be consistent with the specific language in section 2(c) of the Act, which 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.
2. No Need Requirement
The administrative general welfare exclusion requires that payments be for the promotion of general welfare, which the IRS has interpreted to require a showing of individual or family need, notably financial need. This interpretation generally applies regardless of whether the benefits are provided by a Federal, State, or local government or by an Indian Tribal government. However, Revenue Procedure 2014-35 provides that the individual need criterion of the
The TTAC Report and majority of the Tribal Comments contend that the proposed regulations should not incorporate a needs-based requirement for the promotion of general welfare requirement in section 139E(b). The Tribal Comments note that section 139E is silent on an individual need requirement. Also, the Tribal Comments point to the language in Revenue Procedure 2014-35, which conclusively presumed individual need was satisfied, as support for not including a requirement for the showing of individual need in section 139E
requirement for the promotion of general welfare requirement in section 139E(b). The Tribal Comments note that section 139E is silent on an individual need requirement. Also, the Tribal Comments point to the language in Revenue Procedure 2014-35, which conclusively presumed individual need was satisfied, as support for not including a requirement for the showing of individual need in section 139E.
As noted in part III.A.1 of this Explanation of Provisions, proposed § 1.139E-1(d)(2) would provide that an Indian Tribal Government has sole discretion to determine whether a benefit is for the promotion of general welfare and that the IRS will defer to the Indian Tribal Government's determination that a benefit is for the promotion of general welfare. Consistent with this approach, Indian Tribal Governments thus would have sole discretion as to whether to consider individual need or not in designing a general welfare program. In addition, the Treasury Department and the IRS agree with the TTAC Report and the Tribal Comments that section 139E was intended by Congress to generally codify Revenue Procedure 2014-35, which conclusively presumed that individual need was satisfied if the program met certain requirements. This conclusion is also consistent with the legislative history of section 139E. See House Debate, at H7601 (Representative Devin Nunes stating “that the IRS will not interpret the statute as requiring individualized determinations of financial need where a tribal government has established a program consistent with the statute”); see also Senate Colloquy, at S5686 (Senator Jerry Moran asking Senator Ron Wyden, and Senator Wyden agreeing, that the IRS will “in no event require an individualized determination of financial need” if a Tribal program meets the other requirements of section 139E).
Accordingly, proposed § 1.139E-1(d)(2) specifically states that Tribal general welfare benefits may be provided without regard to the financial or other need of Tribal program participants
sking Senator Ron Wyden, and Senator Wyden agreeing, that the IRS will “in no event require an individualized determination of financial need” if a Tribal program meets the other requirements of section 139E).
Accordingly, proposed § 1.139E-1(d)(2) specifically states that Tribal general welfare benefits may be provided without regard to the financial or other need of Tribal program participants. However, Indian Tribal governments have broad discretion to establish and administer general welfare programs and may choose to limit a program or its benefits to Tribal program participants based on a showing of individual need.
3. Benefits May Be in Equal Amounts
Section 139E does not address whether Tribal general welfare benefits may be provided to recipients in equal amounts. However, in considering the enactment of section 139E, Representative Nunes expressed an intent that section 139E apply to pro rata payments. In addressing the IRS's frequent insistence that Tribal benefits be based on a stipulation based on individualized financial need, he stated, “This stipulation prevents the general welfare exclusion from covering programs designed to provide substantially equal benefits to all qualifying members of a tribe or to provide benefits based on determinations of needs that are not financial in nature.” See House Debate, at H7601. Revenue Procedure 2014-35 does not directly address this issue of whether general welfare benefits under its safe harbors could be provided equally to all eligible individuals, but states that per capita payments to Tribal members of Tribal gaming revenues that are subject to IGRA are gross income under section 61, are subject to the information reporting and withholding requirements of sections 6041 and 3402(r), and are not excludable from gross income.
The TTAC Report correctly notes that section 139E does not prohibit general welfare benefits from being distributed in uniform amounts
r capita payments to Tribal members of Tribal gaming revenues that are subject to IGRA are gross income under section 61, are subject to the information reporting and withholding requirements of sections 6041 and 3402(r), and are not excludable from gross income.
The TTAC Report correctly notes that section 139E does not prohibit general welfare benefits from being distributed in uniform amounts. The Tribal Comments recommend that the Treasury Department and the IRS defer to Tribes in determining whether pro rata payments (that is, uniform payments to each recipient) are appropriate. In general, several Tribal Comments, when referring to net gaming revenues under IGRA, argue that IGRA does not treat all pro rata payments as taxable, but instead looks to the purpose and methodology used to calculate the payments. 4 The Tribal Comments also request that the proposed regulations permit pro rata payments under an Indian Tribal government program, as several Tribal Comments emphasized that distributing benefits in equal amounts is often the most efficient method to provide benefits, such as for health and wellness and broadband internet access.
4 See part II.E. of this Explanation of Provisions for a fuller discussion of IGRA and general welfare payments made from net gaming revenues.
The Treasury Department and the IRS agree with the TTAC Report and the Tribal Comments that section 139E does not prohibit an Indian Tribal government program from providing Tribal general welfare benefits to recipients in equal amounts. Accordingly, proposed § 1.139E-1(d)(2) would provide that Tribal general welfare benefits may be provided on a uniform or pro-rata basis to Tribal program participants.
4. Specific Types of Benefits
The TTAC Report and the Tribal Comments recommend clarification on whether payment of benefits for disaster relief and similar assistance qualify under section 139E
to recipients in equal amounts. Accordingly, proposed § 1.139E-1(d)(2) would provide that Tribal general welfare benefits may be provided on a uniform or pro-rata basis to Tribal program participants.
4. Specific Types of Benefits
The TTAC Report and the Tribal Comments recommend clarification on whether payment of benefits for disaster relief and similar assistance qualify under section 139E. In addition, both the TTAC Report and many Tribal Comments request that an Indian Tribal government disaster declaration qualify to establish the existence of a disaster for purposes of identifying relief payments under section 139E.
Section 139 generally provides an exclusion from gross income for qualified disaster relief payments. Qualified disaster relief payments generally include certain amounts paid to or for the benefit of an individual in connection with a qualified disaster, including a Federally declared disaster. Specifically, section 139(b)(4) includes as a qualified disaster relief payment an amount paid by a Federal, State, or local government, or agency or instrumentality thereof, in connection with a qualified disaster in order to promote the general welfare. Section 139(b)(4) was enacted to codify the administrative general welfare exclusion for certain disaster relief payments, but does not supplant it. See Notice 2002-76 (2002-2 C.B. 917). Thus, benefits paid by Indian Tribal governments to individuals affected by a disaster may be excluded from the individuals' gross income if the requirements of the administrative general welfare exclusion are met. Similarly, these disaster relief benefits may be excluded from gross income if they qualify as Tribal general welfare benefits under section 139E.
The Treasury Department and the IRS recognize that Indian Tribal governments have broad discretion to provide benefits to individuals who are affected by a disaster or other emergency situation that does not meet the requirements of a qualified disaster under section 139
aster relief benefits may be excluded from gross income if they qualify as Tribal general welfare benefits under section 139E.
The Treasury Department and the IRS recognize that Indian Tribal governments have broad discretion to provide benefits to individuals who are affected by a disaster or other emergency situation that does not meet the requirements of a qualified disaster under section 139. Thus, proposed § 1.139E-1(d)(2) would include as a permissible general welfare purpose “assistance for disasters or emergency situations.” The Indian Tribal
In addition, the TTAC Report requests that the proposed regulations specifically provide that wellness and health-related programs may be Tribal general welfare benefits. The TTAC Report acknowledges that section 139D applies to certain health care expenses but requests clarification that section 139E operates independent of, and is not limited by, section 139D of the Code. In particular, the concern is that wellness and health-related programs may not fall within the section 139D exclusion.
Section 139D generally provides an exclusion from gross income for any qualified Indian health care benefit. Qualified Indian health care benefits include medical care provided by an Indian Tribe or Tribal organization, or coverage under insurance or a plan provided by an Indian Tribe or Tribal organization for medical care. See section 139D(b)(2)-(4). For purposes of section 139D, “medical care” has the same meaning as when used in section 213 of the Code. Amounts paid for benefits that are merely beneficial to the general health of an individual, such as certain wellness and health-related programs, as well as care by an unlicensed spouse or relative, are not amounts paid for medical care and thus are not excluded under section 139D. See section 213(d) and § 1.213-1(e)(1)(ii).
The Treasury Department and the IRS agree that section 139E operates independently of, and is not limited by, section 139D
to the general health of an individual, such as certain wellness and health-related programs, as well as care by an unlicensed spouse or relative, are not amounts paid for medical care and thus are not excluded under section 139D. See section 213(d) and § 1.213-1(e)(1)(ii).
The Treasury Department and the IRS agree that section 139E operates independently of, and is not limited by, section 139D. Thus, in accordance with the deference provided to Indian Tribal Governments in proposed § 1.139E-1(d)(2), an Indian Tribal Government may determine that wellness and health-related programs are for the promotion of general welfare under section 139E.
B. Benefits Must Be Available to Any Tribal Program Participant
Section 139E(b)(2) provides, in relevant part, that a benefit provided under the program must be available to any Tribal member who meets the specified guidelines of the program. Revenue Procedure 2014-35 requires that the benefit be available to any eligible individual who satisfies the program guidelines, subject to budgetary constraints. The TTAC Report and the Tribal Comments do not specifically address this requirement.
The Treasury Department and the IRS have determined that this requirement should be interpreted in a manner similar to Revenue Procedure 2014-35. Thus, proposed § 1.139E-1(d)(3) would provide that a benefit under the Indian Tribal government program must be available to any Tribal program participant who meets the specified guidelines of the program, subject to budgetary constraints.
C. Benefits Cannot Be Lavish or Extravagant
Section 139E(b)(2) provides, in relevant part, that benefits provided under the program cannot be lavish or extravagant. Section 139E(c)(3) provides that the Secretary, in consultation with the TTAC, must establish guidelines for what constitutes lavish or extravagant benefits with respect to Indian Tribal government programs. The Treasury Department and the IRS have consulted with the TTAC during the drafting of these proposed regulations
rt, that benefits provided under the program cannot be lavish or extravagant. Section 139E(c)(3) provides that the Secretary, in consultation with the TTAC, must establish guidelines for what constitutes lavish or extravagant benefits with respect to Indian Tribal government programs. The Treasury Department and the IRS have consulted with the TTAC during the drafting of these proposed regulations. In addition, the Treasury Department and the IRS will hold Tribal consultation before finalizing the proposed regulations.
Like section 139E, Revenue Procedure 2014-35 prohibits benefits that are lavish or extravagant. It does not define “lavish or extravagant” but does provide that the benefits cannot be “lavish or extravagant under the facts and circumstances.”
The TTAC Report recommends that the term “lavish or extravagant” be defined as a relative term that depends on the unique circumstances of the Tribe, and also depends on the type of benefit being provided (such as, one-time payment or monthly assistance). The TTAC Report sets forth a non-exclusive list of circumstances that should be considered when determining if a benefit is lavish or extravagant: an Indian Tribal government's economic circumstances or factors, culture and cultural practices, history, geographic area, traditions, and resources. The TTAC Report recommends deference to Indian Tribal governments and proposes a rebuttable presumption that the benefit is not lavish or extravagant if the Indian Tribal government program meets general welfare needs or purposes, and the method of distribution is expected to achieve program goals.
Several Tribal Comments recommend that the proposed regulations defer to the Tribes or their Indian Tribal governments for determining whether a benefit is lavish or extravagant. Most Tribal Comments provide that the term is relative and depends on the unique circumstances of each Tribe and the type of benefit provided
urposes, and the method of distribution is expected to achieve program goals.
Several Tribal Comments recommend that the proposed regulations defer to the Tribes or their Indian Tribal governments for determining whether a benefit is lavish or extravagant. Most Tribal Comments provide that the term is relative and depends on the unique circumstances of each Tribe and the type of benefit provided. Some Tribal Comments recommend deference to an Indian Tribal government's definition of lavish or extravagant as established by official actions, such as Tribal ordinances, resolutions, and policies. In addition, some Tribal Comments propose that a facts and circumstances standard, similar to Revenue Procedure 2014-35, be applied to define lavish or extravagant. Under such a standard, a benefit would not be lavish or extravagant if based upon a particular Tribe's political, socio-economic and cultural facts and circumstances as determined by that Tribe. Some Tribal Comments argue that the definition should be subject to the Tribal canon, as opposed to the traditional canons of statutory construction, and that any ambiguity be construed in favor of the Tribe.
Some Tribal Comments describe what the proposed regulations should not do when defining lavish or extravagant. For example, some Tribal Comments urge that the proposed regulations should define lavish or extravagant in a way that targets egregious abuse but otherwise does not affect Indian Tribal government programs that are designed and administered in good faith. Other Tribal Comments suggest that the term lavish or extravagant not be defined by reference to dollar amounts, and specifically highlighted cost of living variations (for example, geographic differences). Some Tribal Comments emphasize that the proposed regulations should not use examples that may suggest limitations on the eligibility of program benefits
designed and administered in good faith. Other Tribal Comments suggest that the term lavish or extravagant not be defined by reference to dollar amounts, and specifically highlighted cost of living variations (for example, geographic differences). Some Tribal Comments emphasize that the proposed regulations should not use examples that may suggest limitations on the eligibility of program benefits. Specifically, these commenters suggest that it would be more helpful to include examples of benefits that are not considered lavish or extravagant. Finally, some Tribal Comments argue that the Treasury Department and the IRS should not refer to other Code provisions for guidance on interpreting the phrase “lavish or extravagant” under section 139E.
The Treasury Department and the IRS generally agree with the TTAC Report and the Tribal Comments. Accordingly, proposed § 1.139E-1(d)(4) would provide a facts and circumstances test to determine whether a Tribal general welfare benefit is lavish or extravagant under section 139E. Under proposed § 1.139E-1(d)(4), whether a benefit is lavish or extravagant would be based on the facts and circumstances at the time the benefit is provided. Relevant facts and circumstances would include a Tribe's culture and cultural practices, history, geographic area, traditions, resources, and economic conditions or factors. A facts and circumstances test is consistent with Revenue Procedure 2014-35, as well as the TTAC Report and the Tribal Comments suggesting that the Tribe's unique circumstances should be considered when evaluating whether the Indian Tribal government determined a Tribal general welfare
The TTAC Report and some Tribal Comments mention that the frequency of benefit (for example, lump sum or monthly payment) should be considered when evaluating whether a program's benefit is lavish or extravagant. The Treasury Department and the IRS agree that the frequency of payment should be considered when determining whether a Tribal general welfare benefit is lavish or extravagant
l welfare
The TTAC Report and some Tribal Comments mention that the frequency of benefit (for example, lump sum or monthly payment) should be considered when evaluating whether a program's benefit is lavish or extravagant. The Treasury Department and the IRS agree that the frequency of payment should be considered when determining whether a Tribal general welfare benefit is lavish or extravagant. Under a facts and circumstances test, an Indian Tribal government may establish a program that provides the types of benefits, including frequency of payment, that best meet the needs of its Tribal members.
D. Benefits Cannot Be Compensation for Services
Section 139E(b)(2)(D) provides that a Tribal general welfare benefit paid under an Indian Tribal government program cannot be compensation for services, with exceptions discussed in part IV of this Explanation of Provisions. 5 Section 139E(b)(2)(D) does not provide a specific definition for the term compensation for services for purposes of section 139E. Revenue Procedure 2014-35 also provides that benefits under the safe harbors cannot be compensation for services but does not specifically define compensation for services. The prohibition on compensation for services is a long-standing core principle of the administrative general welfare exclusion. See Revenue Ruling 75-246 (1975-1 C.B. 24).
5 Section 139E(c)(5) provides an exception under which any items of cultural significance, 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.” This exception to the general prohibition on compensation for services is addressed in part IV of this Explanation of Provisions.
The TTAC Report acknowledges that section 139E prohibits compensation for services from being treated as Tribal general welfare benefits
on in cultural or ceremonial activities for the transmission of Tribal culture “shall not be treated as compensation for services.” This exception to the general prohibition on compensation for services is addressed in part IV of this Explanation of Provisions.
The TTAC Report acknowledges that section 139E prohibits compensation for services from being treated as Tribal general welfare benefits. The TTAC Report and the Tribal Comments do not recommend a specific definition of compensation for services, but the TTAC Report recommends that the proposed regulations confirm that (1) a benefit in connection with Tribal custom or tradition regarding community service is not compensation for services; (2) compensation for services does not include cultural or ceremonial gifts and payments, as determined by the Tribe; and (3) payments as part of training programs are not compensation for services. Similar to this third issue, one Tribal Comment argues that on-the-job training, apprenticeships, and other classes for job skills for which participants receive payment should not be treated as compensation for services. Finally, one Tribal Comment argues that the rule in section 139E(b)(2)(D) should be read narrowly to cover services that are traditionally provided under an employment or contracted-vendor relationship.
The first two issues raised in the TTAC Report overlap with the rules in section 139E(c)(5), which provides that certain benefits provided for participation in cultural or ceremonial activities are not treated as compensation for services. These issues from the TTAC Report are addressed in part IV of this Explanation of Provisions. The third issue, relating to whether payments made to individuals in various types of training programs are compensation for services, is addressed under section 61 and current law relating to gross income generally
ipation in cultural or ceremonial activities are not treated as compensation for services. These issues from the TTAC Report are addressed in part IV of this Explanation of Provisions. The third issue, relating to whether payments made to individuals in various types of training programs are compensation for services, is addressed under section 61 and current law relating to gross income generally.
Section 61(a) generally provides that, except as otherwise provided in the Code, gross income means all income from whatever source derived, and this includes compensation for services, including fees, commissions, fringe benefits, and similar items, whether paid in money or property. Section 1.61-2(a)(1) of the Income Tax Regulations provides additional examples of payments that are included in gross income because they are compensation for services, such as wages, salaries, and commissions paid salesmen. However, compensation for services also includes amounts that are not paid in an employment or contracted-vendor relationship. Thus, the proposed regulations do not adopt the Tribal Comment arguing that compensation for services should be read narrowly to cover only services that are traditionally provided under an employment or contracted-vendor relationship.
In the context of training, apprenticeships, and other skills training programs, existing IRS guidance on the administrative general welfare exclusion provides assistance on how to distinguish whether a payment is a general welfare payment or is compensation for services. See Revenue Ruling 63-136 (1963-2 C.B. 19) (excluding from income the payments for on-the-job career training or retraining where such payments are “intended to aid the recipients in their efforts to acquire new skills that would enable them to obtain better employment opportunities”); Revenue Ruling 65-139 (1965-1 C.B. 31) (as clarified by Revenue Ruling 66-240 (1966-2 C.B. 19))
ion for services. See Revenue Ruling 63-136 (1963-2 C.B. 19) (excluding from income the payments for on-the-job career training or retraining where such payments are “intended to aid the recipients in their efforts to acquire new skills that would enable them to obtain better employment opportunities”); Revenue Ruling 65-139 (1965-1 C.B. 31) (as clarified by Revenue Ruling 66-240 (1966-2 C.B. 19)). In general, the determination as to whether payments under training programs are includible in a participant's gross income rests on whether the activity for which the payments are received is in exchange for the performance of services (compensation for services) or is for participation in a training program that promotes the general welfare (general welfare payment). Revenue Ruling 75-246 (1975-1 C.B. 24).
Because existing guidance addresses the long-standing distinction between compensation for services and general welfare payments, the Treasury Department and the IRS have determined that the proposed regulations should define compensation for services by reference to current law. Thus, proposed § 1.139E-1(d)(5) would define the term compensation for services by referring to the rules in section 61(a). These rules encompass all the regulations and other IRS guidance under section 61(a) that interpret the meaning of compensation for services.
IV. Exception to Prohibition on Compensation for Services
As noted in part III.D. of this Explanation of Provisions, section 139E(b)(2)(D) generally provides that a Tribal general welfare benefit cannot be compensation for services. However, section 139E(c)(5) contains an exception to that general rule and provides that any items of cultural significance, reimbursement of costs, or cash honorarium for participation in cultural or ceremonial activities for the transmission of Tribal culture will not be treated as compensation for services
rally provides that a Tribal general welfare benefit cannot be compensation for services. However, section 139E(c)(5) contains an exception to that general rule and provides that any items of cultural significance, reimbursement of costs, or cash honorarium for participation in cultural or ceremonial activities for the transmission of Tribal culture will not be treated as compensation for services. Accordingly, such items may, if the other requirements of section 139E are satisfied, be Tribal general welfare benefits that are excluded from gross income.
Revenue Procedure 2014-35 contains a similar exception. Specifically, section 5.03 of the revenue procedure provides that the safe harbors apply to “benefits provided under an Indian Tribal governmental program that are items of cultural significance that are not lavish or extravagant under the facts and circumstances, or nominal cash honoraria provided to religious or spiritual officials or leaders . . . to recognize their participation in cultural, religious, and social events.”
A. Participation in Cultural or Ceremonial Activities
The exception in section 139E(c)(5) applies only if specific benefits are “for participation in cultural or ceremonial activities for the transmission of tribal culture.” Revenue Procedure 2014-35 contains a similar exception, but that exception is limited to specific benefits “provided to religious or spiritual officials or leaders (including but not limited to medicine men, medicine women, and shamans) to recognize their participation in cultural, religious, and social events (including but not limited to pow-wows [sic], rite of passage ceremonies, funerals, wakes, burials, other bereavement events, and honoring events).” As the TTAC Report points out, Revenue Procedure 2014-35 refers only to event participation by religious or spiritual leaders and does not describe larger Indian Tribal-wide cultural, ceremonial, and community service general welfare programs
l events (including but not limited to pow-wows [sic], rite of passage ceremonies, funerals, wakes, burials, other bereavement events, and honoring events).” As the TTAC Report points out, Revenue Procedure 2014-35 refers only to event participation by religious or spiritual leaders and does not describe larger Indian Tribal-wide cultural, ceremonial, and community service general welfare programs. The TTAC Report recommends that the proposed regulations provide that the IRS must defer to Tribal determinations on what it means to participate in cultural or ceremonial activities for the transmission of Tribal culture. Some Tribal Comments request that the exclusion apply to attendance at Tribal gatherings and participation in community service or tribal meetings. Some Tribal Comments provide examples of services that should not be considered compensation for services, such as blessings provided by Tribal members, preparation of traditional foods at events, support for sponsoring Tribal events, and the activities of traditional healers performed at or for official Tribal events like ceremonial or traditional gatherings. Finally, some Tribal Comments state that the proposed regulations should apply the section 139E(c)(5) exception to services that are traditionally provided through employment or contracted-vendor arrangements.
The Treasury Department and the IRS recognize that the language in section 139E(c)(5) is broader than Revenue Procedure 2014-35 in that the section 139E(c)(5) exception is not limited to religious or spiritual officials or leaders. The Treasury Department and the IRS also agree with the TTAC Report that Tribes are in the best position to determine what it means to participate in cultural or ceremonial activities for the transmission of Tribal culture
language in section 139E(c)(5) is broader than Revenue Procedure 2014-35 in that the section 139E(c)(5) exception is not limited to religious or spiritual officials or leaders. The Treasury Department and the IRS also agree with the TTAC Report that Tribes are in the best position to determine what it means to participate in cultural or ceremonial activities for the transmission of Tribal culture. Thus, proposed § 1.139E-1(e) would provide that the Indian Tribal government determines what it means to participate in cultural or ceremonial activities for the transmission of Tribal culture and would include the list of examples from Revenue Procedure 2014-35 (powwows, rite of passage ceremonies, funerals, wakes, burials, other bereavement events, and honoring events). It would further provide that the IRS will defer to the Indian Tribal government's determination of whether an activity is a cultural or ceremonial activity for the transmission of Tribal culture.
The Treasury Department and the IRS do not agree with the Tribal Comments stating that the exception in section 139E(c)(5) broadly applies to services that are traditionally provided under an employment or contracted-vendor relationship because section 139E is an exclusion from gross income for individuals and families, not businesses. For example, a corporation owned by a Tribal member that contracts with the Indian Tribal government to cater a Tribal ceremony is not within the section 139E(c)(5) exception. In this case, any payment received by the corporation from the Tribe to provide catered food at a Tribal ceremony is business income. However, a Tribal member that volunteers to make traditional foods for a Tribal ceremony and receives an item of cultural significance, cash honorarium, or reimbursement of costs is within the exception of section 139E(c)(5).
B
in the section 139E(c)(5) exception. In this case, any payment received by the corporation from the Tribe to provide catered food at a Tribal ceremony is business income. However, a Tribal member that volunteers to make traditional foods for a Tribal ceremony and receives an item of cultural significance, cash honorarium, or reimbursement of costs is within the exception of section 139E(c)(5).
B. Items of Cultural Significance
Section 139E(c)(5) provides, in part, that “items of cultural significance” that are provided for participation in cultural or ceremonial activities for the transmission of Tribal culture are not treated as compensation for services. Revenue Procedure 2014-35 also contains an exception for items of cultural significance that are not lavish or extravagant under the facts and circumstances. The term “items of cultural significance” is not defined in section 139E or in Revenue Procedure 2014-35. The TTAC Report and the Tribal Comments recommend that deference should be given to Indian Tribal governments and Tribes to determine what are items of cultural significance for their Tribe. One Tribal Comment provides a list of examples of items with cultural significance, including blankets, cash, food, regalia items, fabric, beads, drums, pelts, feathers, artwork, baskets, clothing, household items, tobacco, gift cards, animals, and vehicles.
The Treasury Department and the IRS agree that Indian Tribal governments are in the best position to determine items of cultural significance. Thus, proposed § 1.139E-1(e)(2) would provide that the Indian Tribal government determines items of cultural significance and that the IRS will defer to the Indian Tribal government's determination. Unlike the similar rule in Revenue Procedure 2014-35, the proposed regulations would not limit the items of cultural significance to those that are not lavish or extravagant
s of cultural significance. Thus, proposed § 1.139E-1(e)(2) would provide that the Indian Tribal government determines items of cultural significance and that the IRS will defer to the Indian Tribal government's determination. Unlike the similar rule in Revenue Procedure 2014-35, the proposed regulations would not limit the items of cultural significance to those that are not lavish or extravagant. However, the prohibition on lavish or extravagant benefits in proposed § 1.139E-1(d)(4) would apply broadly to all Tribal general welfare benefits, including those that are provided under section 139E(c)(5) for participation in cultural or ceremonial activities. In addition, the Treasury Department and the IRS do not view cash, gift cards, or vehicles themselves as items with cultural significance, although such items may be used to reimburse costs for participation in cultural or ceremonial activities without being considered compensation for services.
C. Cash Honorarium
Section 139E(c)(5) provides, in part, that cash honoraria provided for participation in cultural or ceremonial activities for the transmission of Tribal culture is not treated as compensation for services. Revenue Procedure 2014-35 contains a similar exception, although it is limited to nominal cash honoraria. The term “cash honoraria” is not defined in section 139E or in Revenue Procedure 2014-35. The TTAC Report and the Tribal Comments request that the proposed regulations recognize Congress's decision to eliminate the qualifier that honoraria be “nominal” and provide that a Tribe's determination of the proper amount of the honorarium should be presumed to be reasonable and fair.
The Treasury Department and the IRS agree with the TTAC Report and the Tribal Comments that section 139E is broader than Revenue Procedure 2014-35 by not limiting the exception to the compensation for services requirement to nominal cash honoraria
t honoraria be “nominal” and provide that a Tribe's determination of the proper amount of the honorarium should be presumed to be reasonable and fair.
The Treasury Department and the IRS agree with the TTAC Report and the Tribal Comments that section 139E is broader than Revenue Procedure 2014-35 by not limiting the exception to the compensation for services requirement to nominal cash honoraria. Thus, proposed § 1.139E-1(e) would not provide that the compensation for services exception in section 139E(c)(5) is limited to nominal cash honoraria.
D. Reimbursement of Costs
Section 139E(c)(5) provides, in part, that reimbursement of costs provided for participation in cultural or ceremonial activities for the transmission of Tribal culture is not treated as compensation for services. Revenue Procedure 2014-35 does not contain a similar exception. Section 139E(c)(5) does not define the term “reimbursement of costs.” However, the Treasury Department and the IRS expect that the usual usage of the term applies for purposes of section 139E. Thus, the
E. Members of Other Tribes
As noted in part I.D. of this Explanation of Provisions, the proposed regulations generally would define the term Tribal member to mean a member of the Tribe that establishes or maintains the Indian Tribal government program. Some Tribal Comments highlight that some Tribes may provide benefits to individuals who are Tribal members of a different Tribe than the one establishing the general welfare program. For example, an Indian Tribal government may provide benefits to a cultural, spiritual, or ceremonial leader of another Tribe who teaches shared Tribal cultural practices or ceremonial functions.
The Treasury Department and the IRS agree that, solely for purposes of the exception in section 139E(c)(5) relating to benefits provided for participation in ceremonial or cultural activities, the recipient may be a member of a Tribe that is different from the Tribe that establishes or maintains the program
er of another Tribe who teaches shared Tribal cultural practices or ceremonial functions.
The Treasury Department and the IRS agree that, solely for purposes of the exception in section 139E(c)(5) relating to benefits provided for participation in ceremonial or cultural activities, the recipient may be a member of a Tribe that is different from the Tribe that establishes or maintains the program. Thus, 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 of a Tribe that is different from the Tribe that establishes the Indian Tribal government program and provides the Tribal general welfare benefit. For example, if a cultural leader from one Tribe performs at another Tribe's powwow, a cash honorarium given to the cultural leader is not compensation for services under section 139E(c)(5).
V. Issues Not Addressed in Proposed Regulations
A. Interaction With Other Federal Programs
The TTAC Report requests that the proposed regulations provide that individual need be presumed for all Tribal general welfare benefits that meet the requirements of section 139E. Moreover, the TTAC Report and many Tribal Comments request that the Treasury Department and the IRS coordinate with other Federal agencies, including the Social Security Administration, to ensure that Tribal general welfare benefits are not treated as income or a disqualifying resource for purposes of program eligibility, such as supplemental security income benefits under 42 U.S.C. 1381 et seq.
The Treasury Department and the IRS have authority to interpret and provide rules under section 139E to determine whether a benefit is excludible from gross income for Federal income tax purposes. However, the issue of whether a Tribal general welfare benefit is taken into account for purposes of determining other Federal benefits is outside the authority of the Treasury Department and the IRS, and therefore beyond the scope of these proposed regulations
rpret and provide rules under section 139E to determine whether a benefit is excludible from gross income for Federal income tax purposes. However, the issue of whether a Tribal general welfare benefit is taken into account for purposes of determining other Federal benefits is outside the authority of the Treasury Department and the IRS, and therefore beyond the scope of these proposed regulations. The Treasury Department and the IRS are willing to work with the TTAC and Tribes to confer with other Federal agencies and provide advice on how the Federal tax law applies to Tribal general welfare benefits.
B. Grants to Indian-Owned Enterprises
The TTAC Report requests that the proposed regulations provide that grants to establish or expand Indian-owned enterprises are excludible from gross income under section 139E. The TTAC Report cites Revenue Ruling 77-77 (1977-1 C.B. 11), for the proposition that non-reimbursable grants made under the Indian Financing Act of 1974 to Indians to expand profit-making Indian-owned economic enterprises on or near reservations are excludable from gross income under the administrative general welfare exclusion. The TTAC Report also requests that the guidance clarify that “expanding” a business includes assistance to help a business remain in operation or recover from losses, and also to allow the Tribe to be able to determine what it means to be an Indian-owned enterprise. One Tribal Comment also requests that grants for establishing and assisting Indian-owned enterprises should be excluded from gross income.
The administrative general welfare exclusion generally does not apply to payments made to businesses, including sole proprietors. Instead, the exclusion is intended to address benefits that promote the general welfare of families and individuals. See also Revenue Procedure 2014-35, which applies only to individuals and not to businesses. Section 139E also applies only to individuals and not to businesses
inistrative general welfare exclusion generally does not apply to payments made to businesses, including sole proprietors. Instead, the exclusion is intended to address benefits that promote the general welfare of families and individuals. See also Revenue Procedure 2014-35, which applies only to individuals and not to businesses. Section 139E also applies only to individuals and not to businesses. Thus, these proposed regulations do not address grants to Indian-owned enterprises. However, these proposed regulations do not affect the validity of Revenue Ruling 77-77, which provides a limited exception to the rule that the administrative general welfare doctrine does not apply to businesses. Under that revenue ruling, a grant made by an Indian Tribal government to a Tribal member to expand an Indian-owned business on or near a reservation is excluded from the Tribal member's gross income under the administrative general welfare exclusion.
C. Trust Arrangements and Deferred Benefits
The TTAC Report states that an Indian Tribal government program may distribute general welfare benefits from trust arrangements, including payments that are set aside for the health, education, and welfare of trust beneficiaries under IGRA. The TTAC Report recommends that the proposed regulations provide that the determination of whether a payment is a general welfare benefit is made at the time the trust distributes the payment to the beneficiary from the trust. Some Tribal Comments asked that the proposed regulations expressly recognize that health, education, and welfare payments under a minor's trust can be structured in a way to qualify payments for exclusion under section 139E.
The TTAC Report requests that the proposed regulations provide that an Indian Tribal government program may permit Tribal members and other recipients to defer and accumulate benefits for future payment
at the proposed regulations expressly recognize that health, education, and welfare payments under a minor's trust can be structured in a way to qualify payments for exclusion under section 139E.
The TTAC Report requests that the proposed regulations provide that an Indian Tribal government program may permit Tribal members and other recipients to defer and accumulate benefits for future payment. The TTAC Report suggests that if the amount is not lavish or extravagant at the time the beneficiary defers receipt of the payment, then section 139E is satisfied at the time the Indian Tribal government distributes the funds to the beneficiary. The TTAC Report also recommends that section 139E not be limited by constructive receipt and economic benefit restrictions on the deferral of taxable income or benefits. Many Tribal Comments support the TTAC Report on the issue of deferred benefits, and request that the proposed regulations provide examples of deferred benefits.
Section 139E does not specifically address trust arrangements or deferred benefits. Section 139E addresses whether a benefit that is generally includible in gross income under section 61 may be excluded from gross income under section 139E. It does not address the taxable year in which a benefit may be includible in gross income, in particular if a benefit is put into a trust or its receipt is deferred through some other arrangement. Most individuals use the cash receipts and disbursements method of accounting, which incorporates numerous rules addressing

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Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/FR_PRORULE_2024-20826. Check the current official text before relying on it. Not legal advice.