Treasury and the IRS Release Final Tribal General Welfare Guidance
The Department of the Treasury has released final guidance titled Application of the General Welfare Exclusion to Indian Tribal Government Programs That Provide Benefits to Tribal Members, which sets forth general welfare exclusion principles and specifies a wide range of benefits that qualify for exclusion.
Revenue Procedure 2014-35 provides safe harbors for applying the general welfare exclusion to Indian tribal government programs that provide benefits to tribal members. Under the safe harbors the Service will presume that the individual need requirement of the general welfare exclusion is met. 2014-35 also identifies specific benefits that are not compensation for services.
General Welfare Exclusion Principles
Payments to tribal members by Indian tribal governments qualify for the general welfare exclusion if the payments 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, uniquely in the case of programs of Indian tribal governments, to help establish Indian-owned businesses on or near the reservation); and (3) not compensation for services.
Payments under Indian tribal governmental programs meeting these requirements qualify for the general welfare exclusion whether the revenues that the Indian tribal government uses to fund the programs derive from levies, taxes, service fees, or revenues from tribally-owned businesses. For example, general welfare programs may be funded from casino revenues. However, per capita payments to tribal members of tribal gaming revenues that are subject to the Indian Gaming Regulatory Act are gross income under § 61, are subject to the information reporting and withholding requirements of §§ 6041 and 3402(r), and are not excludable from gross income under the general welfare exclusion or this revenue procedure.
Benefits Where Need is Presumed
If an Indian tribal government provides a benefit (whether in cash or in kind) meeting the criteria specified in section 5.02(1) of the notice and described in section 5.02(2) of the notice, the Service will presume that individual need is met for each tribal member, spouse, or dependent of a tribal member receiving the benefit, eliminating the need element is a significant change from the general principles. The benefits qualify for exclusion under the notice if all the following requirements are satisfied:
- the benefit is provided pursuant to a specific Indian tribal government program;
- the program has written guidelines that specify how individuals may qualify for the benefit;
- the benefit is available to any tribal member who satisfies the program guidelines;
- the distribution of the benefits from the program does not discriminate in favor of members of the governing body;
- the benefit is not compensation for services; and
- the benefit is not lavish or extravagant.
Additionally, Revenue Procedure 2014-35 specifies a wide range of benefits that qualify for exclusion, including in the areas of housing, education, elder and disabled, cultural and religious, and other emergency circumstances. It provides that items of cultural significance or nominal cash honoraria provided to medicine men or women, shamans or similar religious or spiritual officials to recognize their participation in cultural, religious or social events will not be compensation for services.