"A disruptive trend in governmental relations was revealed in recent Senate hearings over IRS taxation of American Indian tribal government functions. A fundamental component to constitutional federalism, intergovernmental immunity restricts federal, state and tribal governments from intruding upon (i.e. through taxation) the sovereign activities of one another. Like state governments, American Indian tribal governments offer financial assistance under social benefit programs to financial-need members for such things as housing, food, school, clothes, healthcare, and burial aid. In acting to define and regulate such government assistance, the IRS instituted the General Welfare Exclusion, which determines whether government provided assistance will ultimately count as income for federal tax purposes. The Exclusion instructs that: benefit payments made from a government fund, for promotion of general welfare, based on individual or family need, not as payment for services are excused from income taxation.

Insisting on a “means testing” General Welfare Exclusion application, the IRS has stepped up its scrutiny of tribal assistance to tribal members. As tribes traditionally grant benefits to members without a means examination, this application has ignited resistance from tribal leaders and U.S. Senate Members who assert a compelling administration of this taxation doctrine directly frustrates internal tribal governmental functions. Senator Daniel Akaka, (D-Hawaii) Chairman of the Senate Indian Affairs Committee, remarked that providing benefits to tribal members is “truly critical to the self-determination of tribal governments.” Indeed, the government assistance efforts examined under the General Welfare Exclusion are of the classic essential governmental functions that a government undertakes to provide for its citizens."

Get the Story:
Chad Yazzie: Unbalanced Constitutional Federalism: IRS Taxation of American Indian Tribal Government Assistance Benefits and Bonds (Indian Country Today 7/17)

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Senate Indian Affairs Committee questions IRS audits into tribes (6/15)