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IRS issues new guidance on general welfare exclusion for tribes

Thursday, December 6, 2012

The Internal Revenue Service has issued new guidance affecting taxation of benefits provided by tribal governments.

Generally, all income and benefits are subject to federal income tax. But the "tribal general welfare exclusion" provides exceptions that are addressed in Application of the General Welfare Exclusion to Indian Tribal Government Programs That Provide Benefits to Tribal Members, Notice 2012-75.

The notice states that the IRS will "presume" that the exception applies, so long as certain general criteria are met. This appears to address complaints by tribes that the exclusion wasn't treated in a consistent manner.

The general criteria that the tribal program must meet are:

a) The benefit is provided pursuant to a specific Indian tribal government program;
b The program has written guidelines that specify how individuals may qualify for the benefit;
c) The benefit is available to any tribal member who satisfies the program guidelines;
d) The distribution of benefits from the program does not discriminate in favor of members of the governing body of the tribe;
e) The benefit is not compensation for services; and
f) The benefit is not lavish or extravagant

If the general criteria are met, then examples of benefits that won't be taxed include:

• heating assistance
• rent or mortgage assistance
• school tuition and supplies
• transportation for elders
• burial assistance
• payments for ceremonies

Comments on the guidance are being accepted until June 3, 2013.