IRS finalizes guidance on general welfare exclusion for tribes

Tuesday, June 3, 2014  

The Internal Revenue Service has issued final 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.

“Today’s guidance provides important clarity for Indian tribes that certain member benefits and services are exempt from federal income tax under the general welfare exclusion," Assistant Secretary for Tax Policy Mark J. Mazur said in a press release. "This guidance was developed as part of our ongoing government-to-government consultation with Indian tribal governments and further demonstrates the administration’s commitment to working with the Native American community and addressing their specific needs.

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 exclusion, in general, applies to payments that are: (1) made pursuant to a governmental program; (2) for the promotion of general welfare (i.e., based on need); and (3) not compensation for services.

For example, a medicine man who is provided with a nominal cash payment is not required to report it to the IRS as taxable income. Elders who receive certain benefits, such as meals or transportation, also aren't required to report it.

"We are thankful that the IRS has come as far as it has in this guidance," the National Indian Gaming Association said in a regulatory alert today.

However, NIGA pointed out that the guidance is subject to change and different interpretations. For that reason, tribes are supporting legislation to codify the general welfare exclusion doctrine.

The Tribal General Welfare Exclusion Act has been introduced as S.1507 and H.R.3043.

Tribes support measure to address general welfare exclusion (09/25)
IRS issues new guidance on general welfare exclusion for tribes (12/6)