On June 4, 2014, the Internal Revenue Service (IRS) issued Revenue Procedure 2014-35, which provides the requirements that must be met order for an Indian Tribal program to meet the requirements necessary for the General Welfare Exclusion to apply. A General Welfare program is a social welfare program offered by a government to its people, including Indian Tribe’s to its tribal citizens. Under the General Welfare Exclusion, the value of what is provided to the recipient is not be taxable under the General Welfare Doctrine if the particular program requires that the recipient show financial need. Under the new IRS Rule, the IRS is removing this “financial need” requirement for Indian Tribal programs that draft their programs in accordance with the rules set forth in the IRS Revenue Procedure.
Examples of benefits that are generally not taxable under the General Welfare Exclusion, where financial need is a requirement, include health coverage, educational assistance, sustenance payments (e.g., utilities), relocation assistance, and disaster relief. These services are affected by this Ruling. Tribal governments operating social welfare programs should review their program terms to avoid exposing Tribal citizens to the risk of potential and unnecessary taxable income that could otherwise be excluded. Amending the program terms could also remove exposure of the Tribe to penalties for failing to properly treat such benefits for tax purposes.
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Ted is head of the Native American Law practice group and primary editor for the Blogging Circle. Connect with Ted at email@example.com and 619.515.3277.