The Tribal General Welfare Exclusion excludes from taxable income certain general welfare payments to members of Indian Tribes. On September 26, 2014, President Obama signed into law H.R. 3043, the Tribal General Welfare Exclusion Act (the “Act”). The Act creates a new Internal Revenue Code provision, Section 139E. This law is extremely beneficial to both Tribes and their members. In addition to codifying the General Welfare Exclusion as it applies to Tribes and their members, the Act also provides for the establishment of a Tribal Advisory Committee, the training and education of IRS Revenue Agents regarding the applicability of federal tax law to Tribes and their members, and temporarily suspends all IRS audits where the taxation of certain benefits may fall within the Tribal General Welfare Exclusion.
The following provides a brief summary of Revenue Procedure 2014-35 that has more or less been superseded by the new Act, but is still useful for guidance on the application of the Act, and summarizes the Act, including the tax benefits for Tribes and their members beyond just the passage of the General Welfare Exclusion.
Revenue Procedure 2014-35. Previously, on June 4, 2014, the Internal Revenue Service (“IRS”) issued Revenue Procedure 2014-35, entitled “Application of the General Welfare Exclusion to Indian Tribal Government Programs that Provide Benefits to Tribal Members” (the “Revenue Procedure”). The Revenue Procedure was the culmination of at least a few years’ worth of IRS notices and feedback from the Native American community.
The Revenue Procedure provided safe harbors under which the IRS would conclusively presume that the “individual need requirement” of the General Welfare Exclusion is met for benefits provided under certain Indian Tribal governmental programs described in the Revenue Procedure (the “Safe Harbors”). If such Safe Harbors were met for the certain Indian Tribal governmental program, the IRS would not assert that such benefits provided under such programs are taxable gross income to a Tribal member who benefits from such program.
For a complete discussion of Revenue Procedure 2014-35, please see our Alert, dated July 2, 2014, entitled “The Internal Revenue Service issues Important Final Guidance on the Application of the General Welfare Exclusion for Certain Tribal Government Programs.”
As noted above, although the Revenue Procedure is still helpful for guidance on the application of the Act, such Revenue Procedure was effectively superseded by the passage of the Act.
Tribal General Welfare Exclusion Act. The Act amends the Internal Revenue Code to exclude from gross income, for income tax purposes, the value of an Indian general welfare benefit. “Indian general welfare benefit” is generally defined as any payment made or services provided to or on behalf of a member of an Indian Tribe under an Indian Tribal government program if:
- such program is administered under specified guidelines and does not discriminate in favor of members of the governing body of the Indian Tribe; and
- the program benefits are available to any Tribal member, are for the promotion of general welfare, are not lavish or extravagant, and are not compensation for services.
Additionally, the Act specifically directs the Secretary of the Treasury to:
- establish a Tribal Advisory Committee to advise the Secretary on the taxation of Indians (the Act, Section 3);
- establish and require training and education for Internal Revenue Service (IRS) field agents on federal Indian law and the implementation of this Act (the Act, Section 3(b)(2)); and
- suspend audits and examinations of Indian Tribal governments and members of Indian Tribes and waive any interest or tax penalties related to the exclusion from gross income of Indian general welfare benefits (the Act, Section 4).
For an excellent discussion of the Act, including what the Treasury hope to achieve with the new Tribal Advisory Committee, see the Remarks by Dr. Elaine Buckberg, Treasury Point of Contact for Tribal Consultation and Deputy Assistant Secretary for Policy Coordination in the Office of Economic Policy, for the National Congress of American Indians (NCAI) Annual Meeting Session on Tribal Tax Parity: Next Steps After a New Federal Law, dated October 28, 2014.
The text of the entire Act can be found here.
If you have any questions regarding the Act or its application, feel free to call Eric D. Swenson at 619.515.3235.
Ted is head of the Native American Law practice group and primary editor for the Blogging Circle. Connect with Ted at firstname.lastname@example.org and 619.515.3277.