The FAA invites you to send any written relevant data, views, or arguments about this proposal. Send your comments to an address listed under ADDRESSES section. Include “Docket No. FAA-2024-2140; Project Identifier MCAI-2024-00242-T” at the beginning of your comments. The most helpful comments reference a specific portion of the proposal, explain the reason for any recommended change, and include supporting data. The FAA will consider all comments received by the closing date and may amend this proposal because of those comments.

Except for Confidential Business Information (CBI) as described in the following paragraph, and other information as described in 14 CFR 11.35, the FAA will post all comments received, without change, to regulations.gov, including any personal information you provide. The agency will also post a report summarizing each substantive verbal contact received about this NPRM.

CBI is commercial or financial information that is both customarily and actually treated as private by its owner. Under the Freedom of Information Act (FOIA) (5 U.S.C. 552), CBI is exempt from public disclosure. If your comments responsive to this NPRM contain commercial or financial information that is customarily treated as private, that you actually treat as private, and that is relevant or responsive to this NPRM, it is important that you clearly designate the submitted comments as CBI. Please mark each page of your submission containing CBI as “PROPIN.” The FAA will treat such marked submissions as confidential under the FOIA, and they will not be placed in the public docket of this NPRM. Submissions containing CBI should be sent to Hassan Ibrahim, Aviation Safety Engineer, FAA, 1600 Stewart Avenue, Suite 410, Westbury, NY 11590; phone: 206-231-3653; email: Hassan.M.Ibrahim@faa.gov. Any commentary that the FAA receives that is not specifically designated as CBI will be placed in the public docket for this rulemaking.

ANAC, which is the aviation authority for Brazil, has issued ANAC AD 2024-04-02R01, effective May 31, 2024 (ANAC AD 2024-04-02R01) (also referred to as the MCAI), to correct an unsafe condition for all Embraer S.A. Model EMB-120, -120ER, -120FC, -120QC, and -120RT airplanes. The MCAI states that a structural assessment found that the fuselage center I longitudinal skin splice and panel between frames 22 and 23 is susceptible to cracking. The assessment found cracks associated with damage at multiple sites that are typically too small to be reliably detected with current inspection methods. Without intervention, these cracks may grow, and could result in reduced structural integrity of the airplane.

The FAA is proposing this AD to address the unsafe condition on these products.

You may examine the MCAI in the AD docket at regulations.gov under Docket No. FAA-2024-2140.

ANAC AD 2024-04-02R01 specifies initial and repetitive high-frequency eddy current inspections for discrepancies (including cracks, corrosion, scratches and nicks) of the fuselage center I longitudinal skin splice and panel between frames 22 and 23, from the internal and external sides of the fuselage. ANAC AD 2024-04-02R01 further specifies corrective actions including obtaining and implementing instructions for repair and reporting of the inspection results. This material is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in ADDRESSES section.

This product has been approved by the aviation authority of another country and is approved for operation in the United States. Pursuant to the FAA's bilateral agreement with this State of Design Authority, it has notified the FAA of the unsafe condition described in the MCAI referenced above. The FAA is issuing this NPRM after determining that the unsafe condition described previously is likely to exist or develop in other products of the same type design.

This proposed AD would require accomplishing the actions specified in ANAC AD 2024-04-02R01 described previously, except for any differences identified as exceptions in the regulatory text of this proposed AD.

In the FAA's ongoing efforts to improve the efficiency of the AD process, the FAA developed a process to use some civil aviation authority (CAA) ADs as the primary source of information for compliance with requirements for corresponding FAA ADs. The FAA has been coordinating this process with manufacturers and CAAs. As a result, the FAA proposes to incorporate ANAC AD 2024-04-02R01 by reference in the FAA final rule. This proposed AD would, therefore, require compliance with ANAC AD 2024-04-02R01 in its entirety through that incorporation, except for any differences identified as exceptions in the regulatory text of this proposed AD. Material required by ANAC AD 2024-04-02R01 for compliance will be available at regulations.gov under Docket No. FAA-2024-2140 after the FAA final rule is published.

The FAA estimates that this AD, if adopted as proposed, would affect 51 airplanes of U.S. registry. The FAA estimates the following costs to comply with this proposed AD:

The FAA has received no definitive data on which to base the cost estimates for the corrective actions specified in this proposed AD.

A federal agency may not conduct or sponsor, and a person is not required to respond to, nor shall a person be subject to a penalty for failure to comply with a collection of information subject to the requirements of the Paperwork Reduction Act unless that collection of information displays a current valid OMB Control Number. The OMB Control Number for this information collection is 2120-0056. Public reporting for this collection of information is estimated to take approximately 1 hour per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. All responses to this collection of information are mandatory. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to: Information Collection Clearance Officer, Federal Aviation Administration, 10101 Hillwood Parkway, Fort Worth, TX 76177-1524.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

The FAA is issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: General requirements. Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

The FAA determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify this proposed regulation:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Would not affect intrastate aviation in Alaska, and

(3) Would not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The notice of intent contained in this document is issued pursuant to the temporary scheduling provisions of 21 U.S.C. 811(h). The Drug Enforcement Administration (DEA) intends to issue a temporary scheduling order  1 (in the form of a temporary amendment) to add the two synthetic benzimidazole-opioid substances, including their isomers, esters, ethers, salts, and salts of isomers, esters, and ethers whenever the existence of such isomers, esters, ethers, and salts is possible, to schedule I under the Controlled Substances Act (CSA):

• 2-(4-methoxybenzyl)-5-nitro-1-(2-(pyrrolidin-1-yl)ethyl)-1 H -benzimidazole (commonly known as, N -pyrrolidino metonitazene or metonitazepyne), and

• 5-nitro-2-(4-propoxybenzyl)-1-(2-(pyrrolidin-1-yl)ethyl)-1 H -benzimidazole (commonly known as, N- pyrrolidino protonitazene or protonitazepyne).

The temporary scheduling order will be published in the Federal Register on or after October 17, 2024.

Under 21 U.S.C. 811(h)(1), the CSA provides the Attorney General (as delegated to the Administrator of DEA (Administrator) pursuant to 28 CFR 0.100) has the authority to temporarily place a substance in schedule I of the CSA for two years without regard to the evaluation requirements of 21 U.S.C. 811(b), if he finds that such action is necessary to avoid an imminent hazard to the public safety. 2 In addition, if proceedings to control a substance are initiated under 21 U.S.C. 811(a)(1) while the substance is temporarily controlled under section 811(h), the Attorney General may extend the temporary scheduling for up to one year. 3

Where the necessary findings are made, a substance may be temporarily scheduled if it is not listed in any other schedule under 21 U.S.C. 812, or if there is no exemption or approval in effect for the substance under section 505 of the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. 355. 4

The CSA requires the Administrator to notify the Secretary of the Department of Health and Human Services (HHS) of an intent to temporarily place a substance in schedule I of the CSA ( i.e., to issue a temporary scheduling order). 5 By letter dated December 15, 2023, the Administrator transmitted the required notice to place N -pyrrolidino metonitazene and N -pyrrolidino protonitazene in schedule I on a temporary basis to the Assistant Secretary for Health of HHS (Assistant Secretary). 6 On December 22, 2023, the Assistant Secretary responded to this notice and advised DEA that based on a review by the Food and Drug Administration (FDA), there are currently no investigational new drug applications (IND) or approved new drug applications (NDA) for N -pyrrolidino metonitazene or N -pyrrolidino protonitazene. The Assistant Secretary also stated that HHS had no objection to the temporary placement of these substances in schedule I of the CSA. N -Pyrrolidino metonitazene and N -pyrrolidino protonitazene currently are not listed in any schedule under the CSA, and no exemptions or approvals under 21 U.S.C. 355 are in effect for these substances.

To find that temporarily placing a substance in schedule I of the CSA is necessary to avoid an imminent hazard to the public safety, the Administrator must consider three of the eight factors set forth in 21 U.S.C. 811(c): the substance's history and current pattern of abuse; the scope, duration, and significance of abuse; and what, if any, risk there is to the public health. 7 This consideration includes any information indicating actual abuse, diversion from legitimate channels, and clandestine importation, manufacture, or distribution of N -Pyrrolidino metonitazene and N -pyrrolidino protonitazene. 8

Substances meeting the statutory requirements for temporary scheduling may only be placed in schedule I. 9 Substances in schedule I have high potential for abuse, no currently accepted medical use in treatment in the United States, 10 and a lack of accepted safety for use under medical supervision. 11

The continued encounter of novel synthetic opioids on the recreational drug market poses a threat to public safety. Beginning in 2019, a new class of synthetic opioids known as benzimidazole-opioids, commonly referred to as “nitazenes,” emerged on the recreational drug market. This class of substances has a similar pharmacological profile to fentanyl, morphine, and other mu-opioid receptor agonists. Between August 2020 and March 2024, DEA temporarily controlled ten benzimidazole-opioids because they posed a threat to public safety. 12 N -Pyrrolidino metonitazene and N -pyrrolidino protonitazene are some of the recently encountered “nitazene” synthetic opioids identified on the illicit drug market.

The continued trafficking and identification of benzimidazole-opioids in toxicology cases poses a significant threat to public health and safety. Adverse health effects associated with the misuse and abuse of synthetic opioids have led to devastating consequences including death. Preclinical pharmacology data demonstrate that N -pyrrolidino metonitazene and N -pyrrolidino protonitazene have pharmacological profiles similar to those of the potent benzimidazole-opioids metonitazene and protonitazene, schedule I opioid substances. N -Pyrrolidino metonitazene and N -pyrrolidino protonitazene have been positively identified in at least 26 toxicology cases. As the United States continues to experience a high number of opioid-involved overdoses and mortalities, the introduction of new designer opioids further exacerbates the current opioid epidemic.

Available data and information for N -pyrrolidino metonitazene and N -pyrrolidino protonitazene, summarized below, indicate that these substances have high potentials for abuse, no currently accepted medical uses in treatment in the United States, and a lack of accepted safety for use under medical supervision. DEA's three-factor analysis is available in its entirety under “Supporting and Related Material” of the public docket for this action at www.regulations.gov under Docket Number DEA-1337.

Since 2019, there has been an emergence of benzimidazole-opioid compounds on the illicit drug market, which have been positively identified in numerous cases of fatal overdose events. The benzimidazole-opioids were originally synthesized and studied in the 1950s by the pharmaceutical research laboratories of the Swiss chemical company Chemical Industries Basel. The research produced a group of structurally unique benzimidazole derivatives with analgesic properties; however, the research effort did not produce any medically approved analgesic products. These benzimidazole derivatives include schedule I substances, such as synthetic opioids clonitazene, etonitazene, and isotonitazene.

In August 2020, isotonitazene was placed in schedule I of the CSA (85 FR 51342). Subsequently, nine additional benzimidazole-opioids  13 have been placed in schedule I of the CSA (87 FR 21556 and 89 FR 60817). Recently, N -pyrrolidino metonitazene and N -pyrrolidino protonitazene have emerged on the illicit drug market. Law enforcement officers have encountered N -pyrrolidino metonitazene and N -pyrrolidino protonitazene in several solid forms ( e.g., powder and tablets). These substances are not approved pharmaceutical products and are not approved for medical use anywhere in the world. The Assistant Secretary in a letter to DEA dated December 22, 2023, stated that there are no FDA-approved NDAs or IND applications for N -pyrrolidino metonitazene and N -pyrrolidino protonitazene in the United States; hence, there are no legitimate channels for these substances as marketed drug products.

The appearance of benzimidazole-opioids on the illicit drug market is similar to other designer opioid drugs that are trafficked for their psychoactive effects. These substances are likely to be abused in the same manner as schedule I opioids, such as etonitazene, isotonitazene, and heroin. In 2023, N -pyrrolidino metonitazene and N -pyrrolidino protonitazene emerged on the illicit synthetic drug market as evidenced by their identification in forensic drug seizures and in biological samples. 14 Based on NFLIS-Drug data, law enforcement encounters of N -pyrrolidino metonitazene and N -pyrrolidino protonitazene were found in combination with other substances of abuse such as heroin, designer benzodiazepines, cocaine, fentanyl, methamphetamine, and xylazine.

N -Pyrrolidino metonitazene and N -pyrrolidino protonitazene, similar to etonitazene, metonitazene and protonitazene (schedule I substances), have been described as potent synthetic opioids, and evidence suggests they are abused for their opioidergic effects (see Factor 6). The abuse of these benzimidazole-opioids, similar to other synthetic opioids, has resulted in serious adverse health effects. According to a public alert report  15 published in August 2023, N -pyrrolidino protonitazene has been positively confirmed in 20 medicolegal death investigation cases in the United States (n =16) and United Kingdom (n = 4). The cases that occurred in the United States originated from seven States including California, Illinois, Maine, Massachusetts, Minnesota, Wisconsin, and Wyoming. N -Pyrrolidino metonitazene has been identified in six toxicology cases as of June 2023 in the United States. The cases occurred in at least three States including Ohio, Illinois, and West Virginia. 16

Data from law enforcement suggest that N -pyrrolidino metonitazene and N - pyrrolidino protonitazene are being abused in the United States as recreational drugs. 17 Since 2023, there have been 37 exhibits reported to the NFLIS-Drug (Federal, State and local laboratories) database pertaining to the trafficking, distribution, and abuse of these substances. There were seven encounters of N -pyrrolidino metonitazene from two States in NFLIS-Drug: Missouri (n = 2) and Ohio (n = 5). N -Pyrrolidino protonitazene has been identified in 30 exhibits in NFLIS-Drug from five States: Florida (n = 4), Iowa (n = 10), Missouri (n = 1), Ohio (n = 13), and Texas (n = 2). 18

Because abusers of N -pyrrolidino metonitazene and N -pyrrolidino protonitazene are likely to obtain these substances through unregulated sources, the identity, purity, and quantity of these substances are uncertain and inconsistent, thus posing significant adverse health risks to the end user. The misuse and abuse of opioids have been demonstrated and are well-characterized. 19 Individuals who initiate ( i.e., use a drug for the first time) use of these benzimidazole-opioids are likely to be at risk of developing substance use disorder, an overdose event, or death, similar to that of other opioid analgesics ( e.g., fentanyl, morphine, etc.). Law enforcement and toxicology reports demonstrate that N -pyrrolidino metonitazene and N -pyrrolidino protonitazene are being illicitly distributed and abused.

The increase in opioid overdose deaths in the United States has been exacerbated recently by the availability of potent synthetic opioids on the illicit drug market. Data obtained from pre-clinical studies demonstrate that N -pyrrolidino metonitazene and N -pyrrolidino protonitazene exhibit pharmacological profiles similar to that of etonitazene, metonitazene, protonitazene, and other mu-opioid receptor agonists. These two benzimidazole-opioids bind to and act as agonists at the mu-opioid receptors. 20 It is well established that substances that act as mu-opioid receptor agonists have a high potential for addiction and can induce dose-dependent respiratory depression. 21

Consistent with any mu-opioid receptor agonist, the potential health and safety risks for users of N -pyrrolidino metonitazene and N -pyrrolidino protonitazene are high. N -Pyrrolidino metonitazene and N -pyrrolidino protonitazene have been positively identified in forensic toxicology and post mortem cases. According to a public alert, N -pyrrolidino protonitazene has been positively identified in 20 medicolegal death investigations in the United States and United Kingdom as of August 2023. Of the cases, 16 occurred across seven States in the United States. Decedent ages ranged from mid-20s to mid-70s. N -Pyrrolidino protonitazene was co-identified with additional novel psychoactive substances (70 percent), quinine (60 percent), other benzimidazole-opioids (55 percent), methamphetamine/cocaine (55 percent), fentanyl (55 percent), xylazine (35 percent) and designer benzodiazepines (30 percent). 22 Also, N -pyrrolidino metonitazene has been identified in six toxicology cases in the United States as of June 2023. The introduction of potent synthetic opioids such as N -pyrrolidino metonitazene and N -pyrrolidino protonitazene into the illicit market may serve as a portal to problematic opioid use for those seeking these powerful opioids. As documented by toxicology reports, polysubstance abuse remains common in fatalities associated with the abuse of some of these benzimidazole-opioids.

The United States is currently experiencing an opioid epidemic, and the presence of synthetic opioids on the illicit drug market further exacerbates the problem. The trafficking and abuse of new synthetic opioids are deadly trends which pose imminent hazard to the public safety. Adverse health effects associated with the abuse of synthetic opioids and the continued evolution and increased popularity of these substances have been a serious concern in recent years. Because of the pharmacological similarities of N- pyrrolidino metonitazene and N -pyrrolidino protonitazene to metonitazene and protonitazene, the use of these substances presents high risk of abuse and may negatively affect users and communities. The positive identification of these substances in toxicology cases is of serious concern to the public safety. Thus, N -pyrrolidino metonitazene and N -pyrrolidino protonitazene pose imminent hazard to public safety.

In accordance with 21 U.S.C. 811(h)(3), based on the available data and information summarized above, the uncontrolled manufacture, distribution, reverse distribution, importation, exportation, conduct of research and chemical analysis, possession, and abuse of N -pyrrolidino metonitazene and N -pyrrolidino protonitazene pose imminent hazards to public safety. DEA is not aware of any currently accepted medical uses for these substances in the United States. A substance meeting the statutory requirements for temporary scheduling, found in 21 U.S.C. 811(h)(1), may only be placed in schedule I. Substances in schedule I must have a high potential for abuse, no currently accepted medical use in treatment in the United States, and a lack of accepted safety for use under medical supervision. Available data and information for N -pyrrolidino metonitazene and N -pyrrolidino protonitazene indicate that these substances meet the three statutory criteria. As required by 21 U.S.C. 811(h)(4), the Administrator transmitted to the Assistant Secretary, via letter dated December 15, 2023, notice of her intent to place N -pyrrolidino metonitazene and N -pyrrolidino protonitazene in schedule I on a temporary basis. HHS had no objection to the temporary placement of these substances in schedule I.

This notice of intent provides the 30-day notice pursuant to 21 U.S.C. 811(h)(1) of DEA's intent to issue a temporary scheduling order. In accordance with 21 U.S.C. 811(h)(1) and (3), the Administrator considered available data and information, herein set forth the grounds for her determination that it is necessary to temporarily schedule N -pyrrolidino metonitazene and N -pyrrolidino protonitazene in schedule I of the CSA, and finds that placement of these substances in schedule I is necessary to avoid an imminent hazard to the public safety.

The temporary placement of N -pyrrolidino metonitazene and N -pyrrolidino protonitazene in schedule I of the CSA will take effect pursuant to a temporary scheduling order, which will not be issued before October 17, 2024. Because the Administrator hereby finds this temporary scheduling order necessary to avoid an imminent hazard to the public safety, it will take effect on the date the order is published in the Federal Register and remain in effect for two years, with a possible extension of one year, pending completion of the regular (permanent) scheduling process. 23 The Administrator intends to issue a temporary scheduling order as soon as possible after the expiration of 30 days from the date of publication of this document. Upon the temporary order's publication, N -pyrrolidino metonitazene and N -pyrrolidino protonitazene will then be subject to the CSA's schedule I regulatory controls and to administrative, civil, and criminal sanctions applicable to their manufacture, distribution, reverse distribution, importation, exportation, research, conduct of instructional activities and chemical analysis, and possession.

The CSA sets forth specific criteria for scheduling drugs or other substances. Regular scheduling actions in accordance with 21 U.S.C. 811(a) are subject to formal rulemaking procedures “on the record after opportunity for a hearing” conducted pursuant to the provisions of 5 U.S.C. 556 and 557. 24 The regular scheduling process of formal rulemaking affords interested parties appropriate process and the government any additional relevant information needed to make a determination. Final decisions that conclude the regular scheduling process of formal rulemaking are subject to judicial review. 25 Temporary scheduling orders are not subject to judicial review. 26

The CSA provides for expedited temporary scheduling actions where necessary to avoid an imminent hazard to the public safety. Under 21 U.S.C. 811(h)(1), the Administrator, as delegated by the Attorney General, may, by order, temporarily place substances in schedule I. Such orders may not be issued before the expiration of 30 days from: (1) The publication of a notice in the Federal Register of the intent to issue such order and the grounds upon which such order is to be issued, and (2) the date that notice of the proposed temporary scheduling order is transmitted to the Assistant Secretary, as delegated by the Secretary of HHS. 27

Inasmuch as section 811(h) directs that temporary scheduling actions be issued by order and sets forth the procedures by which such orders are to be issued, including the requirement to publish in the Federal Register a notice of intent, the notice-and-comment requirements of section 553 of the Administrative Procedure Act (APA), 5 U.S.C. 553, do not apply to this notice of intent. The APA expressly differentiates between orders and rules, as it defines an “order” to mean a “final disposition, whether affirmative, negative, injunctive, or declaratory in form, of an agency in a matter other than rule making. ”  28 (Emphasis added). This contrasts with permanent scheduling actions, which are subject to formal rulemaking procedures done “on the record after opportunity for a hearing,” and final decisions that conclude the scheduling process and are subject to judicial review. 21 U.S.C. 811(a) and 877. The specific language chosen by Congress indicates its intent that DEA issue orders instead of proceeding by rulemaking when temporarily scheduling substances. Given that Congress specifically requires the Administrator (as delegated by the Attorney General) to follow rulemaking procedures for other kinds of scheduling actions, see 21 U.S.C. 811(a), it is noteworthy that, in section 811(h)(1), Congress authorized the issuance of temporary scheduling actions by order rather than by rule.

Even assuming that this notice of intent is subject to section 553 of the APA, the Administrator finds that there is good cause to forgo its notice-and-comment requirements, as any further delays in the process for issuing temporary scheduling orders would be impracticable and contrary to the public interest given the manifest urgency to avoid an imminent hazard to the public safety.

Although DEA believes this notice of intent to issue a temporary scheduling order is not subject to the notice-and-comment requirements of section 553 of the APA, DEA notes that in accordance with 21 U.S.C. 811(h)(4), the Administrator took into consideration comments submitted by the Assistant Secretary in response to the notices that DEA transmitted to the Assistant Secretary pursuant to such subsection.

Further, DEA believes that this temporary scheduling action is not a “rule” as defined by 5 U.S.C. 601(2), and, accordingly, is not subject to the requirements of the Regulatory Flexibility Act (RFA). The requirements for the preparation of an initial regulatory flexibility analysis in 5 U.S.C. 603(a) are not applicable where, as here, DEA is not required by section 553 of the APA or any other law to publish a general notice of proposed rulemaking. As discussed above, DEA is issuing this notice of intent pursuant to DEA's authority to issue a temporary scheduling order. 21 U.S.C. 811(h)(1). Therefore, in this instance, since DEA believes this temporary scheduling action is not a “rule,” it is not subject to the requirements of the RFA when issuing this temporary action.

In accordance with the principles of Executive Orders (E.O.) 12866 and 13563, this action is not a significant regulatory action. E.O. 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health, and safety effects; distributive impacts; and equity). E.O. 13563 is supplemental to and reaffirms the principles, structures, and definitions governing regulatory review as established in E.O. 12866. E.O. 12866, sec. 3(f), as amended by E.O. 14094, sec. 1(b), provides the definition of a “significant regulatory action,” requiring review by the Office of Management and Budget. Because this is not a rulemaking action, this is not a significant regulatory action as defined in section 3(f) of E.O. 12866.

This action will not have substantial direct effects on the States, on the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, in accordance with E.O. 13132, it is determined that this action does not have sufficient federalism implications to warrant the preparation of a Federalism Assessment.

For the reasons set out above, DEA proposes to amend 21 CFR part 1308 as follows:

A notice of proposed rulemaking and a notice of public hearing that appeared in the Federal Register on July 12, 2024 (89 FR 57111), announced that a public hearing being held in person and by teleconference was scheduled for September 26, 2024, at 10 a.m. ET. The subject of the public hearing is under 26 CFR part 1.

The public comment period for these regulations expired on September 10, 2024. The notice of proposed rulemaking and notice of public hearing instructed those interested in testifying at the public hearing to submit a request to testify and an outline of the topics to be addressed. We did not receive a request to testify at the Public Hearing. Therefore, the public hearing scheduled for September 26, 2024, at 10 a.m. ET is cancelled.

This document contains proposed amendments to the Income Tax Regulations (26 CFR part 1) under section 36B of the Internal Revenue Code (Code). Section 36B(h) provides an express delegation of authority for the Secretary of the Treasury or her delegate to prescribe regulations as may be necessary to carry out section 36B, including regulations that provide for the coordination of the credit allowed under 36B with the program for advance payment of the credit under section 1412 of the Affordable Care Act. 1 The proposed regulations are also issued under the express delegation of authority under section 7805 of the Code.

Section 36B provides a PTC for applicable taxpayers who meet certain eligibility requirements, including that a member of the taxpayer's family enrolls in a qualified health plan (QHP) through an Exchange for one or more “coverage months.”

Section 1.36B-3(c)(1) provides that a month is a coverage month for an individual if (i) as of the first day of the month, the individual is enrolled in a QHP through an Exchange; (ii) the taxpayer pays the taxpayer's share of the premium for the individual's coverage under the plan for the month by the unextended due date for filing the taxpayer's income tax return for that taxable year, or the full premium for the month is paid by APTC; and (iii) the individual is not eligible for the full calendar month for minimum essential coverage (within the meaning of § 1.36B-2(c)) other than coverage described in section 5000A(f)(1)(C) of the Code (relating to coverage in the individual market).

Section 1.36B-3(d)(1) provides that the PTC (also called the premium assistance amount) for a coverage month is the lesser of (i) the premiums for the month, reduced by any amounts that were refunded, for one or more QHPs in which a taxpayer or a member of the taxpayer's family enrolls (enrollment premiums); or (ii) the excess of the adjusted monthly premium for the applicable benchmark plan over 1/12 of the product of a taxpayer's household income and the applicable percentage for the taxable year. Family is defined in § 1.36B-1(d), and the applicable percentage is defined in § 1.36B-3(g).

Section 36B(f)(3) and § 1.36B-5 require Exchanges to report to QHP enrollees and the IRS certain information, including monthly enrollment premiums, needed to compute the PTC allowed for the enrollee. This information is reported to enrollees on IRS Form 1095-A, Health Insurance Marketplace Statement. The Centers for Medicare & Medicaid Services (CMS), part of the Department of Health and Human Services (HHS), is responsible for the Form 1095-A reporting for Exchanges that use the Federal eligibility and enrollment platform (Federally-facilitated Exchanges, or FFEs, and State-based Exchanges on the Federal platform, or SBE-FPs). State Exchanges with their own platforms (State Exchanges) are responsible for the Form 1095-A reporting for individuals who enroll in their State Exchange.

HHS regulations at 45 CFR 156.270(d) implement section 1412(c)(2)(B)(iv)(II) of the Affordable Care Act to require issuers of QHPs to allow a “grace period” for enrollees for whom APTC is paid but who fail to timely pay their share of the premium for the coverage. In general, a QHP issuer must provide a grace period of 3 consecutive months for such an enrollee before the issuer may terminate the enrollee's coverage. During the first month of the grace period, the QHP issuer must pay all appropriate claims for services rendered, and, during the second and third months of the grace period, the QHP issuer may pend claims.

HHS regulations at 45 CFR 155.400(g) allow issuers to implement a premium payment threshold policy under which issuers can consider enrollees to have paid all amounts due if the enrollees pay an amount sufficient to maintain a percentage of total premium paid out of the total premium owed equal to or greater than a level prescribed by the issuer, provided that the level and the policy are applied in a uniform manner to all enrollees. If an enrollee satisfies these conditions, the issuer may provide coverage even though the full enrollment premium is not paid.

In certain States, issuers also may provide coverage without payment of the full enrollment premium if a State department of insurance prohibits an issuer from terminating QHP coverage during a declared emergency.

For a month for which a taxpayer's share of the enrollment premium is not paid in full, the current instructions for Form 1095-A require Exchanges to report $0 on Form 1095-A as the enrollment premium for that month, which signals to the taxpayer and the IRS that no PTC is allowed for that month (non-payment month) because a month in which the premium is not paid in full is not a coverage month. Thus, if an individual is enrolled in a QHP with APTC for a month but does not pay the full amount of the monthly premium as permitted under 45 CFR 156.270(d), 45 CFR 155.400(g), or applicable State law, $0 should be reported as the enrollment premium for the month, and a PTC is not allowed for that month for the coverage.

CMS has informed the Treasury Department and the IRS that, because CMS is not the entity that collects premium payments from an enrollee, implementing the section 36B definition of coverage month is challenging for CMS in situations in which the taxpayer's share of the premium is not paid in full but the taxpayer (or the taxpayer's enrollee) nevertheless may remain enrolled in a QHP with APTC, if applicable, under 45 CFR 156.270(d), 45 CFR 155.400(g), or applicable State law. An audit by the HHS Office of Inspector General  2 found that CMS currently reports to FFE and SBE-FP enrollees and the IRS on Form 1095-A the full enrollment premium for the first month of a grace period, notwithstanding that the taxpayer's share of the full premium for that month may never have been paid. Similarly, CMS currently reports to FFE and SBE-FP enrollees and the IRS on Form 1095-A the full enrollment premium (1) for months for which an issuer provides coverage to enrollees who satisfy the premium payment threshold, and (2) for months for which an issuer has been ordered by a State department of insurance, during a declared emergency, not to terminate an enrollee's coverage for the month even though the full premium has not been paid. Consequently, for these two scenarios as well as the grace period scenario, FFEs and SBE-FPs treat a month as a coverage month for which APTC is allowed, and the IRS would not have information to disallow a PTC for the month because the full enrollment premium is reported for the month.

In contrast, some State Exchanges have been reporting $0 as the enrollment premium for the first month of a grace period and for certain other months for which coverage was provided without the taxpayer's share of the full premium being paid. Consequently, taxpayers in these State Exchanges generally are unable to claim a PTC for those months.

As noted in section I of this Background, § 1.36B-3(c)(1) provides that a month is a coverage month for an individual only if, among other requirements, the individual is not eligible for the full calendar month for minimum essential coverage (within the meaning of § 1.36B-2(c)) other than coverage described in section 5000A(f)(1)(C) of the Code (relating to coverage in the individual market). Under section 5000A(f)(1)(A) and § 1.5000A-2, the term “minimum essential coverage” includes coverage under government-sponsored programs such as Medicaid, Children's Health Insurance Program (CHIP), and a State's BHP. 3

Section 1.36B-2(c)(2)(i) provides that, for purposes of determining whether a given month is a coverage month for an individual, an individual generally is considered eligible for government-sponsored minimum essential coverage if the individual meets the criteria for coverage under a government-sponsored program described in section 5000A(f)(1)(A) as of the first day of the first full month the individual may receive benefits under the program.

Section 1.36B-2(c)(2)(v) provides that an individual is treated as not eligible for Medicaid, CHIP, or a similar program for a period of coverage under a QHP if, when the individual enrolls in the QHP, an Exchange determines or considers (within the meaning of 45 CFR 155.302(b)) the individual to be not eligible for Medicaid or CHIP.

Under 42 U.S.C. 18051 and the implementing regulations at 42 CFR part 600, a State is allowed to establish a BHP for eligible individuals. Section 18051(e) provides that a resident of a State cannot be an eligible individual unless the individual is not eligible to enroll in the State's Medicaid program under title XIX of the Social Security Act for benefits that at a minimum consist of the essential health benefits described in 42 U.S.C. 18022(b).

The Treasury Department and the IRS have become aware that the rule in § 1.36B-2(c)(2)(v) relating to an individual being considered ineligible for coverage under a Medicaid, CHIP, or a similar program, is ambiguous as it applies to a State's BHP and should be clarified.

As explained in the Background section of this preamble, a PTC generally is allowed for a taxpayer for months that are coverage months for the taxpayer and other individuals in the taxpayer's family. Further, under § 1.36B-3(c)(1)(ii), a month is not a coverage month for an individual unless the taxpayer pays the taxpayer's full share of the premium for the individual's coverage under the plan for the month by the unextended due date for filing the taxpayer's income tax return for that taxable year, or the full premium for the month is paid by APTC.

Under HHS regulations at 45 CFR 156.270(d), issuers must provide coverage to enrollees for whom APTC is paid in the first month of a grace period, even if the enrollee's share of the premium for the coverage is unpaid. Thus, in that situation, the amount of the total premium paid by APTC is sufficient to allow for enrollees to remain covered. In addition, as noted in the Background section, Exchanges are not consistent in the manner they report enrollment premiums for the first month of a grace period, with some reporting the full premium for the month and others reporting $0. This inconsistent reporting may lead to disparate treatment among taxpayers, with some being allowed to claim a PTC for the first month of a grace period and others being denied PTC for such a month. The Treasury Department and the IRS are of the view that amending the coverage month rule would promote reporting consistency and thus would achieve more consistent treatment among taxpayers. Moreover, because HHS regulations require issuers to provide coverage for the first month of a grace period to enrollees for whom APTC is paid for that month, it is reasonable to provide consistent treatment for tax purposes. Thus, the proposed regulations would treat the first month of a grace period as a coverage month for PTC purposes if the other coverage month requirements in § 1.36B-3(c) are satisfied. These proposed regulations are consistent with the express delegation of authority in section 36B(h)(1) to provide regulations that provide for coordination of the section 36B credit allowed with the APTC program.

In addition to addressing the first month of a grace period, the proposed regulations would address two other scenarios in which an issuer provides coverage even though the full enrollment premium is not paid as permitted under applicable law. In the first scenario, some issuers provide coverage for a month as long as at least a certain portion of the enrollee's premium for the month is paid, as permitted under CMS's premium payment threshold policy. The Treasury Department and the IRS are of the view that a month for which coverage is provided because a premium payment threshold is met should not fail to be a coverage month solely because the full premium has not been paid. Otherwise, a taxpayer could have monthly PTC disallowed due to a relatively small amount of unpaid premium, resulting in a tax liability that far exceeds the amount of the unpaid premium, for a month in which the amount paid for the coverage met the threshold for the provision of coverage permitted by HHS.

The second scenario involves a State department of insurance prohibiting an issuer from terminating QHP coverage during a declared emergency. In this scenario, if the issuer provides coverage for a month even though the enrollee's portion of the premium has not been fully paid, the Treasury Department and the IRS are of the view that the month should not fail to be a coverage month solely because the full premium has not been paid. This month should be treated as a coverage month because the portion, if any, of the premium that was paid is sufficient to provide coverage to the enrollees during an emergency situation under applicable State law.

Consequently, pursuant to the express delegations of authority in sections 36B(h) and 7805, the proposed regulations would provide that, under these three scenarios, a month may be a coverage month for a taxpayer irrespective of whether the full premium for the month is paid by the unextended due date of the taxpayer's return for the year of coverage. The Treasury Department and the IRS request comments on whether there are other scenarios in which an issuer does not terminate coverage for a month for which the full premium has not been paid and whether such a month should be treated as a coverage month.

The proposed amendment to the definition of “coverage month” in § 1.36B-3(c)(1) would require a conforming change to the calculation of the monthly PTC amount under § 1.36B-3(d)(1)(i), which provides, in effect, that monthly PTC for a coverage month cannot exceed the premiums for the month, reduced by any amounts that were refunded in the same taxable year as the premium liability. If a month in which a portion of the enrollment premiums is unpaid is a coverage month, the premium used to compute the PTC for the month should not include the unpaid portion. Otherwise, a taxpayer could receive a monthly PTC for coverage that exceeds the amount of the premium paid for the coverage, which would result in an undue windfall to the taxpayer. In addition, as noted previously, existing regulations require, in computing monthly PTC, enrollment premiums to be reduced by amounts refunded in the year of coverage. Consistent with the existing rule for computing monthly PTC, the premiums used for computing monthly PTC under the proposed rule also should be reduced by unpaid amounts. Thus, pursuant to the express delegations of authority in sections 36B(h) and 7805, the proposed regulations would provide that the premium for a month to be considered in determining PTC for an individual's coverage must be reduced by amounts refunded in the same taxable year as the premium liability is incurred and by any portion of the premium that is unpaid as of the unextended due date for filing the taxpayer's income tax return for the taxable year that includes the month. Taxpayers would be instructed to comply with this rule by reducing their enrollment premiums on Form 8962, Premium Tax Credit (PTC), for a coverage month by any amount that remains unpaid as of the unextended due date of their return.

As discussed in the Background section of this preamble, § 1.36B-2(c)(2)(v) provides that an individual is treated as not eligible for Medicaid, CHIP, or a similar program for a period of coverage under a QHP if, when the individual enrolls in the QHP, an Exchange determines or assesses the individual to be not eligible for Medicaid or CHIP. The first part of the sentence references “Medicaid, CHIP or similar program,” which includes a State's BHP. See 81 FR 91755, 91756. However, the second part of the sentence references only Medicaid or CHIP determinations under 45 CFR 155.302(b) and says nothing about determinations of eligibility under similar programs such as State BHPs. The unintended consequence of this language is that an individual who meets the criteria for coverage under a State BHP could be considered ineligible for the BHP coverage if the Exchange determines that the individual is ineligible for Medicaid or CHIP. Based on the Exchange determination of ineligibility for Medicaid or CHIP, the individual could enroll in a QHP and be allowed a PTC for the QHP coverage.

Consequently, pursuant to the express delegations of authority in sections 36B(h) and 7805, the proposed regulations would clarify that an individual is treated as not eligible for Medicaid, CHIP, or a similar program such as a State BHP, for a period of coverage under a QHP if, when the individual enrolls in the QHP, an Exchange conducts an eligibility determination or, if applicable, eligibility assessment (within the meaning of 45 CFR 155.302(b)) for Medicaid, CHIP, or a similar program and determines or assesses the individual to be not eligible for coverage under the program. Thus, under the proposed revision, an individual's determination of ineligibility for Medicaid or CHIP would not affect whether the individual is treated as ineligible for BHP coverage for purposes of determining whether a PTC is allowed.

If any provision in this rulemaking is held to be invalid or unenforceable facially, or as applied to any person or circumstance, it shall be severable from the remainder of this rulemaking, and shall not affect the remainder thereof, or the application of the provision to other persons not similarly situated or to other dissimilar circumstances.

Guidance cited in this preamble is published in the Internal Revenue Bulletin and is available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at https://www.irs.gov.

The proposed regulations under §§ 1.36B-2 and 1.36B-3 are proposed to apply for taxable years beginning on or after the first date of the calendar year that begins after the date these regulations are published as final regulations in the Federal Register .

Pursuant to the Memorandum of Agreement, Review of Treasury Regulations under Executive Order 12866 (June 9, 2023), tax regulatory actions issued by the IRS are not subject to the requirements of section 6 of Executive Order 12866, as amended. Therefore, a regulatory impact assessment is not required.

These proposed regulations do not impose any additional information collection requirements in the form of reporting, recordkeeping requirements, or third-party disclosure statements. Taxpayers who claim PTC on their income tax returns are required to file Form 8962, which is the sole collection of information requirement imposed by section 36B and the regulations under section 36B. The rules in these proposed regulations, if finalized, would require the IRS to revise the instructions for Form 8962. For purposes of the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(c)), the reporting burden associated with the collection of information for Form 8962 will be reflected in the PRA submission associated with income tax returns under the OMB control number 1545-0074. To the extent there is a change in burden because of these proposed regulations, the change in burden will be reflected in the updated burden estimates for Form 8962.

When an agency issues a proposed rulemaking, the Regulatory Flexibility Act (5 U.S.C. chapter 6) (RFA) requires the agency to “prepare and make available for public comment an initial regulatory flexibility analysis” that “describe[s] the impact of the proposed rule on small entities.” See 5 U.S.C. 603(a). The term “small entities” is defined in 5 U.S.C. 601 to mean “small business,” “small organization,” and “small governmental jurisdiction,” which are also defined in 5 U.S.C. 601. Small business size standards define whether a business is “small” and have been established for types of economic activities, or industry, generally under the North American Industry Classification System (NAICS). See title 13, part 121 of the Code of Federal Regulations (Small Business Size Regulations). The size standards look at various factors, including annual receipts, number of employees, and amount of assets, to determine whether the business is small. See title 13, § 121.201 of the Code of Federal Regulations for the Small Business Size Standards by NAICS Industry.

Section 605 of the RFA provides an exception to the requirement to prepare an initial regulatory flexibility analysis if the agency certifies that the proposed rulemaking will not have a significant economic impact on a substantial number of small entities. The Treasury Department and the IRS hereby certify that these proposed regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that the majority of the effect of the proposed regulations falls on individual taxpayers, and entities will experience only small changes.

Pursuant to section 7805(f) of the Code, these proposed regulations have been submitted to the Chief Counsel for the Office of Advocacy of the Small Business Administration for comment on their impact on small business.

Section 202 of the Unfunded Mandates Reform Act of 1995 requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a State, local, or Tribal government, in the aggregate, or by the private sector, of $100 million (updated annually for inflation). This proposed rule does not include any Federal mandate that may result in expenditures by State, local, or Tribal governments, or by the private sector in excess of that threshold.

E.O. 13132 (Federalism) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on State and local governments, and is not required by statute, or preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the E.O. This proposed rule does not have federalism implications and does not impose substantial direct compliance costs on State and local governments or preempt State law within the meaning of the E.O.

Before these proposed regulations are adopted as final regulations, consideration will be given to comments that are submitted timely to the IRS as prescribed in this preamble in the ADDRESSES section. The Treasury Department and the IRS request comments on all aspects of the proposed regulations, including the economic impact of the proposed regulations. Any electronic comments submitted, and to the extent practicable any paper comments submitted, will be made available at www.regulations.gov or upon request.

A public hearing is being held on December 13, 2024, beginning at 10:00 a.m. ET, in the Auditorium at the Internal Revenue Service Building, 1111 Constitution Avenue NW, Washington, DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. Participants may alternatively attend the public hearing by telephone.

The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit an outline of the topics to be discussed as well as the time to be devoted to each topic by November 1, 2024. A period of ten minutes will be allocated to each person for making comments. After the deadline for receiving outlines has passed, the IRS will prepare an agenda containing the schedule of speakers. Copies of the agenda will be made available free of charge at the hearing. If no outlines of the topics to be discussed at the hearing are received by November 1, 2024, the public hearing will be cancelled. If the public hearing is cancelled, a notice of cancellation of the public hearing will be published in the Federal Register .

Individuals who want to testify in person at the public hearing must send an email to publichearings@irs.gov to have their name added to the building access list. The subject line of the email must contain the regulation number REG-116787-23 and the language TESTIFY In Person. For example, the subject line may say: Request to TESTIFY In Person at Hearing for REG-116787-23.

Individuals who want to testify by telephone at the public hearing must send an email to publichearings@irs.gov to receive the telephone number and access code for the hearing. The subject line of the email must contain the regulation number REG-116787-23 and the language TESTIFY Telephonically. For example, the subject line may say: Request to TESTIFY Telephonically at Hearing for REG-116787-23.

Individuals who want to attend the public hearing in person without testifying must also send an email to publichearings@irs.gov to have their name added to the building access list. The subject line of the email must contain the regulation number REG-116787-23 and the language ATTEND In Person. For example, the subject line may say: Request to ATTEND Hearing in Person for REG-116787-23. Requests to attend the public hearing must be received by 5:00 p.m. ET on December 11, 2024.

Individuals who want to attend the public hearing telephonically without testifying must also send an email to publichearings@irs.gov to receive the telephone number and access code for the hearing. The subject line of the email must contain the regulation number REG-116787-23 and the language ATTEND Hearing Telephonically. For example, the subject line may say: Request to ATTEND Hearing Telephonically for REG-116787-23. Requests to attend the public hearing must be received by 5:00 p.m. ET on December 11, 2024.

Hearings will be made accessible to people with disabilities. To request special assistance during the hearing, contact the Publications and Regulations Branch of the Office of Associate Chief Counsel (Procedure and Administration) by sending an email to publichearings@irs.gov (preferred) or by telephone at (202) 317-6901 (not a toll-free number) by at least December 10, 2024.

Guidance cited in this preamble is published in the Internal Revenue Bulletin and is available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at https://www.irs.gov.

The principal author of these proposed regulations is Clara L. Raymond of the Office of Associate Chief Counsel (Income Tax and Accounting). However, other personnel from the Treasury Department and the IRS participated in the development of the regulations.

Accordingly, the Treasury Department and the IRS propose to amend 26 CFR part 1 as follows:

The revisions and addition read as follows:

The revisions and additions read as follows:

This document contains proposed amendments to the Income Tax Regulations (26 CFR part 1) under section 139E of the Internal Revenue Code (Code). Section 139E(c)(3) provides an express delegation of authority for the Secretary of the Treasury or her delegate (Secretary) to, “in consultation with the Tribal Advisory Committee (as established under section 3(a) of the Tribal General Welfare Exclusion Act of 2014), establish guidelines for what constitutes lavish or extravagant benefits with respect to Indian tribal government programs.” The proposed regulations are also issued under the express delegation of authority under section 7805(a) of the Code.

This notice of proposed rulemaking contains proposed amendments to the Income Tax Regulations (26 CFR part 1) to implement section 139E of the Internal Revenue Code (Code).

Section 61 of the Code provides that, except as otherwise provided by law, the term “gross income” means all income from whatever source derived. The term “income” is broadly defined as “instances of undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion.” Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955). As a general rule, exclusions from income are construed narrowly, and taxpayers must bring themselves within the clear scope of the exclusion for the exclusion to apply. Commissioner v. Schleier, 515 U.S. 323, 328-329 (1995). Tribal members are subject to the same requirement to pay Federal income taxes as non-Tribal members, unless exempted by a treaty or agreement between the United States and the Tribal member's Tribe or an Act of Congress dealing with Indian affairs. Squire v. Capoeman, 351 U.S. 1, 6 (1956).

Generally, if the provision of a benefit satisfies the requirements of section 139E (discussed in part IV of this Background), section 139E will apply to exclude the value of the benefit from the recipient's gross income. If section 139E does not apply to exclude a benefit from a recipient's gross income, the benefit may, depending on the facts and circumstances, separately qualify for exclusion from the recipient's gross income under another Code provision or the administrative general welfare exclusion (discussed in part I of this Background), which pre-dates the enactment of section 139E. See Notice 2015-34 (2015-18 I.R.B. 942), discussed in part V of this Background.

The IRS generally has determined that payments made to or on behalf of individuals by governmental units under legislatively provided social benefit programs for the promotion of the general welfare are not includible in an individual recipient's Federal gross income; this concept is referred to in this preamble as the “administrative general welfare exclusion.” See, e.g., Rev. Rul. 78-170, 1978-1 C.B. 24 (concluding that amounts paid under the laws of the State of Ohio to low-income elderly and disabled persons to help alleviate their cost of winter energy consumption are made for the promotion of general welfare, and are not includible in the recipients' gross income for Federal income tax purposes); see also Rev. Rul. 76-395, 1976-2 C.B. 16 (applying the general welfare exclusion to home rehabilitation grants to low-income families to correct substandard conditions).

To qualify under the administrative general welfare exclusion, payments must (1) be paid from a governmental fund, (2) be for the promotion of the general welfare (that is, based on the need of the individual or family receiving such payments), and (3) not represent compensation for services absent a specific Federal income tax exclusion. See Notice 2023-56, 2023-38 I.R.B. 824.

Payments that are based on some criteria other than individual or family need do not qualify for the administrative general welfare exclusion. Compare Rev. Rul. 76-395, 1976-2 C.B. 16 (home rehabilitation grants received by low-income homeowners residing in a defined area of a city under the city's community development program funded under the Housing and Community Development Act of 1974 are in the nature of general welfare and are not includible in their gross income) with Rev. Rul. 76-131, 1976-1 C.B. 16 (payments made by the State of Alaska to individuals at least 65 years of age who have maintained an Alaska domicile for at least 25 years to encourage them to continue their residence in the State did not qualify under the general welfare exclusion because the payments were made to residents regardless of financial status, health, educational background, or employment status).

The administrative general welfare exclusion does not generally apply to permit a business to exclude payments from gross income because such payments are not based on individual or family need. See Bailey v. Commissioner, 88 T.C. 1293, 1300-1301 (1987), acq. 1989-2 C.B. 1; Revenue Ruling 2005-46 (2005-2 C.B. 120).

Indian Tribal governments have a unique legal status. They have sovereignty that pre-dates the United States and therefore have a government-to-government relationship with the United States. Indian Tribal governments have developed a broad range of programs to address their unique social, cultural, and economic issues. The administrative general welfare exclusion applies to benefits provided by Indian Tribal governments no less favorably than it applies to benefits provided by Federal, State, or local governments. Thus, benefits provided by Indian Tribal governments qualify for the administrative general welfare exclusion if the benefits are (1) made pursuant to a governmental program of the Tribe; (2) for the promotion of general welfare (that is, based on individual or family need); and (3) not compensation for services.

In 2014, the Treasury Department and the IRS issued Revenue Procedure 2014-35 (2014-26 I.R.B. 1110), 1 which provides safe harbors under which the IRS conclusively presumes that the individual need requirement of the administrative general welfare exclusion is met for benefits provided under Indian Tribal governmental programs that meet the safe harbor requirements. The revenue procedure provides that the IRS will not assert that recipients of benefits under a safe harbor must include the value of those benefits in gross income or that the benefits are subject to the information reporting requirements of section 6041 of the Code. The safe harbors apply if the following requirements are met: (1) the benefit is provided pursuant to a specific Indian Tribal government program, (2) the program has written guidelines specifying how the individual qualifies for the benefit; (3) the benefit is available to any Tribal member and certain other individuals who satisfy the program's guidelines; (4) the program does not discriminate in favor of members of the governing body; (5) the benefit is not lavish or extravagant under the circumstances, and (6) the benefit is not compensation for services. See section 5.02(1) of Revenue Procedure 2014-35. Categories of qualifying benefits include housing, education, elder and disabled person care, and cultural activities. See section 5.02(2) of Revenue Procedure 2014-35. In addition, nominal cash honoraria and items of cultural significance that are not lavish or extravagant provided to religious or spiritual officials or leaders in connection with their participation in cultural, religious, and social events, are not treated as compensation for services (and therefore are not gross income) under the revenue procedure. See section 5.03 of Revenue Procedure 2014-35.

On August 2, 2013, H.R. 3043, 113th Cong. (2013), whose short title was the Tribal General Welfare Exclusion Act of 2013, was introduced in the United States House of Representatives and referred to the Committee on Ways and Means. On that same date, an identical bill was introduced in the United States Senate and referred to the Committee on Finance. On September 16, 2014, after its short title was revised to the “Tribal General Welfare Exclusion Act of 2014,” H.R. 3043 was passed by the House of Representatives after a floor debate (House Debate). See Cong. Rec. H7599-7603 (September 16, 2014). On September 17, 2014, after being received by the Senate, H.R.3043 was the subject of a colloquy (Senate Colloquy). See Cong. Rec. S5686-5687 (September 17, 2014). On September 18, 2024, H.R. 3043 was passed by the Senate by unanimous consent. See Cong. Rec. S5862 (September 18, 2014). On September 26, 2014, the President of the United States approved the United States Congress's enactment of the Tribal General Welfare Exclusion Act of 2014 (Act), Public Law 113-168, 128 Stat. 1883 (2014).

The Act, among other things, amended the Code by adding section 139E. Under section 139E, gross income does not include the value of any “Indian general welfare benefit,” which this notice of proposed rulemaking refers to as a “Tribal General Welfare Benefit.” Section 139E(b) defines a Tribal general welfare benefit as any payment made or services provided to or on behalf of a member of a Tribe (or any spouse or dependent of such a member) pursuant to an Indian Tribal government program, but only if: (1) the program is administered under specified guidelines and does not discriminate in favor of members of the governing body of the Tribe, and (2) the benefits provided under such program are (A) available to any Tribal member who meets such guidelines, (B) for the promotion of general welfare, (C) not lavish or extravagant, and (D) not compensation for services. Further, section 139E(c)(5) provides that any items of cultural significance, reimbursement of costs, or cash honorarium for participation in cultural or ceremonial activities for the transmission of Tribal culture “shall not be treated as compensation for services.”

Section 2(c) of the Act provides that ambiguities in section 139E are to be resolved in favor of Indian Tribal governments. Section 2(c) of the Act also requires that deference be given to Indian Tribal governments for the programs administered and authorized by the Tribe to benefit the general welfare of the Tribal community.

Section 2(d)(1) of the Act provides that section 139E shall apply to taxable years for which the period of limitation on refund or credit under section 6511 of the Code of 1986 has not expired. Section 2(d)(2) of the Act provides that if the period of limitation on a credit or refund resulting from the enactment of section 139E expires before the end of the 1-year period beginning on the date of the enactment of the Act, refund or credit of such overpayment (to the extent attributable to such amendments) may, nevertheless, be made or allowed if claim therefor is filed before the close of such 1-year period.

Section 3 of the Act requires the Secretary of the Treasury to establish a Tribal Advisory Committee. The Department of the Treasury Tribal Advisory Committee (TTAC) held its inaugural meeting on June 20, 2019. Under section 3(b) of the Act, the TTAC's mandate is to advise the Secretary of the Treasury on matters relating to the taxation of Indians, and the Secretary of the Treasury is required to consult with the TTAC to establish and require training and education for internal revenue field agents who administer and enforce internal revenue laws. This includes (A) training and education with respect to Federal Indian law and the Federal Government's unique legal treaty and trust relationship with Indian Tribal governments, and (B) training of such internal revenue field agents, and provision of training and technical assistance to Tribal financial officers, about implementation of the Act and the amendments made by the Act.

Section 4(a) of the Act requires the Secretary of the Treasury to temporarily suspend “all audits and examinations of Indian Tribal governments and members of Tribes (or any spouse or dependent of such a member), to the extent such an audit or examination relates to the exclusion of a payment or benefit from an Indian Tribal government under the general welfare exclusion” until the training and education described above is completed. Section 4(a) further provides that the period of limitation under section 6501 of the Code is suspended during the period of suspension.

Following the addition of section 139E to the Code, the IRS published Notice 2015-34 (2015-18 I.R.B. 942), providing guidance to taxpayers regarding the effect of section 139E on Revenue Procedure 2014-35. Notice 2015-34 provides that section 139E codifies (but does not supplant) the administrative general welfare exclusion for certain benefits provided under Indian Tribal government programs. Notice 2015-34 provides that taxpayers can rely on Revenue Procedure 2014-35 for the safe harbors under which certain benefits provided by Indian Tribal government programs may be excluded from gross income under the administrative general welfare exclusion. Additionally, Notice 2015-34 requested comments on (1) what guidelines may be helpful to Indian Tribal governments to determine whether benefits are lavish or extravagant under section 139E(b); (2) what Tribal customs or government practices may establish an Indian Tribal government program administered through specific guidelines under section 139E(b)(1) and (c)(4) and how such programs may be identified; and (3) how items of cultural significance, cash honoraria, and cultural or ceremonial activities for the transmission of Tribal culture under section 139E(c)(5) should be defined.

Members of the TTAC formed a Subcommittee on the Act's General Welfare Exclusion (GWE Subcommittee) in 2019 to provide the TTAC with technical expertise on recommendations for the implementation of the Act. On June 16, 2021, the GWE Subcommittee submitted to the TTAC a report (TTAC Report) containing the GWE Subcommittee's interpretation of the core principles underlying section 139E, and an Appendix containing draft proposed regulations interpreting section 139E (TTAC draft proposed regulations), consistent with those core principles. On October 26, 2022, the TTAC formally recommended and approved the TTAC Report to be submitted for the record and published for Tribal comment.

The Treasury Department sent a Tribal consultation letter, dated October 27, 2022 (Dear Tribal Leader Letter), to Tribal leaders to request consultation on the Act and the TTAC Report. The Dear Tribal Leader Letter announced consultation meetings to be held on December 14, 15, and 16, 2022 (December 2022 Consultations), to discuss the Act and the TTAC Report. The Dear Tribal Leader Letter also requested responses to certain questions related to the interpretation of particular provisions of section 139E, as well as comments on the TTAC Report. In response to the Dear Tribal Leader Letter, and after the December 2022 Consultations, the Treasury Department received 65 written comments from Tribes and two Tribal organizations (collectively, Tribal Comments).

The Tribal Comments were broadly supportive of the recommendations in the TTAC Report, 2 including the TTAC draft proposed regulations. In general, the Tribal Comments emphasized that the Act, particularly section 2(c) of the Act, requires the Treasury Department to recognize the sovereignty of Tribes by granting broad deference to Indian Tribal governments in the design and implementation of their general welfare programs, as well as with respect to any ambiguities in the statute. Deference to Indian Tribal governments was a guiding principle in the Tribal Comments addressing each of the questions for which the Treasury Department requested comment. For example, many Tribal Comments stated that any Treasury Department and IRS guidance imposing specific requirements for a general welfare program, such as what constitutes “the promotion of the general welfare,” what is a “lavish or extravagant” benefit, or what are “cultural or ceremonial activities,” would infringe upon Indian Tribal sovereignty. Many Tribal Comments urged that section 2(c) of the Act be expressly cited in the proposed regulations.

Another area of significant concern raised in the Tribal Comments was ensuring that the regulations under section 139E do not presumptively treat benefits as outside the scope of section 139E solely because the benefits are provided to all eligible recipients in an equal amount, or that the benefits are funded from gaming revenues. This concern was primarily raised in relation to amounts that are set aside and paid from net gaming revenues to provide for the general welfare of the Indian Tribe and its members. See 25 U.S.C. 2710(b).

Finally, the Tribal Comments addressed various other issues, including the effective date of the proposed regulations, training of IRS agents, and coordination with other Federal agencies. After considering these and other Tribal Comments and the TTAC Report, and after consultation with the TTAC and the GWE Subcommittee, the Treasury Department and the IRS propose to adopt new § 1.139E-1 to provide guidance under section 139E (proposed § 1.139E-1). The following Explanation of Provisions discusses the Tribal Comments in more detail in relation to each proposed provision in proposed § 1.139E-1.

The proposed regulations would provide that the gross income of a Tribal program participant does not include the value of any Tribal general welfare benefit provided by an Indian Tribal government program.

The provisions of proposed § 1.139E-1 would provide (1) definitions of terms used in section 139E and proposed § 1.139E-1 ( see proposed § 1.139E-1(b)); (2) requirements for a program to qualify as an “Indian Tribal Government Program” ( see proposed § 1.139E-1(c)); (3) requirements for a benefit to qualify as a “Tribal General Welfare Benefit” ( see proposed § 1.139E-1(d)); (4) special rules related to cultural or ceremonial activities ( see proposed § 1.139E-1(e)); (5) clarification of the audit suspension required by section 4(a) of the Act (proposed § 1.139E-1(f)); and (6) the proposed date of applicability of the final regulations ( see proposed § 1.139E-1(g)). The Treasury Department and the IRS will publish final regulations under section 139E after consideration of oral and written comments received in connection with Tribal consultation on these proposed regulations, consideration of any other comments received in response to the proposed regulations, and further consultation with the TTAC, including through the GWE Subcommittee.

Section 139E(a) provides that gross income does not include the value of any Tribal general welfare benefit. Section 139E(b) defines a Tribal general welfare benefit, in relevant part, as any payment made or services provided to or on behalf of a member of a Tribe (or any spouse or dependent of such a member) pursuant to a program that is established by an Indian Tribal government and that satisfies specified requirements. Proposed § 1.139E-1(b) would define an Indian Tribal government, a Tribe, and the individuals, including a Tribal member, spouse, and dependent, who may be determined by the Indian Tribal government to be eligible for a general welfare benefit under section 139E.

Section 139E(c)(1) provides that the term “Indian Tribal government” includes any agencies or instrumentalities of an Indian Tribal government and any Alaska Native regional or village corporation, as defined in, or established pursuant to, the Alaska Native Claims Settlement Act (ANCSA) (43 U.S.C. 1601 et seq. ) (Alaska Native Corporations). Revenue Procedure 2014-35 provides that the term “Indian Tribal government” has the same meaning as in section 7701(a)(40)(A) but for purposes of the revenue procedure includes agencies or instrumentalities of the Indian Tribal government. The TTAC Report and the Tribal Comments did not provide any recommendations on the definition of Indian Tribal government and did not specifically address Alaska Native Corporations.

If used in a provision of the Code and not otherwise distinctly expressed or manifestly incompatible with the intent thereof, section 7701(a)(40)(A) defines the term “Indian Tribal government” to mean the governing body of any Tribe, band, community, village, or group of Indians, or (if applicable) Alaska Natives, which is determined by the Secretary, after consultation with the Secretary of the Interior, to exercise governmental functions. Under the Federally Recognized Indian Tribe List Act of 1994, Public Law 103-454, 108 Stat. 4791 (List Act), the Secretary of the Interior is required to publish annually a list of all Federally-recognized Tribes. In Revenue Procedure 2008-55 (2008-39 I.R.B. 768), after consultation with the Department of Interior (DOI), the Treasury Department and the IRS determined that the Indian Tribal entities that appear on the current or future lists of Federally-recognized Tribes published annually under the List Act by the DOI, Bureau of Indian Affairs, are designated as Indian Tribal governments for purposes of section 7701(a)(40). See 89 FR 944 (January 8, 2024) for the most current list published by the DOI, Bureau of Indian Affairs.

Proposed § 1.139E-1(b)(4) would define the term “Indian Tribal Government” by reference to section 7701(a)(40). In addition, in accordance with section 139E(c)(1), the definition of Indian Tribal government for purposes of proposed § 1.139E-1(b)(4) also would include agencies and instrumentalities of the Indian Tribal government. This definition is consistent with Revenue Procedure 2014-35.

Although the definition of Indian Tribal government under section 139E(c)(1) includes Alaska Native Corporations, these proposed regulations would not include Alaska Native Corporations in the definition of Indian Tribal government for purposes of these rules and instead reserve proposed § 1.139E-2 for the rules to apply section 139E to benefits provided by Alaska Native Corporations. The Treasury Department and the IRS intend on holding consultation before issuing future guidance on issues related to the application of section 139E to benefits provided by Alaska Native Corporations.

Section 139E does not define the term “Indian Tribe,” but section 4(c)(2) of the Act defines it by cross-reference to that term as defined in section 45A(c)(6) of the Code. Revenue Procedure 2014-35 also defines “Indian Tribe” by cross-reference to section 45A(c)(6). The TTAC Report and the Tribal Comments did not provide any recommendations on the definition of “Indian Tribe,” which, for purposes of these proposed regulations, is referred to as simply “Tribe.”

Section 45A relates to the Indian employment credit, which was applicable for taxable years prior to January 1, 2022. Section 45A(c)(6) defines “Indian Tribe” to mean any Indian Tribe, band, nation, pueblo, or other organized group or community, including any Alaska Native village, or regional or village corporation, as defined in, or established pursuant to, ANCSA that is recognized as eligible for the special programs and services provided by the United States to Indians because of their status as Indians.

Proposed § 1.139E-1(b)(7) generally would define “Tribe” using the definition of Indian Tribe in section 45A(c)(6). However, for ease of readability and to prevent confusion arising from citing to an expired Code provision, the proposed regulations would recite the language of section 45A(c)(6) rather than incorporating the definition by cross-reference. As noted, proposed § 1.139E-2 is reserved because the Treasury Department and the IRS intend to issue future guidance under section 139E applicable to benefits provided by Alaska Native Corporations. Accordingly, the proposed regulations would exclude section 45A(c)(6)'s reference to Alaska Native regional and village corporations as defined in and established pursuant to ANCSA for purposes of these rules.

Section 139E(b) provides that a Tribal general welfare benefit means any payment made or services provided to or on behalf of a member of the Tribe (or any spouse or dependent of such a member) pursuant to a program that satisfies specified requirements. Revenue Procedure 2014-35 allows benefits to be provided to a member of the Tribe, as well as a “qualified nonmember,” meaning a spouse, former spouse, legally recognized domestic partner or former domestic partner, ancestor, descendant, or dependent of a member of a Tribe.

The TTAC Report and many Tribal Comments recommend that the proposed regulations provide that individuals eligible for benefits not be limited to Tribal members and their spouses and dependents, instead supporting the use of the more expansive term “qualified nonmember” from Revenue Procedure 2014-35. The TTAC Report and many Tribal Comments state that using this more expansive definition of “qualified nonmember” would be consistent with the House Debate and Senate Colloquy that explain the Act, and that section 139E should be viewed no less favorably than Revenue Procedure 2014-35. Moreover, several Tribal Comments suggest that the language “to or on behalf of” in section 139E(b) is ambiguous and thus supports the proposed regulations adopting the definition of “qualified nonmember” from Revenue Procedure 2014-35. In addition, the TTAC Report explains that depending on Tribal culture, custom, or tradition, a member of a Tribe may have obligations to care for extended family, and that existing Tribal general welfare programs may provide assistance to these extended family members.

The Treasury Department and the IRS have considered the TTAC Report and the Tribal Comments and agree that an expansive definition of eligible individuals is appropriate. Accordingly, proposed § 1.139E-1(b)(8) would define the term “Tribal Program Participant” to mean a Tribal member, spouse of a Tribal member (including a spouse of a Tribal member within the meaning of § 301.7701-18, or a spouse of a Tribal member under applicable Tribal law), dependent of a Tribal member, or other individual who has been determined by the Indian Tribal government to be eligible for a Tribal general welfare benefit because such individual is, with respect to a Tribal member, an ancestor, descendant, former spouse, widow or widower, or legally recognized domestic partner or former domestic partner. This definition is intended to encompass the categories of “qualified nonmember” that are covered by Revenue Procedure 2014-35, with the clarification that a spouse may be a spouse under applicable Tribal law.

The Treasury Department and the IRS note that the phrase “on behalf of” in section 139E(b) does not make the section 139E exclusion applicable to the direct recipient of a payment which was made by the Indian Tribal government “on behalf of” the Tribal program participant. For example, a Tribal program participant who receives a Tribal general welfare benefit from an Indian Tribal government program to provide rental assistance can exclude the payment from the Tribal program participant's gross income under section 139E regardless of whether the assistance is paid directly to the Tribal program participant or paid to the landlord on behalf of the Tribal program participant. In either case, however, section 139E does not apply to permit the landlord to exclude the rental assistance payment from the landlord's gross income.

Section 139E does not define who is a “member of an Indian Tribe” or “Tribal member.” Revenue Procedure 2014-35 defines who is a member of a Tribe by cross-reference to 25 CFR 290.2, which defines a member of a Tribe as an individual who meets the requirements established by applicable Tribal law for enrollment in the Tribe and (1) is listed on the Tribal rolls of that Tribe if such rolls are kept, or (2) is recognized as a member by the Tribal governing body if Tribal rolls are not kept. The TTAC Report and the Tribal Comments did not provide any recommendations on the definition of a member of a Tribe.

Proposed § 1.139E-1(b)(9) would define the term “Tribal Member” in a manner similar to Revenue Procedure 2014-35's definition of “member of an Indian Tribe.” The proposed regulations would adopt the same definition but, for ease of readability, would incorporate the language from 25 CFR 290.2 rather than providing a cross-reference. Thus, the proposed regulations would define “Tribal Member” as an individual who is a member or citizen of the Tribe that establishes or maintains the Indian Tribal government program because the individual meets the requirements established by applicable Tribal law for enrollment in the Tribe and (1) is listed on the Tribal rolls of that Tribe if such rolls are kept, or (2) is recognized as a member by the Tribal governing body if Tribal rolls are not kept. In addition, the Treasury Department and the IRS are aware that some Tribes temporarily close their rolls for enrollment or do not enroll children until they reach a certain age. These Tribes may provide benefits to an individual on the basis that the individual may be eligible for benefits, even though not formally a Tribal member. In particular, Tribes may provide benefits to an Indian child under the Indian Child Welfare Act of 1978, Public Law 95-608, 92 Stat. 3069 (1978), codified at 25 U.S.C. 1903(4). The Indian Child Welfare Act defines “Indian child” as any unmarried person who is under age eighteen and is either (a) a member of a Tribe or (b) is eligible for membership in a Tribe and is the biological child of a member of a Tribe. To ensure that Indian Tribal governments may provide general welfare benefits to an Indian child under section 139E, the proposed regulations also would include in the definition of Tribal member an “Indian child” as defined in 25 U.S.C. 1903.

The Treasury Department and the IRS recognize that an Indian Tribal government generally develops programs with the intention of providing general welfare benefits to or for the benefit of its own Tribal members. The Treasury Department and the IRS interpret section 139E(b) as providing a relationship nexus between the Indian Tribal government providing the general welfare benefit and the individual receiving the benefit. Thus, the proposed regulations would define the term Tribal member to mean a member of the Tribe that establishes or maintains the Indian Tribal government program. However, solely for purposes of the rule in section 139E(c)(5) relating to benefits provided for participation in ceremonial or cultural activities, proposed § 1.139E-1(b)(8)(ii) would provide that the recipient of such benefits may be a member of a Tribe that is different from the Tribe that establishes or maintains the program.

Section 139E does not define the term “spouse,” nor does Revenue Procedure 2014-35. The TTAC Report and the Tribal Comments did not provide any recommendations on the definition of spouse for purposes of section 139E.

Section 301.7701-18(a) of the Procedure and Administration Regulations (26 CFR part 301) provides that, for Federal tax purposes, the term spouse means an individual lawfully married to another individual. Section 301.7701-18(b) generally provides that a marriage of two individuals is recognized for Federal tax purposes if the marriage is recognized by the state, possession, or territory of the United States in which the marriage is entered into, regardless of domicile. Section 301.7701-18(a) does not specifically refer to a marriage recognized under Tribal law because Tribal lands are not states, possessions or territories of the United States or foreign jurisdictions. However, the term “spouse” would include individuals married under Tribal law if the marriage would be recognized under the laws of any state, possession, or territory of the United States. See also 1 U.S.C. 7.

Because § 301.7701-18(a) defines spouse for Federal tax purposes, that definition applies for purposes of section 139E and would apply by default under proposed regulations. However, as noted in part I.C. of this Explanation of Provisions section, the proposed regulations would include in the definition of Tribal program participant the spouse of a Tribal member, as determined under applicable Tribal law, whether or not recognized under § 301.7701-18(a) and 1 U.S.C. 7.

Section 139E(c)(2) defines the term “dependent” to mean a dependent as defined in section 152 of the Code, determined without regard to section 152(b)(1), (b)(2), and (d)(1)(B). Revenue Procedure 2014-35 does not define dependent, and the TTAC Report and the Tribal Comments did not provide any recommendations on the definition of dependent for purposes of section 139E.

Section 152(a) defines dependent to mean an individual who is a qualifying child or qualifying relative of the taxpayer. Section 152(b) provides that an individual who is a qualifying child or a qualifying relative of a taxpayer is not a taxpayer's dependent in certain circumstances. Section 152(b)(1) provides that if an individual is a dependent of a taxpayer, that individual is treated as having no dependents. Section 152(b)(2) provides that, to be a dependent of a taxpayer, an individual must not have filed a joint return with his or her spouse. Section 152(d)(1)(B) provides that qualifying relative does not include an individual whose income is not less than the exemption amount set forth in section 151(d) of the Code. 3 For purposes of section 139E, an individual who for the year is a dependent of a taxpayer who is him or herself a dependent, who files a joint return with the individual's spouse, or whose income is not less than the applicable limit for section 152(d)(1)(B) ($5,050 for 2024) is a dependent of a Tribal member if the other requirements of section 152 are satisfied, pursuant to section 139E(c)(2).

Proposed § 1.139E-1(b)(10) would define the term “dependent” in accordance with the definition in section 139E(c)(2). However, for ease of readability, the proposed regulations would not cite the specific Code sections, but instead would describe the rules for determining who is a dependent under section 152 without regard to section 152(b)(1), (b)(2), and (d)(1)(B).

Under section 139E(b), a benefit is a Tribal general welfare benefit if it meets certain requirements and is provided pursuant to an Indian Tribal government program, but only if the program is administered under specified guidelines and does not discriminate in favor of members of the governing body of the Tribe. Section 139E(c)(4) provides that a program will not fail to be treated as an Indian Tribal government program solely by reason of the program being established by Tribal custom or government practice. Revenue Procedure 2014-35 provides that, to qualify for the safe harbors provided therein, there must be a specific Tribal program, the program must have written guidelines specifying how an individual qualifies for the benefit, and the program cannot discriminate in favor of members of the governing body.

Some Tribal Comments suggest that programs established by Tribal custom or government practice without written documentation (that is, programs established under oral and unwritten customs or traditions) should satisfy the statutory requirement in section 139E(b)(1) that the program be administered under specified guidelines. These Tribal Comments recommend that the proposed regulations allow Indian Tribal governments to demonstrate the existence of “specified guidelines” for these programs through statements, affidavits, or declarations that describe how the Tribe has operated the program in the past. Other Tribal Comments argue that section 139E(b)(1) neither specifies who establishes the “specified guidelines” nor defines the term “specified,” and that the proposed regulations should presume that a program administered by or pursuant to Tribal resolution or other action by a Tribe's governing body is “administered under specified guidelines.” The TTAC Report and the Tribal Comments did not specifically address the requirement that the program not discriminate in favor of members of the governing body.

The Treasury Department and the IRS read section 139E(b) as requiring both that a program be established by an Indian Tribal government, and that the program be administered under specified guidelines. This reading is similar to the requirements in Revenue Procedure 2014-35 that there must be a specific Tribal program, and that the program must have guidelines specifying how an individual qualifies for the benefit. Proposed § 1.139E-1(c) generally would adopt these two requirements and would explain how an Indian Tribal government program can meet these requirements. The proposed regulations also would address the requirement that the program not discriminate in favor of members of the governing body.

Proposed § 1.139E-1(c)(2) would provide that a program must be established by an Indian Tribal government and that the program may be established by Tribal custom, government practice, or formal action of the Indian Tribal government under applicable Tribal law. The proposed regulations also would provide that to the extent permitted by applicable Tribal law, an Indian Tribal government may delegate authority to establish general welfare programs to a designated individual or entity of the Indian Tribal government.

While an Indian Tribal government may find it helpful to set forth the creation of a program through a written document, the proposed regulations would not specifically require a written document to memorialize the establishment of the program. However, the proposed regulations would refer to applicable Tribal law to determine whether a writing is required for formal actions of the Indian Tribal government. For example, if Tribal law requires all formal actions of the Indian Tribal government to be in writing, then proposed § 1.139E-1(c)(2) would also require the establishment of the program to be in writing. If written documentation of the Indian Tribal government program is not required under Tribal law, and the Indian Tribal government does not provide written documentation of the Indian Tribal government program, the use of affidavits or Indian Tribal government declarations, whether oral or written, may be used to substantiate the establishment of the program. For example, the transcript of the minutes of an Indian Tribal government session that describe the creation of the program may be sufficient to establish an Indian Tribal government program under these proposed regulations.

Proposed § 1.139E-1(c)(3) would provide the requirements for the administration of the program under specified guidelines. In general, the specified guidelines of the program represent the framework for the program's operations. Thus, the proposed regulations would provide that the specified guidelines of the program must include, at a minimum, a description of the program to provide Tribal general welfare benefits, the benefits provided by the program (including how benefits are determined), the eligibility requirements for the program, and the process for receiving benefits under the program.

The Treasury Department and the IRS agree with the TTAC Report and the Tribal Comments that section 139E does not require the specified guidelines of the program to be memorialized in a written document. However, Indian Tribal governments are encouraged to set forth the specified guidelines in writing to assist recipients in determining whether a benefit received under the program is excludable from gross income under section 139E. In particular, recipients of Tribal general welfare benefits who are contacted by the IRS will need to substantiate that the benefit is excludable from gross income under section 139E and may not have any written documentation in their possession to do so. If the Indian Tribal government has documented in writing the specific guidelines of the program, the individual recipient of the benefit may use the written documentation to substantiate that the benefit received is intended to be a Tribal general welfare benefit that is excludable from gross income under section 139E.

In accordance with section 139E(b)(1), proposed § 1.139E-1(c)(4) would provide that one of the requirements for an Indian Tribal government program is that the program not discriminate in favor of members of the governing body of the Tribe (non-discrimination requirement). Proposed § 1.139E-1(c)(4)(i) would generally define a governing body as the legislative body of the Tribe, such as the Tribal Council, or the representative equivalent of the legislative body of the Tribe. However, the Treasury Department and the IRS are aware that the form and membership of the governing body of a Tribe may vary between Tribes. For example, a Tribe may form its governing body to include all Tribal members, known as a general council Tribe. To ensure that a general council Tribe is not prevented from satisfying this requirement, proposed § 1.139E-1(c)(4)(ii) would provide that a program is treated as being in compliance with the non-discrimination requirement if the governing body of the Tribe consists of the entire adult membership of the Tribe.

Proposed § 1.139E-1(c)(4)(iii) would provide a facts and circumstances test to determine whether a program, either by its terms or in its administration, discriminates in favor of members of the governing body of the Tribe. For example, the administration of a program would discriminate in favor of members of the governing body if, based on the facts and circumstances, the benefits provided during the taxable year disproportionately favor members of the governing body of the Tribe because of their status as members of the governing body. Thus, for example, a program established to provide benefits solely to the children of members of the governing body of the Tribe (unless the Tribe is a general council Tribe) and thus defrays costs otherwise borne by members of the governing body would fail to satisfy the non-discrimination requirement.

Section 139E does not provide restrictions on how an Indian Tribal government may fund an Indian Tribal government program. Section 2.03 of Revenue Procedure 2014-35 provides that revenues that the Indian Tribal government derives from levies, taxes, service fees, tribally-owned businesses, or other sources are permissible to fund a Tribal general welfare program.

The TTAC Report and the Tribal Comments argue that the source of funds used for general welfare benefits does not matter for compliance with section 139E. The TTAC Report and the Tribal Comments request that the proposed regulations confirm that the source of funding is irrelevant and, in particular, that a Tribe's gaming revenues may be used to fund Tribal general welfare benefits under an Indian Tribal government program.

The Treasury Department and the IRS agree with the TTAC Report and the Tribal Comments that section 139E does not prohibit an Indian Tribal government from funding a general welfare program with net gaming revenues, or revenues from any other particular source. Thus, proposed § 1.139E-1(c)(5) would provide that benefits under the Indian Tribal government program may be funded by any source of revenue or funds, including net gaming revenues. However, an Indian Tribal government is permitted to restrict the source and amount of funds available to provide benefits under an Indian Tribal government program.

Under the Indian Gaming Regulatory Act, 25 U.S.C. 2701-2721 (IGRA), a Federally-recognized Tribe is permitted to engage in gaming activities and provide net gaming revenues to its members. See 25 U.S.C. 2710(b). Section 25 CFR 502.16 defines “net gaming revenue” as gross gaming revenues of an “Indian gaming operation” less: (a) amounts paid out as, or paid for, prizes; and (b) total gaming-related operating expenses, including all those expenses of the gaming operation commonly known as operating expenses and non-operating expenses consistent with professional accounting pronouncements, excluding management fees. IGRA allows Tribes to use their net gaming revenues consistent with one or more of the following purposes: (1) to fund Tribal government operations or programs; (2) to provide for the general welfare of the Tribe or its members; (3) to promote Tribal economic development; (4) to donate to charitable organizations; or (5) to help fund operations of local government.

IGRA also allows Tribes to use their net gaming revenues to distribute per capita payments. See 25 U.S.C. 2710(b)(3). Under 25 CFR 290.2, “per capita payment” means the distribution of money or other thing of value to all members of the Tribe, or to identified groups of members, which is paid directly from the net revenues of any Tribal gaming activity, but does not include payments that have been set aside by a Tribe for special purposes or programs, such as payments made for social welfare, medical assistance, education, housing, or other similar, specifically identified needs.

Under IGRA, a Tribe cannot distribute per capita payments unless it has a Revenue Allocation Plan (RAP) that is approved by the DOI prior to distributing per capita payments. See 25 U.S.C. 2710(b)(3) and 25 CFR 290.11. A Tribe does not need a RAP if no per capita payments are made or planned to be made to its members. See 25 CFR 290.10. Thus, no RAP is required if a Tribe intends to use its gaming revenues solely for special purposes or programs, such as payments made for social welfare, medical assistance, education, housing, or other similar, specifically identified needs. These types of payments are not per capita payments as defined under IGRA.

Section 25 U.S.C. 2710(b)(3)(D) provides that net revenues may be used to make per capita payments to members of the Tribe only if the per capita payments are subject to Federal taxation and Tribes notify members of such tax liability when payments are made. Under section 6041 and § 1.6041-1, the Tribe generally is required to report per capita payments of $600 or more in any taxable year on Form 1099-MISC, Miscellaneous Information.

Section 3402(r)(1) requires every person, including an Indian Tribe, making a payment to a member of an Indian Tribe from the net revenues of any class II or class III gaming activity conducted or licensed by such tribe to deduct and withhold from such payment a tax in an amount equal to such payment's proportionate share of the annualized tax. A payment that constitutes a per capita payment under IGRA is gross income under section 61 and continues to be subject to withholding under section 3402(r)(1) to the extent not otherwise excepted. See 25 U.S.C. 2701-2721 and 25 CFR part 290. These provisions, which are intended to ensure adequate withholding on gross income arising from the distribution of class II and class III gaming activity, are not intended to and do not extend the scope of what is gross income. Thus, withholding under section 3402(r) is not imposed merely by reason of the payment being sourced in class II or class III gaming activities but rather by reason of the payment being gross income and made in the form described in section 3402(r). Accordingly, if a payment is made under an Indian Tribal government program and meets the requirements to qualify as an excludable Tribal general welfare benefit under section 139E and these proposed regulations, then such payment is not subject to the withholding requirements of section 3402(r).

Section 139E does not address IGRA or the Federal tax treatment of per capita payments. Revenue Procedure 2014-35, however, specifically provides that per capita payments are gross income under section 61, and are subject to the information reporting and withholding requirements of sections 6041 and 3402(r). Thus, under the revenue procedure, per capita payments are not excludable from income under the administrative general welfare exclusion.

The TTAC Report argues that a distribution with a general welfare purpose under IGRA should be presumed to be a Tribal general welfare benefit under section 139E and not be treated as a taxable per capita payment under IGRA. In addition, the TTAC Report provides that a Tribe's RAP should be relied upon when determining whether a payment is a per capita payment or a general welfare payment under section 139E. Finally, the TTAC Report states that the IRS should not be allowed to challenge an approved RAP with respect to any perceived conflict with IGRA and section 139E. Rather, the TTAC Report argues, the IRS must engage in consultation with the Tribe to resolve the perceived conflict. Finally, the TTAC Report requests that any enforcement by the IRS contrary to the RAP be prospective only, and that Tribes be given time to amend their RAPs with the DOI.

Some Tribal Comments argue that IGRA makes clear that not all equal distributions of gaming revenue are necessarily “per capita payments” to the extent that they are set aside for social welfare, medical assistance, education, housing, or similar purposes. Some Tribal Comments recommend that the proposed regulations focus on the purpose and methodology used to calculate the distributions, rather than the source of the funding or the value of the benefit. Finally, some Tribal Comments request that the IRS defer to a Tribe's RAP and not recharacterize general welfare payments as per capita payments.

The Treasury Department and the IRS are of the view that IGRA defines per capita payments and provides that those payments are includible in gross income for Federal income tax purposes. However, the Treasury Department and the IRS agree with the TTAC Report and the Tribal Comments noting that IGRA distinguishes between taxable per capita payments and other types of payments, such as general welfare payments. The Treasury Department and the IRS also are of the view that Indian Tribal governments are in the best position to determine whether net gaming revenues should be used to fund per capita payments or general welfare payments.

The Treasury Department and the IRS do not agree with the TTAC Report that a distribution with a general welfare purpose under IGRA should be presumed to be a Tribal general welfare benefit under section 139E. Even if a payment is treated as having a general welfare purpose under IGRA, as designated in a RAP or otherwise, that purpose, by itself, is not sufficient to conclude that the payment is excludable from gross income under section 139E. Instead, the Indian Tribal government program must satisfy the requirements of section 139E (or other exclusion provision) for the payment to be excluded from the recipient's gross income.

Accordingly, proposed § 1.139E-1(c)(5)(ii) would provide that benefits under the Indian Tribal government program may be funded by net gaming revenues as permitted under IGRA. However, per capita payments, as defined under IGRA, are subject to Federal taxation under IGRA and are not excludable from gross income under section 139E or these proposed regulations. Proposed § 1.139E-1(c)(5)(ii) would further provide that, for purposes of section 139E and the proposed regulations, a payment is a per capita payment if it is identified by the Indian Tribal government as a per capita payment in a RAP that is approved by the DOI. This language is intended to mean that, if the Indian Tribal government has an approved RAP, the provisions of the RAP determine whether a payment is a per capita payment for purposes of Federal income taxation. In contrast, if the Indian Tribal government does not have a RAP, the determination of the Indian Tribal government that payments are not per capita payments is controlling for Federal income tax purposes. Whether or not the Indian Tribal government has a RAP, deference will be given to the Indian Tribal government's determination of whether net gaming revenues are being used to make payments. The DOI is the Federal agency with sole authority to approve the use of net gaming revenues by an Indian Tribal government, including whether per capita payments may be made under a RAP.

In drafting these proposed regulations, the Treasury Department and the IRS have considered recent litigation addressing per capita payments made by one Tribe to its members. In United States v. Jim, 891 F.3d 1242 (2018), the 11th Circuit affirmed the district court's conclusion that section 139E did not apply to exclude per capita payments from a Tribal member's gross income. The court held that per capita payments are taxable under IGRA, a specific statute addressing Tribal net gaming revenues. The court also held that section 139E, a more general statute, does not control or nullify IGRA. The Treasury Department and the IRS agree that section 139E does not control or nullify IGRA, and that per capita payments under IGRA cannot be excluded from gross income under section 139E. However, as noted in parts II.D and III.A.3 of this Explanation of Provisions, there is no prohibition in section 139E on Tribal general welfare benefits being paid from net gaming revenues, nor is there is a prohibition on Tribal general welfare benefits being paid in equal amounts to Tribal members. Thus, an Indian Tribal government may use net gaming revenues to provide benefits, whether or not uniform, to Tribal members. Further, those benefits may be excluded from gross income as Tribal general welfare benefits if (1) they are not designated, including under a RAP, as per capita payments by the Indian Tribal government, and (2) they otherwise meet the requirements in section 139E. For example, to be an excludable Tribal general welfare benefit, the benefit cannot be lavish or extravagant and must be provided under a program that is established by the Indian Tribal government and administered under specified guidelines.

Under section 139E(b), benefits provided under an Indian Tribal government program are Tribal general welfare benefits only if the benefits (1) are for the promotion of general welfare; (2) are available to any Tribal member who meets the guidelines; (3) are not lavish or extravagant; and (4) are not compensation for services. Proposed § 1.139E-1(d) would describe each of these requirements.

Section 139E(b)(2)(B) requires that a benefit provided under an Indian Tribal government program be for the promotion of general welfare but does not define “promotion of general welfare.” The TTAC Report recommends that promotion of general welfare should be presumed when the Indian Tribal government can substantiate that the benefit meets general welfare needs or purpose, and the method of distributing the benefit is expected to achieve program goals. Further, the TTAC Report states that an Indian Tribal government may substantiate that benefits meet general welfare needs or purposes by relying on data or studies corroborating the expenses. In addition, the TTAC Report recommends that an Indian Tribal government may show that the method of distribution is expected to achieve program goals by establishing Indian Tribal government-approved verification procedures such as direct pay arrangements, applications in which recipients agree to specified program requirements, or end-of-year certifications. Finally, the TTAC Report states that Indian Tribal governments must be afforded flexibility with regard to substantiating expenses that relate to Tribal cultural traditions, religious expenses, or historical need (such as benefits paid to elders to make up for historic economic deprivation and shorter life expectancy).

Many Tribal Comments request that deference be given to Tribes and Indian Tribal governments on whether the types and amounts of benefits are for the promotion of general welfare. These Tribal Comments state that the Indian Tribal government is best suited to address the unique needs of its members, with many insisting that such discretion should be unfettered. The Tribal Comments noted that many programs may not reflect how the Treasury Department and the IRS would traditionally view general welfare, including benefits such as wellness centers, health coaches, and access to dieticians.

Other Tribal Comments state that an official determination by the Indian Tribal government, such as a Tribal resolution or other formal action, should be sufficient to demonstrate that a benefit or program is for the promotion of general welfare. With respect to benefits provided, some Tribal Comments request that the regulations defer to Indian Tribal governments on determining whether benefits provided to Tribal members are considered “for the promotion of general welfare,” particularly when the Indian Tribal government relies on its own data or other empirical data (for example, private studies, or based on Federal or state statistics). Many Tribal Comments argue that the Treasury Department and the IRS should avoid listing specific criteria required for a benefit to satisfy the promotion of general welfare requirement.

The Treasury Department and the IRS agree with the TTAC Report and the Tribal Comments that deference should be given to the Indian Tribal government in determining whether a benefit is for the promotion of the general welfare of its Tribal members or other eligible individuals. The Indian Tribal government is in the best position to determine which general welfare benefits are best suited to meet the needs of its Tribal members and other eligible individuals. As a result, these proposed regulations would not define the term “for the promotion of general welfare” or specifically provide requirements that a benefit must meet in order to satisfy section 139E(b)(2)(B). Instead, proposed § 1.139E-1(d)(2) would provide deference to the Indian Tribal government to determine, at the time the program is established, whether a benefit is for the promotion of general welfare of its Tribal members or other eligible individuals. Proposed § 1.139E-1(d)(2) would provide further that an Indian Tribal Government has sole discretion to determine whether a benefit is for the promotion of general welfare and that the IRS will defer to the Indian Tribal Government's determination that a benefit is for the promotion of general welfare. These proposed rules would be consistent with the specific language in section 2(c) of the Act, which requires that deference be given to Indian Tribal governments for the programs administered and authorized by the Tribe to benefit the general welfare of the Tribal community.

The administrative general welfare exclusion requires that payments be for the promotion of general welfare, which the IRS has interpreted to require a showing of individual or family need, notably financial need. This interpretation generally applies regardless of whether the benefits are provided by a Federal, State, or local government or by an Indian Tribal government. However, Revenue Procedure 2014-35 provides that the individual need criterion of the administrative general welfare exclusion is presumed to be met for certain benefits provided under an Indian Tribal government program. Section 139E(b)(2)(B) requires that a benefit be for the promotion of general welfare but does not specifically define that term nor mention whether it incorporates a needs-based requirement.

The TTAC Report and majority of the Tribal Comments contend that the proposed regulations should not incorporate a needs-based requirement for the promotion of general welfare requirement in section 139E(b). The Tribal Comments note that section 139E is silent on an individual need requirement. Also, the Tribal Comments point to the language in Revenue Procedure 2014-35, which conclusively presumed individual need was satisfied, as support for not including a requirement for the showing of individual need in section 139E.

As noted in part III.A.1 of this Explanation of Provisions, proposed § 1.139E-1(d)(2) would provide that an Indian Tribal Government has sole discretion to determine whether a benefit is for the promotion of general welfare and that the IRS will defer to the Indian Tribal Government's determination that a benefit is for the promotion of general welfare. Consistent with this approach, Indian Tribal Governments thus would have sole discretion as to whether to consider individual need or not in designing a general welfare program. In addition, the Treasury Department and the IRS agree with the TTAC Report and the Tribal Comments that section 139E was intended by Congress to generally codify Revenue Procedure 2014-35, which conclusively presumed that individual need was satisfied if the program met certain requirements. This conclusion is also consistent with the legislative history of section 139E. See House Debate, at H7601 (Representative Devin Nunes stating “that the IRS will not interpret the statute as requiring individualized determinations of financial need where a tribal government has established a program consistent with the statute”); see also Senate Colloquy, at S5686 (Senator Jerry Moran asking Senator Ron Wyden, and Senator Wyden agreeing, that the IRS will “in no event require an individualized determination of financial need” if a Tribal program meets the other requirements of section 139E).

Accordingly, proposed § 1.139E-1(d)(2) specifically states that Tribal general welfare benefits may be provided without regard to the financial or other need of Tribal program participants. However, Indian Tribal governments have broad discretion to establish and administer general welfare programs and may choose to limit a program or its benefits to Tribal program participants based on a showing of individual need.

Section 139E does not address whether Tribal general welfare benefits may be provided to recipients in equal amounts. However, in considering the enactment of section 139E, Representative Nunes expressed an intent that section 139E apply to pro rata payments. In addressing the IRS's frequent insistence that Tribal benefits be based on a stipulation based on individualized financial need, he stated, “This stipulation prevents the general welfare exclusion from covering programs designed to provide substantially equal benefits to all qualifying members of a tribe or to provide benefits based on determinations of needs that are not financial in nature.” See House Debate, at H7601. Revenue Procedure 2014-35 does not directly address this issue of whether general welfare benefits under its safe harbors could be provided equally to all eligible individuals, but states that per capita payments to Tribal members of Tribal gaming revenues that are subject to IGRA are gross income under section 61, are subject to the information reporting and withholding requirements of sections 6041 and 3402(r), and are not excludable from gross income.

The TTAC Report correctly notes that section 139E does not prohibit general welfare benefits from being distributed in uniform amounts. The Tribal Comments recommend that the Treasury Department and the IRS defer to Tribes in determining whether pro rata payments (that is, uniform payments to each recipient) are appropriate. In general, several Tribal Comments, when referring to net gaming revenues under IGRA, argue that IGRA does not treat all pro rata payments as taxable, but instead looks to the purpose and methodology used to calculate the payments. 4 The Tribal Comments also request that the proposed regulations permit pro rata payments under an Indian Tribal government program, as several Tribal Comments emphasized that distributing benefits in equal amounts is often the most efficient method to provide benefits, such as for health and wellness and broadband internet access.

The Treasury Department and the IRS agree with the TTAC Report and the Tribal Comments that section 139E does not prohibit an Indian Tribal government program from providing Tribal general welfare benefits to recipients in equal amounts. Accordingly, proposed § 1.139E-1(d)(2) would provide that Tribal general welfare benefits may be provided on a uniform or pro-rata basis to Tribal program participants.

The TTAC Report and the Tribal Comments recommend clarification on whether payment of benefits for disaster relief and similar assistance qualify under section 139E. In addition, both the TTAC Report and many Tribal Comments request that an Indian Tribal government disaster declaration qualify to establish the existence of a disaster for purposes of identifying relief payments under section 139E.

Section 139 generally provides an exclusion from gross income for qualified disaster relief payments. Qualified disaster relief payments generally include certain amounts paid to or for the benefit of an individual in connection with a qualified disaster, including a Federally declared disaster. Specifically, section 139(b)(4) includes as a qualified disaster relief payment an amount paid by a Federal, State, or local government, or agency or instrumentality thereof, in connection with a qualified disaster in order to promote the general welfare. Section 139(b)(4) was enacted to codify the administrative general welfare exclusion for certain disaster relief payments, but does not supplant it. See Notice 2002-76 (2002-2 C.B. 917). Thus, benefits paid by Indian Tribal governments to individuals affected by a disaster may be excluded from the individuals' gross income if the requirements of the administrative general welfare exclusion are met. Similarly, these disaster relief benefits may be excluded from gross income if they qualify as Tribal general welfare benefits under section 139E.

The Treasury Department and the IRS recognize that Indian Tribal governments have broad discretion to provide benefits to individuals who are affected by a disaster or other emergency situation that does not meet the requirements of a qualified disaster under section 139. Thus, proposed § 1.139E-1(d)(2) would include as a permissible general welfare purpose “assistance for disasters or emergency situations.” The Indian Tribal government need not make a specific Tribal disaster declaration.

In addition, the TTAC Report requests that the proposed regulations specifically provide that wellness and health-related programs may be Tribal general welfare benefits. The TTAC Report acknowledges that section 139D applies to certain health care expenses but requests clarification that section 139E operates independent of, and is not limited by, section 139D of the Code. In particular, the concern is that wellness and health-related programs may not fall within the section 139D exclusion.

Section 139D generally provides an exclusion from gross income for any qualified Indian health care benefit. Qualified Indian health care benefits include medical care provided by an Indian Tribe or Tribal organization, or coverage under insurance or a plan provided by an Indian Tribe or Tribal organization for medical care. See section 139D(b)(2)-(4). For purposes of section 139D, “medical care” has the same meaning as when used in section 213 of the Code. Amounts paid for benefits that are merely beneficial to the general health of an individual, such as certain wellness and health-related programs, as well as care by an unlicensed spouse or relative, are not amounts paid for medical care and thus are not excluded under section 139D. See section 213(d) and § 1.213-1(e)(1)(ii).

The Treasury Department and the IRS agree that section 139E operates independently of, and is not limited by, section 139D. Thus, in accordance with the deference provided to Indian Tribal Governments in proposed § 1.139E-1(d)(2), an Indian Tribal Government may determine that wellness and health-related programs are for the promotion of general welfare under section 139E.

Section 139E(b)(2) provides, in relevant part, that a benefit provided under the program must be available to any Tribal member who meets the specified guidelines of the program. Revenue Procedure 2014-35 requires that the benefit be available to any eligible individual who satisfies the program guidelines, subject to budgetary constraints. The TTAC Report and the Tribal Comments do not specifically address this requirement.

The Treasury Department and the IRS have determined that this requirement should be interpreted in a manner similar to Revenue Procedure 2014-35. Thus, proposed § 1.139E-1(d)(3) would provide that a benefit under the Indian Tribal government program must be available to any Tribal program participant who meets the specified guidelines of the program, subject to budgetary constraints.

Section 139E(b)(2) provides, in relevant part, that benefits provided under the program cannot be lavish or extravagant. Section 139E(c)(3) provides that the Secretary, in consultation with the TTAC, must establish guidelines for what constitutes lavish or extravagant benefits with respect to Indian Tribal government programs. The Treasury Department and the IRS have consulted with the TTAC during the drafting of these proposed regulations. In addition, the Treasury Department and the IRS will hold Tribal consultation before finalizing the proposed regulations.

Like section 139E, Revenue Procedure 2014-35 prohibits benefits that are lavish or extravagant. It does not define “lavish or extravagant” but does provide that the benefits cannot be “lavish or extravagant under the facts and circumstances.”

The TTAC Report recommends that the term “lavish or extravagant” be defined as a relative term that depends on the unique circumstances of the Tribe, and also depends on the type of benefit being provided (such as, one-time payment or monthly assistance). The TTAC Report sets forth a non-exclusive list of circumstances that should be considered when determining if a benefit is lavish or extravagant: an Indian Tribal government's economic circumstances or factors, culture and cultural practices, history, geographic area, traditions, and resources. The TTAC Report recommends deference to Indian Tribal governments and proposes a rebuttable presumption that the benefit is not lavish or extravagant if the Indian Tribal government program meets general welfare needs or purposes, and the method of distribution is expected to achieve program goals.

Several Tribal Comments recommend that the proposed regulations defer to the Tribes or their Indian Tribal governments for determining whether a benefit is lavish or extravagant. Most Tribal Comments provide that the term is relative and depends on the unique circumstances of each Tribe and the type of benefit provided. Some Tribal Comments recommend deference to an Indian Tribal government's definition of lavish or extravagant as established by official actions, such as Tribal ordinances, resolutions, and policies. In addition, some Tribal Comments propose that a facts and circumstances standard, similar to Revenue Procedure 2014-35, be applied to define lavish or extravagant. Under such a standard, a benefit would not be lavish or extravagant if based upon a particular Tribe's political, socio-economic and cultural facts and circumstances as determined by that Tribe. Some Tribal Comments argue that the definition should be subject to the Tribal canon, as opposed to the traditional canons of statutory construction, and that any ambiguity be construed in favor of the Tribe.

Some Tribal Comments describe what the proposed regulations should not do when defining lavish or extravagant. For example, some Tribal Comments urge that the proposed regulations should define lavish or extravagant in a way that targets egregious abuse but otherwise does not affect Indian Tribal government programs that are designed and administered in good faith. Other Tribal Comments suggest that the term lavish or extravagant not be defined by reference to dollar amounts, and specifically highlighted cost of living variations (for example, geographic differences). Some Tribal Comments emphasize that the proposed regulations should not use examples that may suggest limitations on the eligibility of program benefits. Specifically, these commenters suggest that it would be more helpful to include examples of benefits that are not considered lavish or extravagant. Finally, some Tribal Comments argue that the Treasury Department and the IRS should not refer to other Code provisions for guidance on interpreting the phrase “lavish or extravagant” under section 139E.

The Treasury Department and the IRS generally agree with the TTAC Report and the Tribal Comments. Accordingly, proposed § 1.139E-1(d)(4) would provide a facts and circumstances test to determine whether a Tribal general welfare benefit is lavish or extravagant under section 139E. Under proposed § 1.139E-1(d)(4), whether a benefit is lavish or extravagant would be based on the facts and circumstances at the time the benefit is provided. Relevant facts and circumstances would include a Tribe's culture and cultural practices, history, geographic area, traditions, resources, and economic conditions or factors. A facts and circumstances test is consistent with Revenue Procedure 2014-35, as well as the TTAC Report and the Tribal Comments suggesting that the Tribe's unique circumstances should be considered when evaluating whether the Indian Tribal government determined a Tribal general welfare benefit to be lavish or extravagant at the time the benefit is provided. However, proposed § 1.139E-1(d)(4) also would provide a presumption that a benefit is not lavish or extravagant if it is described in, and provided in accordance with, the written specified guidelines of the Indian Tribal government program.

The TTAC Report and some Tribal Comments mention that the frequency of benefit (for example, lump sum or monthly payment) should be considered when evaluating whether a program's benefit is lavish or extravagant. The Treasury Department and the IRS agree that the frequency of payment should be considered when determining whether a Tribal general welfare benefit is lavish or extravagant. Under a facts and circumstances test, an Indian Tribal government may establish a program that provides the types of benefits, including frequency of payment, that best meet the needs of its Tribal members.

Section 139E(b)(2)(D) provides that a Tribal general welfare benefit paid under an Indian Tribal government program cannot be compensation for services, with exceptions discussed in part IV of this Explanation of Provisions. 5 Section 139E(b)(2)(D) does not provide a specific definition for the term compensation for services for purposes of section 139E. Revenue Procedure 2014-35 also provides that benefits under the safe harbors cannot be compensation for services but does not specifically define compensation for services. The prohibition on compensation for services is a long-standing core principle of the administrative general welfare exclusion. See Revenue Ruling 75-246 (1975-1 C.B. 24).

The TTAC Report acknowledges that section 139E prohibits compensation for services from being treated as Tribal general welfare benefits. The TTAC Report and the Tribal Comments do not recommend a specific definition of compensation for services, but the TTAC Report recommends that the proposed regulations confirm that (1) a benefit in connection with Tribal custom or tradition regarding community service is not compensation for services; (2) compensation for services does not include cultural or ceremonial gifts and payments, as determined by the Tribe; and (3) payments as part of training programs are not compensation for services. Similar to this third issue, one Tribal Comment argues that on-the-job training, apprenticeships, and other classes for job skills for which participants receive payment should not be treated as compensation for services. Finally, one Tribal Comment argues that the rule in section 139E(b)(2)(D) should be read narrowly to cover services that are traditionally provided under an employment or contracted-vendor relationship.

The first two issues raised in the TTAC Report overlap with the rules in section 139E(c)(5), which provides that certain benefits provided for participation in cultural or ceremonial activities are not treated as compensation for services. These issues from the TTAC Report are addressed in part IV of this Explanation of Provisions. The third issue, relating to whether payments made to individuals in various types of training programs are compensation for services, is addressed under section 61 and current law relating to gross income generally.

Section 61(a) generally provides that, except as otherwise provided in the Code, gross income means all income from whatever source derived, and this includes compensation for services, including fees, commissions, fringe benefits, and similar items, whether paid in money or property. Section 1.61-2(a)(1) of the Income Tax Regulations provides additional examples of payments that are included in gross income because they are compensation for services, such as wages, salaries, and commissions paid salesmen. However, compensation for services also includes amounts that are not paid in an employment or contracted-vendor relationship. Thus, the proposed regulations do not adopt the Tribal Comment arguing that compensation for services should be read narrowly to cover only services that are traditionally provided under an employment or contracted-vendor relationship.

In the context of training, apprenticeships, and other skills training programs, existing IRS guidance on the administrative general welfare exclusion provides assistance on how to distinguish whether a payment is a general welfare payment or is compensation for services. See Revenue Ruling 63-136 (1963-2 C.B. 19) (excluding from income the payments for on-the-job career training or retraining where such payments are “intended to aid the recipients in their efforts to acquire new skills that would enable them to obtain better employment opportunities”); Revenue Ruling 65-139 (1965-1 C.B. 31) (as clarified by Revenue Ruling 66-240 (1966-2 C.B. 19)). In general, the determination as to whether payments under training programs are includible in a participant's gross income rests on whether the activity for which the payments are received is in exchange for the performance of services (compensation for services) or is for participation in a training program that promotes the general welfare (general welfare payment). Revenue Ruling 75-246 (1975-1 C.B. 24).

Because existing guidance addresses the long-standing distinction between compensation for services and general welfare payments, the Treasury Department and the IRS have determined that the proposed regulations should define compensation for services by reference to current law. Thus, proposed § 1.139E-1(d)(5) would define the term compensation for services by referring to the rules in section 61(a). These rules encompass all the regulations and other IRS guidance under section 61(a) that interpret the meaning of compensation for services.

As noted in part III.D. of this Explanation of Provisions, section 139E(b)(2)(D) generally provides that a Tribal general welfare benefit cannot be compensation for services. However, section 139E(c)(5) contains an exception to that general rule and provides that any items of cultural significance, reimbursement of costs, or cash honorarium for participation in cultural or ceremonial activities for the transmission of Tribal culture will not be treated as compensation for services. Accordingly, such items may, if the other requirements of section 139E are satisfied, be Tribal general welfare benefits that are excluded from gross income.

Revenue Procedure 2014-35 contains a similar exception. Specifically, section 5.03 of the revenue procedure provides that the safe harbors apply to “benefits provided under an Indian Tribal governmental program that are items of cultural significance that are not lavish or extravagant under the facts and circumstances, or nominal cash honoraria provided to religious or spiritual officials or leaders . . . to recognize their participation in cultural, religious, and social events.”

The exception in section 139E(c)(5) applies only if specific benefits are “for participation in cultural or ceremonial activities for the transmission of tribal culture.” Revenue Procedure 2014-35 contains a similar exception, but that exception is limited to specific benefits “provided to religious or spiritual officials or leaders (including but not limited to medicine men, medicine women, and shamans) to recognize their participation in cultural, religious, and social events (including but not limited to pow-wows [sic], rite of passage ceremonies, funerals, wakes, burials, other bereavement events, and honoring events).” As the TTAC Report points out, Revenue Procedure 2014-35 refers only to event participation by religious or spiritual leaders and does not describe larger Indian Tribal-wide cultural, ceremonial, and community service general welfare programs. The TTAC Report recommends that the proposed regulations provide that the IRS must defer to Tribal determinations on what it means to participate in cultural or ceremonial activities for the transmission of Tribal culture. Some Tribal Comments request that the exclusion apply to attendance at Tribal gatherings and participation in community service or tribal meetings. Some Tribal Comments provide examples of services that should not be considered compensation for services, such as blessings provided by Tribal members, preparation of traditional foods at events, support for sponsoring Tribal events, and the activities of traditional healers performed at or for official Tribal events like ceremonial or traditional gatherings. Finally, some Tribal Comments state that the proposed regulations should apply the section 139E(c)(5) exception to services that are traditionally provided through employment or contracted-vendor arrangements.

The Treasury Department and the IRS recognize that the language in section 139E(c)(5) is broader than Revenue Procedure 2014-35 in that the section 139E(c)(5) exception is not limited to religious or spiritual officials or leaders. The Treasury Department and the IRS also agree with the TTAC Report that Tribes are in the best position to determine what it means to participate in cultural or ceremonial activities for the transmission of Tribal culture. Thus, proposed § 1.139E-1(e) would provide that the Indian Tribal government determines what it means to participate in cultural or ceremonial activities for the transmission of Tribal culture and would include the list of examples from Revenue Procedure 2014-35 (powwows, rite of passage ceremonies, funerals, wakes, burials, other bereavement events, and honoring events). It would further provide that the IRS will defer to the Indian Tribal government's determination of whether an activity is a cultural or ceremonial activity for the transmission of Tribal culture.

The Treasury Department and the IRS do not agree with the Tribal Comments stating that the exception in section 139E(c)(5) broadly applies to services that are traditionally provided under an employment or contracted-vendor relationship because section 139E is an exclusion from gross income for individuals and families, not businesses. For example, a corporation owned by a Tribal member that contracts with the Indian Tribal government to cater a Tribal ceremony is not within the section 139E(c)(5) exception. In this case, any payment received by the corporation from the Tribe to provide catered food at a Tribal ceremony is business income. However, a Tribal member that volunteers to make traditional foods for a Tribal ceremony and receives an item of cultural significance, cash honorarium, or reimbursement of costs is within the exception of section 139E(c)(5).

Section 139E(c)(5) provides, in part, that “items of cultural significance” that are provided for participation in cultural or ceremonial activities for the transmission of Tribal culture are not treated as compensation for services. Revenue Procedure 2014-35 also contains an exception for items of cultural significance that are not lavish or extravagant under the facts and circumstances. The term “items of cultural significance” is not defined in section 139E or in Revenue Procedure 2014-35. The TTAC Report and the Tribal Comments recommend that deference should be given to Indian Tribal governments and Tribes to determine what are items of cultural significance for their Tribe. One Tribal Comment provides a list of examples of items with cultural significance, including blankets, cash, food, regalia items, fabric, beads, drums, pelts, feathers, artwork, baskets, clothing, household items, tobacco, gift cards, animals, and vehicles.

The Treasury Department and the IRS agree that Indian Tribal governments are in the best position to determine items of cultural significance. Thus, proposed § 1.139E-1(e)(2) would provide that the Indian Tribal government determines items of cultural significance and that the IRS will defer to the Indian Tribal government's determination. Unlike the similar rule in Revenue Procedure 2014-35, the proposed regulations would not limit the items of cultural significance to those that are not lavish or extravagant. However, the prohibition on lavish or extravagant benefits in proposed § 1.139E-1(d)(4) would apply broadly to all Tribal general welfare benefits, including those that are provided under section 139E(c)(5) for participation in cultural or ceremonial activities. In addition, the Treasury Department and the IRS do not view cash, gift cards, or vehicles themselves as items with cultural significance, although such items may be used to reimburse costs for participation in cultural or ceremonial activities without being considered compensation for services.

Section 139E(c)(5) provides, in part, that cash honoraria provided for participation in cultural or ceremonial activities for the transmission of Tribal culture is not treated as compensation for services. Revenue Procedure 2014-35 contains a similar exception, although it is limited to nominal cash honoraria. The term “cash honoraria” is not defined in section 139E or in Revenue Procedure 2014-35. The TTAC Report and the Tribal Comments request that the proposed regulations recognize Congress's decision to eliminate the qualifier that honoraria be “nominal” and provide that a Tribe's determination of the proper amount of the honorarium should be presumed to be reasonable and fair.

The Treasury Department and the IRS agree with the TTAC Report and the Tribal Comments that section 139E is broader than Revenue Procedure 2014-35 by not limiting the exception to the compensation for services requirement to nominal cash honoraria. Thus, proposed § 1.139E-1(e) would not provide that the compensation for services exception in section 139E(c)(5) is limited to nominal cash honoraria.

Section 139E(c)(5) provides, in part, that reimbursement of costs provided for participation in cultural or ceremonial activities for the transmission of Tribal culture is not treated as compensation for services. Revenue Procedure 2014-35 does not contain a similar exception. Section 139E(c)(5) does not define the term “reimbursement of costs.” However, the Treasury Department and the IRS expect that the usual usage of the term applies for purposes of section 139E. Thus, the reimbursement of costs generally would include amounts paid by the Indian Tribal government to an individual to reimburse specific amounts paid by the individual to participate in the cultural or ceremonial activity.

As noted in part I.D. of this Explanation of Provisions, the proposed regulations generally would define the term Tribal member to mean a member of the Tribe that establishes or maintains the Indian Tribal government program. Some Tribal Comments highlight that some Tribes may provide benefits to individuals who are Tribal members of a different Tribe than the one establishing the general welfare program. For example, an Indian Tribal government may provide benefits to a cultural, spiritual, or ceremonial leader of another Tribe who teaches shared Tribal cultural practices or ceremonial functions.

The Treasury Department and the IRS agree that, solely for purposes of the exception in section 139E(c)(5) relating to benefits provided for participation in ceremonial or cultural activities, the recipient may be a member of a Tribe that is different from the Tribe that establishes or maintains the program. Thus, proposed § 1.139E-1(b)(8)(ii) would provide that, solely for purposes of proposed § 1.139E-1(e), the definition of Tribal program participant may include a member of a Tribe that is different from the Tribe that establishes the Indian Tribal government program and provides the Tribal general welfare benefit. For example, if a cultural leader from one Tribe performs at another Tribe's powwow, a cash honorarium given to the cultural leader is not compensation for services under section 139E(c)(5).

The TTAC Report requests that the proposed regulations provide that individual need be presumed for all Tribal general welfare benefits that meet the requirements of section 139E. Moreover, the TTAC Report and many Tribal Comments request that the Treasury Department and the IRS coordinate with other Federal agencies, including the Social Security Administration, to ensure that Tribal general welfare benefits are not treated as income or a disqualifying resource for purposes of program eligibility, such as supplemental security income benefits under 42 U.S.C. 1381 et seq.

The Treasury Department and the IRS have authority to interpret and provide rules under section 139E to determine whether a benefit is excludible from gross income for Federal income tax purposes. However, the issue of whether a Tribal general welfare benefit is taken into account for purposes of determining other Federal benefits is outside the authority of the Treasury Department and the IRS, and therefore beyond the scope of these proposed regulations. The Treasury Department and the IRS are willing to work with the TTAC and Tribes to confer with other Federal agencies and provide advice on how the Federal tax law applies to Tribal general welfare benefits.

The TTAC Report requests that the proposed regulations provide that grants to establish or expand Indian-owned enterprises are excludible from gross income under section 139E. The TTAC Report cites Revenue Ruling 77-77 (1977-1 C.B. 11), for the proposition that non-reimbursable grants made under the Indian Financing Act of 1974 to Indians to expand profit-making Indian-owned economic enterprises on or near reservations are excludable from gross income under the administrative general welfare exclusion. The TTAC Report also requests that the guidance clarify that “expanding” a business includes assistance to help a business remain in operation or recover from losses, and also to allow the Tribe to be able to determine what it means to be an Indian-owned enterprise. One Tribal Comment also requests that grants for establishing and assisting Indian-owned enterprises should be excluded from gross income.

The administrative general welfare exclusion generally does not apply to payments made to businesses, including sole proprietors. Instead, the exclusion is intended to address benefits that promote the general welfare of families and individuals. See also Revenue Procedure 2014-35, which applies only to individuals and not to businesses. Section 139E also applies only to individuals and not to businesses. Thus, these proposed regulations do not address grants to Indian-owned enterprises. However, these proposed regulations do not affect the validity of Revenue Ruling 77-77, which provides a limited exception to the rule that the administrative general welfare doctrine does not apply to businesses. Under that revenue ruling, a grant made by an Indian Tribal government to a Tribal member to expand an Indian-owned business on or near a reservation is excluded from the Tribal member's gross income under the administrative general welfare exclusion.

The TTAC Report states that an Indian Tribal government program may distribute general welfare benefits from trust arrangements, including payments that are set aside for the health, education, and welfare of trust beneficiaries under IGRA. The TTAC Report recommends that the proposed regulations provide that the determination of whether a payment is a general welfare benefit is made at the time the trust distributes the payment to the beneficiary from the trust. Some Tribal Comments asked that the proposed regulations expressly recognize that health, education, and welfare payments under a minor's trust can be structured in a way to qualify payments for exclusion under section 139E.

The TTAC Report requests that the proposed regulations provide that an Indian Tribal government program may permit Tribal members and other recipients to defer and accumulate benefits for future payment. The TTAC Report suggests that if the amount is not lavish or extravagant at the time the beneficiary defers receipt of the payment, then section 139E is satisfied at the time the Indian Tribal government distributes the funds to the beneficiary. The TTAC Report also recommends that section 139E not be limited by constructive receipt and economic benefit restrictions on the deferral of taxable income or benefits. Many Tribal Comments support the TTAC Report on the issue of deferred benefits, and request that the proposed regulations provide examples of deferred benefits.

Section 139E does not specifically address trust arrangements or deferred benefits. Section 139E addresses whether a benefit that is generally includible in gross income under section 61 may be excluded from gross income under section 139E. It does not address the taxable year in which a benefit may be includible in gross income, in particular if a benefit is put into a trust or its receipt is deferred through some other arrangement. Most individuals use the cash receipts and disbursements method of accounting, which incorporates numerous rules addressing when amounts must be included in gross income. Those rules generally apply in determining when a benefit must be included in the gross income and include the concepts of constructive receipt and economic benefit. In addition, there is existing authority addressing trusts under IGRA that is not affected by these proposed regulations. See Revenue Procedure 2011-56 (2011-49 I.R.B. 834), which provides a safe harbor under which the IRS treats a Tribe as the grantor and owner of a trust for the receipt of Tribal gaming revenues under IGRA for the benefit of minors and certain other individuals. However, as described in the Comments and Public Hearing section of this preamble, the Treasury Department and the IRS request comments on whether additional guidance is needed under section 139E or other Code sections to address the tax treatment of deferred benefits or benefits paid from trust arrangements and, if so, what specific fact patterns should be addressed.

Some Tribal Comments propose that the Treasury Department and the IRS allow Tribes to request advance rulings at the option of the Tribe to address the tax status of general welfare programs. These comments request, however, that any procedure involving advance rulings requests must be implemented with narrow parameters to avoid becoming a de facto audit of Tribal programs. In addition, these Tribal Comments suggest that these advance rulings be binding on states and other Federal agencies. The Treasury Department and the IRS appreciate that Indian Tribal governments have been awaiting guidance under section 139E and have concerns about how the IRS may view existing general welfare programs. The IRS has a general process in place for entities and individuals to request a letter ruling on the tax treatment of a particular transaction or program, but that process generally does not apply if the request presents an issue that cannot be readily resolved before a regulation or any other published guidance is issued. See Revenue Procedure 2024-1 (2024-1 I.R.B. 1). If an Indian Tribal government or a Tribal member receives a letter ruling from the IRS, the ruling generally is binding on the IRS. However, a letter ruling would address only Federal tax law and would not be binding in any way on any other Federal agency or any state agency.

As discussed in part VIII of this Explanation of Provisions, section 4(a) of the Act requires the IRS to suspend all audits or examinations to the extent the audit or examination relates to the exclusion from gross income of benefits under the general welfare exclusion. After soliciting public comments and holding Tribal consultation on these proposed regulations, the Treasury Department and the IRS intend to issue final regulations that provide clear and helpful guidance on Tribal general welfare benefits. Further, in accordance with section 3(b)(2) of the Act, the Secretary of the Treasury, in consultation with the TTAC, will establish certain training and education, which specifically includes the provision of training and technical assistance to Tribal financial officers about implementation of section 139E. The Treasury Department and the IRS will continue to work with the TTAC and Tribes throughout this rulemaking process to ensure that the final rules are comprehensive and provide as much clarity and certainty as possible within the parameters of the section 139E.

The Tribal Comments were not uniform on whether it would be helpful for the proposed regulations to provide examples of benefits that qualify as Tribal general welfare benefits. Some Tribal Comments recommend examples to help Indian Tribal governments identify what types of benefits would be considered for promotion of general welfare. In contrast, some Tribal Comments express concern that a list of examples of permissible benefits would over time be viewed as an exhaustive list of permissible benefits.

The TTAC Report requests that Indian Tribal governments be given the ability to rely on programs that meet the safe harbor requirements of Revenue Procedure 2014-35. Some Tribal Comments argue that the safe harbors in Revenue Procedure 2014-35 were arbitrarily limiting and state that the proposed regulations should refrain from using safe harbors to avoid establishing similar limitations under section 139E. However, many other Tribal Comments recommend incorporating the safe harbors from Revenue Procedure 2014-35 into the proposed regulations or expanding the safe harbors to include payments from net gaming revenue, payments under section 139E(c)(5), and programs developed pursuant to official determinations by Indian Tribal governments. The Tribal Comments also request that the proposed regulations expressly state that a safe harbor is not intended to limit the types of general welfare programs otherwise permitted under section 139E.

Revenue Procedure 2014-35 contains numerous safe harbors under which the IRS will conclusively presume that the individual need requirement of the administrative general welfare exclusion is met. As a revenue procedure, this guidance represents an official statement of a procedure by the IRS that affects the rights or duties of taxpayers under Federal tax law, rather than an official statement of IRS position on a substantive tax issue like the administrative general welfare exclusion. See § 601.601 of the Statement of Procedural Rules (25 CFR part 601). Thus, the safe harbors in Revenue Procedure 2014-35 do not represent examples of the application of the administrative general welfare exclusion, but instead are fact patterns for which the IRS is required to presume that the need requirement of the administrative general welfare exclusion is met. Accordingly, taxpayers may rely upon the safe harbors in Revenue Procedure 2014-35, but the revenue procedure does not have the force and effect of Treasury regulations.

The enactment of section 139E provides authority for the Treasury Department and the IRS to issue regulations to interpret section 139E. Regulations are the most authoritative form of published guidance and generally include substantive rules interpreting the statute. Treasury regulations often include examples in the regulatory text to illustrate specific provisions of the regulation. These examples describe how the regulatory rule applies to a set of facts, but examples cannot be the source of the rule itself.

The proposed regulations would provide examples of benefits that are for the promotion of general welfare under section 139E(b)(2)(B). The Treasury Department and the IRS agree that the examples in these proposed regulations are illustrations of benefits that are for the promotion of general welfare and are not intended to represent an exhaustive list of qualifying benefits. The examples in the proposed regulations also would incorporate the safe harbors in Revenue Procedure 2014-35. Section 139E was intended generally to codify Revenue Procedure 2014-35, and these proposed regulations are intended to be no less favorable than Revenue Procedure 2014-35, consistent with the intent of Congress reflected in the House Debate and Senate Colloquy in enacting the Act. Therefore, the general welfare programs described as safe harbors in Revenue Procedure 2014-35 would also be programs that satisfy the promotion of general welfare requirement under section 139E(b)(2)(B). Thus, these proposed regulations would include the list of programs described in section 5.02(2) of Revenue Procedure 2014-35 as a non-exhaustive list of the types of programs that would satisfy the general welfare requirement in section 139E and these proposed regulations. As described in the Comments and Public Hearing section of this preamble, the Treasury Department and the IRS request comments on whether additional examples are necessary.

Revenue Procedure 2014-35 generally provides principles for applying the administrative general welfare exclusion and provides safe harbors under which the IRS conclusively presumes that the individual need requirement of the administrative general welfare exclusion is met for benefits provided under Indian Tribal government programs that are described under section 5.02 or 5.03 of the revenue procedure. In Notice 2015-34, the Treasury Department and the IRS announced that section 139E codified (but does not supplant) the administrative general welfare exclusion for certain benefits provided under Indian Tribal government programs, and that “Revenue Procedure 2014-35 may be broader than section 139E in some instances.”

Many Tribal Comments argue that the safe harbors in Revenue Procedure 2014-35 were superseded by section 139E. Some Tribal Comments express the preference that Revenue Procedure 2014-35 be expanded to explicitly incorporate the concept of deference to the Tribe.

The Treasury Department and the IRS are of the view that the proposed regulations, if finalized, generally would provide rules that are at least as favorable as the safe harbors provided under Revenue Procedure 2014-35 and therefore, that Indian Tribal governments may have no further need to rely on Revenue Procedure 2014-35. In addition, the Treasury Department and the IRS expect that Indian Tribal governments would benefit by having a single set of rules that apply specifically to their general welfare benefit programs, rather than having to analyze their programs under both Revenue Procedure 2014-35 and the section 139E final regulations. Thus, the Treasury Department and the IRS propose to obsolete and supersede Revenue Procedure 2014-35 after the final regulations are applicable. As described in the Comments and Public Hearing section of this preamble, the Treasury Department and the IRS request comments on this issue.

Section 4 of the Act directs the Secretary of the Treasury to suspend all audits and examinations of Indian Tribal governments and members of Tribes (or any spouse or dependent of such a member) to the extent such an audit or examination relates to the exclusion of a payment or benefit from an Indian Tribal government under the general welfare exclusion, until the education and training prescribed by section 3(b)(2) of the Act is completed. Section 3(b)(2) of the Act directs the Secretary of the Treasury, in consultation with the TTAC, to establish and require (A) training and education for internal revenue field agents who administer and enforce internal revenue laws with respect to Tribes on Federal Indian law and the Federal Government's unique legal treaty and trust relationship with Indian Tribal governments, and (B) training of such internal revenue field agents, and provision of training and technical assistance to Tribal financial officers, about implementation of the Act and the amendments made thereby.

The TTAC Report requests that the proposed regulations refer to the audit suspension provided in section 4 of the Act. Specifically, the TTAC Report requests that the proposed regulations provide that all audits and examinations of Indian Tribal governments, Tribal members, and qualified nonmembers (as defined in Revenue Procedure 2014-35) to the extent that an audit or examination relates to the reporting or exclusion of a Tribal general welfare benefit are suspended until a specified time related to prospective enforcement of the final regulations. The TTAC Report further requests that enforcement of the final regulations be delayed for one year after the training and guidance required by section 3(b)(2) of the Act is completed (the compliance date), and that when examinations commence, they relate only to the periods beginning on or after the one-year period beginning on or after the compliance date. The TTAC Report further states that guidance under section 139E must be applied prospectively and that Tribes and Tribal citizens who have developed and administered programs in good faith will not be audited retroactively once the audit suspension is lifted. Many Tribal Comments agree with the TTAC Report.

The Treasury Department and the IRS acknowledge that section 4 of the Act provides a temporary suspension of audits and examinations of Indian Tribal governments and Tribal members (or any spouse or dependent of such member) to the extent that the audit or examination relates to the exclusion of a payment or benefit from an Indian Tribal government under the general welfare exclusion. The Treasury Department and the IRS expect that the audit suspension described in section 4 of the Act will continue until all the requirements of section 3(b)(2) of the Act are satisfied. In particular, the Treasury Department and the IRS contemplate that the education and training described in section 3(b)(2) of the Act, which requires training to the Internal revenue field agents and to Tribal financial officers about implementation of section 139E, cannot and will not take place until final regulations are issued under section 139E. Thus, once final regulations under section 139E are issued, the Treasury Department and the IRS, in consultation with the TTAC, will conduct the required education and training under section 3(b)(2) of the Act. Only after that education and training is complete will the audit suspension be lifted. These proposed regulations do not address the education and training that will be required to be complete before the audit suspension is lifted, but the Treasury Department and the IRS will consult with the TTAC on the requirements of section 3(b)(2) of the Act before the commencement of the required education and training and will provide further guidance after that consultation.

If section 139E applies to exclude the value of a benefit from the Tribal program participant's gross income, then there is no requirement to file with the IRS or furnish to the Tribal program participant an information return on Form 1099-MISC, Miscellaneous Information, for that benefit. Indian Tribal governments should not include the amount of any benefit that qualifies for exclusion under section 139E on a Form 1099-MISC that is filed with the IRS and furnished to the Tribal program participant. Including such amounts on a Form 1099-MISC when such amounts are not required to be reported on the Tribal program participant's individual tax return could result in IRS compliance activity, such as inquiries from the IRS automated underreporting (AUR) program.

Some Tribal Comments request that the Treasury Department and the IRS engage in consultation with Tribes throughout the development and implementation of the regulations, and any additional guidance. In addition, several of these Tribal Comments request additional consultation before the proposed regulations are published in the Federal Register .

The Treasury Department and the IRS agree with the Tribal Comments and expect that consultation will continue throughout the rulemaking process that will culminate with the publication of final regulations in the Federal Register . As noted in the Background section of this preamble, the Treasury Department and the IRS held consultation on the Act and the TTAC Report on December 14, 15, and 16, 2022, and also received comments pursuant to that consultation. These proposed regulations reflect the input from the TTAC Report and the comments received through consultation. The Treasury Department and the IRS also plan to hold consultation after these proposed regulations are issued and will consider comments from that consultation when drafting final regulations. This consultation is in addition to the standard notice and comment process for proposed regulations, which will include the opportunity to participate in a public hearing and to provide comments through https://www.regulations.gov . Comments received during these processes will be considered and addressed in the final regulations. Finally, the Treasury Department and the IRS expect to continue discussions with the GWE Subcommittee and the TTAC on all aspects of section 139E.

These regulations are proposed to apply to taxable years of Tribal Program Participants that begin on or after the date of publication of the final regulations in the Federal Register .

Before these proposed amendments to the regulations are adopted as final regulations, consideration will be given to any comments that are submitted timely to the IRS as prescribed in the preamble under the ADDRESSES section. The Treasury Department and the IRS request comments on all aspects of the proposed regulations. In addition, the Treasury Department and the IRS request comments on the following specific issues:

(1) Should additional examples be included in the final regulations, and if so, what specific fact patterns or rules should be addressed by the additional examples?

(2) Should Revenue Procedure 2014-35 be obsoleted when the final regulations become applicable? If not, why is there a continuing need for it after the publication of final regulations?

(3) Do Indian Tribal governments anticipate needing any transition relief to adjust existing general welfare programs to satisfy these proposed regulations before they are finalized? If yes, please explain the nature of the transition relief needed and provide recommendations as to what relief would be helpful to Indian Tribal governments.

(4) Is additional guidance needed under section 139E or other Code sections to address the tax treatment of deferred benefits or benefits paid from trust arrangements, and, if so, what specific fact patterns should be addressed?

Any comments submitted will be made available at https://www.regulations.gov or upon request. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn.

A public hearing will be held on January 13, 2025, beginning at 10 a.m. ET, in the Auditorium at the Internal Revenue Building, 1111 Constitution Avenue NW, Washington, DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. Pursuant to Announcement 2023-16, 2023-20 I.R.B. 854 (May 15, 2023), the public hearing is scheduled to be conducted in person, but the IRS will provide a telephonic option for individuals who wish to attend or testify at the hearing by telephone.

The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit an outline of the topics to be discussed as well as the time to be devoted to each topic by December 16, 2024. A period of ten minutes will be allocated to each person for making comments. After the deadline for receiving outlines has passed, the IRS will prepare an agenda containing the schedule of speakers. Copies of the agenda will be made available free of charge at the hearing. If no outlines of the topics to be discussed at the hearing are received by December 16, 2024, the public hearing will be cancelled. If the public hearing is cancelled, a notice of cancellation of the public hearing will be published in the Federal Register .

Individuals who want to testify in person at the public hearing must send an email to publichearings@irs.gov to have your name added to the building access list. The subject line of the email must contain the regulation number REG-106851-21 and the language TESTIFY In Person. For example, the subject line may say: “Request to TESTIFY In Person at Hearing for REG-106851-21.”

Individuals who want to testify by telephone at the public hearing must send an email to publichearings@irs.gov to receive the telephone number and access code for the hearing. The subject line of the email must contain the regulation number REG-106851-21 and the language TESTIFY Telephonically. For example, the subject line may say: “Request to TESTIFY Telephonically at Hearing for REG-106851-21.”

Individuals who want to attend the public hearing in person without testifying must also send an email to publichearings@irs.gov to have your name added to the building access list. The subject line of the email must contain the regulation number (REG-106851-21) and the language ATTEND In Person. For example, the subject line may say: “Request to ATTEND Hearing In Person for REG-106851-21.” Requests to attend the public hearing must be received by 5 p.m. ET on January 9, 2025.

Individuals who want to attend the public hearing telephonically without testifying must send an email to publichearings@irs.gov to receive the telephone number and access code for the hearing. The subject line of the email must contain the regulation number (REG-106851-21) and the language ATTEND Hearing Telephonically. For example, the subject line may say: “Request to ATTEND Hearing Telephonically for REG-106851-21.” Requests to attend the public hearing must be received by 5 p.m. ET on January 9, 2025.

The hearing will be made accessible to people with disabilities. To request special assistance during the hearing, contact the Publications and Regulations Branch of the Office of Associate Chief Counsel (Procedure and Administration) by sending an email to publichearings@irs.gov (preferred) or by telephone at (202) 317-6901 (not a toll-free number) at least January 8, 2025.

Executive Order 13175 (Consultation and Coordination With Indian Tribal Governments) prohibits an agency from publishing any rule that has Tribal implications if the rule either imposes substantial, direct compliance costs on Indian Tribal governments and is not required by statute, or preempts Tribal law, unless the agency meets the consultation and funding requirements of section 5 of the Executive order. These proposed regulations have a substantial direct effect on one or more Federally-recognized Indian Tribes and do impose substantial direct compliance costs on Indian Tribal governments within the meaning of the Executive order. As a result, the Treasury Department intends to comply with section 5(b)(2)(A)-(B) of Executive Order 13175. In compliance with section 5(b)(2)(A) of Executive Order 13175 and in response to Tribal leader requests for proposed regulations, the Treasury Department and the IRS held consultations with Tribal leaders on December 14, 15, and 16, 2022, requesting assistance in addressing questions related to the Act and the TTAC Report, which informed the development of these proposed regulations. The Treasury Department and the IRS also intend to conduct Tribal consultation on these proposed regulations.

Pursuant to the Memorandum of Agreement, Review of Treasury Regulations under Executive Order 12866 (June 9, 2023), tax regulatory actions issued by the IRS are not subject to the requirements of section 6(b) of Executive Order 12866, as amended. Therefore, a regulatory impact assessment is not required.

The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) generally requires that a Federal agency obtain the approval of the Office of Management and Budget (OMB) before collecting information from the public, whether such collection of information is mandatory, voluntary, or required to obtain or retain a benefit. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number.

These proposed regulations would include third-party disclosures and recordkeeping requirements that are required to substantiate that the value of a Tribal General Welfare Benefit is excluded from a recipient's gross income. These collections of information would generally be used by the IRS for tax compliance purposes and by taxpayers to facilitate proper substantiation of the gross income exclusion. The likely respondents to these collections are Indian Tribal governments and individuals.

The recordkeeping requirements in proposed § 1.139E-1(c)(3) would provide that Indian Tribal government programs must be administered under specified guidelines and would provide general requirements on the content of those guidelines. Under proposed § 1.139E-1(c)(3), the specified guidelines would need to, at a minimum, describe the program, the benefits provided, the eligibility requirements of the program, and the process for receiving benefits. Written specified guidelines would not be required. However, Indian Tribal governments may keep records of affidavits or declarations of how the program operates. These proposed regulations would not prescribe the specific method of keeping these records. Indian Tribal governments should keep these records in the manner they deem appropriate in order to substantiate that the program qualifies as an Indian Tribal government program under section 139E and these proposed regulations, and to assist Tribal program participants with determining that a Tribal general welfare benefit may be excluded from gross income under section 139E and these proposed regulations. Additionally, Indian Tribal governments should keep records they deem appropriate to substantiate that the Tribal general welfare benefits are distributed without discriminating in favor of the governing body of the Tribe, as described in proposed § 1.139E-1(c)(4), are not lavish or extravagant, as described in proposed § 1.139E-1(d)(4), and are not compensation for services, as described in proposed § 1.139E-1(d)(5). This information will generally be used by the IRS for tax compliance purposes to ensure that Indian Tribal governments are distributing Tribal general welfare benefits in accordance with proposed § 1.139E-1.

The recordkeeping requirements in proposed § 1.139E-1(d)(4) would provide that whether a benefit is lavish or extravagant is based on the facts and circumstances at the time the benefit is provided. Proposed § 1.139E-1(d)(4) would provide that a benefit will be presumed not to be lavish or extravagant if the Indian Tribal government establishes the program in writing and provides the benefit in accordance with the program's written specified guidelines. This presumption in proposed § 1.139E-1(d)(4) for a benefit provided in accordance with the program's written specified guidelines would be an optional rule and an Indian Tribal government may choose not to apply such rule. This information will generally be used by the IRS for tax compliance purposes to ensure that Indian Tribal governments are distributing Tribal general welfare benefits in accordance with proposed § 1.139E-1(d)(4).

The third-party disclosure requirement may apply to Indian Tribal governments that choose to provide notification to Tribal program participants that an Indian Tribal government program exists for which Tribal program participants may apply for benefits. These proposed regulations would not prescribe a specific method that Indian Tribal governments must use to announce the existence of a program. An Indian Tribal government may announce Indian Tribal government programs in any manner it deems appropriate.

These proposed regulations would not impose any additional recordkeeping requirements on Tribal program participants. However, Tribal program participants are required to maintain records under section 6001 sufficient to show that the value of a Tribal general welfare benefit received from an Indian Tribal government program is excludible from gross income. These records are required for the IRS to validate that taxpayers have met the regulatory requirements for a Tribal general welfare benefit, and that taxpayers are entitled to exclude the value of the benefit from gross income. The burden associated with maintaining tax records is already approved under OMB number 1545-0074 that is used for Form 1040, Individual Tax Return. These proposed regulations would not create or change the general recordkeeping requirement under section 6001.

There is limited data to calculate the burden estimates for these proposed regulations. The Treasury Department and the IRS estimate the burden based on the list of 574 Federally-recognized Tribes published by the Department of Interior, and estimate an upper bound of 2,296 Indian Tribal governments, including their agencies or instrumentalities. The estimate is based on an upper bound assumption that Indian Tribal government programs are set up by each Indian Tribal government of a Federally-recognized Tribe and by 3 separate agencies or instrumentalities of each such Indian Tribal government. A summary of the Paperwork Reduction Act burden estimates for the collections are as follows:

Indian Tribal governments (third-party disclosure and recordkeeping burden for Tribal entities):

Estimated Number of Respondents: 2,296.

Estimated Time per Response: 2 hours.

Estimated Frequency of Response: Once or on occasion.

Estimated Total Burden Hours: 4,592 hours.

The collections of information contained in this notice of proposed rulemaking has been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act. Commenters are strongly encouraged to submit public comments electronically. Written comments and recommendations for the proposed information collection should be sent to www.reginfo.gov/public/do/PRAMain, with copies to the Internal Revenue Service. Find this particular information collection by selecting “Currently under Review—Open for Public Comments” then by using the search function. Submit electronic submissions for the proposed information collection to the IRS via email at pra.comments@irs.gov (indicate REG-106851-21 on the subject line). Comments on the collection of information should be received by December 16, 2024. Comments are specifically requested concerning: Whether the proposed collection of information is necessary for the proper performance of the functions of the IRS, including whether the information will have practical utility; the accuracy of the estimated burden associated with the proposed collection of information; how the quality, utility, and clarity of the information to be collected may be enhanced; how the burden of complying with the proposed collection of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information. The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA) generally requires that a Federal agency obtain the approval of OMB before collecting information from the public, whether such collection of information is mandatory, voluntary, or required to obtain or retain a benefit. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number.

The Secretary of the Treasury hereby certifies that the proposed regulations would not have a significant economic impact on a substantial number of small entities pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6). These proposed regulations would affect Indian Tribal governments that establish and administer Tribal general welfare programs and that distribute Tribal general welfare benefits to certain individuals. The Treasury Department and the IRS have no reliable data to determine whether Tribal general welfare programs may be established and administered through small entities, such as not-for-profit entities. Although data is not readily available about the number of small entities that would potentially be affected by these proposed regulations, it is possible that a substantial number of small entities may be affected. However, any impact on those entities would not be economically significant and therefore a regulatory flexibility analysis under the Regulatory Flexibility Act is not required.

The impact of these proposed regulations can be described in the following categories. First, proposed § 1.139E-1(c) would provide guidance on what criteria a program must meet in order to be an “Indian Tribal Government Program.” Specifically, proposed § 1.139E-1(c) would provide that the program must be established by the Indian Tribal government; administered under specified guidelines; and not discriminate in favor of members of the governing body of the Tribe. Even assuming that these provisions would affect a substantial number of small entities, they would not have a significant economic impact. Section 139E(b) imposes the burden of what is needed to create an Indian Tribal government program. These proposed regulations would provide deference to Indian Tribal governments on the types of general welfare programs established, and generally defer to Indian Tribal governments on the form of the program's specified guidelines and the specific records they should maintain. As such, it is expected that the proposed regulations would have a minimal economic impact on Indian Tribal governments.

Second, proposed § 1.139E-1(d) would provide guidance on whether a benefit is a “Tribal General Welfare Benefit” that is excluded from an individual's gross income. Specifically, proposed § 1.139E-1(d) would require that the benefit be provided pursuant to an Indian Tribal government program; be for the promotion of general welfare; be available to any eligible Tribal program participant; not be lavish or extravagant; and, except as provided in section 139E(c)(5), not be for compensation for services. Proposed § 1.139E-1(d) would provide deference to Indian Tribal governments on the types of benefits that promote the general welfare, the individuals who are eligible for benefits, and whether benefits are provided in exchange for participation in certain cultural or ceremonial activities under section 139E(c)(5) and these proposed regulations. It would also provide that a benefit is presumed to not be lavish or extravagant if it is described in, and provided in accordance with, the written specified guidelines of an Indian Tribal government program. As such, it is expected that the proposed regulations would have a minimal economic impact on Indian Tribal governments.

Third, proposed § 1.139E-1(e) would permit an Indian Tribal government program to provide to Tribal program participant benefits that are items of cultural significance, reimbursement of costs, or cash honoraria for their participation in certain cultural or ceremonial activities. Indian Tribal governments have broad discretion to determine whether or not these benefits are provided. Even assuming that this provision affects a substantial number of small entities, it would not have a significant economic impact because benefits that are items of cultural significance, reimbursement of costs, and cash honoraria are only a few types of the benefits that are permitted to be provided under section 139E and proposed § 1.139E-1. An Indian Tribal government is not required to provide these types of benefits.

For the reasons stated, a regulatory flexibility analysis under the Regulatory Flexibility Act is not required. The Treasury Department and the IRS invite comments on the impact of the proposed regulations on small entities.

Pursuant to section 7805(f), this notice of proposed rulemaking has been submitted to the Chief Counsel for the Office of Advocacy of the Small Business Administration for comment on its impact on small business.

Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a State, local, or Indian Tribal government, in the aggregate, or by the private sector, of $100 million (updated annually for inflation). These proposed regulations do not include any Federal mandate that may result in expenditures by State, local, or Indian Tribal governments, or by the private sector in excess of that threshold.

Executive Order 13132 (Federalism) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on State and local governments, and is not required by statute, or preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the Executive Order. These proposed regulations do not have federalism implications and do not impose substantial direct compliance costs on State and local governments or preempt State law within the meaning of the Executive order.

Guidance cited in this preamble is published in the Internal Revenue Bulletin and is available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at https://www.irs.gov.

The principal authors of these proposed regulations are Lisa Mojiri-Azad, Jonathan Dunlap, and Dominic DiMattia, Office of Associate Chief Counsel (Income Tax & Accounting). However, other personnel from the Treasury Department and the IRS participated in their development.

Accordingly, the Treasury Department and the IRS propose to amend 26 CFR part 1 as follows:

Throughout this document wherever “we,” “us,” or “our” is used, we mean the EPA.

On January 30, 2024, the State of Montana submitted proposed revisions to the MCCAPC rules for incorporation into the Montana SIP. 1 The MCCAPC rules address open burning, industrial and household combustors, and other activities that generate particulate matter emissions. The submittal was signed by the governor and went through a 30-day public comment period starting on Thursday, September 7, 2023, and ending on Monday, October 9, 2023. 2 Montana received no requests for public hearing and all comments received were in favor of the revised MCCACP rules and their incorporation into the Montana SIP. In this action, we are proposing to approve certain revisions and to take no action on certain revisions, as described in greater detail below.

The EPA has reviewed the revisions to Chapters 1 through 9, and Chapters 13 and 14 of the MCCAPC rules. The bulk of the changes are administrative in nature, including formatting and grammatical corrections, conforming edits to create consistency across the MCCAPC, deletions of extraneous or repetitive content, removal of outdated references to a retired outdoor burn hotline, and similar edits. Additionally, there are several revisions that are substantive in nature, including new definitions for outdoor burning air pollution control technologies, provisions for the use of such control technologies, new limits on outdoor recreational fires, and the extension of wood stove rules to new areas around Missoula, among others. The EPA has determined that both the administrative and substantive revisions are consistent with the requirements of the CAA. These substantive revisions either have no effect on, or further restrict, particulate matter emissions.

The EPA will not be acting on the rules submitted for revision in MCCAPC Chapter 10: Fuels rules 10.102(1), 10.105(1), 10.109(1), 10.110, 10.111, 10.111(2). The EPA is proposing to act on the revisions in Chapter 10 in a separate action.

In this action, the EPA is proposing to approve the revisions to the MCCACP rules submitted by the State of Montana on January 30, 2024, listed below in table 1, Chapters 1 through 9 and Chapters 13 and 14.

In the table below, the key is as follows:

A— Approve.

N— No action.

This is a proposed action to incorporate revisions to the MCCAPC program rules into the Montana SIP. Due to the nature of the action being taken here, this action is expected to have a neutral to positive impact on the air quality of the affected area. At a minimum, this action will not worsen any existing air quality and is expected to ensure the area is meeting requirements to attain and/or maintain air quality standards. Further, there is no information in the record indicating that this action is expected to have disproportionately high or adverse human health or environmental effects on a particular group of people.

In this document, the EPA is proposing to include regulatory text in an EPA final rule that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, the EPA is proposing to incorporate by reference the MCCAPC rules in Montana's January 30, 2024, submission; Chapters 1 through 9 and Chapters 13 and 14 into the Montana SIP, as discussed in sections I. and II. of this preamble. The EPA has made, and will continue to make, these materials generally available through https://www.regulations.gov and at the EPA Region 8 Office (please contact the person identified in the FOR FURTHER INFORMATION CONTACT section of this preamble for more information).

Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, the EPA's role is to approve state choices, provided they meet the criteria of the CAA. Accordingly, this action merely proposes to approve state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:

• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);

• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq. );

• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. );

• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);

• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);

• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• Is not subject to requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and

In addition, the SIP is not approved to apply on any Indian reservation land or in any other area where EPA or an Indian Tribe has demonstrated that a Tribe has jurisdiction. In those areas of Indian country, the proposed rule does not have Tribal implications and will not impose substantial direct costs on Tribal governments or preempt Tribal law as specified by Executive Order 13175 (65 FR 67249, November 9, 2000).

Executive Order 12898 (Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations, 59 FR 7629, Feb. 16, 1994) directs Federal agencies to identify and address “disproportionately high and adverse human health or environmental effects” of their actions on minority populations and low-income populations to the greatest extent practicable and permitted by law. EPA defines environmental justice (EJ) as “the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies.” EPA further defines the term fair treatment to mean that “no group of people should bear a disproportionate burden of environmental harms and risks, including those resulting from the negative environmental consequences of industrial, governmental, and commercial operations or programs and policies.”

The Montana Department of Environmental Quality did not evaluate environmental justice considerations as part of its SIP submittal; the CAA and applicable implementing regulations neither prohibit nor require such an evaluation. EPA did not perform an EJ analysis and did not consider EJ in this action. Due to the nature of the action being taken here, this action is expected to have a neutral to positive impact on the air quality of the affected area. Consideration of EJ is not required as part of this action, and there is no information in the record inconsistent with the stated goal of E.O. 12898 of achieving environmental justice for people of color, low-income populations, and Indigenous peoples.

This is a summary of the Commission's Second Further Notice of Proposed Rulemaking ( Second FNPRM ) in GN Docket No. 20-32, FCC 24-89, adopted on August 14, 2024 and released on August 29, 2024. The full text of this document is available for public inspection at the following internet address: https://docs.fcc.gov/public/attachments/FCC-24-89A1.pdf .

Providing Accountability Through Transparency Act. Consistent with the Providing Accountability Through Transparency Act, Public Law 118-9, a summary of this Notice of Proposed Rulemaking will be available on https://www.fcc.gov/proposed-rulemakings .

1. In the Second FNPRM, the Commission seeks comment on whether to require a winning bidder in the 5G Fund Phase I auction to demonstrate during the long-form application process, and prior to being authorized to receive support, that it has obtained the consent of the relevant Tribal government(s) for any necessary access to deploy network facilities using its 5G Fund support on Tribal lands within the area(s) of its winning bid(s). For purposes of a requirement such as this, the Commission would follow the long-standing precedent articulated in its Statement of Policy on Establishing a Government-to-Government Relationship with Indian Tribes ( Policy Statement ), 16 FCC Rcd 4078 (2020), of using the term “Tribal Government” to mean “the recognized government of an Indian Tribe that has been determined eligible to receive services from the Department of Interior, Bureau of Indian Affairs.” The term “Indian Tribe,” in turn, is defined in the Policy Statement to mean “any Indian or Alaska Native tribe, band, nation, pueblo, village or community which is acknowledged by the federal government to constitute a government-to-government relationship with the United States and eligible for the programs and services established by the United States for Indians.” The Commission recognizes that the definition of “Tribal lands” adopted by the Commission for the 5G Fund in the 5G Fund Report and Order, 85 FR 75770 (Nov. 25, 2020), may not fully align with a Tribal Government's jurisdiction for purposes of providing Tribal consent for all of the areas within a particular winning bid. In that circumstance, a winning bidder would nonetheless need to obtain Tribal consent for any area(s) within the area of a winning bid for which the relevant Tribal Government has jurisdiction to grant such consent before we would award support for that particular winning bid.

2. In its reply comments concerning the 5G Fund Further Notice of Proposed Rulemaking, 88 FR 66781 (Sept. 28, 2024), National Tribal Telecommunications Association (NTTA) supports the adoption of a Tribal consent requirement during the long-form process and before the Commission authorizes any 5G Fund support to serve Tribal lands.

3. The Commission seeks comment on whether including a Tribal consent requirement would advance the goals of the 5G Fund and would be administratively efficient for all parties and the Commission. The Commission tentatively concludes that adopting a Tribal consent requirement in its 5G Fund rules is consistent with its long-standing recognition that engagement between Tribal governments and communications providers, particularly early engagement, is an important element to promote the successful deployment and provision of service on Tribal lands.

4. In seeking comment on this issue, the Commission asks commenters to provide input on how it can best assess an applicant's eligibility to be authorized to receive 5G Fund support for the purpose of deploying network facilities that would enable 5G mobile broadband service located on Tribal lands, while incorporating Tribal government consent into the Commission's approval process. The Commission notes that, under the Broadband Equity, Access, and Deployment (BEAD) Program, “an Eligible Entity may not treat as `unserved' or `underserved' any location that is already subject to an enforceable federal, state, or local commitment to deploy qualifying broadband” and a commitment to deploy broadband will not be considered an enforceable commitment “unless it includes a legally binding agreement, which includes a Tribal Government Resolution, between the Tribal Government of the Tribal Lands encompassing that location, or its authorized agent, and a service provider offering qualifying broadband service to that location.” Does including a requirement for a winning bidder to demonstrate that it has obtained Tribal consent during the 5G Fund Phase I long-form application process ensure that evidence of Tribal government consent will be included in the Commission's process of authorizing the winning bidder to receive support? Does such a requirement also provide such evidence during a 5G Fund support recipient's deployment of network facilities to provide 5G mobile broadband service that are located on Tribal lands?

5. The Commission envisions that any Tribal consent requirement it may adopt for the 5G Fund will be a continuation of the Commission's commitment to ensuring Tribal engagement by service providers that receive high-cost universal service support and in furtherance of the Commission's Policy Statement establishing a government-to-government relationship with Tribes. In the Policy Statement, the Commission stated that it “recognizes the unique legal relationship that exists between the federal government and Indian Tribal governments, as reflected in the Constitution of the United States, treaties, federal statutes, Executive orders, and numerous court decisions.” Most recently, in the Enhanced Alternative-Connect America Cost Model Report and Order ( Enhanced A-CAM Report and Order ), 88 FR 55918 (Aug. 17, 2023), the Commission recognized “the deep digital divide that persists between Tribal lands and the rest of the country and emphasized that engagement between Tribal governments and communications providers, either currently providing service or contemplating the provision of service on Tribal lands, is vitally important to the successful deployment and provision of service.”

6. As the Commission explained in the Enhanced A-CAM Report and Order, the rules governing the disbursement of high-cost universal service support already include an annual requirement for high-cost recipients whose support areas include Tribal lands to undertake Tribal engagement. Pursuant to § 54.313(a)(5) of the Commission's rules, 47 CFR 54.313(a)(5), a recipient of high-cost support that serves Tribal lands must demonstrate that it has engaged with the relevant Tribal government on a range of issues, including compliance with local rights of way, land use permitting, facilities siting, and environmental and cultural preservation review processes, as well as Tribal business and licensing requirements, that are necessary for a carrier to obtain. The Commission also has historic preservation requirements. See 47 CFR 1.1305-1.1320; 47 CFR 17.4; 47 CFR part 1, Appendix B and C. The Commission also reasoned in the Enhanced A-CAM Report and Order that “[t]hrough these obligatory Tribal engagements, and as demonstrated through successfully satisfying the deployment obligations through previous high-cost programs, carriers receiving high-cost support through previous universal service programs should have received consent from the local Tribal government to satisfy the requisite permissions to deploy to certain locations.” Building on its existing rules, and in order to leverage any preexisting coordination and collaboration obligations that a service provider has with a Tribal government to complete the deployment required by the Enhanced A-CAM program, the Commission also determined that it would require carriers receiving Enhanced A-CAM support to initiate engagement with any relevant Tribal government within 90 days of the Wireline Competition Bureau extending an Enhanced A-CAM offer in the Enhanced A-CAM Report and Order. In so doing, the Commission explained that it expects “carriers that intend to accept Enhanced A-CAM offers will act in good faith to provide the relevant Tribe(s) with an opportunity to consent to the Enhanced A-CAM carrier's deployment of broadband in the Tribal area.”

7. Referencing the Tribal engagement rules the Commission adopted in the Enhanced A-CAM proceeding, NTTA states “[a] similar process for the 5G Fund is perhaps even more important due to the structure of the 5G Fund award system (reverse auction) and the fact that, as it now stands, any provider may bid on eligible Tribal areas.” The Commission is mindful that, as NTTA advocates, a similar or even more developed process for the 5G Fund may be appropriate because, whereas an Enhanced A-CAM carrier already had a history of tribal engagement, in the 5G Fund Phase I auction any applicant may bid on support to serve eligible Tribal areas. Given the potential challenges that incorporating a Tribal consent requirement might raise in the 5G Fund long-form application process, should the Commission consider following the same Tribal engagement approach as the Commission adopted in the Enhanced A-CAM Report and Order ? Are the provisions included in the Enhanced A-CAM and/or the BEAD programs good analogues for the 5G Fund, given the differences between fixed service and mobile service? Are there other alternatives that the Commission should consider that would result in more equitable and informed outcomes in connection with using 5G Fund support to fund proposed projects to provide advanced, 5G mobile broadband service using facilities that would be located on Tribal lands that would benefit Tribal communities and serve the public interest? Should the Commission use existing high-cost universal service Tribal engagement requirements to develop the criteria necessary to evidence Tribal consent in order to provide more consistency and predictability for both Tribal governments and service providers during the 5G Fund long-form application authorization process?

8. If the Commission adopts a Tribal consent requirement during the 5G Fund long-form application process, how could it structure a requirement for a 5G Fund Phase I auction winning bidder to demonstrate during the long-form application process, and prior to being authorized to receive support, that it has obtained the relevant Tribal government's consent? Given Tribal sovereignty, how should the Commission address circumstances in which a Tribal government neither declines nor provides consent? How might the Commission use existing Tribal engagement requirements to assess the winning bidder's efforts to obtain Tribal consent? What are the costs and burdens of such requirements to providers? How might they be expected to influence auction participation or bidding for support in Tribal lands? As the Commission considers how to frame a requirement for Tribal consent, it also seeks comment on whether it should include parameters similar to the those that the Commission includes for a winning bidder that is applying for a Tribal Land Bidding Credit (TLBC) to demonstrate its compliance with any Tribal consent requirement the Commission may adopt.

9. For instance, using the TLBC requirements as a guide, the Commission could include a requirement that within 180 calendar days after the filing deadline for a 5G Fund long-form application, an applicant seeking 5G Fund support to provide service on Tribal lands must amend its application to submit a certification from the Tribal government(s) that it has granted any required Tribal consent. See 47 CFR 1.2110(f)(3)(ii)(A). In particular, the Commission could require that the certification of Tribal consent include: the signature of an official of the Tribal Government and their title; a statement that the Tribal government has not and will not enter into an exclusive contract with the applicant to preclude entry by other carriers and will not unreasonably discriminate among wireless carriers seeking to provide service on the eligible Tribal land; and a statement that the Tribal government will, as applicable, permit the applicant to locate and deploy facilities on the Tribal land consistent with the 5G Fund public interest obligations and performance requirements. The Commission's existing 5G Fund long-form application rules already require an applicant to certify that it will comply with all 5G Fund program requirements, including its public interest obligations and performance requirements, in the areas for which it is a winning bidder, including any such areas that are on Tribal lands. See 47 CFR 54.1014(b)(2)(vii). Would using the TLBC certification model, together with this existing long-form application certification required of an applicant seeking to be authorized for 5G Fund support, adequately reflect the contours of Tribal government consent in this context? Under this model, once the certifications from the applicant and the consent of the Tribal government(s) being served are received and reviewed by the Commission and determined to be consistent with the 5G Fund rules, 5G Fund support may be authorized. Should the Commission consider revising the TLBC certification parameters for the purposes of the 5G Fund? Should the Commission include any additional provisions to demonstrate Tribal consent if it adopts such a requirement? Should the Commission require fewer or alternative provisions? Should a process such as the TLBC certification process be adopted, the Commission seeks comment on how it might be able to incorporate flexibility in such a process.

10. In the event that the Commission adopts a Tribal consent requirement for the 5G Fund Phase I auction long-form application process, how can it ensure that consent is valid throughout the term of support? Should a winning bidder's failure to obtain Tribal consent be considered an auction default under the Commission's existing rules? Should there be additional or alternative compliance or enforcement mechanisms?

11. Finally, if the Commission adopts a Tribal consent requirement for the 5G Fund, how can it assist in dispute resolution in the event that a Tribal government reconsiders its consent? Would the Commission need to adopt a specific Tribal consent dispute resolution process? Commenters should address any other issues the Commission should consider in adopting rules related to a Tribal consent requirement for a 5G Fund Phase I auction long form applicant to demonstrate that it has obtained the consent of the relevant Tribal government(s) for any necessary access to deploy network facilities using its 5G Fund support on Tribal lands within the area(s) of its winning bid(s).

12. Are there any reasons why the Commission should decline to adopt such a requirement? Should the Commission consider requiring something less than Tribal consent ( e.g., a different type of engagement than the current requirement in § 54.313(a)(5) of the Commission's rules, 54 CFR 313(a)(5))?

13. Regulatory Flexibility Act. As required by the Regulatory Flexibility Act of 1980, as amended (RFA), the Commission has prepared this Supplemental Initial Regulatory Flexibility Analysis (Supplemental IRFA) of the possible significant economic impact on a substantial number of small entities by the policies and rules proposed in the Second FNPRM to supplement the Commission's Regulatory Flexibility Analyses completed in the 5G Fund NPRM, 85 FR 31616 (May 26, 2020), 5G Fund Report and Order, 5G Fund FNPRM, and 5G Fund Second Report and Order and Order on Reconsideration. The Commission requests written public comment on this Supplemental IRFA. Comments must be identified as responses to the Supplemental IRFA and must be filed by the deadlines for comments on the Second FNPRM. The Commission will send a copy of the Second FNPRM, including this Supplemental IRFA, to the Chief Counsel for Advocacy of the Small Business Administration (SBA).

14. The Commission seeks comment in the Second FNPRM on whether to require a winning bidder in the 5G Fund Phase I auction to demonstrate during the long-form application process, and prior to being authorized to receive support, that it has obtained the consent of the relevant Tribal government(s) for any necessary access to deploy network facilities using its 5G Fund support on Tribal lands within the area(s) of its winning bid(s). The Commission seeks comment on whether including a Tribal consent requirement would advance the goals of the 5G Fund and would be administratively efficient for all parties and the Commission. The Commission tentatively concludes that adopting a Tribal consent requirement in its 5G Fund rules is consistent with its long-standing recognition that engagement between Tribal governments and communications providers, particularly early engagement, is an important element to promote the successful deployment and provision of service on Tribal lands. In seeking comment on this issue, the Commission asks commenters to provide input on how it can best assess an applicant's eligibility to be authorized to receive 5G Fund support for the purpose of deploying network facilities that would enable 5G mobile broadband service located on Tribal lands, while incorporating Tribal government consent into the Commission's approval process.

15. The proposed action is authorized pursuant to sections 4(i), 214, 254, 303(r), and 403 of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 214, 254, 303(r), and 403, and §§ 1.1 and 1.421 of the Commission's rules, 47 CFR 1.1 and 1.421.

16. The RFA directs agencies to provide a description of, and, where feasible, an estimate of the number of small entities that may be affected by the proposed rules, if adopted. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small-business concern” under the Small Business Act. A “small-business concern” is one which: (1) is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the SBA.

17. Regulatory Flexibility Analyses were incorporated into the 5G Fund NPRM, 5G Fund Report and Order, 5G Fund FNPRM, and 5G Fund Second Report and Order and Order on Reconsideration. In those analyses, the Commission described in detail the small entities that might be significantly affected. In this Supplemental IRFA, the Commission hereby adopts by reference the descriptions and estimates of the number of small entities from the previous Regulatory Flexibility Analyses in the 5G Fund NPRM, 5G Fund Report and Order, 5G Fund NPRM, 5G Fund Report and Order, 5G Fund FNPRM, and 5G Fund Second Report and Order and Order on Reconsideration.

18. In the 5G Fund Report and Order, the Commission adopted requirements for winning bidders to submit a post-auction long-form application in which they must submit ownership, agreement, and spectrum access information, as well as information about their qualifications, funding, and the networks they intend to use to meet their 5G Fund public interest obligations and performance requirements. In the Second FNPRM, the Commission seeks comment on whether to add to the existing long-form application requirements a requirement that a winning bidder in the 5G Fund Phase I auction demonstrate during the long-form application process that it has obtained the consent of the relevant Tribal government(s) for any necessary access to deploy network facilities using its 5G Fund support on Tribal lands within the area(s) of its winning bid(s). If the Commission ultimately adopts a rule that would amend its existing rules to require that 5G Fund Phase I auction winning bidders make this demonstration during the long-form application process, it would impact the reporting, recordkeeping, and other compliance requirements for small business and other carriers that apply for 5G Fund support to serve Tribal lands within the area(s) of their winning bid(s).

19. In assessing the cost of compliance for small entities, record does not include a detailed cost-benefit analysis that would allow the Commission to quantify such costs, including whether small entities will be required to hire professionals, and therefore cannot currently quantify the cost of compliance resulting from an adopted requirement that winning bidders demonstrate during the long-form application process that they have obtained the consent of the relevant Tribal government(s) for any necessary access to deploy network facilities using its 5G Fund support on Tribal lands within the area(s) of their winning bid(s). The Commission anticipates, however, that the comments the Commission receives will discuss the compliance costs or burdens resulting from any potential changes to the long-form application rules, and may help the Commission identify and evaluate other relevant compliance matters for small entities associated with this possible requirement, should changes be adopted in this proceeding.

20. The RFA requires an agency to describe any significant alternatives that could minimize impacts to small entities that it has considered in reaching its proposed approach, which may include the following four alternatives (among others): “(1) the establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for such small entities; (3) the use of performance rather than design standards; and (4) an exemption from coverage of the rule, or any part thereof, for such small entities.”

21. The Commission has taken steps to minimize any economic impact from a potential requirement that a winning bidder in the 5G Fund Phase I auction demonstrate during the long-form application process that it has obtained the consent of the relevant Tribal government(s) for any necessary access to deploy network facilities using its 5G Fund support on Tribal lands within the area(s) of its winning bid(s) on small entities. For example, given the potential challenges that incorporating a Tribal consent requirement might raise in the 5G Fund long-form application process, the Commission seeks comment in the Second FNPRM on whether it should consider following the same Tribal engagement approach used by the Commission in the Enhanced A-CAM program, rather than adopting a Tribal consent requirement. The Commission also asks in the Second FNPRM whether there are other alternatives to a Tribal consent requirement we should consider that would result in more equitable and informed outcomes in connection with using 5G Fund support to fund proposed projects to provide advanced, 5G mobile broadband service using facilities that would be located on Tribal lands that would benefit Tribal communities and serve the public interest.

22. The Commission likewise seeks comment in the Second FNPRM on how it could structure a potential requirement for a 5G Fund Phase I auction winning bidder to demonstrate during the long-form application process that it has obtained the relevant Tribal government's consent and, for example, whether we should include parameters similar to the those that the Commission includes for a spectrum auction winning bidder that is applying for a Tribal land bidding credit (TLBC) for a 5G Fund winning bidder to demonstrate its compliance with any Tribal consent demonstration requirement the Commission may adopt. The Commission also seeks comment on whether, if it were to include parameters similar to the those that the Commission includes for a spectrum auction winning bidder that is applying for a Tribal land bidding credit in any such 5G Fund Tribal consent requirement it may adopt, whether it should include all of the TLBC certification parameters for the purposes of the 5G Fund or, alternatively, whether it should adopt additional or fewer provisions than required for spectrum auction winning bidders seeking a TLBC. Further, the Commission seeks comment on how it might be able to incorporate flexibility if we were to adopt a process such as the TLBC certification process in connection with any Tribal consent demonstration requirement it may adopt. Finally, the Commission seeks comment on whether it should consider requiring something less than Tribal consent of winning bidders ( e.g., a different type of engagement than the current requirement in § 54.313(a)(5)).

23. The Commission expects to more fully consider the economic impact and alternatives for small entities following the review of comments and costs and benefits analyses filed in response to the Second FNPRM. The Commission's evaluation of this information will shape the final alternatives it considers, the final conclusions it reaches, and any final actions it ultimately takes in this proceeding to minimize any significant economic impact that may occur on small entities.

24. There are no federal rules that duplicate, overlap, or conflict with the rules proposed herein.

25. Ex Parte Presentations—Permit-But-Disclose. The proceeding this document initiates shall be treated as a “permit-but-disclose” proceeding in accordance with the Commission's ex parte rules. Persons making ex parte presentations must file a copy of any written presentation or a memorandum summarizing any oral presentation within two business days after the presentation (unless a different deadline applicable to the Sunshine period applies). Persons making oral ex parte presentations are reminded that memoranda summarizing the presentation must: (1) list all persons attending or otherwise participating in the meeting at which the ex parte presentation was made; and (2) summarize all data presented and arguments made during the presentation. If the presentation consisted in whole or in part of the presentation of data or arguments already reflected in the presenter's written comments, memoranda or other filings in the proceeding, the presenter may provide citations to such data or arguments in his or her prior comments, memoranda, or other filings (specifying the relevant page and/or paragraph numbers where such data or arguments can be found) in lieu of summarizing them in the memorandum. Documents shown or given to Commission staff during ex parte meetings are deemed to be written ex parte presentations and must be filed consistent with § 1.1206(b) of the Commission's rules. In proceedings governed by § 1.49(f) of the Commission's rules or for which the Commission has made available a method of electronic filing, written ex parte presentations and memoranda summarizing oral ex parte presentations, and all attachments thereto, must be filed through the electronic comment filing system available for that proceeding, and must be filed in their native format ( e.g., .doc, .xml, .ppt, searchable .pdf). Participants in this proceeding should familiarize themselves with the Commission's ex parte rules.

26. It is ordered that, pursuant to the authority contained in sections 4(i), 214, 254, 303(r), and 403 of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 214, 254, 303(r), 403, and §§ 1.1 and 1.421 of the Commission's rules, 47 CFR 1.1, 1.421, this Second FNPRM is adopted .

27. It is further ordered that the Commission's Office of the Secretary, shall send a copy of this Second FNPRM, including the Supplemental Initial Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration.

This is a synopsis of the Commission's Public Notice document in CB Docket No. 24-245, DA 24-782, released on August 9, 2024. The full version of this document can be located at https://docs.fcc.gov/public/attachments/DA-24-782A1.pdf.

Annually, the Commission will publish a list of 10-year old rules for review and comment by interested parties pursuant to section 610 of the RFA.

By the Public Notice document, the Office of Communications Business Opportunities announces the Federal Communications Commission's (Commission) plan to review rules the agency adopted in calendar year 2013 that have or will have a significant economic impact on a substantial number of small entities. Section 610 of the Regulatory Flexibility Act (RFA), 5 U.S.C. 610, requires the Commission to determine whether such rules should be continued without change, amended, or rescinded, consistent with the stated objectives of applicable statutes, to minimize any significant economic impact of the rules upon a substantial number of small entities. The Appendix of the Public Notice document lists the rules the Commission will review during the next 12 months. Annually, the Commission will publish a list for the review of rules promulgated 10 years preceding the year of review.

The Commission will consider the following factors in reviewing each rule in a manner consistent with section 610(b) of the RFA:

(a) The continued need for the rule;

(b) The nature of complaints or comments from the public concerning the rule;

(c) The complexity of the rule;

(d) The extent to which the rule overlaps, duplicates, or conflicts with other federal rules, and, to the extent feasible, with state and local governmental rules; and

(e) The length of time since the rule has been evaluated or the degree to which technology, economic conditions, or other factors have changed in the area affected by the rule.

The Appendix of the Public Notice document includes a brief description, the need for and legal basis of each rule. The Commission invites the general public to comment on these rules in accordance with the instructions below. The Commission will consider all relevant and timely filed comments before it takes final action in this proceeding.

Pursuant to §§ 1.415 and 1.419 of the Commission's rules, 47 CFR 1.415, 1.419, interested parties may file comments and reply comments on or before the dates indicated on the first page of this document. Comments may be filed using the Commission's Electronic Comment Filing System (ECFS). See Electronic Filing of Documents in Rulemaking Proceedings, 63 FR 24121 (1998).

The proceeding this document initiates shall be treated as a “permit-but-disclose” proceeding in accordance with the Commission's ex parte rules. 1 Persons making ex parte presentations must file a copy of any written presentation or a memorandum summarizing any oral presentation within two business days after the presentation (unless a different deadline applicable to the Sunshine period applies). Persons making oral ex parte presentations are reminded that memoranda summarizing the presentation must (1) list all persons attending or otherwise participating in the meeting at which the ex parte presentation was made, and (2) summarize all data presented and arguments made during the presentation. If the presentation consisted in whole or in part of the presentation of data or arguments already reflected in the presenter's written comments, memoranda or other filings in the proceeding, the presenter may provide citations to such data or arguments in his or her prior comments, memoranda, or other filings (specifying the relevant page and/or paragraph numbers where such data or arguments can be found) in lieu of summarizing them in the memorandum. Documents shown or given to Commission staff during ex parte meetings are deemed to be written ex parte presentations and must be filed consistent with rule 1.1206(b). In proceedings governed by rule 1.49(f) or for which the Commission has made available a method of electronic filing, written ex parte presentations and memoranda summarizing oral ex parte presentations, and all attachments thereto, must be filed through the electronic comment filing system available for that proceeding, and must be filed in their native format ( e.g., .doc, .xml, .ppt, searchable .pdf). Participants in this proceeding should familiarize themselves with the Commission's ex parte rules.

The Federal Communications Commission (Commission) will review the rules below pursuant to the Regulatory Flexibility Act of 1980, as amended, 5 U.S.C. 610, for the period beginning January 2013 and ending December 2013. All of the rules listed below are in Title 47 of the Code of Federal Regulations.

Table of Contents I. Executive Summary II. Background A. Regulatory History of Air Bag On-Off Switches and Deactivation B. Background on Advanced Air Bag Systems C. Current Part 595 Subpart B Requirements and Procedures for Obtaining Exemptions for Retrofit On-Off Switches D. Air Bag Deactivations III. Proposed Amendments A. Removal of the Sunset Date Provision for Retrofit Air Bag On-Off Switches B. Adjustment of Criteria for At-Risk Occupants To Obtain a Retrofit Air Bag On-Off Switch for Vehicles Equipped With Advanced Air Bags i. Exemptions for Infants in Rear-Facing Child Restraint Systems Who Must Be Transported in the Front Passenger Seat ii. Exemptions for Children Ages 1 to 12 Who Must Be Transported in the Front Passenger Seat C. Requests for Air Bag Deactivations (General Public) D. Exemptions for Law Enforcement and Emergency Vehicles i. On-Off Switches ii. Deactivations E. Update of Information Brochure IV. Estimates of Benefits and Costs V. Proposed Effective Date VI. Regulatory Notices and Analyses VII. Public Participation I. Executive Summary

Since the late 1990s, NHTSA has permitted, under certain circumstances, both manufacturers and repair shops to install switches in motor vehicles that allow the occupant to turn on and off the vehicle's air bag system. This installation would typically be a violation of the “make inoperative” provision of the National Traffic and Motor Vehicle Safety Act, but NHTSA added an express exemption to that provision for air bags because of the threat of injury that early air bag systems posed to children and smaller statured occupants. This exemption—49 CFR part 595 subpart B—outlines the process by which an individual can petition the agency for an air bag on-off switch to be installed in their vehicle.

NHTSA has stated repeatedly since creating part 595 subpart B that the solution to the dangers posed by early air bag systems was advanced air bag systems that could adapt or suppress their deployment based on the vehicle occupant. Accordingly, NHTSA has repeatedly put a sunset date on the on-off switch provision, with the most recent sunset date in 2015. Since then, NHTSA has continued to use its enforcement discretion to grant requests for air bag on-off switches. The agency has also used its enforcement discretion to grant air bag system deactivation in special circumstances, even though the Federal Motor Vehicle Safety Standards (FMVSS) do not currently provide a formal process for requesting deactivation. This NPRM proposes several updates to part 595 to take into account the continued development and effectiveness of advanced air bag systems. Additionally, the NPRM proposes codifying the process by which individuals may petition the agency for air bag deactivation in special circumstances. The agency seeks public comment on the proposals listed below.

To prevent or mitigate the risk of injuries or fatalities in frontal crashes, FMVSS No. 208, Occupant Crash Protection, 1 requires that passenger vehicles be equipped with seat belts and frontal air bags. Although FMVSS No. 208 did not require frontal air bags on passenger cars until model year (MY) 1998 and on multipurpose passenger vehicles and light trucks until MY 1999, air bags were already in widespread use by the early 1990s. These early-generation air bags were highly effective in protecting occupants in frontal crashes, but caused a number of fatalities to certain occupants who were especially vulnerable to air bag-related risks.

NHTSA has long maintained that the long-term solution to the problem of air bag-related injuries to these at-risk populations was the development and widespread implementation of advanced air bag systems, which could sense the kind of occupant seated and adjust deployment to protect at-risk passengers. However, during the 1990s, when air bag-related injuries and fatalities emerged as a safety problem, advanced air bags were still a nascent technology. 2 To provide time for the development and dissemination of advanced air bag systems into new vehicle production, and to address safety concerns posed by pre-advanced air bags in vehicles already on the road, NHTSA implemented an array of interim measures designed to protect those passengers most susceptible to air bag-related injuries. These measures focused both on behavioral changes ( e.g., consumer education on the importance of seat belts and on putting children in rear seating positions) and relatively modest technological changes ( e.g., amending FMVSS No. 208 to temporarily allow for depowered air bags and permitting installation of on/off switches).

A particular focus of these measures was efforts to protect children from air bag related injuries and fatalities. Early data indicated that children were at a significant risk of harm from air bags. The data indicated that children who were either seated in child restraint systems (CRS)  3 or seated without CRSs were at risk of serious injury or death when seated in a position with a frontal air bag. Because of the agency's significant concern for the safety of children, NHTSA took multiple actions throughout the 1990s to protect children from potential harm from air bags.

First, the agency began providing CRS recommendations informing caretakers how and where they should equip child restraints in a vehicle. NHTSA's recommendation has always been to install CRSs in the back seat of vehicles. Furthermore, there are different CRSs for children of different ages. NHTSA recommends that from birth to 12-months old a child should be secured in a rear-facing CRS. From 1 year old to 3 years old NHTSA recommends keeping a child in a rear facing seat for as long as possible—the child's height and weight will determine when they should be moved to a forward-facing CRS. From 4 years old to 7 years old NHTSA recommends keeping a child in a forward-facing CRS until they exceed the weight and height maximums for the respective seat. Once a child outgrows the forward-facing seat NHTSA recommends children be belted using the traditional seat belt, but with the use to a booster seat; children should remain in a booster seat until they are tall enough to fit in a seat belt properly without the assistance of a booster seat. NHTSA recommends that the child be belted in the back seat of a vehicle for all of these different stages.

Second, the agency made several recommendations and took several actions to ensure children seated in the front were protected from air bags. 4 Early on, the agency primarily encouraged behavioral changes from owners of vehicles with air bags. For example, in the early 1990s, agency testing showed that using a rear-facing child restraint in the front seat of a vehicle where frontal air bags were active presented a significant risk to child occupants. In December 1991 the agency issued a Consumer Advisory warning owners of rear-facing child restraints to not use such devices in the front seat of a vehicle equipped with a passenger air bag. Throughout the 1990s, NHTSA released several additional News Releases on this issue. NHTSA also took regulatory action on this issue in 1993, when it issued a final rule which, in part, required that vehicles equipped with air bags include labels on sun visors providing specific cautions, including a statement not to install rearward-facing child seats in front passenger positions. The agency took further regulatory action in 1994, when it required rear-facing child restraints manufactured on or after August 15, 1994, to include a warning against using the restraint in any vehicle seating position equipped with an air bag.

Third, the agency took a number of other communication-based actions to improve safety outcomes relating to children and air bags. On October 27, 1995, after several fatalities to children seated in air bag-equipped seating positions, NHTSA issued a warning in a press release, “SAFETY AGENCY ISSUES WARNING ON AIR BAG DANGER TO CHILDREN.” In the press release, the agency warned that children sitting in air bag-equipped seating positions not restrained by a seat belt could be seriously injured or killed by an air bag. The release also stated in very strong terms that parents should ensure their children are belted in the back seat of a vehicle whenever possible. During the late 1990s, the agency also published several articles in widely circulated journals and periodicals on the dangers air bags pose to children. NHTSA has continued this education campaign by publishing information on the NHTSA website on the dangers air bags pose to children.

In addition to these efforts to protect children, NHTSA also considered that certain adult passengers were at risk from air bag systems. As described in the paragraphs above, many of the agency's attempts to both educate the public and improve vehicle technology countermeasures to increase the safety outcomes of early air bag systems were focused on children. The agency has also acknowledged in both informal guidance as well as previous rulemakings that certain adults may also be at risk of serious injury from air bag systems. For example, certain smaller-statured individuals may have to sit closer to the steering wheel to reach the foot pedals, which may put them at increased risk of injury if an air bag were to deploy. NHTSA's website recommends that individuals sit at least 10 inches away from the steering wheel to reduce the risk of injury from air bag deployment. 5 Accordingly, individuals who must sit closer than 10 inches to the steering wheel to reach the pedals may need to have an air bag on-off switch installed. The 1997 final rule that allowed for air bag on-off switches to be installed (discussed below) explicitly discussed specific situations where adult passengers (including adult drivers) may need an on-off switch installed.

Although NHTSA recommended (and continues to recommend) that children be placed in a rear seating position and that adults sit 10 inches or more away from the steering wheel, the agency recognized early on that there were instances where this guidance would not be helpful. For example, certain vehicles don't have rear seats and certain adults can't sit more than 10 inches from the steering wheel without their feet reaching the foot pedals. When the agency first considered taking action to improve vehicle technology countermeasures in the mid-1990s to ensure children and shorter statured adults were protected from potential harm from air bags, advanced air bag systems were still a nascent technology. Starting in 1995, NHTSA began facilitating a few different types of vehicle technology countermeasures: original equipment on-off switches, retrofit on-off switches, and air bag deactivations.

Original Equipment On-Off Switches. In 1995, NHTSA for the first time promulgated a final rule that allowed manufacturers the option of installing a manual device that motorists could use to deactivate the front passenger-side air bag in vehicles in which infant restraints could only be used in the front seat. This final rule was the first instance in which the agency allowed an original equipment manufacturer (OEM) to install an air bag on-off switch, but the scenario in which the OEM on-off switch could be installed was very narrow and left up to the discretion of the OEM. 6 Because on-off switches were intended only as a temporary measure, the agency sunset this provision. The provision sunset on September 1, 2012. 7

Retrofit on-off switches. In 1997, NHTSA published another final rule addressing air bag on-off switches. 8 This rule broadened the 1995 final rule that had been extended in 1997, and focused on more than just children needing protections from on-off switches.

Under National Traffic and Motor Vehicle Safety Act (Safety Act), 49 U.S.C. 30122, no manufacturer, distributor, dealer, rental company, or motor vehicle repair business may knowingly make inoperative any part of a device or element of design installed or in a motor vehicle or motor vehicle equipment in compliance with an applicable motor vehicle safety standard. This provision is commonly referred to as the “make inoperative” provision of the Safety Act. Because of this provision, unless NHTSA explicitly exempts a manufacturer, distributor, dealer, rental company, or motor vehicle repair business from this requirement, those entities cannot knowingly make a compliant motor vehicle or motor vehicle part inoperative. In other words, without an explicit exemption from this requirement, the entities listed above could not knowingly make air bags inoperative, because they would be making a FMVSS No. 208 compliant motor vehicle part inoperative.

Among additional details discussed below, the most notable action the 1997 final rule  9 took was creating an explicit exemption for motor vehicle dealers and repair businesses from the make inoperative provision of the Safety Act. This exemption permitted on-off switches to be installed not just in new vehicles but also to be retrofitted into vehicles that had already been sold. It also meant that an additional entity—motor vehicle repair businesses—could now install on-off switches. Thus, NHTSA's regulations, at that point, allowed for two different types of on-off switches: (1) original equipment air bag switches, installed as original equipment on a vehicle before the vehicle was sold other than for resale; and (2) retrofit air bag switches, installed after the vehicle had been produced and sold to the consumer. Because retrofit air bag switches are installed after purchase of a vehicle, the onus is on the vehicle owner to decide if they would like an on-off switch installed. However, as discussed below, air bags generally improve safety outcomes significantly for most individuals involved in crashes. So instead of leaving the decision up to the individual whether an on-off switch would produce a beneficial safety outcome for a specific individual, the 1997 final rule created a process by which individuals could submit a request to NHTSA for an air bag on-off switch, and if approved, the individual could then have one installed. That process is discussed in more detail in Section II.C. As with original equipment on-off switches, the part 595 exemption for retrofit on-off switches was subject to a sunset provision; this exemption expired on September 1, 2015. 10

Air bag deactivations. Although air bag on-off switches were an effective solution to protect individuals who may be vulnerable to air bag systems, there are certain scenarios where on-off switches cannot be installed in a vehicle. In situations where an on-off switch cannot be installed, the 1997 final rule outlined that NHTSA would continue to use its enforcement discretion to allow air bag deactivation. The key distinction between an air bag switch and air bag deactivation is that the vehicle operator can turn the air bag system on or off with a switch, whereas once a repair shop or manufacturer deactivates an air bag system, the vehicle operator cannot turn the system back on. NHTSA has not codified a process for individuals to request an air bag system deactivation.

As discussed in the section above, early air bag technology presented several safety risks to both children and smaller-statured individuals. The agency has repeatedly expressed that the solution to the dangers from early air bag technology was to develop advanced air bag technology. This belief is also reflected in the sunset dates for air bag on-off switches. FMVSS No. 208, Occupant crash protection, requires that all new passenger vehicles and light trucks sold in the United States meet certain minimum performance criteria for protecting vehicle occupants during and after a collision. “Advanced air bag requirements” is a term used to refer collectively to a subset of these requirements that was added to FMVSS No. 208 as part of a May 12, 2000, final rule to protect children and other at-risk occupants from air bag-related injury. The advanced air bag requirements became fully phased-in on September 1, 2010.

Under the advanced air bag requirements, both the driver-side and passenger-side frontal air bag system must pass several barrier crash tests using 50th percentile adult male and 5th percentile adult female dummies in both belted and unbelted conditions (the tests require various test speeds, test conditions, and dummy placement). 11 These tests must be performed at both the driver and right front passenger seating positions. In addition to barrier tests (which are designed to protect the adult-sized population at-large), passenger-side advanced air bag systems must also meet several requirements that are intended to protect children. Specifically, passenger-side frontal air bag systems must alter their deployment in the presence of three child-sized test dummies—representing a 12-month-old, a 3-year-old, and a 6-year-old—in multiple positions, both with and without the child restraints specified in Appendix A-1 of FMVSS No. 208. Unlike the barrier tests described above, the tests for deployment in the presence of children are static tests conducted in a stationary setting.

The requirements and static tests related to child and smaller-statured occupants may be met using one of three strategies: suppression, low risk deployment (LRD), or a dynamic automatic suppression system (DASS). Suppression-based advanced air bag systems will suppress ( i.e., not deploy) the passenger air bag in a crash if the system senses a child in a rear-facing CRS, a child in a forward-facing CRS, or a child not in a CRS but who is below a certain size or is out of position in the passenger seat. LRD-based advanced air bag systems will deploy the passenger air bag in all of these situations, but will do so in a low-risk manner that does not exceed certain injury assessment reference values for children. 12 DASS-based advanced air bag systems dynamically suppress air bag deployment during a crash by sensing and interpreting the occupant characteristics and/or locations of occupants in relation to the air bag. 13

Manufacturers are not required to use the same option for all three child dummy sizes. Currently, all vehicles equipped with advanced air bags use either “conventional” ( i.e., non-DASS) suppression or LRD to meet advanced air bag requirements, with the vast majority of manufacturers choosing suppression. 14 For the remainder of the discussion, unless indicated otherwise, “suppression” systems are conventional, non-DASS systems.

Data collected by NHTSA indicate that advanced air bags substantially reduce the risk of air bag-related injuries to children and smaller statured adults. In 1997, when air bag-related fatalities peaked in the era before advanced air bags were introduced, there were 52 air bag-related fatalities, 31 of which were children. Since the introduction of advanced air bags, air bag-related fatalities have declined significantly, and in fact there have been no confirmed air bag-related fatalities among children in vehicles equipped with certified advanced air bags. 15 Although it is likely that much of this reduction can be attributed to child safety initiatives ( i.e., air bag warning label requirements, changes to State laws, greater enforcement of those laws, and publicity campaigns) that have encouraged parents and caregivers to move children 12 and younger from the front seat to the rear seat of vehicles, the agency nonetheless believes that the complete absence of air bag-related fatalities in children over the last several years demonstrates that advanced air bags provide a crucial safety countermeasure backstop for situations in which children are placed in the front passenger seat.

The 1997 final rule created part 595 subpart B. Subpart B sets out several requirements for vehicle owners who want to request a retrofit on-off switch. Specifically, it identifies five situations in which the agency will authorize on-off switches:

• Medical condition: The driver has a medical condition and a doctor indicates that an air bag would pose a special risk of harm to that person and the risk of harm outweighs the risk of the passenger hitting the steering wheel or windshield in a crash;

• Distance from driver air bag: Despite taking all reasonable steps to move back from the driver air bag, the driver is not able to maintain a 10-inch distance from the center of his or her breastbone to the center of the driver air bag cover;

• Infant: An infant (less than 1 year old) must ride in the front seat because the vehicle has no rear seat, the vehicle's rear seat is too small to accommodate a rear-facing infant seat, or the infant has a medical condition that makes it necessary for the infant to ride in the front seat so the driver can monitor the infant;

• Child Age 1 to 12: A child age 1 to 12 must ride in the front seat because the vehicle has no rear seat, children ages 1 to 12 must ride in the front seat of the vehicle because no space is available in the rear seat, or the child has a medical condition that makes it necessary for the child to ride in the front seat so the driver can monitor the child.

These criteria were consistent with the general rationale of the 1997 final rule, as advanced air bag technology was still in the early stages of development. As discussed previously, the agency created the part 595 petition as a temporary measure to ensure vulnerable passengers were protected from potential harm from air bag systems. It was intended to be a temporary measure as advanced air bag technologies developed. Accordingly, the provision sunset in 2015.

Subpart B of part 595 sets out the specific steps that a vehicle owner/installation technician must follow to obtain an exemption for an on-off switch. 16

If an individual wants an on-off switch installed in their vehicle, they must fill out the request form that can be found in appendix B to part 595. The first portion of this form provides instructions to individuals seeking the installation of an on-off switch, and part of these instructions directs the vehicle owner or lessee to read NHTSA's information brochure on air bag on-off switches, which can be found in appendix A to part 595. After reviewing the brochure, if the vehicle owner/lessee is still interested in having an air bag on-off switch installed, the vehicle owner/lessee then fills the request form out, including an indication of which air bags (passenger or driver) they would like the on-off switch for. The request form includes a list of the eligibility criteria NHTSA deemed acceptable for a retrofit on-off switch in the 1997 final rule with a check box next to each justification. A list of these eligibility criteria is also included in the safety brochure (appendix A to part 595). The applicant must check which justification they are requesting an on-off switch under as part of completing the request form. After completing the request form, the owner/lessee mails the form to NHTSA. NHTSA then reviews the request form and determines whether the owner/lessee should be granted their request to have an on-off switch installed. If NHTSA determines the information provided in the request is sufficient, the agency notifies the individual if the request is granted or denied in writing. If the request is missing information, the agency will request the necessary information from the requestor. In addition to the signed form, NHTSA also sends the installation form (appendix C to part 595) (to be filled out by the manufacturer or repair shop).

The manufacturer or repair shop has several obligations that it must also comply with under part 595. These include ensuring a telltale light is installed and operating that indicates when the air bag switch is in the “off” mode and providing the owner/lessee of the vehicle with an insert for the vehicle owner's manual that describes the operation of the switch, explains the at-risk groups set forth in Appendix B, and indicates that the on-off switch should only be used in the “off” mode if one of the at-risk groups is present in the relevant seat. The manufacturer or repair shop must also fill out the installation form that can be found in appendix C to part 595 and return it to NHTSA within seven (7) days of installation.

As noted earlier, while part 595 does not provide for air bag deactivations, NHTSA has been considering requests for air bag deactivations on a case-by-case basis using its enforcement discretion. Under the existing process, vehicle owners who would like to have their air bag system (or part of the system) deactivated must submit their request in a letter to NHTSA with a detailed explanation for why deactivation is necessary. This letter must include information such as the subject vehicle's make, model, and vehicle identification number. In addition, requests based on certain medical conditions other than those for which the National Conference on Medical Indications for Air Bag Deactivation has recommended air bag deactivation must be accompanied by a physician statement. 17 This statement must indicate the particular medical condition of the patient, as well as the physician's judgment that the condition causes air bags to pose a special risk to that person, and that the condition makes the potential harm to the person from contacting an air bag in a crash greater than the potential harm from turning off the air bag.