[Federal Register Volume 89, Number 180 (Tuesday, September 17, 2024)]
[Proposed Rules]
[Pages 75990-76013]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-20826]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-106851-21]
RIN 1545-BQ95


Tribal General Welfare Benefits

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations regarding the 
exclusion from gross income of certain Tribal general welfare benefits. 
The proposed regulations address the requirements that would apply to 
determine whether the benefits that an Indian Tribal government program 
provides qualify as Tribal general welfare benefits. These proposed 
regulations would affect Indian Tribal governments, agencies or 
instrumentalities of such governments, Federally-recognized Tribes, 
members of such Tribes, such members' spouses and dependents, and other 
Tribal program participants. This document also requests comments on 
certain provisions and provides a notice of a public hearing on the 
proposed regulations that will be in addition to Tribal consultation on 
the proposed regulations.

DATES: 
    Comments: Electronic or written comments on this proposed rule from 
the public must be received by December 16, 2024.
    Public Hearing: The public hearing is scheduled to be held on 
January 13, 2025, at 10 a.m. Eastern time (ET). Requests to speak and 
outlines of topics to be discussed at the public hearing must be 
received by December 16, 2024. If no outlines are received by December 
16, 2024, the public hearing will be cancelled. Requests to attend the 
public hearing must be received by 5 p.m. ET on January 9, 2025. 
Requests for special assistance during the hearing must be received by 
5 p.m. ET on January 8, 2025. See the Comments and Public Hearing 
section of the SUPPLEMENTARY INFORMATION for additional information.

ADDRESSES: Commenters are strongly encouraged to submit public comments 
electronically. Submit electronic submissions via the Federal 
eRulemaking Portal at https://www.regulations.gov (indicate IRS and 
REG-106851-21) by following the online instructions for submitting 
comments. Once submitted to the Federal eRulemaking Portal, comments 
cannot be edited or withdrawn. The Department of the Treasury (Treasury 
Department) and the IRS will publish any comments to the IRS's public 
docket. Send paper submissions to: CC:PA:PR:01 (REG-106851-21), Room 
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Jonathan A. Dunlap of the Office of Associate Chief Counsel (Income Tax 
and Accounting), (202) 317-4718 (not a toll-free number); concerning 
submissions of comments or outlines, the hearing, or any questions to 
attend the hearing by teleconferencing, Publication and Regulations 
Section at (202) 317-6901 (not a toll-free number) or preferably by 
email to [email protected]. If emailing, please include the 
following information in the subject line: Attend, Testify, or Question 
and REG-106851-21.

SUPPLEMENTARY INFORMATION:

Authority

    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.

Background

    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

[[Page 75991]]

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.

I. Administrative General Welfare Exclusion

    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).

II. Application of the Administrative General Welfare Exclusion to 
Indian Tribal Governments

    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.

III. Revenue Procedure 2014-35

    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.
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    \1\ Revenue Procedure 2014-35 was preceded by Notice 2012-75 
(2012-51 I.R.B. 715). The IRS received over 40 comments in response 
to Notice 2012-75, which informed the drafting of Revenue Procedure 
2014-35.
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IV. The Tribal General Welfare Exclusion Act of 2014

    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

[[Page 75992]]

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.

V. Notice 2015-34

    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.

VI. TTAC Report and Tribal Consultations on Section 139E

    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

[[Page 75993]]

Comments urged that section 2(c) of the Act be expressly cited in the 
proposed regulations.
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    \2\ However, a few Tribal Comments argued that Congress has not 
specifically directed the Treasury Department and the IRS to publish 
regulations under section 139E.
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    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 Sec.  1.139E-1 to provide 
guidance under section 139E (proposed Sec.  1.139E-1). The following 
Explanation of Provisions discusses the Tribal Comments in more detail 
in relation to each proposed provision in proposed Sec.  1.139E-1.

Explanation of Provisions

    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 Sec.  1.139E-1 would provide (1) 
definitions of terms used in section 139E and proposed Sec.  1.139E-1 
(see proposed Sec.  1.139E-1(b)); (2) requirements for a program to 
qualify as an ``Indian Tribal Government Program'' (see proposed Sec.  
1.139E-1(c)); (3) requirements for a benefit to qualify as a ``Tribal 
General Welfare Benefit'' (see proposed Sec.  1.139E-1(d)); (4) special 
rules related to cultural or ceremonial activities (see proposed Sec.  
1.139E-1(e)); (5) clarification of the audit suspension required by 
section 4(a) of the Act (proposed Sec.  1.139E-1(f)); and (6) the 
proposed date of applicability of the final regulations (see proposed 
Sec.  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.

I. Section 139E Definitions

    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 Sec.  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.
A. Definition of Indian Tribal Government
    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 Sec.  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 Sec.  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 Sec.  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.
B. Definition of Tribe
    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 Sec.  1.139E-1(b)(7) generally would define ``Tribe'' 
using the

[[Page 75994]]

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 Sec.  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.
C. Definition of Tribal Program Participant
    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 Sec.  
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 Sec.  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.
D. Definition of Tribal Member
    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 Sec.  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 Sec.  
1.139E-1(b)(8)(ii) would

[[Page 75995]]

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.
E. Definition of Spouse
    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 Sec.  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 Sec.  301.7701-
18(a) and 1 U.S.C. 7.
F. Definition of Dependent
    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).
---------------------------------------------------------------------------

    \3\ For taxable years in which the exemption amount is zero, the 
section 151(d) exemption amount is generally the inflation-adjusted 
section 152(d)(1)(B) exemption amount in the annual revenue 
procedure setting forth inflation-adjusted items that is published 
in the Internal Revenue Bulletin.
---------------------------------------------------------------------------

    Proposed Sec.  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).

II. Indian Tribal Government Program

    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 Sec.  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.
A. Program Must Be Established
    Proposed Sec.  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

[[Page 75996]]

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 Sec.  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.
B. Program Must Be Administered Under Specified Guidelines
    Proposed Sec.  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.
C. Program Cannot Discriminate in Favor of Members of the Governing 
Body
    In accordance with section 139E(b)(1), proposed Sec.  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 Sec.  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 Sec.  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 Sec.  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.
D. No Limitation on Source of Funds
    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 Sec.  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.
E. Benefits Funded by Net Gaming Revenues
    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.

[[Page 75997]]

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 Sec.  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 Sec.  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 Sec.  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

[[Page 75998]]

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.

III. Tribal General Welfare Benefits

    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 Sec.  1.139E-1(d) would describe each of these requirements.
A. Benefits Must Be for the Promotion of General Welfare
1. Deference to Tribes in Determining Promotion of General Welfare
    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 
Sec.  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 Sec.  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.
2. No Need Requirement
    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

[[Page 75999]]

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 Sec.  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 Sec.  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.
3. Benefits May Be in Equal Amounts
    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.
---------------------------------------------------------------------------

    \4\ See part II.E. of this Explanation of Provisions for a 
fuller discussion of IGRA and general welfare payments made from net 
gaming revenues.
---------------------------------------------------------------------------

    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 Sec.  
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.
4. Specific Types of Benefits
    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 Sec.  1.139E-1(d)(2) would include as a permissible 
general welfare purpose ``assistance for disasters or emergency 
situations.'' The Indian Tribal

[[Page 76000]]

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 Sec.  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 Sec.  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.
B. Benefits Must Be Available to Any Tribal Program Participant
    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 Sec.  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.
C. Benefits Cannot Be Lavish or Extravagant
    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 Sec.  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 Sec.  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

[[Page 76001]]

benefit to be lavish or extravagant at the time the benefit is 
provided. However, proposed Sec.  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.
D. Benefits Cannot Be Compensation for Services
    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).
---------------------------------------------------------------------------

    \5\ Section 139E(c)(5) provides an exception under which 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.'' This exception to the general 
prohibition on compensation for services is addressed in part IV of 
this Explanation of Provisions.
---------------------------------------------------------------------------

    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 Sec.  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.

IV. Exception to Prohibition on 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.''

[[Page 76002]]

A. Participation in Cultural or Ceremonial Activities
    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 Sec.  
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).
B. Items of Cultural Significance
    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 Sec.  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 Sec.  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.
C. Cash Honorarium
    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 Sec.  1.139E-1(e) 
would not provide that the compensation for services exception in 
section 139E(c)(5) is limited to nominal cash honoraria.
D. Reimbursement of Costs
    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

[[Page 76003]]

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.
E. Members of Other Tribes
    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 Sec.  1.139E-
1(b)(8)(ii) would provide that, solely for purposes of proposed Sec.  
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).

V. Issues Not Addressed in Proposed Regulations

A. Interaction With Other Federal Programs
    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.
B. Grants to Indian-Owned Enterprises
    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.
C. Trust Arrangements and Deferred Benefits
    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

[[Page 76004]]

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.
D. Advance Rulings
    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.

VI. Safe Harbors and Examples

    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 Sec.  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

[[Page 76005]]

Hearing section of this preamble, the Treasury Department and the IRS 
request comments on whether additional examples are necessary.

VII. Proposed Obsolescence of Revenue Procedure 2014-35

    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.

VIII. Audit Suspension and IRS Training

    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.

IX. Information Reporting

    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.

X. Tribal Consultation

    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

[[Page 76006]]

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.

Proposed Applicability Date

    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.

Comments and Public Hearing

    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 [email protected] 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 [email protected] 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 [email protected] 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 [email protected] 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 
[email protected] (preferred) or by telephone at (202) 317-6901 
(not a toll-free number) at least January 8, 2025.

Special Analyses

I. Executive Order 13175: Consultation and Coordination With Indian 
Tribal Governments

    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

[[Page 76007]]

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.

II. Regulatory Planning and Review

    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.

III. Paperwork Reduction Act

    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 Sec.  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 Sec.  
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 Sec.  1.139E-1(c)(4), are not lavish or 
extravagant, as described in proposed Sec.  1.139E-1(d)(4), and are not 
compensation for services, as described in proposed Sec.  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 Sec.  1.139E-1.
    The recordkeeping requirements in proposed Sec.  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 Sec.  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 Sec.  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 Sec.  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

[[Page 76008]]

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 
[email protected] (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.

IV. Regulatory Flexibility Act

    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 Sec.  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 Sec.  
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 Sec.  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 
Sec.  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 Sec.  
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 Sec.  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 Sec.  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.

V. Unfunded Mandates Reform Act

    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.

VI. Executive Order 13132: Federalism

    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

[[Page 76009]]

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.

Statement of Availability of IRS Documents

    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.

Drafting Information

    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.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

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

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding an 
entry for Sec. Sec.  1.139E-1 and 1.139E-2 in numerical order to read 
in part as follows:

    Authority:  26 U.S.C. 7805 * * *
* * * * *
    Sections 1.139E-1 and 1.139E-2 also issued under 26 U.S.C. 139E.
* * * * *
0
Par. 2. Sections 1.139E-0 through 1.139E-2 are added to read as 
follows:
* * * * *
Sec.
1.139E-0 Table of contents.
1.139E-1 Tribal general welfare benefits.
1.139E-2 [Reserved]
* * * * *


Sec.  1.139E-0  Table of contents.

    This section lists the major captions for Sec. Sec.  1.139E-1 and 
1.139E-2.

Sec.  1.139E-1 Tribal general welfare benefits.

    (a) Overview.
    (b) Definitions.
    (1) Act.
    (2) Benefit.
    (3) Code.
    (4) Indian Tribal Government.
    (5) Indian Tribal Government Program.
    (6) Tribal General Welfare Benefit.
    (7) Tribe.
    (8) Tribal Program Participant.
    (9) Tribal Member.
    (10) Dependent.
    (c) Indian Tribal Government Program.
    (1) In general.
    (2) Program must be established.
    (3) Program must be administered under specific guidelines.
    (4) Program cannot discriminate in favor of members of the 
governing body of the Tribe.
    (5) No limitation on source of funds.
    (d) Tribal General Welfare Benefits.
    (1) In general.
    (2) Benefits must be for the promotion of general welfare.
    (3) Benefits must be available.
    (4) Benefits cannot be lavish or extravagant.
    (5) Benefits cannot be compensation for services.
    (e) Cultural or ceremonial activities.
    (1) In general.
    (2) Application
    (3) Examples.
    (f) Audit suspension.
    (g) Applicability date.

Sec.  1.139E-2 [Reserved]


Sec.  1.139E-1  Tribal general welfare benefits.

    (a) Overview. Under section 139E of the Code and this section, the 
gross income of a Tribal Program Participant for the taxable year does 
not include the value of any Tribal General Welfare Benefit provided by 
an Indian Tribal Government Program during the year to or on behalf of 
the Tribal Program Participant. Paragraph (b) of this section provides 
definitions that apply for purposes of this section. Paragraph (c) of 
this section provides the requirements that any program must satisfy to 
qualify as an Indian Tribal Government Program for purposes of this 
section. Paragraph (d) of this section provides the requirements that 
any benefit provided to or on behalf of a Tribal Program Participant 
must satisfy to qualify as a Tribal General Welfare Benefit for 
purposes of this section. Paragraph (e) of this section provides 
special rules related to cultural or ceremonial activities solely for 
purposes of this section. Paragraph (f) of this section describes the 
audit suspension provisions in section 4(a) of the Act. Paragraph (g) 
of this section provides the date of applicability of this section.
    (b) Definitions. The following definitions apply for purposes of 
this section--
    (1) Act. The term Act means the Tribal General Welfare Exclusion 
Act of 2014, Public Law 113-168, 128 Stat. 1883 (2014).
    (2) Benefit. The term benefit means any money, property, services, 
or other item of value provided to or on behalf of an individual.
    (3) Code. The term Code means the Internal Revenue Code.
    (4) Indian Tribal Government. The term Indian Tribal Government 
means an Indian Tribal Government as defined by section 7701(a)(40) of 
the Code and includes any agencies or instrumentalities of such an 
Indian Tribal Government.
    (5) Indian Tribal Government Program. The term Indian Tribal 
Government Program means a program that satisfies the requirements of 
paragraph (c) of this section.
    (6) Tribal General Welfare Benefit. The term Tribal General Welfare 
Benefit means any benefit provided to or on behalf of a Tribal Program 
Participant that satisfies the requirements of paragraph (d) of this 
section for exclusion from gross income as an ``Indian general welfare 
benefit'' under section 139E of the Code.
    (7) Tribe. The term Tribe means any Indian Tribe, band, nation, 
pueblo, or other organized group or community, including any Alaska 
Native village as defined in 43 U.S.C. 1602(c), that is recognized as 
eligible for the special programs and services provided by the United 
States to Indians because of their status as Indians.
    (8) Tribal Program Participant--(i) In general. The term Tribal 
Program Participant means a Tribal Member, spouse of a Tribal Member 
within the meaning of Sec.  301.7701-18 of this chapter, 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.
    (ii) Special rule for ceremonial or cultural activities. Solely for 
purposes of paragraph (e) of this section, the term Tribal Program 
Participant may include a member or citizen of a Tribe that is 
different from the Tribe that establishes or maintains the Indian 
Tribal Government Program that provides the Tribal General Welfare 
Benefit.
    (9) Tribal Member. The term Tribal Member means 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:
    (i) Is listed on the Tribal rolls of the Tribe if such rolls are 
kept;

[[Page 76010]]

    (ii) Is recognized as a member by the Tribe if Tribal rolls are not 
kept; or
    (iii) Is an Indian child as defined in 25 U.S.C. 1903.
    (10) Dependent. The term dependent means an individual who--
    (i) Is a qualifying child, as defined in section 152 of the Code, 
of a Tribal Member for the taxable year;
    (ii) Is a qualifying relative, as defined in section 152, of a 
Tribal Member for the taxable year;
    (iii) Is a qualifying child or qualifying relative of a Tribal 
Member described in paragraph (b)(10)(i) or (ii) of this section for 
the taxable year of the Tribal Member beginning in a calendar year 
without regard to whether the Tribal Member was a qualifying child or 
qualifying relative, each as defined in section 152, of another 
taxpayer for a taxable year of the other taxpayer beginning in that 
calendar year;
    (iv) Is a qualifying child or qualifying relative of a Tribal 
Member described in paragraph (b)(10)(i) or (ii) of this section for 
the taxable year of the Tribal Member beginning in a calendar year 
without regard to whether the individual filed a joint return with the 
individual's spouse (as defined in section 6013 of the Code) for the 
taxable year beginning in that calendar year; or
    (v) Is a qualifying relative of a Tribal Member described in 
paragraph (b)(10)(ii) of this section for the taxable year of the 
Tribal Member beginning in a calendar year without regard to the 
individual's gross income for the calendar year in which the 
individual's taxable year begins.
    (c) Indian Tribal Government Program--(1) In general. A program is 
an Indian Tribal Government Program only if the program:
    (i) Is established by the Indian Tribal Government, as described in 
paragraph (c)(2) of this section;
    (ii) Is administered under specified guidelines, as described in 
paragraph (c)(3) of this section; and
    (iii) Does not discriminate in favor of members of the governing 
body of the Tribe, as described in paragraph (c)(4) of this section.
    (2) Program must be established--(i) In general. A program must be 
established by an Indian Tribal Government. A program established by 
Tribal custom or government practice, or by formal action of the Indian 
Tribal Government, is a program established by the Indian Tribal 
Government. Formal action means authorization of the program pursuant 
to applicable Tribal law. The formal action must be in writing to the 
extent such writing is required under applicable Tribal law. For 
example, written documentation that evidences the formal action of the 
Indian Tribal Government to establish the program is required if such 
written documentation is required under applicable Tribal law. 
Similarly, no written documentation of the formal action of the Indian 
Tribal Government to establish the program is required if, under 
applicable Tribal law, no written documentation of such action is 
required. As an additional example, a program may be established by a 
voice vote if such voice vote would otherwise constitute formal action 
of the Indian Tribal Government under applicable Tribal law. To the 
extent permitted under applicable Tribal law, an Indian Tribal 
Government may delegate the authority for establishing a program to a 
designated individual or entity of the Indian Tribal Government.
    (ii) Examples. The requirements of paragraph (c)(2) of this section 
are illustrated by the following examples:
    (A) Example 1. A, a Tribe, operates under the direction of its 
Indian Tribal Government (the Council). According to the laws of A, all 
expenditures of A must be approved by a majority of the Council at the 
Council's annual meeting or by written unanimous consent if the action 
is taken without a meeting. During the annual meeting of A's Council, a 
majority of the Council vote to approve establishing a program. A's 
Council has established the program under paragraph (c)(2)(i) of this 
section.
    (B) Example 2. Same facts as in paragraph (c)(2)(ii)(A) of this 
section (Example 1), except that, based on a recommendation from the 
Tribal Education office, A's Council determines to provide funding for 
a scholarship program to pay 100% of education related expenses for any 
Tribal Member who graduates from high school or receives a GED during 
the calendar year. Because the next Council meeting is scheduled in 
December 2024, and to avoid potential impact on eligible students, in 
February 2024, Council adopts by unanimous written consent the 
following education program:
    (1) Approving $X of funding for the 2024 year for the scholarship 
program; and
    (2) Authorizing the director of the Tribal Education office to use 
the approved funds for the scholarship program. A's Council has 
established the education program under paragraph (c)(2)(i) of this 
section.
    (C) Example 3. Same facts as in paragraph (c)(2)(ii)(B) of this 
section (Example 2) except that A's Council approves $X of annual 
funding to be provided for the education program, and delegates to the 
Tribal Education office authority to establish a scholarship program. 
A's Council has established the education program under paragraph 
(c)(2)(i) of this section.
    (3) Program must be administered under specified guidelines. A 
program must be administered under specified guidelines. The specified 
guidelines 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. A program is administered under specified guidelines 
if the program is operated in accordance with such guidelines. Indian 
Tribal Governments may choose to, but are not required to, set forth 
the specified guidelines of the program in writing.
    (4) Program cannot discriminate in favor of members of the 
governing body of the Tribe--(i) In general. Except in the case of a 
program described in paragraph (c)(4)(ii) of this section, a program 
cannot discriminate in favor of members of the governing body of the 
Tribe. For the purposes of this paragraph (c)(4), a governing body 
means the legislative body of the Tribe, such as the Tribal Council, or 
the representative equivalent of the legislative body of the Tribe.
    (ii) General council Tribes. A program is treated as being in 
compliance with this paragraph (c)(4) if the governing body of a Tribe 
consists of the entire adult membership of the Tribe.
    (iii) Facts and circumstances test. Except in the case of a program 
described in paragraph (c)(4)(ii) of this section, a program fails to 
satisfy the requirements of this paragraph (c)(4) if based on all the 
facts and circumstances the program either by its terms or in its 
administration discriminates in favor of members of the governing body 
of the Tribe. Accordingly, a program discriminates in favor of the 
members of the governing body of the Tribe if the program by its terms 
is available only to members of the governing body. Additionally, the 
administration of a program discriminates in favor of members of the 
governing body of the Tribe if, based on the facts and circumstances, 
the benefits provided during the year disproportionately favor 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 
fails to satisfy the requirements of this paragraph (c)(4).

[[Page 76011]]

    (5) No limitation on source of funds--(i) In general. Benefits 
under the Indian Tribal Government Program may be funded by any source 
of revenue or funds. For example, an Indian Tribal Government may use 
funds derived from levies, taxes, and service fees; settlements; 
revenues from tribally-owned businesses, including casino revenues; 
funds from Federal, State, or local governments; and funds from other 
sources, including grants and loans, to provide benefits under an 
Indian Tribal Government Program.
    (ii) Benefits funded by net gaming revenues. Benefits under the 
Indian Tribal Government Program may be funded by net gaming revenues 
as permitted under the Indian Gaming Regulatory Act, 25 U.S.C. 2701-
2721 (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 this section. For purposes of 
section 139E and this section, a payment is a per capita payment if it 
is identified by the Indian Tribal Government as a per capita payment 
in a Revenue Allocation Plan that is approved by the Department of the 
Interior. See 25 U.S.C. 2710(b)(3) and 25 CFR 290.11.
    (d) Tribal General Welfare Benefits--(1) In general. A benefit does 
not qualify as a Tribal General Welfare Benefit unless the benefit is:
    (i) Provided pursuant to an Indian Tribal Government Program, as 
described in paragraph (c) of this section;
    (ii) Provided for the promotion of general welfare, as described in 
paragraph (d)(2) of this section;
    (iii) Available to any eligible Tribal Program Participant, as 
described in paragraph (d)(3) of this section;
    (iv) Not lavish or extravagant, as described in paragraph (d)(4) of 
this section; and
    (v) Not compensation for services, as described in paragraph (d)(5) 
of this section.
    (2) Benefits must be for the promotion of general welfare--(i) In 
general. Tribal General Welfare Benefits must be for the promotion of 
general welfare. For purposes of section 139E and this paragraph 
(d)(2), the Indian Tribal Government determines that a benefit is for 
the promotion of general welfare at the time it establishes the Tribal 
General Welfare Program meeting the requirements of paragraph (c) of 
this section. An Indian Tribal Government has sole discretion to 
determine whether a benefit is for the promotion of general welfare and 
the Internal Revenue Service will defer to the Indian Tribal 
Government's determination that a benefit is for the promotion of 
general welfare. Benefits may be provided without regard to the 
financial or other need of Tribal Program Participants and may be 
provided on a uniform or pro-rata basis to Tribal Program Participants. 
Thus, for example, an Indian Tribal Government determines whether 
benefits are for the promotion of general welfare under programs such 
as cultural programs, housing assistance programs, programs to provide 
education benefits, programs for training or retraining to acquire new 
skills or to obtain better employment opportunities, programs to 
provide assistance for disasters or emergency situations, funeral or 
burial assistance programs, legal aid programs, wellness and health-
related programs, or any programs that provide benefits to specific 
categories of individuals, such as elderly individuals or minors.
    (ii) Examples. The requirements of paragraph (d)(2)(i) of this 
section are illustrated by the following examples. For the examples in 
this paragraph (d)(2)(ii), assume the Indian Tribal Government has 
determined that the benefits provided are for the promotion of general 
welfare.
    (A) Example 1: Housing programs. Indian Tribal Government A 
administers a program, B, pursuant to which the following benefits are 
provided in connection with A's Tribal Members' principal residences 
and ancillary structures which are not used in any trade or business: 
payments for Tribal Members to use to make mortgage payments, down 
payments, and rent payments (including but not limited to security 
deposits); payments for Tribal Members to enhance habitability of 
housing, such as by remedying water, sewage, sanitation service, safety 
(including but not limited to mold remediation), and heating or cooling 
issues; payments for Tribal Members to provide for basic housing 
repairs or rehabilitation (including but not limited to roof repair and 
replacement); and payments to Tribal Members to pay utility bills and 
charges (including but not limited to water, electricity, gas, and 
basic communications services such as phone, internet, and cable). The 
payments made by A under B are for the promotion of general welfare as 
described in paragraph (d)(2)(i) of this section.
    (B) Example 2: Educational programs. Indian Tribal Government C 
administers a program, D, pursuant to which the following benefits are 
provided: provision to students (including but not limited to post-
secondary students) of transportation to and from school, tutors, and 
supplies (including but not limited to clothing, backpacks, laptop 
computers, musical instruments, and sports equipment) for use in school 
activities and extracurricular activities; tuition payments for 
students (including but not limited to allowances for room and board on 
or off campus for the student, spouse, domestic partner, and 
dependents) to attend preschool, school, college or university, online 
school, educational seminars, vocational education, technical 
education, adult education, continuing education, or alternative 
education; provision of care of children away from their homes to help 
their parents or other relatives responsible for their care to be 
gainfully employed or to pursue education; and provision of job 
counseling and programs for which the primary objective is job 
placement or training, including but not limited to allowances for 
expenses for interviewing or training away from home (including but not 
limited to travel, auto expenses, lodging, and food), tutoring, and 
appropriate clothing for a job interview or training (including but not 
limited to an interview suite or a uniform required during a period of 
training). The payments made by C under D are for the promotion of 
general welfare as described in paragraph (d)(2)(i) of this section.
    (C) Example 3: Elder and disabled programs. Indian Tribal 
Government E administers a program, F, pursuant to which the following 
benefits are provided to Tribal Members who have attained age 55 or are 
mentally or physically disabled (as defined under applicable law, 
including but not limited to an Indian Tribal Government's disability 
laws): meals through home-delivered meals programs or at a community 
center or similar facility; home care such as assistance with preparing 
meals or doing chores, or day care outside the home; local 
transportation assistance; and improvements to adapt housing to special 
needs (including but not limited to grab bars and ramps). The payments 
made by E under F are for the promotion of general welfare as described 
in paragraph (d)(2)(i) of this section.
    (D) Example 4: Transportation programs. Indian Tribal Government G 
administers a program, H, pursuant to which the following benefits are 
provided: payment of transportation costs such as rental cars, 
substantiated mileage, and fares for bus, taxi, and public 
transportation between an Indian reservation (as defined in section 
168(j)), service area (as defined in 25 CFR 20.100), or service unit 
area (meaning an area designated for

[[Page 76012]]

purposes of administration of Indian Health Service programs under 42 
CFR 136.21(1)) and facilities that provide essential services to the 
public (such as medical facilities and grocery stores). The payments 
made by G under H are for the promotion of general welfare as described 
in paragraph (d)(2)(i) of this section.
    (E) Example 5: Medical programs. Indian Tribal Government J 
administers a program, K, pursuant to which the following benefits are 
provided: payments for the cost of transportation, temporary meals, and 
lodging of a Tribal Program Participant while the individual is 
receiving medical care away from home, or to pay the cost of 
nonprescription drugs (including but not limited to traditional Tribal 
medicines). The payments made by J under K are for the promotion of 
general welfare as described in paragraph (d)(2)(i) of this section.
    (F) Example 6: Emergency programs. Indian Tribal Government L 
administers a program, M, pursuant to which the following benefits are 
provided: assistance to individuals in exigent circumstances (including 
but not limited to victims of abuse), including but not limited to the 
costs of food, clothing, shelter, transportation, auto repair bills, 
and similar expenses; payment of costs for temporary relocation and 
shelter for individuals involuntarily displaced from their homes 
(including but not limited to situations in which a home is destroyed 
by a fire or natural disaster); and assistance for transportation 
emergencies (for example, when stranded away from home) in the form of 
transportation costs, a hotel room, and meals. The payments made by L 
under M are for the promotion of general welfare as described in 
paragraph (d)(2)(i) of this section.
    (G) Example 7: Cultural and religious programs. Indian Tribal 
Government N administers a program, P, pursuant to which the following 
benefits are provided: payment of expenses (including but not limited 
to admission fees, transportation, food, and lodging) to attend or 
participate in a Tribe's cultural, social, religious, or community 
activities, such as powwows, ceremonies, and traditional dances; 
payment of expenses (including but not limited to admission fees, 
transportation, food, and lodging) to visit sites that are culturally 
or historically significant for the Tribe, including but not limited to 
other Indian reservations (as defined in section 168(j)); payment of 
the costs of receiving instruction about a Tribe's culture, history, 
and traditions (including but not limited to traditional language, 
music, and dances); payment of funeral and burial expenses and expenses 
of hosting or attending wakes, funerals, burials, other bereavement 
events, and subsequent honoring events; and payment of transportation 
costs and admission fees to attend educational, social, or cultural 
programs offered or supported by the Tribe or another Tribe. The 
payments made by N under P are for the promotion of general welfare as 
described in paragraph (d)(2)(i) of this section.
    (3) Benefits must be available. The benefits provided under an 
Indian Tribal Government Program must be available to any Tribal 
Program Participant who meets the specified guidelines of the program 
required under paragraph (c)(3) of this section, subject to budgetary 
constraints. However, the Indian Tribal Government has discretion to 
determine the category of individuals who are Tribal Program 
Participants under the Indian Tribal Government Program, provided that 
such determination is consistent with the specified guidelines 
described in paragraph (c)(3) of this section and subject to the 
prohibition on discrimination under paragraph (c)(4) of this section. 
Thus, for example, an Indian Tribal Government is permitted to limit 
eligibility for an Indian Tribal Government Program to dependents of 
Tribal Members who have attained a specified age, or, as another 
example, to a Tribal Member's household.
    (4) Benefits cannot be lavish or extravagant. The benefit provided 
by an Indian Tribal Government Program cannot be lavish or extravagant. 
Whether a benefit is lavish or extravagant for purposes of this section 
is based on the facts and circumstances at the time the benefit is 
provided. Relevant facts and circumstances include a Tribe's culture 
and cultural practices, history, geographic area, traditions, 
resources, and economic conditions or factors. A benefit will be 
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.
    (5) Benefits cannot be compensation for services. Except as 
provided in paragraph (e) of this section, a Tribal General Welfare 
Benefit does not include benefits that are provided as compensation for 
services to any person. Under section 61(a) of the Code, compensation 
for services includes fees, commissions, fringe benefits, and similar 
items, whether paid in money or property.
    (e) Cultural or ceremonial activities--(1) In general. For purposes 
of section 139E and paragraph (d)(5) of this section, a benefit is not 
compensation for services if:
    (i) The benefit is provided to a Tribal Program Participant for 
their participation in cultural or ceremonial activities for the 
transmission of Tribal culture as determined by the Indian Tribal 
Government (including, but not limited to, powwows, rite of passage 
ceremonies, funerals, wakes, burials, other bereavement events, and 
honoring events); and
    (ii) The benefit consists of an item of cultural significance as 
determined by the Indian Tribal Government, the reimbursement of costs, 
or a cash honorarium.
    (2) Application. Except as otherwise provided in this paragraph 
(e)(2), an Indian Tribal Government has sole discretion to determine 
whether an item is an item of cultural significance and whether an 
activity is a cultural or ceremonial activity, and the Internal Revenue 
Service will defer to these determinations by the Indian Tribal 
Government. However, cash, gift cards, or vehicles are generally not 
items of cultural significance.
    (3) Examples. The application of this paragraph (e) is illustrated 
by the following examples:
    (i) Example 1: Benefits for cultural or ceremonial activities not 
compensation for services. Tribe B regularly holds a gathering during 
the fall season to celebrate its cultural traditions. During the 
gathering, Tribal Members of B, as well as Tribal members of other 
Tribes from around the region, are invited to participate. The Indian 
Tribal Government of B (ITG-B) allocates funds for the gathering, some 
of which are used for the following payments:
    (A) Tribal Member of B. Individual 1, a Tribal Member of B, 
provides traditional blessings on the first and final days of the 
gathering. ITG-B gives Individual 1 a cash honorarium in recognition of 
providing the blessings. The cash honorarium that Individual 1 receives 
from ITG-B is not compensation for services under this paragraph (e).
    (B) Tribal Member of different Tribe. Individual 2, a Tribal Member 
of Tribe C, participates as a drummer for a ceremonial dance on the 
second day of the gathering. ITG-B gives Individual 2 a piece of 
culturally significant jewelry. Under paragraph (a)(7)(ii) of this 
section, Individual 2 is a Tribal Program Participant solely for 
purposes of this paragraph (e). The jewelry that Individual 2 receives 
from ITG-B is not

[[Page 76013]]

compensation for services under this paragraph (e).
    (ii) Example 2: Benefits for cultural or ceremonial activities not 
compensation for services. Tribe C operates a language preservation 
center in which Individual 3, a Tribal Member of C, who speaks the 
traditional language that is common to C and other regional Tribes, 
volunteers to come in every Saturday to discuss and teach the 
traditional language of C to other Tribal Members of C. The Indian 
Tribal Government of C (ITG-C), reimburses Individual 3 for travel 
expenses and teaching supplies used in Individual 3's language lessons. 
The reimbursement of costs that Individual 3 receives from ITG-C is not 
compensation for services under this paragraph (e).
    (f) Audit suspension. After [date of publication of the final 
regulations in the Federal Register], the Department of the Treasury 
and the Internal Revenue Service (IRS) will, in consultation with the 
Treasury Tribal Advisory Committee, establish and require the education 
and training prescribed in section 3(b)(2) of the Act. The temporary 
suspension of audits and examinations described in section 4(a) of the 
Act will not be lifted until the education and training prescribed by 
section 3(b)(2) of the Act is completed.
    (g) Applicability date. This section applies to taxable years of 
Tribal Program Participants that begin on or after [date of publication 
of the final regulations in the Federal Register].


Sec.  1.139E-2  [Reserved]

Douglas W. O'Donnell,
Deputy Commissioner.
[FR Doc. 2024-20826 Filed 9-13-24; 8:45 am]
BILLING CODE 4830-01-P