[Federal Register Volume 90, Number 239 (Tuesday, December 16, 2025)]
[Rules and Regulations]
[Pages 58378-58405]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-22873]
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Vol. 90
Tuesday,
No. 239
December 16, 2025
Part II
Department of the Treasury
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Internal Revenue Service
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26 CFR Part 1
Tribal General Welfare Benefits; Final Rule
Federal Register / Vol. 90 , No. 239 / Tuesday, December 16, 2025 /
Rules and Regulations
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 10040]
RIN 1545-BQ95
Tribal General Welfare Benefits
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final rule.
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SUMMARY: This document contains final regulations regarding the
exclusion from gross income of certain Tribal general welfare benefits.
The regulations address the requirements that apply to determine
whether the benefits an Indian Tribal government program provides
qualify as Tribal general welfare benefits. These regulations 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.
DATES:
Effective date: These final regulations are effective on December
16, 2025.
Applicability date: These final regulations apply for taxable years
beginning after December 16, 2025.
FOR FURTHER INFORMATION CONTACT: Jonathan A. Dunlap at (202) 317-4718
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Authority
This document contains amendments to the Income Tax Regulations (26
CFR part 1) under sections 139E and 7872 of the Internal Revenue Code
(Code).
Section 139E(c)(3) provides an express delegation of authority for
the Secretary of the Treasury or the Secretary's delegate (Secretary),
``in consultation with the Tribal Advisory Committee (as established
under section 3(a) of the Tribal General Welfare Exclusion Act of
2014), [to] establish guidelines for what constitutes lavish or
extravagant benefits with respect to Indian tribal government
programs.''
The regulations are also issued under the express delegations of
authority under sections 7805(a) and 7872(i) of the Code. Section
7805(a) authorizes the Secretary to ``prescribe all needful rules and
regulations for the enforcement of [the Code], including all rules and
regulations as may be necessary by reason of any alteration of law in
relation to internal revenue.'' Section 7872(i) authorizes the
Secretary to ``prescribe such regulations as may be necessary or
appropriate to carry out the purposes of this section, including . . .
regulations exempting from the application of this section any class of
transactions the interest arrangements of which have no significant
effect on any Federal tax liability of the lender or the borrower.''
Background
I. The Tribal General Welfare Exclusion Act of 2014
The Tribal General Welfare Exclusion Act of 2014 (Act), Public Law
113-168, 128 Stat. 1883 (2014), as enacted on September 26, 2014, among
other things, amended the Code by adding section 139E. Under section
139E, gross income of an individual does not include the value of any
``Indian general welfare benefit.'' Section 139E(b) defines an Indian
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) are 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'' for purposes of section 139E. This preamble
and the final regulations refer to an Indian general welfare benefit as
a ``Tribal General Welfare Benefit.''
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 applies to
taxable years for which the period of limitation on refund or credit
under section 6511 of the Code 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
previously described is completed. Section 4(a) further provides that
the running of the period of limitation under section 6501 of the Code
with respect to Indian Tribal governments and members of Indian Tribes
is suspended during the period in which such audits and examinations
are suspended.
II. Prior Guidance
Revenue Procedure 2014-35 (2014-26 I.R.B. 1110), which was issued
before section 139E was enacted, provided safe harbors under which the
IRS conclusively presumed the individual need requirement of the
administrative general welfare exclusion is met for benefits provided
under Indian Tribal government programs that meet the safe harbor
requirements. In addition, the revenue procedure provided 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
[[Page 58379]]
requirements of section 6041 of the Code.
Following the enactment of section 139E, the Department of Treasury
(Treasury Department) and 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
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 issues that future guidance might address regarding the
implementation of section 139E and other parts of the Act.
On June 16, 2021, the TTAC's General Welfare Exclusion Subcommittee
(TTAC GWE Subcommittee) submitted to the TTAC a report (TTAC Report)
containing the TTAC 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 (2022 Dear Tribal Leader Letter), to Tribal leaders to
request consultation on the Act and the TTAC Report. The 2022 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. In response to the 2022 Dear Tribal Leader
Letter, and after the December 2022 Consultations, the Treasury
Department received 65 written comments from Tribes and two Tribal
organizations (collectively, 2022 Tribal Comments).
On September 17, 2024, following extensive consultation with TTAC,
the Treasury Department and the IRS published a notice of proposed
rulemaking (REG-106851-21) in the Federal Register (89 FR 75990) under
section 139E (proposed regulations). The proposed regulations reflect
consideration of the TTAC Report, December 2022 Consultations, 2022
Tribal Comments, and consultation with the TTAC and the TTAC GWE
Subcommittee.
The Treasury Department sent a Tribal consultation letter, dated
September 13, 2024 (2024 Dear Tribal Leader Letter), to Tribal leaders
to request consultation on the proposed regulations. The 2024 Dear
Tribal Leader Letter announced consultation meetings to be held on
November 18, 19, and 20, 2024 (November 2024 Consultations), to discuss
the proposed regulations. In response to the 2024 Dear Tribal Leader
Letter and after the November 2024 Consultations, the Treasury
Department received 103 written comments from Tribes and Tribal
organizations (collectively, 2024 Tribal Comments).
A public hearing on the proposed regulations was held on January
13, 2025, at which five speakers provided testimony. The Treasury
Department and the IRS received 41 public comments in response to the
notice of proposed rulemaking. Copies of the comments are available for
public inspection at http://www.regulations.gov or upon request.
After considering all of the public comments, 2024 Tribal Comments,
speaker outlines, and testimony (collectively, comments) received in
response to the proposed regulations, and extensive consultation with
the TTAC GWE Subcommittee, the Treasury Department and the IRS adopt
the proposed regulations, as revised in response to such comments, as
final regulations. The comments and the revisions are discussed in the
following Summary of Comments and Explanation of Revisions section of
this preamble.
The Treasury Department and the IRS emphasize that the scope of
tribal general welfare under section 139E and these regulations is
broader than the scope of general welfare under the administrative
general welfare doctrine, which is generally limited to governmental
programs providing benefits based on need. This broader scope is due
both to specific language in section 139E itself, such as the language
in section 139E(c)(5) providing that certain benefits for participating
in certain cultural or ceremonial activities shall not be treated as
compensation, and to the language in section 2(c) of the Act providing
that ambiguities in the Act are to be resolved in favor of Indian
Tribal governments and that deference must be given to Indian Tribal
governments with respect to the programs they determine are to benefit
the general welfare of the tribal community. Accordingly, section 139E
and these final regulations do not provide any basis for analyzing the
applicability of the administrative general welfare doctrine to any
benefit.
Summary of Comments and Explanation of Revisions
I. Overview
This Summary of Comments and Explanation of Revisions summarizes
the formal written public comments submitted in response to the
proposed regulations; comments made at the public hearing announced in
the preamble to the proposed regulations and held on January 13, 2025;
written Tribal comments provided in connection with Treasury Tribal
consultations; and comments made in connection with the TTAC GWE
Subcommittee consultations addressing the proposed regulations.
Comments merely summarizing or interpreting the proposed regulations
generally are not discussed in this preamble.
Most of the commenters expressed general approval of the proposed
regulations and support for the deference provided for Tribal
sovereignty; Tribal self-determination; Tribal self-governance; and the
diverse traditions, governance structures, cultures, geographies, and
economic conditions of Tribal Nations and their citizens. Several
commenters appreciated the clarity provided in the proposed
regulations, noting that the lack of guidance on this topic has
hampered Tribal general welfare programs and that the regulations will
enable Tribes to review and update existing Tribal general welfare
programs to meet the requirements of section 139E. One commenter
underscored the importance of excluding benefit amounts for housing and
education, which are designed to address the negative impacts of prior
policies, from tax.
A few commenters expressed opposition to all Federal taxation of
Tribes; opposition to what a commenter describes as the proposed
regulations' ``racist, paternalistic, ethnocentric, contrary to
international law, and contrary to self-determination'' character and
the proposed regulations' purported failure to put Tribal general
welfare issues under the sole jurisdiction of Tribes; opposition to
purported interference with Congressional intent regarding the
taxation, self-determination, and self-governance of Tribes; opposition
to changes to current regulations; and opposition to the placement of
arbitrary barriers on Tribal general welfare.
The Treasury Department and the IRS have engaged in extensive
consultation with the TTAC and Tribal leaders, prior to and following
the issuance of the proposed regulations. The Treasury Department and
the IRS have worked to
[[Page 58380]]
address all concerns expressed in public comments and consultation to
the extent permitted by the Act and section 139E. The comments received
are addressed in more detail in parts II through X of this Summary of
Comments and Explanation of Revisions.
Many commenters supported the deference provided to Indian Tribal
governments in the proposed regulations and the acknowledgment that
Tribal governments are best positioned to define, establish, and
administer general welfare programs for their citizens, particularly
with regard to Tribal determinations of the promotion of the general
welfare and the identification of activities as having cultural
significance. These commenters further appreciated that this approach
recognizes the Indian Tribal governments' inherent sovereignty, right
to self-determination, and right to self-governance.
A few commenters referred to section 2(c) of the Act as evincing
Congressional intent for deference to be given to Indian Tribal
governments in the design and implementation of their general welfare
programs without undue interference from the Federal government. Some
commenters recommended that section 2(c) of the Act be specifically
included in the final regulations because it is a key foundation of the
Act and would be important to understanding section 139E and the
regulations in the future.
The Treasury Department and the IRS agree with commenters that
section 2(c) of the Act is central to the interpretation of section
139E and that ambiguities in section 139E must be resolved in favor of
Indian Tribal governments and deference to Indian Tribal governments
must be provided for the programs that are administered and authorized
by the Tribe to benefit the general welfare of the Tribal community.
The Treasury Department and the IRS applied section 2(c) of the Act
when drafting these regulations in a manner that provides deference to
Indian Tribal governments and interprets ambiguities in section 139E in
favor of the Indian Tribal governments. Notwithstanding that section
2(c) of the Act supplied these central principles that were used when
drafting these final regulations, the Treasury Department and the IRS
agree with commenters that it is helpful to include the language from
section 2(c) of the Act in new Sec. 1.139E-1(f) and remaining
paragraphs are renumbered accordingly. Section 1.139E-1(f) thus ensures
the Congressional intent of deference to Tribes for programs
administered and authorized under the Act is preserved when
interpreting section 139E.
II. Section 139E Definitions
A. Definition of Indian Tribal Government
Under section 7701(a)(40)(A) of the Code, the term ``Indian Tribal
government'' when used in the Code and ``where not otherwise distinctly
expressed or manifestly incompatible with the intent thereof,'' \1\
means ``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.'' Section
7701(a)(40)(B) further provides that ``[n]o determination under
subparagraph (A) with respect to Alaska Natives shall grant or defer
any status or powers other than those enumerated in section 7871 [of
the Code]. Nothing in the Indian Tribal Governmental Tax Status Act of
1982, or in the amendments made thereby, shall validate or invalidate
any claim by Alaska Natives of sovereign authority over lands or
people.''
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\1\ Per the flush language of section 7701(a), each definition
provided therein is generally applicable under provisions of the
Code ``where not otherwise distinctly expressed or manifestly
incompatible with the intent thereof.''
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Section 139E(c)(1) of the Code expressly provides a broader meaning
of the term ``Indian Tribal government'' for purposes of section 139E.
The broader meaning is arrived at by adding two additional sets of
entities to the Code's general definition of ``Indian Tribal
government.'' The first set of additional entities includes ``any
agencies or instrumentalities of an Indian Tribal government.'' The
second set of additional entities includes ``any Alaska Native regional
or village corporation, as defined in, or established pursuant to, the
Alaska Native Claims Settlement Act (43 U.S.C. 1601 et seq.).'' An
entity described in this second set of additional entities is referred
to in this preamble as an ``Alaska Native regional or village
corporation.''
Proposed Sec. 1.139E-1(b)(4) addressed only the first set of
entities included in the definition of Indian Tribal government in
section 139E(c)(1) and clarified that for purposes of proposed Sec.
1.139E-1, the term ``Indian Tribal Government'' has the meaning
provided in section 7701(a)(40) of the Code, and, as provided in
section 139E(c)(1), also includes agencies and instrumentalities of
such Indian Tribal governments. The proposed regulations did not
address Alaska Native regional or village corporations in the
definition of Indian Tribal government for purposes of the rules in
Sec. 1.139E-1. Instead, the proposed regulations reserved proposed
Sec. 1.139E-2 for future rules to clarify the application of section
139E to benefits provided by Alaska Native regional or village
corporations.
While one commenter expressed support for the application of the
proposed regulations to ``Alaska Native Americans,'' several commenters
objected to the omission of Alaska Native regional or village
corporations from the definition of Indian Tribal government and from
consultation prior to the issuance of the proposed regulations. These
commenters argued that Alaska Native regional or village corporations
should have been included in the definition in proposed Sec. 1.139E-1
and invited to participate in the Tribal consultation, and that their
omission is contrary to Congressional intent, the statutory language of
section 139E, the holding in Yellen v. Confederated Tribes of the
Chehalis Reservation, 594 U.S. 338 (2021), the Indian Self-
Determination and Education Assistance Act (ISDEAA), Public Law 93-638,
88 Stat. 2203 (1975), and Executive Order 13175, Consultation and
Coordination with Indian Tribal Governments (November 9, 2000).
These commenters expressed concern that the omission of Alaska
Native regional or village corporations from this definition may
suggest section 139E is not applicable to Alaska Native regional or
village corporations, with one commenter suggesting shareholders of
Alaska Native regional or village corporations who are not otherwise
members of Tribes could be disproportionately impacted.
One commenter requested consultation with Alaska Native regional or
village corporations be held immediately and that the Treasury
Department and the IRS publish a proposed regulation under Sec.
1.139E-2 with notice and comment on such regulation prior to issuing
final regulations under Sec. 1.139E-1.
The Treasury Department and the IRS understand the concerns raised
by these comments and agree with commenters that section 139E(c)(1)
includes Alaska Native regional or village corporations in the
definition of Indian Tribal government for purposes of section 139E.
The omission of Alaska Native regional or village corporations from the
definition of Indian Tribal government in proposed Sec. 1.139E-1 was
never intended to suggest Indian general welfare benefits cannot be
provided by an Alaska Native regional or village corporation to or on
behalf of its
[[Page 58381]]
members (or any spouse or dependent of such members). Thus, the
Treasury Department and the IRS agree that section 139E permits Alaska
Native regional or village corporations to provide Indian general
welfare benefits, and that other provisions of the Act also apply to
Alaska Native regional or village corporations.
The Treasury Department and the IRS therefore held consultation
with Alaska Native regional or village corporations on section 139E on
July 29, 2025. The feedback received during this consultation will help
the Treasury Department and the IRS determine what customizations of
the rules in Sec. 1.139E-1 may be useful in promulgating regulations
under Sec. 1.139E-2 that will apply specifically to Alaska Native
regional or village corporations and make more clear their ability to
provide benefits under section 139E. As part of this consultation, the
Treasury Department and the IRS asked questions of Alaska Native
regional or village corporations, the answers to which will inform the
drafting of regulations tailored to the needs of Alaska Native regional
or village corporations to implement section 139E more effectively. The
Treasury Department and the IRS expect the process of promulgating
additional final regulations under Sec. 1.139E-2 will be similar to
the process used to promulgate Sec. 1.139E-1 applicable to Federally
recognized Tribes.
Accordingly, these final regulations under Sec. 1.139E-1 do not
include Alaska Native regional or village corporations in the
definition of Indian Tribal government found in Sec. 1.139E-1(b)(4).
However, see part X.B. of this Summary of Comments and Explanation of
Revisions for a discussion of the consultation and the ability of
Alaska Native regional or village corporations to choose to apply the
rules of Sec. 1.139E-1 as included in this Treasury decision pending
the promulgation of additional regulations under Sec. 1.139E-2.
B. Definition of Tribe
Proposed Sec. 1.139E-1(b)(7) would define ``Tribe'' as 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. Alaska Native regional or village corporations are excluded
from this definition of Tribe.
Two commenters requested Alaska Native regional or village
corporations be included in the definition of Tribe in Sec. 1.139E-
1(b)(7) of the final regulations.
The Treasury Department and the IRS decline to modify the
definition of Tribe in Sec. 1.139E-1(b)(7) of these final regulations
because subsequent guidance promulgated at Sec. 1.139E-2 will
specifically address the application of the requirements of section
139E to Alaska Native regional or village corporations. The Treasury
Department and the IRS acknowledge that Alaska Native regional or
village corporations can have programs that qualify to provide general
welfare benefits that are excludible from gross income under section
139E. However, the Treasury Department and the IRS intend to issue
future guidance specific to the unique circumstances of Alaska Native
regional or village corporations. See, however, part X.B. of this
Summary of Comments and Explanation of Revisions for further discussion
of the consultation with Alaska Native regional or village corporations
and the ability of an Alaska Native regional or village corporation to
choose to apply the rules of Sec. 1.139E-1 as included in this
Treasury decision pending the promulgation of additional final
regulations under Sec. 1.139E-2.
C. Definition of Tribal Program Participant
1. In General
Proposed Sec. 1.139E-1(b)(8) would provide that the term ``Tribal
program participant'' means a Tribal member, spouse of a Tribal member
within the meaning of Sec. 301.7701-18 of the Procedure and
Administration Regulations (26 CFR part 301), 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, legally recognized
domestic partner or former domestic partner.
Most commenters supported the breadth of, and deference provided
by, the definition of Tribal program participant in proposed Sec.
1.139E-1(b)(8) and supported the use of Tribal law to determine
eligible program participants. Some commenters requested that Indian
Tribal government programs be able to cover additional categories of
recipients, including unenrolled individuals in the community; step-
parents, custodians, guardians, and foster parents of an Indian child;
and other members of the same household. Commenters broadly requested
Tribes be able to define the categories listed in the Tribal program
participant definition in the proposed regulations.
The Treasury Department and the IRS generally decline to expand the
definition of Tribal program participant in these final regulations to
individuals that are unenrolled members of the Tribal community. These
individuals are neither members of an Indian Tribe (or any spouse or
dependent of such a member) as described under section 139E(b), nor
``qualified nonmembers'' under Revenue Procedure 2014-35. The Treasury
Department and the IRS have determined the statutory language and
legislative history generally do not support an extension of section
139E beyond the individuals provided in the definition of Tribal
program participant under proposed Sec. 1.139E-1(b)(8).
However, the Treasury Department and the IRS have determined the
definition of Tribal program participant should be clarified to include
an individual for whom a Tribal member is a caregiver authorized under
Tribal or State law. The Treasury Department and the IRS understand a
Tribal member may be legally authorized or required to be a caregiver
for an individual even though such individual is not otherwise eligible
to receive payments under the Indian Tribal government program. This
definitional change from the proposed regulations is a clarification of
the deference given to Indian Tribal government programs to determine
whether providing benefits to a Tribal member to care for such
individuals is for the promotion of general welfare.
2. Special Rule for Ceremonial or Cultural Activities
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 or citizen of a Tribe other
than the Tribe that establishes or maintains the Indian Tribal
government program that provides the Tribal general welfare benefit.
One commenter recommended that proposed Sec. 1.139E-1(b)(8)(ii)
should be revised to include benefits provided by an Indian Tribal
government program, according to the custom of certain Tribes, to the
spouse of a member or citizen of a different Tribe. Other commenters
requested that final Sec. 1.139E-1(b)(8)(ii) apply to indigenous
people from outside the United States, including Canada, Mexico, and
South America, if these individuals participate in a Tribe's ceremonial
and cultural activities for the transmission of Tribal culture.
[[Page 58382]]
Accordingly, Sec. 1.139E-1(b)(8)(ii) of these final regulations
provides that, solely for purposes of Sec. 1.139E-1(e), relating to
cultural or ceremonial activities, the definition of ``Tribal program
participant'' includes, in addition to a member or citizen of a
different Tribe, other individuals described in Sec. 1.139E-
1(b)(8)(i). For purposes of this addition, in applying paragraph Sec.
1.139E-1(b)(8)(i), such member or citizen of another Tribe will be
treated as a Tribal Member. The Treasury Department and the IRS
understand that a member or citizen of another Tribe, the spouse and
certain other family members of the member or citizen of another Tribe,
may also participate in another Tribe's cultural or ceremonial
activities. As such, these final regulations broaden the special rule
of Sec. 1.139E-1(b)(8)(ii), which continues to apply solely for
purposes of Sec. 1.139E-1(e).
However, the Treasury Department and the IRS have determined that
the benefits that section 139E refers to are those provided to or on
behalf of members of a Tribe (or any spouse or dependent of such a
member). ``Tribe'' is defined by reference to section 45A(c)(6) of the
Code, which generally refers to Federally recognized Tribes.
Accordingly, Sec. 1.139E-1(b)(8)(ii) of these final regulations does
not expand the reference to members or citizens of a different Tribe to
include members or citizens of non-Federally recognized Tribes whether
located in or outside of the United States.
D. Definition of Dependent
Proposed Sec. 1.139E-1(b)(10) would define the term ``dependent''
in accordance with 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(a) of the Code without regard to section
152(b)(1), (b)(2), and (d)(1)(B).
Several commenters recommended that Tribes should be given broad
deference, or ``sole discretion,'' to define the term dependent under
Tribal law for purposes of section 139E and the final regulations, or
otherwise provide a presumption that the Indian Tribal government's
definition of dependent is valid. These commenters highlighted that
dependent may be defined differently under the law of each Indian
Tribal government, or that a Tribe may lack sufficient information to
determine whether a general welfare program recipient, including a non-
member child, is eligible for benefits under section 139E and the
proposed regulations.
The Treasury Department and the IRS decline to change the
definition of dependent in these final regulations, as this term is
expressly defined in section 139E(c)(2). The statute unambiguously
defines dependent, as provided in section 152 as modified by section
139E(c)(2). However, these final regulations clarify that for purposes
of section 139E the term dependent has the meaning provided in section
152 determined without regard to section 152(b)(1), (b)(2), and
(d)(1)(B).
III. Indian Tribal Government Program
Proposed Sec. 1.139E-1(c) would provide certain requirements that
a program must meet to constitute an ``Indian Tribal government
program'' for purposes of section 139E and the proposed regulations.
These requirements are: (1) the program must be established by an
Indian Tribal government, (2) the program must be administered under
specified guidelines, and (3) the program cannot discriminate in favor
of members of the governing body. Each requirement is discussed in more
detail in this part III.
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. 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. Moreover, the
proposed regulations would provide that an Indian Tribal government is
not required to set forth the program in a written document unless
applicable Tribal law requires a writing as part of the formal actions
of the Indian Tribal government.
Many commenters approved of the flexible program documentation
requirements, noting that this flexibility reflects respect for the
diverse traditions and governance structures of Tribal nations by
allowing programs to be established through Tribal customs, practices,
or formal written policies. These commenters noted that such respect is
essential to meaningful self-determination. However, one commenter
recommended that the final regulations include guidance on what
documentation is necessary for programs established before the
documentation standards provided in the proposed regulations, and
recommended that Indian Tribal governments be permitted to affirm or
establish multiple existing programs with a single, blanket action. The
commenter also requested the final regulations recognize Tribal laws
that provide a less formal path to establish programs.
The Treasury Department and the IRS have determined that no
modifications are needed in these final regulations to the text used in
proposed Sec. 1.139E-1(c)(2). Section 139E(c)(4) and Sec. 1.139E-
1(c)(2) allow a program to be established by Tribal custom or
government practice, and defer to Tribal law to determine what formal
action, if any, of the Indian Tribal government is necessary to
establish a program. Section 1.139E-1(c)(2) provides deference to the
Indian Tribal government to determine whether a program is to be
established by Tribal custom or government practice, or by formal
action of the Indian Tribal government. Thus, in general, the Treasury
Department and the IRS would respect an Indian Tribal government's
action of affirming or establishing multiple existing programs with a
single formal action as satisfying Sec. 1.139E-1(c)(2) if such action
is permitted by Tribal law.
The Treasury Department and the IRS also decline to depart from the
language of the proposed regulation to provide examples of less formal
ways that may be used to establish a program because Sec. 1.139E-
1(c)(2) already provides that ``formal action'' means authorization of
the program pursuant to Tribal law. The Treasury Department and the IRS
intend that Sec. 1.139E-1(c)(2) provides deference to the Indian
Tribal government, subject to the application of its Tribal laws, to
determine the process required to establish programs.
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. Under proposed Sec. 1.139E-
1(c)(3), 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 the
benefits are determined), the eligibility requirements for the program,
and the process for receiving benefits under the
[[Page 58383]]
program. While Indian Tribal governments may choose to set forth the
specified guidelines in writing, an Indian Tribal government program is
not required to memorialize the specified guidelines in a writing.
Many commenters approved of the flexibility in the proposed
regulations to develop program guidelines, which is essential to
meaningful self-determination, and recommended that the final
regulations not add additional requirements that could negatively
impact the deference to Tribes and the recognition of their varied and
unique governance structures. To that end, one commenter recommended
that the final regulations provide that Indian Tribal governments have
the sole discretion to determine the form and content of specified
guidelines, consistent with Tribal law.
Section 139E(b)(1) provides that an Indian Tribal government
program must be administered under specified guidelines. However, the
Treasury Department and the IRS acknowledge that Indian Tribal
governments are entitled to deference for the programs they establish
and administer. Proposed Sec. 1.139E-1(c)(3) would also provide that
in addition to the minimum details described above, the Indian Tribal
government may provide additional details in the program's specified
guidelines and choose to memorialize this information in a writing.
However, proposed Sec. 1.139E-1(c)(3) would not require the specified
guidelines to be in writing.
Several commenters requested clarification or removal of one of the
minimum requirements for specified guidelines in proposed Sec. 1.139E-
1(c)(3). Specifically, these commenters considered the parenthetical
phrase, ``(including how benefits are determined),'' to be ambiguous.
The commenters suggested the phrase is either redundant with the
requirement for a description of the ``eligibility requirements,'' or
alternatively requires an Indian Tribal government to provide detailed
justification of any benefits provided, contrary to the general
deference provided to Indian Tribal governments in the proposed
regulations.
The parenthetical phrase in proposed Sec. 1.139E-1(c)(3),
``(including how benefits are determined),'' was intended by the
Treasury Department and the IRS to require the specified guidelines of
a program to include information as to how the type of benefit provided
under the program would promote the Indian Tribal government's general
welfare goal. The Treasury Department and the IRS acknowledge many
commenters found the language to be unclear and have determined that
the language is unnecessary because its intent is adequately addressed
by the other specified guidelines. Thus, Sec. 1.139E-1(c)(3) of the
final regulations states in relevant part that the ``specified
guidelines must include, at a minimum, a description of the program to
provide Tribal General Welfare Benefits, the eligibility requirements
for the program, a description of the type of benefits authorized by
the program, and the process for receiving benefits under the
program.''
One commenter expressed further concern that proposed Sec. 1.139E-
1(c)(3) is ambiguous in its application or applicability to programs
created prior to the issuance of proposed or final regulations under
section 139E, or programs for which the requirements are set forth in
several documents or actions, as may be required to meet the acute
needs of the community.
The specified guidelines provided in Sec. 1.139E-1(c)(3) are
minimum program guidelines that are fundamental to the operation of a
Tribal general welfare program under section 139E. The Treasury
Department and the IRS understand that some transition time may be
necessary to ensure Indian Tribal government programs meet both the
establishment and the administration requirements (including the
specified guidelines requirement). Section 1.139E-1(c)(3) does not
provide guidance on transition for existing programs because
transitional rules are more broadly provided elsewhere in these
regulations. Specifically, Sec. 1.139E-1(h) provides that Indian
Tribal governments and Tribal program participants will be required to
apply the final regulations to taxable years of Tribal program
participants that begin on or after January 1, 2027, while also
allowing Indian Tribal governments the ability to choose to apply the
rules of Sec. 1.139E-1, in their entirety, to benefits provided to
Tribal program participants in prior taxable years. The Treasury
Department and the IRS believe this applicability date provides Indian
Tribal governments a reasonable transition period to make any program
adjustments or updates that may be necessary for their programs to
satisfy the requirements of Sec. 1.139E-1.
The Treasury Department and the IRS emphasize that Sec. 1.139E-
1(c)(3) does not require the specified guidelines to be in writing or
otherwise prescribe how the Indian Tribal government program retains
its specified guidelines. Thus, the program may satisfy the specified
guidelines requirement in Sec. 1.139E-1(c)(3) with a single written
document, several documents, or non-written guidelines. Section 1.139E-
1(c)(3) is intended to provide broad deference to Indian Tribal
governments to determine how such specified guidelines are created,
maintained, or modified.
C. Program Cannot Discriminate in Favor of Members of the Governing
Body of the Tribe
Proposed Sec. 1.139E-1(c)(4) would provide that an Indian Tribal
government program may not discriminate in favor of members of the
governing body of the Tribe (non-discrimination requirement). A
governing body is generally the legislative body of the Tribe, such as
the Tribal council, or the representative equivalent of the legislative
body of the Tribe. However, proposed Sec. 1.139E-1(c)(4)(ii) would
treat a program 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, referred to as a ``general council
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. 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 the members of the governing body would fail
to satisfy the non-discrimination requirement.
Commenters indicated that it is unlikely that an Indian Tribal
government would differentiate benefits or establish a general welfare
program solely for its governing body because it contradicts the intent
of a general welfare program to provide for the well-being of Tribal
members. In addition, commenters recommended changes from the language
of proposed Sec. 1.139E-1(c)(4) to prevent potential unintended
consequences for situations where a program benefit would be available
to any eligible Tribal member but, in a particular point of time, the
only eligible beneficiaries of a particular Tribal general welfare
benefit are members of the Indian Tribal government or their family
members.
[[Page 58384]]
The commenters provided an example of a tuition assistance program in
which one individual beneficiary may qualify for benefits in the
taxable year, and such individual is a family member of a Tribal
government official. Commenters requested clarification on the
application of proposed Sec. 1.139E-1(c)(4) where benefit
distributions vary annually but may have the appearance in any given
year that distributions disproportionately benefit certain Tribal
members. These commenters emphasized that Sec. 1.139E-1(c)(4) should
evaluate an Indian Tribal government program based on its structure and
historical administration, and whether such program is designed and
administered to avoid discrimination in favor of a Tribe's governing
body. Finally, one commenter requested clarification that benefits
provided to former members of Tribal governing bodies to compensate for
sacrificing Social Security benefit credits during their terms of
service are not considered either compensation for current services or
discriminatory in favor of such recipients such that they would fail to
satisfy section 139E under the final regulations.
The Treasury Department and the IRS agree with commenters that
clarification would be helpful on how the facts and circumstances test
in proposed Sec. 1.139E-1(c)(4) applies in certain situations. The
Treasury Department and the IRS understand that there may be instances
when, in a given year, a program distributes benefit payments
disproportionately to members of the governing body or their families
even though the program does not by its terms disproportionately favor
members of the governing body and, in most other years, does not
disproportionately favor members of the governing body. The facts and
circumstances test provides flexibility to account for an anomalous
year where a program otherwise does not disproportionately favor
members of the governing body. Nevertheless, the Treasury Department
and the IRS agree that clarifying language in Sec. 1.139E-1(c)(4)
would be helpful. Accordingly, these final regulations revise Sec.
1.139E-1(c)(4)(iii) to provide that a program discriminates in favor of
members of the governing body of the Tribe if, based on the totality of
the facts and circumstances, the benefits provided during the year
disproportionately favor members of the governing body of the Tribe
because of their status as members of the governing body.
The Treasury Department and the IRS do not provide any
clarification in response to the comment regarding a specific fact
pattern involving benefits provided to former members of Tribal
governing bodies because there are not sufficient facts to address the
comment. However, the Treasury Department and the IRS affirm that
section 139E(b)(1) and Sec. 1.139E-1(c)(4) provide that an Indian
Tribal government program cannot discriminate in favor of members of
the governing body.
D. No Limitation on Source of Funds
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 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. Proposed Sec. 1.139E-
1(c)(5)(ii) also specifically would permit the funding of Indian Tribal
government programs with net gaming revenues. However, the preamble to
the proposed regulations noted that an Indian Tribal government is
permitted to restrict the source and amount of funds available to
provide benefits under the Indian Tribal government program.
Several commenters appreciated that the enumeration of permissible
sources in proposed Sec. 1.139E-1(c)(5) was not all-inclusive or
limiting but recommended that the list explicitly include ``grantor
trusts'' and deferred benefit accounts as permissible sources of
funding. See part III.D.2. of this Summary of Comments and Explanation
of Revisions for a discussion of the use of trusts in Tribal general
welfare programs.
1. Benefits Funded by Net Gaming Revenues
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 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 the regulations. Proposed Sec.
1.139E-1(c)(5)(ii) further would provide that, for purposes of section
139E, 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 (RAP) that is approved by the Department of the
Interior (DOI).
Several commenters approved of proposed Sec. 1.139E-1(c)(5)
providing that Tribes may use any revenue source for general welfare
programs, including gaming revenue, because the rule supports Tribal
sovereignty regarding the use of a Tribe's financial resources.
However, several commenters requested that the final regulations
confirm the Treasury Department and the IRS will defer to, or give sole
discretion to, Indian Tribal governments with respect to allocations
under an approved RAP as between per capita payments and Tribal general
welfare programs. Conversely, some commenters expressed concern that
DOI may evaluate a program's compliance under section 139E and urged
the Treasury Department and the IRS to communicate these concerns with
DOI and the National Indian Gaming Commission (NIGC).
In response to the comments received, these final regulations
differ from proposed Sec. 1.139E-1(c)(5)(ii) in providing that for
purposes of section 139E and these regulations, the determination of
whether a payment is a per capita payment is based on the RAP that is
in effect (that is, approved by DOI) at the time the per capita payment
is made to the recipient. The clarification is made because the
Treasury Department and the IRS are aware that Indian Tribal
governments may modify a RAP and IGRA trusts over the years. As
discussed in part III.D.2. of this Summary of Comments and Explanation
of Revisions, for purposes of section 139E, whether a distribution from
a grantor trust owned by the Indian Tribal government is a general
welfare payment is determined when the payment is distributed to the
Tribal program participant.
In the view of the Treasury Department and the IRS, the language in
proposed Sec. 1.139E-1(c)(5)(ii) would provide deference to an Indian
Tribal government's determinations of how net gaming revenue is
allocated. Specifically, Sec. 1.139E-1(c)(5)(ii) provides that, for
purposes of section 139E and these 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. Similarly, for
an Indian Tribal government without a RAP, the determination of the
Indian Tribal government that the payment is not a per capita payment
is controlling for Federal income tax purposes. Thus, for purposes of
section 139E and Sec. 1.139E-1(c)(5)(ii), the IRS will defer to the
Indian Tribal government's determination that the allocation of net
gaming revenues is classified as general
[[Page 58385]]
welfare, or conversely a per capita payment made pursuant to a RAP.
The Treasury Department and the IRS confirm that DOI and NIGC do
not have jurisdiction over the determination of whether a program
satisfies section 139E and these regulations. The Treasury Department
and the IRS have jurisdiction over interpretation of the Internal
Revenue Code (26 U.S.C. 1 et seq.), and the IRS is the agency
responsible for determining whether a program satisfies the
requirements of section 139E and these regulations. The Treasury
Department and the IRS plan to communicate the commenters' concerns
with DOI and NIGC and ensure open dialogue will continue in the future
over jurisdictional responsibilities of the respective agencies.
2. Benefits Paid as Distributions From a Grantor Trust
The proposed regulations would not provide guidance on
distributions from grantor trusts. In part V.C. of the Explanation of
Provisions section of the preamble to the proposed regulations, the
Treasury Department and the IRS requested comments on whether
additional guidance under section 139E or other Code sections is needed
to address the tax treatment of deferred benefits or benefits paid from
trust arrangements, and, if so, what specific fact patterns should be
addressed.
Most commenters requested that the final regulations include
guidance on grantor trusts because many Tribes use grantor trusts and
deferred benefit arrangements for flexibility and for the ability to
leverage the principal amount of general welfare benefits over a longer
period of time, such as with elder care, mortgage, and education
benefits. Commenters generally disagreed that Revenue Procedure 2011-56
(2011-49 I.R.B. 834) adequately addresses the use of grantor trusts for
excluded Tribal general welfare benefits because that guidance refers
to taxable, but tax-deferred, per capita payments under IGRA.
Several commenters recommended that, for purposes of section 139E,
amounts held in grantor trusts owned by the Indian Tribal government
should be treated like any other Tribal accounts because the Tribe is
the owner of the Tribal general welfare benefits until they are
disbursed. Commenters note grantor trusts are a tool that may be used
to deliver Tribal general welfare benefits if the trust distributions
are administered pursuant to the Indian Tribal government program. Many
commenters requested that the final regulations confirm that Tribes may
use grantor trusts to fund Indian Tribal government programs, and that
any interest and capital gains earned by the trust also are treated as
Tribal general welfare payments at the time the program distributes a
payment from the grantor trust to the Tribal program participant. For
example, one commenter requested clarity on whether distributions from
grantor trust accounts that are paid out at the age of majority are
Tribal general welfare benefits under section 139E such that
distributions of the grantor trust's interest and earnings are also
excludable from income at the time of distribution.
Some commenters discussed grantor trusts and IGRA. For example,
some commenters suggested that grantor trust distributions should be
excluded under section 139E if the grantor trust distributions are
Tribal general welfare benefits under section 139E and not otherwise
treated as per capita distributions under the Tribe's RAP. The
commenter requested that final regulations provide that Tribes may
place funds in a grantor trust, identified to specific member
subaccounts, that generally conform to existing guidance for IGRA
minors' trusts, for future use for general welfare purposes, without
Federal income tax consequence to the beneficiary. One commenter also
requested guidance on whether a distribution from such a trust could be
excluded under section 139E if made pursuant to a plan under section
529, a medical savings plan, a plan under an Indian Tribal government
program, or other similar plan.
One commenter recommended that Revenue Procedure 2011-56 be
modified to expand the safe harbor to provide additional provisions
that can satisfy the safe harbors for trust programs that provide
taxable benefits to minors and certain other individuals. Additionally,
many commenters requested guidance on how trusts involving taxable
income can be restructured to provide Tribal general welfare benefits.
Finally, some commenters requested that the language of proposed
Sec. 1.139E-1(c)(5) be expanded to include grantor trusts as a
permissible funding source for an Indian Tribal government program.
Commenters noted grantor trusts are an important tool used to care for
Tribal members, and it is a glaring omission to not include grantor
trusts in proposed Sec. 1.139E-1(c)(5) that could lead to possible
negative inferences. Several commenters described using gaming revenues
to fund grantor trusts for minors and members with legal disabilities
and being permitted under IGRA to make distributions to their parents
or legal guardians to pay health, education, and welfare benefits for
the benefits of such minors and certain other individuals. One of these
commenters noted that this use of trusts indicates Tribes are free to
use trust funds to provide Tribal general welfare benefits just as they
are free to use any other revenue source.
The Treasury Department and the IRS agree with commenters that a
benefit distributed from certain grantor trusts can be a Tribal general
welfare benefit under section 139E if the benefit otherwise satisfies
the requirements of Sec. 1.139E-1(d), and that additional guidance on
the use of grantor trusts would be helpful. Accordingly, these final
regulations include express language regarding distributions from
grantor trusts in new Sec. 1.139E-1(c)(5)(iii). New Sec. 1.139E-
1(c)(5)(iii), which applies to a trust or the portion of a trust of
which the Indian Tribal government is treated as the owner under
sections 671 through 677 of the Code, provides that a benefit
distributed by a trust that otherwise satisfies the requirements of
Sec. 1.139E-1(d) is a Tribal General Welfare Benefit under section
139E. Conversely, a distribution from a grantor trust, or portion
thereof, will not be considered a Tribal general welfare benefit to the
extent the distribution, or portion thereof, fails to satisfy section
139E and the regulations. Section 1.139E-1(c)(5)(iii) further provides
that the determination of whether a benefit distributed by a grantor
trust is a Tribal general welfare benefit is made at the time the
benefit is distributed from the grantor trust to the Tribal program
participant. Thus, for example, a distribution from the grantor trust
that is paid to an individual as compensation (determined at the time
of distribution) would not be excludible under section 139E (unless the
exception relating to cultural or ceremonial activities applies).
The Treasury Department and the IRS have determined that providing
additional safe harbors under Revenue Procedure 2011-56 is outside the
scope of this regulation. Revenue Procedure 2011-56 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. That guidance provides
rules addressing trusts under IGRA that are not affected by these final
regulations.
Commenters requested clarification on the Federal income tax
treatment of grantor trust distributions when the Indian Tribal
government has previously set up a minor's trust under
[[Page 58386]]
IGRA for per capita payments but subsequently distributes general
welfare payments from such trust to the Tribal program participant. The
Treasury Department and the IRS have generally determined that where an
IGRA trust satisfies Revenue Procedure 2011-56 and is treated as owned
by the Indian Tribal government, the Indian Tribal government may
subsequently determine distributions from the trust are for general
welfare purposes under section 139E to the extent that DOI approval is
otherwise received to modify a RAP or IGRA trust, as applicable. In
general, the date of distribution from the IGRA trust is the relevant
time at which to determine whether the payment is a Tribal general
welfare benefit or a per capita payment. The Indian Tribal government,
subject to DOI approvals of RAPs or IGRA trusts, has sole discretion to
determine whether a payment is a per capita payment for purposes of
section 139E and these regulations.
3. Deferred Benefits
Some commenters requested that the final regulations provide that
Tribal members have the right to defer or disclaim current, smaller,
general welfare benefits in exchange for the Tribe funding future,
larger general welfare benefits for more-costly needs. One of these
commenters noted the importance of flexibility to allow Tribal members
to prioritize assistance that meets their specific needs. Some
commenters noted they agree with the TTAC proposal that complex IRS
deferred compensation rules, like constructive receipt, should not
apply to deferred general welfare benefits.
The Treasury Department and the IRS do not agree with the
suggestion that Federal income tax principles, such as the constructive
receipt doctrine, should be inapplicable to deferred general welfare
benefits. The language of section 139E does not provide an exception
for treating amounts that, under ordinary Federal income tax principles
(such as principles of constructive receipt), are actually or
constructively transferred to or for the benefit of a Tribal program
participant in one taxable year as being transferred in a later taxable
year. The Treasury Department and the IRS note that, as a general
matter, a Tribal program participant's election to defer a Tribal
general welfare benefit that is made before the Tribal program
participant would have rights to the Tribal general welfare benefit
under Tribal law would not be treated as constructively received by the
Tribal program participant for Federal income tax purposes.
E. Recordkeeping Requirements of the Tribal Program Participant
The preamble to the proposed regulations stated, under the general
recordkeeping requirements of section 6001, that Tribal program
participants are required to maintain records sufficient to show that
the value of a Tribal general welfare benefit received from an Indian
Tribal government program is excludible from gross income. Under
section 6001 and Sec. 1.6001-1(a), taxpayers are required to maintain
records sufficient to establish the amount of gross income or other
matters required to be shown by them in any return of income tax.
Many commenters expressed confusion regarding substantiation
requirements that Tribal program participants may have for benefits
received from Indian Tribal government programs. One commenter
expressed appreciation that Tribes and Tribal program participants, in
the commenter's interpretation of the proposed regulations, were not
required to keep receipts to substantiate benefits. However, other
commenters recommended that the final regulations expressly provide
that Tribal program participants will not be subject to additional
substantiation requirements such as maintaining receipts or other proof
not otherwise required by the Indian Tribal government program.
Further, some of these commenters pointed out that the Treasury
Department stated at Tribal consultations that receipts were not needed
to substantiate the benefit. In general, commenters explained that
imposing additional substantiation requirements on Indian Tribal
governments and Tribal program participants would create administrative
burdens and contradict the Act's objective of streamlining Tribal
program administration.
Some commenters referred to the TTAC Report, which proposes that
individual members should not be required to submit receipts to prove
general welfare expenses if there is sufficient documentation of an
Indian Tribal government's general welfare program, including written
program guidelines, and that compliance should be presumed for Tribal
program participants where the Indian Tribal government can show
benefit amounts are reasonably calculated to meet general welfare needs
and the method of distribution to members is reasonably expected to
achieve program goals. Other commenters proposed that the IRS should
use an Indian Tribal government's year-end compliance certificates
confirming general welfare expenses at or above program benefit levels
and any corroborating program documentation as sufficient
substantiation of a Tribal program participant's benefits. Finally, a
commenter recommended that complete deference be given to Indian Tribal
government determinations for the administration of program benefits
such that the Tribal program participant's substantiation of Tribal
general welfare benefits for Federal income tax purposes is satisfied.
Many commenters requested that the Treasury Department and the IRS
maintain the deference to Indian Tribal government program methods for
substantiation of general welfare program benefits so long as an Indian
Tribal government implements its general welfare program consistent
with written program guidelines that meet the criteria of section 139E.
These commenters suggested addressing only situations where additional
substantiation may be required. Some commenters noted that
substantiation requirements for benefits add administrative costs to
Indian Tribal governments.
These final regulations do not impose additional recordkeeping
requirements on Tribal program participants. However, section 6001 and
Sec. 1.6001-1 generally require a taxpayer to maintain records to
establish the amount of gross income reported on the taxpayer's tax
return. This requirement is independent of the exclusion provided under
section 139E. Notwithstanding the previous sentence, the Treasury
Department and the IRS confirm that individuals are not required to
maintain personal receipts to substantiate that a benefit provided
under an Indian Tribal government program was used by the recipient for
the purpose for which it was provided. Deference is given to the Indian
Tribal government with regard to the general welfare programs it
administers and, accordingly, what requirements a Tribal program
participant may need to satisfy in order to receive program benefits.
Accordingly, the Treasury Department and the IRS do not prescribe
any specific types of documentation that a Tribal program participant
would be required to retain to substantiate that a particular benefit
is a Tribal general welfare benefit excludable from gross income under
section 139E. Nonetheless, corroborating program documentation, such as
a written description of the Indian Tribal government program, an
application or acceptance letter into the program, or any year-end
compliance certificates of the Indian Tribal government may
[[Page 58387]]
satisfy the requirements of section 6001 and Sec. 1.6001-1. Moreover,
Tribal program participants may choose to ask the Indian Tribal
government for clarification on whether the benefit is intended to be a
Tribal general welfare benefit under section 139E.
IV. Tribal General Welfare Benefits
A. Benefits Must Be for the Promotion of General Welfare Within the
Meaning of Section 139E
1. Deference to Tribes in Determining Promotion of General Welfare
Proposed Sec. 1.139E-1(d)(2)(i) would provide that a benefit
provided under an Indian Tribal government program must be for the
promotion of general welfare, and that the Indian Tribal government
determines that a benefit is for the promotion of general welfare at
the time it establishes the program. Proposed Sec. 1.139E-1(d)(2)(i)
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. Proposed Sec.
1.139E-1(d)(2)(i) would provide that Tribal general welfare benefits
may be provided without regard to financial or other need of Tribal
program participants and may be provided on a uniform or pro-rata
basis.
Commenters generally appreciated the deference provided to Indian
Tribal governments for establishing programs to promote the general
welfare. Commenters noted that Indian Tribal governments are uniquely
positioned to assess the distinct cultural, social, and economic needs
of their Tribes and Tribal program participants, and structure their
general welfare programs accordingly. Several commenters also
appreciated that Indian Tribal governments have sole discretion to
determine whether a benefit is for the promotion of general welfare.
One commenter requested the Treasury Department and the IRS to
clarify in the final regulations that the following additional
activities are considered to be for the promotion of the general
welfare: recovery from cultural or lifeway losses experienced due to
non-Tribal policies, such as termination or forced relocation (as
determined by the administering Tribe); the advancement of Tribal self-
determination (as determined by the administering Tribe); and the
promotion of individual and collective self-sufficiency (as determined
by the administering Tribe). Some commenters requested the final
regulations confirm that Tribal general welfare benefits may include
student loan debt repayment programs.
In response to these suggestions for clarification, the Treasury
Department and the IRS reiterate the sole discretion standard is
consistent with the deference required under section 2(c) of the Act.
The examples in Sec. 1.139E-1(d)(2) merely provide illustrative
examples of benefits an Indian Tribal government may provide.
Accordingly, the Treasury Department and the IRS affirm the types of
programs described in the preceding paragraph are not contrary to the
standard provided in Sec. 1.139E-1(d)(2), if an Indian Tribal
government has determined such benefit is for the promotion of the
general welfare and the program satisfies the other requirements in
section 139E.
2. Examples of Promotion of General Welfare
Proposed Sec. 1.139E-1(d)(2)(ii) would provide non-exhaustive
examples of programs that an Indian Tribal government may determine, in
its sole discretion, distribute benefits that are for the promotion of
the general welfare, as required under proposed Sec. 1.139E-1(d)(2).
One commenter recommended additional clarification to proposed
Sec. 1.139E-1(d)(2)(ii) to make clear that the examples provided are
not an exhaustive list of types of programs that would be for the
promotion of general welfare. Other commenters pointed out a
typographical error in proposed Sec. 1.139E-1(d)(2)(ii)(B) and
requested clarification on additional specific types of permissible
program payments.
The Treasury Department and the IRS agree with commenters that the
examples in proposed Sec. 1.139E-1(d)(2)(ii) are intended to be non-
exhaustive. The Treasury Department and the IRS clarify that the
programs described in Sec. 1.139E-1(d)(2)(ii) of these final
regulations are a non-exhaustive list of examples of programs that an
Indian Tribal government may determine are for the promotion of general
welfare for purposes of section 139E. Thus, these regulations reaffirm
that the Indian Tribal government has the sole discretion to determine
what program benefits are for the promotion of general welfare of
Tribal program participants.
In addition, the Treasury Department and the IRS have changed the
language used in some of the examples in proposed Sec. 1.139E-
1(d)(2)(ii) to respond to comments. For example, Sec. 1.139E-
1(d)(2)(ii)(B) (education programs) corrects a typographical error in
the proposed regulations and includes textbooks as an example of school
supplies. In response to comments, Sec. 1.139E-1(d)(2)(ii)(D)
(transportation programs) of these final regulations does not include
the word ``substantiated'' before ``mileage,'' and lacks the language
that would limit fares for public transportation to specific origins
and destinations. In addition, Sec. 1.139E-1(d)(2)(ii)(A) (housing
programs) of these final regulations removes the reference to benefits
that may not be used for any trade or business because of the changes
provided in Sec. 1.139E-1(d)(2) for business grants. See part IV.A.5.
of this Summary of Comments and Explanation of Revisions. Finally,
Sec. 1.139E-1(d)(2)(ii)(G) of these final regulations (cultural and
religious programs) removes the reference to section 168(j) as
providing the definition of ``Indian reservations.'' These final
regulations remove this reference because Indian reservations are
subject to varying definitions under Federal law, and it is unnecessary
to prescribe a definition in this rule. In sum, the changes to the
language in Sec. 1.139E-1(d)(2)(ii) are intended to remove limiting
language that could be viewed by an Indian Tribal government as
constraining its discretion to determine that program benefits are for
the promotion of general welfare.
Some commenters requested that benefits or assistance provided
after a Tribally declared disaster be included as an example of a
promotion of general welfare purpose in proposed Sec. 1.139E-1(d)(2).
For example, an Indian Tribal government may declare a disaster that
may not qualify as a Federally declared disaster. One commenter
recommended clarifying that ``assistance in an emergency'' is intended
to include events that are not otherwise qualified disasters.
The Treasury Department and the IRS have determined no changes are
necessary in these final regulations to the language of proposed Sec.
1.139E-1(d)(2) to include references to Tribally declared disasters.
The Treasury Department and the IRS agree with commenters that benefits
provided to Tribal program participants as a result of a Tribally
declared disaster are benefits that would be described in Sec. 1.139E-
1(d)(2). However, a governmentally declared disaster is not a
requirement of Sec. 1.139E-1(d)(2). Indian Tribal governments have the
sole discretion to determine whether a benefit is for the promotion of
general welfare for purposes of section 139E. Section 1.139E-1(d)(2)
broadly describes ``assistance for disasters or other emergency
situations'' and does
[[Page 58388]]
not limit an Indian Tribal government's determination of what benefits
are needed to be provided to Tribal program participants in the event
of emergency situations. The Treasury Department and the IRS decline to
include a reference to Tribally declared disasters because it may be
viewed as a limitation on the types of disasters that could satisfy
Sec. 1.139E-1(d)(2).
3. Prizes and Awards
Many commenters requested clarification that section 139E can apply
to prizes and awards provided pursuant to Indian Tribal government
programs at powwows or similar ceremonial activities. Commenters argued
that powwow prizes and awards constitute Tribal general welfare
benefits because they are designed to encourage participation at
ceremonial and cultural events and foster the exchange of Tribal
culture and traditions. One commenter shared an example of a cultural
event to promote cultural and traditional practices in which awards are
given to only some of the dancers who are performing dances traditional
to their Tribe. Similarly, the commenter provided an example of a Tribe
holding a social event in which door prizes are provided to a few
individuals in order to promote participation at social activities
among Tribal members.
Some commenters explained that the IRS has, in the past, treated
powwow prizes for cultural or ceremonial activities as taxable under
section 74 of the Code. These commenters expressed concern that the IRS
may continue to treat these payments as taxable prizes and awards under
section 74.
The Treasury Department and the IRS agree with commenters that
prizes and awards provided by an Indian Tribal government program as
part of a cultural or ceremonial program or activity could be a Tribal
general welfare benefit if the benefit otherwise satisfies section 139E
and these regulations. These final regulations differ from proposed
Sec. 1.139E-1(d)(2)(ii)(G) by including examples of prizes or awards
provided as part of cultural or ceremonial activities that an Indian
Tribal government may determine are for the promotion of general
welfare for purposes of section 139E. Specifically, the final
regulations provide that an Indian Tribal government program may
provide cash or property as a prize or award in connection with
cultural, social, religious, or community activities, and such prize or
award could be a Tribal general welfare benefit if it is determined by
the Indian Tribal government to be for the promotion of general welfare
and the other requirements of section 139E and these regulations are
otherwise satisfied.
In addition, Sec. 1.139E-1(e)(2) provides that a prize or award
that would otherwise be compensation for services may qualify for the
exception in section 139E(c)(5) and Sec. 1.139E-1(e) if the prize or
award is provided as a benefit to, or on behalf of, a Tribal program
participant for the Tribal program participant's participation in
cultural or ceremonial activities for the transmission of Tribal
culture. For example, if an Indian Tribal government program that
supports cultural or ceremonial activities, including powwows, provides
a prize or award to a Tribal program participant of such program who
performs dances as part of a powwow, the prize or award would be a
Tribal general welfare benefit if the other requirements of Sec.
1.139E-1(d) are met.
4. Indian Tribal Government's Discretion To Provide Benefits in Equal
Amounts
Proposed Sec. 1.139E-1(d)(2)(i) 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, proposed
Sec. 1.139E-1(d)(2)(i) would provide that an Indian Tribal government
program may provide Tribal general welfare benefits on a uniform or
pro-rata basis to Tribal program participants.
One commenter urged clarification that an Indian Tribal government
program may also provide benefits based on a schedule that authorizes
unequal payment amounts based on reasonable criteria applicable to all
qualifying Tribal members. For example, a program may provide different
benefit amounts to larger families than smaller families.
The Treasury Department and the IRS decline to adopt the comments
to change proposed Sec. 1.139E-1(d)(2)(i) because the Treasury
Department and the IRS have determined that the language of proposed
Sec. 1.139E-1(d)(2)(i) provides broad deference to an Indian Tribal
government to determine whether a benefit is for the promotion of the
general welfare for purposes section 139E and is given the discretion
to determine whether benefits should be paid. In sum, proposed Sec.
1.139E-1(d)(2)(i) provides flexibility to an Indian Tribal government
to determine whether program benefits are best allocated to Tribal
program participants on an equal basis or in in varying amounts.
Because an Indian Tribal government has sole discretion to determine
whether a benefit is for the promotion of general welfare for purposes
of section 139E, a program that provides a benefit in an unequal
amount, such as providing different benefit amounts to larger families
than smaller families, would be permitted under proposed Sec. 1.139E-
1(d)(2)(i). Accordingly, proposed Sec. 1.139E-1(d)(2)(i) is finalized
without modification.
5. Economic Development Benefits
The proposed regulations would not address payments provided in
connection with business ventures of Tribal program participants. Part
V.B. of the Explanation of Provisions in the preamble to the proposed
regulations stated that the administrative general welfare exclusion
and Revenue Procedure 2014-35 generally do not apply to payments made
to businesses. Similarly, the preamble to the proposed regulations
stated that section 139E applies only to individuals and not
businesses. However, the preamble to the proposed regulations stated
that Revenue Ruling 77-77 (1977-1 C.B. 11) holds there is a limited
exception to the rule that the administrative general welfare doctrine
does not apply to businesses. Revenue Ruling 77-77 provides that 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.
(a) Revenue Ruling 77-77
Many commenters disagreed with the characterization by the Treasury
Department and the IRS of Revenue Ruling 77-77 as constituting a narrow
exception to the administrative general welfare exclusion. Several
commenters similarly disagreed with the assertion that the
administrative general welfare exclusion does not apply to economic
development assistance or payments to businesses, including sole
proprietors, because such payments are not based on individual or
family need. Many commenters also refer to other situations where the
IRS has applied the administrative general welfare exclusion to Tribal
general welfare benefits for the purpose of economic development
assistance. See PLR 199924026 and COVID-19 FAQs on the IRS website at
https://www.irs.gov/newsroom/faqs-for-payments-by-indian-tribal-
governments-and-alaska-native-corporations-to-
[[Page 58389]]
individuals-under-covid-relief-legislation.
The Treasury Department and the IRS have determined that the
preamble to the proposed regulations accurately described the
administrative general welfare exclusion (not section 139E) and its
inapplicability to payments made to businesses. However, the Treasury
Department and the IRS are aware that Revenue Ruling 77-77 and recent
COVID-19 FAQs refer to the administrative general welfare exclusion
applying to certain business grants made by an Indian Tribal government
to expand an Indian-owned business on or near a reservation. The
Treasury Department and the IRS have determined this guidance remains
applicable when applying the administrative general welfare exclusion
specific to Indian Tribal governments.
(b) Business Grants Under Section 139E
Commenters requested that the Treasury Department and the IRS
specify that benefits provided by the Indian Tribal government to
Tribal members to start, operate, develop, or expand businesses
constitute Tribal general welfare benefits provided to promote the
general welfare of the community. Commenters generally argued section
139E should be viewed broadly to include promotion of general welfare
of individuals and needs of the Tribal community. Similarly, some
commenters pointed to the Act to support this broad interpretation of
section 139E. Commenters also argued such economic development promotes
the general welfare of Tribes and their Tribal communities by promoting
self-sufficiency in light of the difficulties faced by Tribes in
generating revenue and attracting capital and businesses onto
reservations, and Tribal goals of promoting stable employment and
economic opportunities. Finally, commenters requested clarification on
whether an Indian Tribal government program could provide benefits to
encourage business activity on or near a reservation by providing
Tribal-member-owned businesses with grants, interest-free or other
below-market loans, or reimbursements for employment taxes.
Commenters also argued the scope of program eligibility for grants
to businesses should not be limited to Tribal citizens. Rather, a
commenter suggested that the Tribe should be able to provide general
welfare benefits to any persons consistent with Tribal law. Similarly,
commenters requested that the term ``Indian-owned enterprise'' should
not be defined by the IRS.
The Treasury Department and the IRS have reconsidered the issue of
Tribal general welfare payments made to Tribal program participants to
support businesses and agree that it would be helpful to clarify in
Sec. 1.139E-1(d)(2) of these final regulations that an Indian Tribal
government program may provide benefits to support, develop, operate,
expand, or start certain trades or businesses. Consistent with the
proposed regulations, Sec. 1.139E-1(d)(2)(i) broadly provides that the
Indian Tribal government has sole discretion to determine that a
benefit is for the promotion of general welfare at the time it
establishes the Indian Tribal government program. The Treasury
Department and the IRS agree with commenters that section 2(c) of the
Act provides broad deference to Indian Tribal governments for the
Indian Tribal government programs administered and authorized by the
Tribes to determine the general welfare programs that are provided in
their communities.
The Treasury Department and the IRS agree with commenters that the
term ``Indian-owned enterprise'' should not be defined in these
regulations. Moreover, these regulations do not restrict Indian Tribal
government programs to support or expand Indian-owned businesses on or
near a reservation. Section 1.139E-1(d)(2) provides broad deference to
Indian Tribal governments to determine whether benefits are for the
promotion of general welfare.
However, section 139E is an exclusion from the gross income of
individuals and therefore is limited to benefits provided to, or on
behalf of, the individuals described in section 139E(b) and Sec.
1.139E-1(b)(8). See discussion of Tribal program participant in part
II.C. of this Summary of Comments and Explanation of Revisions.
Accordingly, these final regulations provide that any Tribal general
welfare benefit provided to support, develop, operate, expand, or start
a trade or business must be provided to, or on behalf of, an individual
that is a Tribal program participant. Thus, an Indian Tribal government
program may not provide benefits under the program to an entity,
regardless of whether it is owned by a Tribal program participant.
Similarly, the Treasury Department and the IRS have determined that
the language ``on behalf of'' is not intended to apply to program
benefits provided by an Indian Tribal government program to non-
individuals, such as a business entity owned by a Tribal program
participant. Rather, the Treasury Department and the IRS interpret the
statutory language ``on behalf of'' to address situations such as where
an Indian Tribal government program pays rent directly to a landlord on
behalf of a Tribal member tenant who operates a trade or business as a
sole proprietorship.
The final regulations also provide an example of general welfare
programs to support businesses. The Treasury Department and the IRS
agree with commenters that program benefits to Tribal program
participants, as individuals, in the form of non-reimbursable grants,
interest-free or other below-market loans, or amounts paid to a Tribal
program participant that are equivalent to the employment taxes imposed
on the Tribal program participant as an employer, may qualify for
section 139E.
In addition, the final regulations provide that section 7872 of the
Code generally does not apply to a loan from an Indian Tribal
government to a Tribal program participant pursuant to an Indian Tribal
government program. The Treasury Department and the IRS believe that
such loans are a class of transactions the interest arrangements of
which have no significant effect on any Federal tax liability of the
lender or the borrower. The Treasury Department and the IRS have
expanded the proposed regulations by adding Sec. Sec. 1.139E-1(d)(6)
and 1.7872-5(b)(17) to these final regulations.
B. Benefits Cannot Be Lavish or Extravagant
Proposed Sec. 1.139E-1(d)(4) would provide a facts and
circumstances test to determine whether a Tribal program benefit is
lavish or extravagant under section 139E. Relevant facts and
circumstances include a Tribe's culture and cultural practices,
history, geographic area, traditions, resources, and economic
conditions or factors. Proposed Sec. 1.139E-1(d)(4) would also 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.
1. Facts and Circumstances Standard
Some commenters expressed support for the general approach of a
facts and circumstances test in proposed Sec. 1.139E-1(d)(4).
Commenters noted Tribal governments are uniquely qualified to assess
what constitutes lavish or extravagant within their cultural and
economic context, and factors such as geographic location, cost-of-
living variations, and the cultural significance of certain
expenditures are best understood by
[[Page 58390]]
Tribal leaders. Commenters noted that the proposed regulations would
recognize Tribal sovereignty by considering a Tribe's cultural
practices and economic condition and would be consistent with the Act's
explicit mandate for deference to Indian Tribal governments.
Some commenters suggested changes to proposed Sec. 1.139E-1(d)(4)
to ensure that the enumerated factors for the facts and circumstances
test are not treated as exhaustive factors. Also, commenters requested
that the regulations provide Indian Tribal governments with the
flexibility to adapt the definition of lavish or extravagant as
economic and cultural conditions evolve. Moreover, some commenters
requested that the determination of whether a benefit is lavish or
extravagant be made at the time a program is implemented, authorized,
or modified, rather than at the time a benefit is provided.
Other commenters recommended that the Treasury Department and the
IRS defer entirely to Indian Tribal governments on whether a Tribal
general welfare benefit is lavish or extravagant regardless of whether
a program is in writing. These commenters expressed concern that the
evaluation by the IRS of a Tribe's culture and cultural practices,
history, geographic area, traditions, resources, and economic
conditions or factors would result in an intrusion on an Indian Tribal
government's sovereignty. Some commenters recommended express language
in Sec. 1.139E-1(d)(4) providing that the IRS will accept and defer to
any attestations of the Indian Tribal government regarding the facts
and circumstances at the time the benefit is provided. Another
commenter stated that the lavish or extravagant standard in section
139E(c)(3) is offensive in the context of the commenter's Tribe's
historical oppression at the hands of the Federal government and long-
standing and severe poverty.
The test in proposed Sec. 1.139E-1(d)(4) is intended to be a test
that considers the totality of the facts and circumstances. Relevant
facts and circumstances include a Tribe's culture and cultural
practices, history, geographic area, traditions, resources, and
economic conditions or factors. However, the Treasury Department and
the IRS agree with commenters that an Indian Tribal government is
uniquely qualified to evaluate its culture and cultural practices,
history, geographic area, traditions, resources, and economic
conditions and that deference should be provided to an Indian Tribal
government's attestation of the facts and circumstances at the time the
benefit is provided to a Tribal program participant. Accordingly, newly
renumbered Sec. 1.139E-1(d)(4)(i) of the final regulations provides
that the IRS will defer to an Indian Tribal government's attestations
of facts and circumstances, regardless of whether the program is in
writing, at the time the benefit is provided to the Tribal program
participant. However, the deference provided in Sec. 1.139E-1(d)(4)(i)
to the Indian Tribal government's attestation of facts and
circumstances does not preclude the IRS from determining that a benefit
is lavish or extravagant under the Indian Tribal government's
attestations of the facts and circumstances at the time the benefit was
provided. In addition, while the IRS would respect the Indian Tribal
government's attestations of fact and circumstances, the Treasury
Department and the IRS are clarifying that the IRS may also consider
facts and circumstances not included in the Indian Tribal government's
attestations in ascertaining whether a benefit is lavish or
extravagant.
The Treasury Department and the IRS continue to be of the view that
the proper time to test whether a benefit is lavish or extravagant is
at the time the benefit is provided. Section 139E and Sec. 1.139E-1(a)
provide that the gross income of the Tribal program participant does
not include the value of any Tribal general welfare benefit provided
during the year to or on behalf of the Tribal program participant. The
value of the benefit, including for purposes of whether it is lavish or
extravagant, is determined during the taxable year it is provided. The
fact that the lavish or extravagant determination is made at the time
the benefit is provided does not mean that facts and circumstances
involving prior years, including facts and circumstances present at the
time at which a program was implemented, authorized, or modified,
cannot be taken into account in the determination made at the time the
benefit is provided.
One commenter disagreed with the requirement that a benefit not be
lavish or extravagant. However, section 139E(b)(2)(C) provides that a
benefit, among other requirements, cannot be lavish or extravagant.
Moreover, pursuant to section 139E(c)(3), the Treasury Department and
the IRS consulted with TTAC regarding the lavish or extravagant
standard under section 139E(b)(2)(C). Accordingly, these final
regulations retain the requirement in Sec. 1.139E-1(d)(4) that a
benefit cannot be lavish or extravagant as required by law.
2. Presumption
Some commenters supported the addition of the presumption in
proposed Sec. 1.139E-1(d)(4) 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.
Some commenters noted that the presumption respects Tribal cultural
practices and the various factors that inform a Tribe's general welfare
program. These commenters mentioned that the presumption provides
deference to Tribes, helps administrative flexibility, Tribal
sovereignty, self-determination, and self-governance, which will enable
Indian Tribal governments to maximize the benefit to the Tribe. Many
commenters requested clarification on how the IRS would be able to
rebut the presumption and what a written program should contain to
benefit from the presumption.
Some commenters recommended the TTAC Report's approach to lavish or
extravagant. The TTAC Report recommended 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.
Some commenters requested that the final regulations provide that a
Tribe's attestation of the relevant facts and circumstances would meet
any burden that may arise in connection with the presumption. These
commenters stated that the IRS should not define facts and
circumstances, including a Tribe's own culture, history, or tradition,
in an attempt to rebut the presumption.
Some commenters requested that the frequency of payments under a
program should be irrelevant in applying the presumption provided to
written programs. Similarly, many commenters requested that the final
regulations
[[Page 58391]]
provide a conclusive presumption that a benefit based on the facts and
circumstances provided in proposed Sec. 1.139E-1(d)(4) and
administered in good faith is not lavish or extravagant. Commenters
suggested that a conclusive presumption is a natural extension of the
presumption provided in the proposed regulations.
The Treasury Department and the IRS decline to provide a conclusive
presumption on the issue of whether a benefit is lavish or extravagant.
However, the Treasury Department and the IRS have clarified the
proposed regulations by providing in these final regulations that an
Indian Tribal government program is afforded deference on the
attestations of the facts and circumstances. This deference is afforded
whether or not the specified guidelines are in writing. This deference
is intended to reflect that the Tribe is in the best position to
determine which factors and attestations of fact were considered when
determining benefits. In particular the Tribe is in the best position
to determine which facts and circumstances are specific to its culture
and cultural practices, history, geographic area, traditions,
resources, and economic conditions. Similarly, the presumption in the
proposed regulations has been clarified. Newly renumbered Sec. 1.139E-
1(d)(4)(ii) clarifies that the presumption is based on the written
specified guidelines of an Indian Tribal government program that exist
at the time that the benefit is provided to the Tribal program
participant. This change acknowledges that the specified guidelines in
Indian Tribal government programs may be modified from time to time.
C. Benefits Cannot Be Compensation for Services
Section 139E(b)(2)(D) provides that benefits provided under a
Tribal general welfare benefit paid under an Indian Tribal government
program cannot be compensation for services, subject to exceptions
discussed in part V of this Summary of Comments and Explanation of
Revisions. Proposed Sec. 1.139E-1(d)(5) would provide a reference to
section 61(a) of the Code to define compensation for services and is
intended to include existing law and guidance under section 61.
Several commenters argued the broad reliance on section 61 to
define compensation for services lacks practical clarity for Tribal
situations. Some commenters also recommended that the final regulations
include the recommendations of the TTAC Report, which provide specific
examples of activities that should be excluded from compensation for
services. For example, the TTAC Report refers to the following as not
compensation for services: (1) a benefit in connection with Tribal
custom or tradition regarding community service; (2) cultural or
ceremonial gifts and payments as determined by the Tribe; and (3)
payments as part of training programs.
Many commenters stated that the proposed regulations lack clarity
on work-training programs, and some commenters expressed concern that
meaningful input from Tribes and the TTAC on this issue was not
incorporated into the rules. Some commenters noted that Indian Tribal
governments often consider work-training payments to participants as
honorarium payments to assist their Tribal community.
One commenter requested clarity on whether support of educational
and Native-language recovery is considered practical work-training and
not compensation for services. The commenter noted that the IRS has
previously determined this activity does not constitute compensation
for services.
Some commenters argued that the final regulations should clarify
that ``benefits provided for cultural or ceremonial purposes, as
explicitly allowed under section 139E, are not compensation for
services.'' Several commenters also requested clarification that
community service requirements will not be compensation for services
because the programs are designed to foster kinship and encourage
community involvement. Another commenter requested that the final
regulations provide clarification that benefits provided with
legitimate service ties for Tribal culture and tradition are not
compensation for services. The commenter gave examples of payments (i)
for neighborhood cleanup costs, (ii) for teaching the Tribal language,
and (iii) to Tribal youths to cut and gather wood for elders.
One commenter argued that section 139E(b)(2)(D) is intended to
prevent potential abuse by converting employee wages and vendor
payments into tax-free remuneration. The commenter also requested that
an Indian Tribal government be able to use a facts and circumstances
test to show the benefits provided under its program are consistent
with the intent of section 139E in order to rebut any interpretation by
the IRS that a payment is compensation for services.
The Treasury Department and the IRS continue to be of the view that
the term ``compensation for services'' in section 139E(b)(2)(D) is
appropriately defined by reference to section 61, which generally
defines ``gross income'' for purposes of subtitle A of the Code.
Section 139E(a) provides an exclusion from gross income for the value
of any Indian general welfare benefit. The Treasury Department and the
IRS have determined that the general definition of gross income under
section 61 is the starting point to ascertain the exclusion under
section 139E. In addition, the Treasury Department and the IRS affirm
that the term ``compensation for services'' in section 61(a)(1) is
broader than services that are traditionally provided under an
employment or contracted-vendor relationship. Section 1.61-2(a)(1)
provides that compensation for services includes amounts that are not
paid in an employment or contracted-vendor relationship.
However, the Treasury Department and the IRS are aware of the need
for clarity on benefits provided that relate to cultural or ceremonial
activities. For example, commenters referred to certain program
benefits for community service, language preservation, and work
training that are provided as part of cultural or ceremonial
activities. The Treasury Department and the IRS have determined that to
the extent that these specific situations constitute compensation for
services, they are better addressed within the exclusion under section
139E(c)(5) and Sec. 1.139E-1(e) for activities relating to cultural or
ceremonial activities.
These final regulations do not provide a facts and circumstances
test to rebut an interpretation by the IRS that a payment is
compensation for services. The Treasury Department and the IRS have
concluded that whether a payment constitutes compensation for services
is generally determined using existing guidance, and examination of all
the facts. Moreover, the Treasury Department and the IRS also affirm
that section 139E(c)(5) and Sec. 1.139E-1(e) are an exception to the
general prohibition that prevents treating compensation for services as
Tribal general welfare benefits. Facts may be presented to support the
argument that the payment is not compensation for services under
section 139E(b)(2)(D) or to support the payment is subject to the
exception to compensation for services under section 139E(c)(5).
V. Exception to Prohibition on Compensation for Services
Proposed Sec. 1.139E-1(e) would provide that a benefit is not
compensation for services if the benefit is provided to a Tribal
program participant for the Tribal program participant's participation
in cultural or
[[Page 58392]]
ceremonial activities for the transmission of Tribal culture as
determined by the Indian Tribal government, and such benefit consists
of an item of cultural significance, reimbursement of costs, or cash
honorarium. Proposed Sec. 1.139E-1(e)(1)(i) would provide a non-
exhaustive list of examples of cultural or ceremonial activities,
including powwows, rite of passage ceremonies, funerals, wakes,
burials, other bereavement events, and honoring events. Proposed Sec.
1.139E-1(e)(2) also would provide that, in general, an Indian Tribal
government has sole discretion to determine whether a benefit consists
of an item of cultural significance and whether an activity is a
cultural or ceremonial activity, and the IRS will defer to this
determination. However, proposed Sec. 1.139E-1(e)(2) would further
provide that cash, gift cards, and vehicles generally are not
considered items of cultural significance.
A. In General
Commenters generally expressed support for the deference provided
to Tribal determinations in proposed Sec. 1.139E-1(e) regarding
cultural and ceremonial activities. These commenters noted the
deference provided to Tribes supports Tribal self-determination and
administrative flexibility and provides clarity regarding cultural and
ceremonial activities. Other commenters expressed support for the
exclusion of items of cultural significance, cash honoraria, and
``ceremonial costs,'' consistent with section 139E(c)(5). Commenters
supported the omission of the ``de minimis'' limitation on cash
honorarium payments that was present in Revenue Procedure 2014-35. One
commenter recommended finalizing proposed Sec. 1.139E-1(e) regardless
of how the final regulations address the ``lavish or extravagant''
standard. One commenter was critical of the use of the terms ``shamans,
medicine men, or medicine women,'' in the preamble to the proposed
regulations, and further described the regulation as mischaracterizing
Tribal culture by confining it to the 18th and 19th century.
Similarly, some commenters requested clarification on specific
benefits provided in connection with participation in cultural or
ceremonial activities that may not be clearly described in proposed
Sec. 1.139E-1(e). For example, commenters mentioned efforts to
recover, preserve, and promote (among Tribal members) cultural
practices, resources, or historic languages, efforts to teach Native
languages, and efforts to create, recover, protect, and preserve
cultural places or spaces. Another commenter suggested that the final
regulations provide clarity that honoraria given to Tribal members who
assist with setting up before or closing after a cultural or ceremonial
event are included in activities described in proposed Sec. 1.139E-
1(e). One commenter pointed out that cultural activities, such as
singing songs, are not recognized as such by the IRS. As discussed in
part IV.C. of this Summary of Comments and Explanation of Revisions,
some commenters requested that certain benefits that have the
legitimate purpose of promoting Tribal culture and tradition, such as
community service or work-training programs that are connected to
Tribal culture and tradition, should not be compensation for services.
One commenter urged that IRS agents not be able to second guess
Tribal culture or traditions, and that IRS agents should be restricted
from issuing requests for documents, including books and records
relating to Tribal culture and traditions.
Section 1.139E-1(e) provides that Indian Tribal governments are in
the best position to determine what it means to participate in cultural
or ceremonial activities for the transmission of Tribal culture. Thus,
under Sec. 1.139E-1(e), Indian Tribal governments determine what it
means to participate in cultural or ceremonial activities for the
transmission of Tribal culture. The IRS would defer to determinations
by the Indian Tribal government that activities undertaken in
connection with a cultural or ceremonial activity, as determined by the
Indian Tribal government, constitute participation in that cultural or
ceremonial activity.
Section 1.139E-1(e) of the final regulations includes additional,
non-exhaustive examples of cultural or ceremonial activities. In
general, the Treasury Department and the IRS have determined that
benefits provided to Tribal program participants for community service
or work-training programs connected to Tribal culture and tradition
would be activities described in Sec. 1.139E-1(e). Accordingly, the
additional examples of cultural or ceremonial activities in Sec.
1.139E-1(e)(1)(i) of these final regulations include: Tribal community
service events, such as neighborhood clean-ups or youth woodcutting
programs to benefit elders; participation in training in traditional
construction techniques; and Tribal language education.
As noted previously, one commenter expressed the view that the
preamble to the proposed regulations used inappropriate terminology to
describe Tribal cultural or ceremonial activities, and otherwise
mischaracterized Tribal culture. The Treasury Department and the IRS
affirm that there was no intention in drafting the proposed regulations
to express any characterizations or generalizations regarding the
culture and traditions of any Tribe or Tribes. The terminology in the
proposed regulations was included in the context of a quotation from
the provision of Revenue Procedure 2014-35 that excepts certain
culturally significant payments from being treated as compensation for
services but limits such exception to benefits received by certain
religious or spiritual officials or leaders. The quotation was included
in order to clarify that the proposed regulation would not contain a
comparable limitation on the scope of section 139E(c)(5), and these
final regulations similarly contain no such limitation.
These final regulations are intended to provide broad deference to
Indian Tribal governments. To that end, the Treasury Department and the
IRS affirm that the IRS will defer to an Indian Tribal government's
determinations of whether an activity is a cultural or ceremonial
activity for the transmission of Tribal culture, and to the definitions
of whether an item is an item of cultural significance.
B. Employment or Contracted-Vendor Relationship
Some commenters expressed confusion regarding the discussion of
employment or contracted vendor relationships in part IV.A. of the
Explanation of Provisions in the preamble to the proposed regulations.
The discussion included examples illustrating that payments to
corporations owned by Tribal members for services provided during
cultural or ceremonial activities are not excluded under section 139E,
but payments made directly to the Tribal members for such services
would be excludible under section 139E. These commenters requested
clarification that an Indian Tribal government's formal agreement, such
as a contract, with persons participating in cultural or ceremonial
activities, such as with spiritual leaders, and fluent Native speakers
would not prevent the application of proposed Sec. 1.139E-1(e). In
addition, one commenter recommended that the regulations provide that
section 139E applies to payments made in connection with participation
in cultural or
[[Page 58393]]
ceremonial activities to a pass-through entity that is wholly owned by
a Tribal member.
Several commenters requested clarity on the taxability of payments
made from a Tribe to its members for volunteer services that these
members normally provide professionally. Some commenters argued that
services provided during cultural or ceremonial gatherings should be
excluded under section 139E(c)(5) even though the Tribal member may
separately provide similar services in a professional capacity for
compensation. Finally, one commenter recommended that activities of an
advisory group also be considered a cultural activity because some
Tribal cultures use these groups to distribute Tribal decision-making
power.
The mere existence of a contract between a Tribal program
participant and an Indian Tribal government does not prevent the
application of Sec. 1.139E-1(e). For example, a program benefit
provided to a spiritual leader to perform a blessing at a ceremonial or
cultural activity of the Tribe may qualify under Sec. 1.139E-1(e) if
paid directly to the spiritual leader even without regard to whether
the spiritual leader had a verbal or written agreement with the Indian
Tribal government to perform such services.
However, the Treasury Department and the IRS continue to be of the
view that the exception in section 139E(c)(5) does not broadly apply to
services that are traditionally provided in an employment or
contracted-vendor relationship because section 139E is an exclusion
from gross income for individuals and families. However, in response to
comments, the Treasury Department and the IRS clarify that the example
in part IV.A. of the Explanation of Provisions in the preamble to the
proposed regulations was not intended to suggest that an individual who
owns a catering business is unable to receive a cash honorarium in the
individual's capacity as an individual when volunteering to assist in
food preparation for a cultural or ceremonial activity of the Tribe.
However, the exception in section 139E(c)(5) would not apply if the
individual's catering corporation received compensation in exchange for
providing services to the Tribe for a cultural or ceremonial activity
of the Tribe.
VI. Examples
A. New Examples
The Treasury Department and the IRS requested comments on whether
additional examples should be included in the final regulations, and if
so, what specific fact patterns or rules should be addressed by the
additional examples. In general, comments were mixed on this issue.
Many commenters favored additional examples but did not want
examples to have the unintended effect of limiting the rules or the
deference provided to Indian Tribal governments or their programs. Most
commenters requested that the regulations clearly confirm that examples
do not limit or curtail Tribal flexibility to design Indian Tribal
government programs, and many commenters suggest adding ``without
limitation'' in all examples or stating that the examples are neither
exclusive nor exhaustive. Some commenters requested that any new
examples be discussed with the TTAC.
Conversely, many commenters recommended no new examples be added to
the final regulations. Some commenters were concerned that additional
examples could be viewed as setting limits on Tribal general welfare
benefits and may not be viewed as an illustration of possible benefits.
Some commenters requested new examples in specific areas. For
example, one commenter recommended that new examples would be helpful
for rules that do not explicitly provide deference to Indian Tribal
governments. A few commenters requested examples relating to the rules
for lavish or extravagant, such as: how the facts-and-circumstances
test applies particularly in relation to different geographical or
economic areas (such as high-cost or low-cost areas); how the
presumption could be rebutted by IRS; and examples of how ``level''
cash benefits interact with the ``promotion of the general welfare''
standard. One commenter requested an example on the interactions of a
general welfare benefit under section 139E with other Federal benefits
programs, such as Supplemental Security Income (SSI) and Medicaid.
Finally, this commenter also requested an example on general welfare
payments distributed from a trust on a pro-rata basis.
In general, the Treasury Department and the IRS have concluded it
would be best to refrain from adding many new examples to these final
regulations, and have added new examples only after consulting with the
TTAC GWE Subcommittee. Specifically, after careful consideration, the
Treasury Department and the IRS decline to add examples regarding the
lavish or extravagant rules because examples may create a negative
inference that limits an Indian Tribal government program. The test to
determine whether a benefit is lavish or extravagant depends on the
facts and circumstances, some of which are factors that would be
specific to a Tribe. Finally, the Treasury Department and the IRS also
decline to add an example to describe the interaction of Tribal general
welfare benefits and SSI or Medicaid benefits because the definition of
income for SSI or Medicaid benefits is outside the scope of these
regulations.
B. Existing Examples
Some commenters observed that the examples in proposed Sec.
1.139E-1(d)(2)(ii) are directly from Revenue Procedure 2014-35. These
commenters recommended refining these examples to help guide Tribal
governments and the IRS. In addition, several commenters recommended
using consistent language when referring to the examples not being an
exhaustive list. For instance, commenters suggested using the words
``including but not limited to'' to denote the example is a non-
exhaustive list.
The Treasury Department and the IRS have revised the examples in
these final regulations to clarify that they are not intended to be
exhaustive, and to make clear that items following the word
``including'' are similarly not intended to be exhaustive. The examples
in Sec. 1.139E-1(d)(2)(ii) of these final regulations have also been
revised to assist with readability.
VII. Obsoletion of Revenue Procedure 2014-35
The Treasury Department and the IRS proposed to obsolete Revenue
Procedure 2014-35 after the final regulations are applicable. Comments
were requested on whether the revenue procedure should be obsoleted
when the final regulations become applicable, and if not, why there is
a continuing need for it after the publication of final regulations.
Most commenters argued that Revenue Procedure 2014-35 is outdated
and should be obsoleted when the final regulations are applicable. Some
commenters noted confusion may occur if the revenue procedure is
retained because some provisions of Revenue Procedure 2014-35 conflict
with the Act. In particular, one commenter noted there is no need for
safe harbors if Indian Tribal governments are provided broad deference
and the IRS defers to Tribal determinations under the proposed
regulations. Similarly, other commenters argued that the Act, section
139E, and the proposed regulations are more flexible and provide more
comprehensive guidance to Indian Tribal governments than the revenue
procedure. Commenters also argued that the safe harbors are no longer
needed because section 139E and the proposed
[[Page 58394]]
regulations, unlike the administrative general welfare exclusion, do
not require a showing of individual need. However, these commenters
recommended a transition period to allow continued use of the revenue
procedure for at least one year after the final regulations are
applicable in order to give Indian Tribal governments time to comply
with the final regulations.
Similarly, a few commenters noted that some Federal agencies
interpret the revenue procedure's safe harbors narrowly to the
detriment of benefit recipients who rely on Federal assistance. Another
commenter supported obsoletion of Revenue Procedure 2014-35 but
detailed the challenges the commenter has experienced with the Social
Security Administration and requested that the Treasury Department
confirm that Tribal general welfare benefits are needs-based assistance
for purposes of eligibility standards under Social Security
Administration programs.
One commenter argued that the Treasury Department and the IRS
should not obsolete Revenue Procedure 2014-35 so that it remains as
fallback guidance in case the final regulations are ever invalidated by
a court or otherwise scaled back. Another commenter requested that
language be added to the final regulations that, in addition to section
139E and these final regulations, provide that the administrative
general welfare exclusion may also be available to exclude an amount
from gross income.
Revenue Procedure 2014-35 will become obsolete for taxable years
beginning on or after January 1, 2027, the applicability date of the
final regulations, which will provide Indian Tribal governments with
additional transition time to adjust or update their programs. See the
``Effect on Other Documents'' section of this preamble. The Treasury
Department and the IRS agree with commenters that it would be confusing
to retain the revenue procedure because these final regulations are
intended to be broader than the needs-based safe harbors provided in
the revenue procedure. The Treasury Department and the IRS also affirm
that section 139E and these regulations do not supplant the
administrative general welfare exclusion.
However, the Treasury Department and the IRS disagree that Tribal
general welfare benefits are always needs-based assistance. Section
1.139E-1(d)(2)(i) expressly provides that Tribal general welfare
benefits may be provided without regard to financial or other need of
Tribal program participants. Nevertheless, an Indian Tribal government
has broad discretion to establish and administer Indian Tribal
government programs and may choose to limit a program or its benefits
to Tribal program participants based on a showing of individual need.
VIII. Audit Suspension and Administration
The responses of the Treasury Department and the IRS to the
comments discussed in parts VIII.A. and VIII.B. of this Summary of
Comments and Explanation of Revisions are set forth in part VIII.C. of
this Summary of Comments and Explanation of Revisions.
A. Audit Suspension and the Education and Training Requirement
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 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 or 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.
Many commenters noted that section 4 of the Act expressly provides
that the lifting of audit suspension is contingent on the completion of
education and training. Many commenters requested that meaningful
coordination and consultation with the TTAC occur on the education and
training. Several commenters requested that the Treasury Department and
the IRS use the same TTAC and Tribal consultation and coordination
process to satisfy the required education and training as was used for
the development of the regulations. Some of these commenters noted that
consultation with the TTAC ensures that training and education
materials will be drafted to focus on both the substantive rules and
the sovereignty principles underlying these regulations.
Several commenters outlined a specific process for developing a
training program under section 3 of the Act, which they urged the
Treasury Department to adopt. Under their recommendation, the process
would begin with a report prepared by the TTAC in coordination with
Tribes that would be formally presented to the Treasury Department. The
Treasury Department and the IRS would then work with the TTAC or an
appropriate TTAC subcommittee to develop a Treasury Department and IRS
proposal for the education and training program which would be the
subject of Tribal consultation. The Treasury Department and the IRS
would then review the comments from the Tribes and publish proposed and
final regulations describing the training program, following the same
process used in issuing these final regulations.
Commenters also provided general recommendations for what should be
included in the required training and education of internal revenue
field agents and Tribal financial officers. Some commenters requested
that the training materials be made publicly available and that
internal revenue field agents receive training on such topics as how to
defer to Tribal determinations on whether an item is a Tribal general
welfare benefit, a Tribe's customs and programmatic guidelines, and
that examples in the regulations are not exclusive examples.
Some commenters also requested that the final guidance and training
materials require IRS agents to consult with the IRS Office of Indian
Tribal Governments on audits involving general welfare issues due to
that office's expertise with the Federal trust and treaty relationships
with Federally recognized Tribes. Some commenters recommended in-person
trainings for all individuals required to complete the Act's education
and training requirements to foster a better understanding of the
materials on Federal Indian law and Tribal-specific issues. Other
commenters requested in-person audit training with Tribal
representatives because not all Tribes have access to virtual training,
or do not attend national or regional Tribal conferences. Another
commenter requested that any IRS training manual require the IRS to
consult with a Tribe during an audit and to focus on program compliance
by allowing for a program to be amended rather than focusing on
imposing penalties.
Commenters noted that the statutory language of section 3(b) of the
Act describing the categories of persons covered by the audit
suspension is
[[Page 58395]]
narrower than the definition of Tribal program participant in the
proposed regulations. Some commenters requested the audit suspension
apply to any individual eligible for the exclusion of benefits under
the proposed regulations. Commenters noted a lack of parity puts
families of Tribal members at risk of audit. One commenter provided a
personal experience in which the audit suspension was not applied to an
individual's Tribally-recognized spouse who would qualify as a Tribal
Program participant under the proposed regulations. Another commenter
asserted that the IRS should seek input from the Tribal government that
provided a general welfare benefit before penalizing an individual
recipient. One commenter requested the audit suspension be extended to
Alaska Native regional or village corporations.
B. Transition Relief
In the Comments and Public Hearing section of the preamble to the
proposed regulations, the Treasury Department and the IRS requested
comments on whether Tribes would need time to transition existing
general welfare programs to satisfy the proposed regulations before the
regulations are finalized. In addition, if transition relief would be
helpful, comments were also requested on the nature of the transition
relief needed and any recommendations as to what relief would be
helpful to Indian Tribal governments.
Many commenters favored transition relief to allow Indian Tribal
governments to adopt changes to their programs after the final
regulations are applicable. Commenters noted that program changes may
require extensive time to implement due to changes to Tribal
ordinances, and RAPs under IGRA. Commenters also noted that Tribal
members and Tribal staff need training and education on program changes
before such changes are implemented. One commenter requested transition
relief due to the legal and financial costs associated with
transitioning to a new policy.
Some commenters supported the TTAC proposal of a minimum one-year
transition period after the required training and education under
section 3(b) of the Act is complete. Many commenters requested specific
language be added to proposed Sec. 1.139E-1(f) providing that no
audits or examinations will begin prior to one year after the effective
date of the regulations. Other commenters stated that a one-year
transition period is a reasonable starting point but recommended that a
transition period for changes to Tribal programs be provided through
the end of the calendar year beginning after the final regulations are
issued and education and training requirements under section 3(b) of
the Act are complete. Many commenters requested relief extending the
transition period on a case-by-case basis for Tribes that have
initiated Tribal approval processes in a timely manner but where the
Tribe cannot reasonably complete such processes within the one-year
period, as well as for delays in approvals for changes to a RAP.
Another commenter requested that transition relief be provided that
allows an Indian Tribal government program that is in effect during the
period between the effective date of the Act and the effective date of
the final regulations, and that qualifies as an Indian Tribal
government program under the final regulations, be treated as
satisfying the requirements of the Act. The commenter also requested
that a Tribal government program adopted in good faith based on a
reasonable interpretation of the Act be treated as satisfying the
requirements of the Act if such program is adopted between the
effective date of the Act and the effective date of the final
regulations. The commenter noted that this transitional approach was
taken in Notice 2006-89 (2006-43 I.R.B. 772).
Some commenters requested the regulations provide that for the
first year in which audits are performed, they be conducted solely for
the purpose of helping Tribes comply with the final regulations. These
commenters explained that this would help focus on educating Tribes
about requirements for Indian Tribal government programs and Tribal
general welfare benefits, in order to support compliance rather than
impose penalties.
Most commenters recommended that audits and examinations be
prospective and described it as unfair to audit Tribes and Tribal
members retroactively in taxable years for which there were no clear
rules. Commenters requested that IRS audit and examination efforts
focus on future compliance rather than penalizing past actions and
urged that audits should apply only to programs and actions implemented
after the regulations are finalized. Commenters argued the Act was
enacted as a result of excessive IRS audits which stifled Tribes'
ability to provide assistance to Tribal members. Some commenters also
requested that the Treasury Department and the IRS provide formal
notice providing a transition period and when audits and examinations
will resume.
C. Treasury Department and IRS Response
Pursuant to section 4(a) of the Act, the suspension of audits and
examinations of Indian Tribal governments and members of Tribes (or any
spouse or dependent of such a member) by the IRS relating to the
exclusion of a payment or benefit from an Indian Tribal government
under the general welfare exclusion will be lifted once the education
and training required by section 3(b)(2) of the Act is completed. As
also provided by section 4(a) of the Act, the running of any period of
limitations under section 6501 with respect to Indian Tribal
governments and members of Tribes is also suspended until the education
and training required by section 3(b)(2) of the Act is completed.
The Treasury Department and the IRS expect to begin development of
education and training materials in consultation with Tribes and the
TTAC soon after the effective date of this Treasury decision.
The Treasury Department and the IRS agree with the TTAC, Tribal
leaders, and commenters generally that it would be in the interest of
sound tax administration for IRS audits and examinations (see sections
7602 and 7605 of the Code) of issues under section 139E and these final
regulations to be prospective in nature. In addition, the Treasury
Department and the IRS agree with the TTAC, Tribal leaders, and
commenters generally that it would be counterproductive for IRS audit
and examinations of issues under section 139E and these final
regulations to apply to taxable years for which there was no guidance
interpreting section 139E. The Treasury Department and the IRS also
agree that during the period beginning after the effective date of this
Treasury decision and while the education and training required by
section 3(b)(2) of the Act is ongoing, it would be most productive to
allow Indian Tribal governments time to adopt changes to the general
welfare programs they administer such that the programs comply with
these final regulations. In addition, until such education and training
are complete, the Treasury Department and the IRS intend to apply the
temporary suspension of audits and examinations to Indian Tribal
governments and Tribal program participants as defined in the final
regulations, which, based on the comments received, is not limited to
the individuals described in section 4(a) of the Act. However, the IRS
may inquire as to whether a taxpayer qualifies for the audit
suspension. For example, the IRS
[[Page 58396]]
may ask questions to determine whether an individual is a Tribal
program participant. Accordingly, Sec. 1.139E-1(g) also provides for
the ability of the IRS to inquire into a taxpayer's eligibility for the
audit suspension.
Accordingly, the Treasury Department and the IRS have determined
that although these final regulations will be effective after December
16, 2025, the rules of Sec. 1.139E-1 will not be applicable to any
taxable years of Tribal program participants that begin before January
1, 2027. Once the education and training required by section 3(b)(2) of
the Act is complete, the Treasury Department and the IRS will publish a
formal notice that the required education and training has been
completed at least 30 days in advance of lifting the suspension of
audits and examinations. The tolling of the period of limitations under
section 6501 pursuant to section 4(a) of the Act will also end once the
suspension of audits and examinations is lifted. However, in the
interest of sound tax administration, once the suspension of audits and
examination is lifted, the IRS does not intend to open audits or
examinations (except in certain circumstances such as, for example, in
the case of fraud) with respect to the exclusion of a payment or
benefit under section 139E for taxable years ending before December 16,
2025.
In addition, once the suspension of audits and examinations is
lifted, the IRS will apply section 139E to taxable years ending on or
after December 16, 2025, and beginning before January 1, 2027, by
taking into account the good faith efforts of an Indian Tribal
government or Tribal program participant to comply with the
requirements of section 139E in advance of the January 1, 2027,
applicability date of Sec. 1.139E-1. Indian Tribal governments may
also choose to apply the provisions of Sec. 1.139E-1, in their
entirety, for benefits provided to Tribal program participants in
taxable years that begin before January 1, 2027. In addition, Indian
Tribal governments may continue to apply Revenue Procedure 2014-35 for
benefits provided to Tribal program participants in taxable years that
begin before January 1, 2027, as Indian Tribal governments transition
any programs to comply with the final regulations in advance of January
1, 2027. However, once the final regulations become applicable for
taxable years beginning on or after January 1, 2027, Revenue Procedure
2014-35 will become obsolete, and no person may rely on Revenue
Procedure 2014-35 for any taxable year beginning on or after January 1,
2027.
Finally, the Treasury Department and the IRS remind Indian Tribal
governments and administrators of Indian Tribal government programs
that satisfy the requirements of Sec. 1.139E-1(d) that no amount of
any Tribal general welfare benefit satisfying the requirements of Sec.
1.139E-1(d) that is provided by such an Indian Tribal government
program to a Tribal program participant (as defined in Sec. 1.139E-
1(b)(8)) should be reported on any information return (for example,
Form 1099-MISC, Miscellaneous Information) or statement otherwise
required to be filed with the IRS or furnished to an individual under
the Code. If a Tribal program participant believes that he or she has
received an information return in error, the Tribal program participant
should contact the issuer for a corrected information return.
With regard to the comments on the audit suspension program and the
education and training, the Treasury Department and the IRS confirm
that the audit suspension described in section 4(a) of the Act
continues until all the requirements of section 3(b)(2) of the Act are
satisfied. Once these final regulations under section 139E are
published in the Federal Register, the Treasury Department and the IRS,
in consultation with Tribes and the TTAC, will develop the training
curriculum and conduct the required education and training under
section 3(b)(2) of the Act. Only after that required education and
training is complete will the audit suspension be lifted.
The Treasury Department and the IRS intend to work closely with the
TTAC and consult with the TTAC GWE Subcommittee in designing and
preparing the training and education program required under section
3(b)(2) of the Act. However, the Treasury Department and the IRS have
determined that a notice and comment period similar to that used for
regulations is not required by section 3 of the Act and would delay the
implementation of these final regulations for Tribal officers and IRS
agents. The Treasury Department and the IRS are aware of Executive
Order 13175 and intend to hold consultations with Tribal leaders on
training and education programs.
The Treasury Department and the IRS decline to adopt the
recommendations in the comments related to what the required education
and training may provide because the specifics of this education and
training are outside the scope of these regulations. As noted in the
preamble to the proposed regulations, these regulations ``do not
address the education and training that will be required to be complete
before the audit suspension is lifted.'' The Treasury Department and
the IRS will continue to consult with the TTAC as required under
section 3(b)(2) of the Act.
IX. Other Issues
A. Coordination With Other Federal Agencies/Social Welfare Programs
Several commenters expressed concern that Tribal general welfare
benefits are considered in income-based eligibility determinations for
Federal assistance programs administered by other agencies, such as the
Social Security Administration for Medicaid, Department of Agriculture,
Housing and Urban Development, and the Department of Veteran Affairs.
Most commenters requested that the Treasury Department and the IRS
engage with other Federal agencies to address this issue and ensure
that benefits excluded under section 139E do not affect eligibility for
other Federal assistance programs. This issue is important to Tribes
because it results in hardships for vulnerable Tribal citizens. Some of
these commenters recommended that the Treasury Department and the IRS
collaborate with the TTAC on the issue of the interaction of Tribal
general welfare benefits under section 139E and eligibility
requirements for other Federal assistance programs. Several commenters
noted that other Federal programs should consider the Tribal canon of
construction when determining eligibility based on income.
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 other Federal benefit programs administered by
other Federal agencies is outside the authority of the Treasury
Department and the IRS. As such, these final regulations do not provide
guidance on the treatment of Tribal general welfare benefits outside of
the Internal Revenue Code (26 U.S.C. et seq.). The Treasury Department
and the IRS understand the importance of this issue for Tribes and will
continue to work with the TTAC and Tribes to confer with other Federal
agencies to provide advice on how the Federal tax law applies to Tribal
general welfare benefits.
[[Page 58397]]
B. Advance Rulings
Some commenters requested an advance ruling process be established
by the IRS for Tribes to have access to an optional advance ruling
program or procedures to address program design and compliance issues
not directly or fully answered in the final regulations.
The Treasury Department and the IRS appreciate that Tribes want
certainty on the Indian Tribal government programs to ensure the
programs comply with section 139E and these final regulations. However,
these final regulations do not provide a new advance ruling process for
Tribes to request review of the general welfare programs for the
reasons discussed below.
The IRS has a general process already in place for entities and
individuals to request a letter ruling on the tax treatment of a
particular transaction or program. If an Indian Tribal government
receives a letter ruling from the IRS, the ruling generally is binding
on the IRS. However, a letter ruling would address the Federal tax law
and would not be binding in any way on other Federal or State agencies.
The IRS expects the letter ruling process to be available to Indian
Tribal governments after the final regulations are effective (that is,
after December 16, 2025).
In addition, section 3(b)(2) of the Act requires the Treasury
Department, in consultation with the TTAC, to establish training and
education, with specific requirements to provide assistance to Tribal
financial officers on the implementation of section 139E. The Treasury
Department and the IRS expect such training and education to support
Tribes in understanding the flexibility and deference provided to
Indian Tribal governments in developing general welfare programs to
satisfy the program and benefit requirements of section 139E and these
final regulations. Moreover, the IRS Office of Indian Tribal
Governments is also a resource for informal advice on issues that
affect Indian Tribal governments.
C. Appeal Process
Some commenters requested an appeals process be provided to Tribes
and Tribal members to appeal IRS field agent decisions to a team of
Tribal specialists at the top of the IRS structure without waiving
existing legal rights. These commenters asserted that such an appeals
process would acknowledge the unique Tribal relationship with the
Federal government and would help Tribes and their Tribal members avoid
litigation expenses. These commenters requested that Tribal court
decisions be given full faith and credit by the IRS.
The Treasury Department and the IRS do not include a separate
appeals process in these final regulations because it is outside the
scope of section 139E. The IRS expects that the existing appeals
processes in place for entities and individuals to request the review
of Federal income tax controversies would apply, including through the
Independent Office of Appeals (Appeals). The IRS expects that the
required education and training under section 3(b)(2) of the Act will
also help IRS field agents and Tribal financial officers understand the
requirements of these final regulations and the unique government-to-
government relationship with the Federal government.
D. Section 139D
In part III.A.4. of the Explanation of Provisions in the preamble
to the proposed regulations, the Treasury Department and the IRS
discussed wellness and health-related programs and explained that
section 139D of the Code and section 139E are independent provisions,
and that section 139D does not limit the application of section 139E.
The preamble discussed qualified Indian health care benefits generally
and provided an example of medical care under section 213(d) of the
Code. Moreover, the example described certain wellness and health-
related programs, as well as care by an unlicensed spouse or relative,
that are not considered medical care under section 213(d), and
concludes these are not excludible under section 139D.
Commenters expressed concern that the Treasury Department and the
IRS's description of section 139D in the proposed regulations is
inaccurate and too narrow. Commenters requested that the Treasury
Department and the IRS revise the description of section 139D to
accurately reflect the exclusion from gross income for qualified Indian
health care benefits. Several commenters stated that Tribes provide
more than medical care under their Indian Self Determination and
Education Assistance Act (ISDEAA) agreements and in the health coverage
they purchase and/or provide to their members. The commenters further
explained that Tribes routinely provide general health, wellness, and
other preventative and health promotion services to their members
through the community health representative programs, home and
community-based services, community health education, and other
services.
The Treasury Department and the IRS agree with commenters that the
description of section 139D in the proposed regulations was too narrow
and inaccurate in describing a qualified Indian health care benefit.
The Treasury Department and the IRS intended for the discussion in the
proposed regulations to explain that section 139E applies to a benefit
independent of section 139D such that a benefit from certain wellness
and health-related programs may qualify for exclusion from gross income
under section 139E whether or not it also qualifies for exclusion from
gross income under section 139D.
Section 139D generally provides an exclusion from gross income for
any qualified Indian health care benefit. The term ``qualified Indian
health care benefit'' is defined in section 139D(b) and some benefits
may not be limited by the definition of medical care under section 213.
For example, section 139D(b)(1) provides that a qualified Indian health
care benefit includes any health service or benefit provided or
purchased, directly or indirectly, by the Indian Health Service through
a grant to or a contract or compact with an Indian Tribe or Tribal
organization, or through a third-party program funded by the Indian
Health Service.
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. However, even if such benefit is not a
qualified Indian health care benefit under section 139D, an Indian
Tribal government may determine, under Sec. 1.139E-1(d)(2), that
wellness and health-related programs are for the promotion of general
welfare under section 139E. Thus, 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 a
spouse or relative, may be amounts which qualify as Tribal general
welfare benefits.
X. Ongoing Consultation
A. Future TTAC Coordination
Many commenters requested that the Treasury Department and the IRS
continue to coordinate all changes and future guidance with the TTAC to
ensure Tribal input remains at the forefront of future efforts to
develop and implement the Act. Many commenters requested that the
Treasury Department and the IRS maintain an open dialogue with TTAC on
guidance proposals, and not mere listening sessions, so that Tribes
have a meaningful role in the development of all rules that impact the
Tribal general welfare exclusion both directly and through TTAC. For
example, one commenter requested that
[[Page 58398]]
the Treasury Department and the IRS meet with TTAC to jointly consider
and address the comments received on the proposed regulations, and, in
turn, that the TTAC share this progress with Tribes to ensure Tribal
input in the guidance process. Moreover, commenters requested that the
Treasury Department and the IRS maintain ongoing consultation with
Tribal leaders and the TTAC as new issues arise to ensure the
regulations protect Tribal sovereignty and support effective Tribal
governance.
One commenter objected generally to the composition of Tribal
representation on the TTAC. Conversely, some commenters shared
appreciation for the Treasury Department and the IRS's collaborative
approach with the TTAC and Tribes on the development of the proposed
regulations. Commenters also expressed support for the work of
Treasury's Office of Tribal and Native Affairs and requested permanency
for the office.
The Treasury Department and the IRS agree with commenters that
ongoing consultation with the TTAC is beneficial to the implementation
of the Act. The Treasury Department and the IRS have engaged in
extensive consultation with the TTAC GWE Subcommittee during the
drafting of these final regulations with meaningful discussion of the
comments received on the proposed regulation. These final regulations
incorporate the recommendations of the TTAC GWE Subcommittee on these
issues. Moreover, the Treasury Department and the IRS intend to
continue meaningful consultation with the TTAC GWE Subcommittee to
develop the training and education required by section 3(b) of the Act.
B. Alaska Native Regional or Village Corporations
Several commenters expressed concern that the proposed regulations
do not provide guidance for Alaska Native regional or village
corporations, even though Alaska Native regional or village
corporations are included in section 139E(c)(1). Commenters stated the
Treasury Department and the IRS are required to consult with Alaska
Native regional or village corporations on the same basis as Federally
recognized Tribes under Executive Order 13175. Some commenters pointed
to Dear Tribal Leader Letters sent to leaders of Federally recognized
Tribes and those letters were not sent to leadership of Alaska Native
regional or village corporations and did not specifically address
Alaska Native regional or village corporations. These commenters argued
that the promise to issue guidance in the future is inadequate to
satisfy the requirements of the Act and leaves out Alaska Native
regional or village corporations, and Alaska Native regional or village
corporations have no information when consultation will be held on
section 139E and the Act. These commenters asserted that the IRS should
have consulted with Alaska Native regional or village corporations to
provide their leadership and other interested parties an opportunity to
engage in the commenting process before deciding to omit Alaska Native
regional or village corporations from the proposed regulations.
Some commenters argued that providing guidance for Alaska Native
regional or village corporations in later regulations is harmful and
has negative effects on Alaska Native regional or village corporations
because it creates confusion and uncertainty for Alaska Native regional
or village corporations and may have the potential to obscure their
place in the regulatory framework, contrary to their inclusion in
section 139E. One commenter notes the omission of Alaska Native
regional or village corporations from the proposed regulations creates
confusion as to whether section 139E applies to Alaska Native regional
or village corporations and that eliminating this uncertainty should be
a top priority of the Treasury Department and the IRS.
Some commenters recommended that the final regulations include
Alaska Native regional or village corporations in the definitions of
Indian Tribal government and Tribe in Sec. 1.139E-1. Other commenters
recommended that the Treasury Department and the IRS finalize the
regulations only after consultation with Alaska Native regional or
village corporations on section 139E, publishing a proposed regulation
applicable to Alaska Native regional or village corporations, providing
notice and comment on such regulation, and solicitating specific
questions of Alaska Native regional or village corporations. A
commenter stated that Alaska Native regional or village corporations
also provide vital general welfare benefits and services to their
shareholders, such as scholarships, funding for cultural programs,
improvements to healthcare access, and other essential services.
Another commenter recommended that the Treasury Department and the IRS
quickly promulgate proposed Sec. 1.139E-2 to address Alaska Native
regional or village corporations. Several commenters mentioned that
rules provided for Alaska Native regional or village corporations
should be similar to those for Federally recognized Tribes in the
proposed regulation, possibly with minor customizations.
One commenter acknowledged the decision of the Treasury Department
and the IRS to issue separate guidance for Alaska Native regional or
village corporations and Federally recognized Tribes. However, the
commenter requested that the Treasury Department and the IRS include
section 139E guidance for Alaska Native regional or village
corporations as a priority on the Priority Guidance Plan (PGP) for the
2025-2026 plan year and that the guidance provided be similar to the
guidance provided to Federally recognized Tribes under the proposed
regulations. The commenter also recommended that interim guidance allow
Alaska Native regional or village corporations to apply any or all of
the provisions of the proposed regulation on a case-by-case basis.
In the interest of sound tax administration, the Treasury
Department and the IRS have decided to continue to limit the rules of
Sec. 1.139E-1 to Federally recognized Tribes. However, the Treasury
Department and the IRS agree with commenters that, as provided in
section 139E(c)(1), an Alaska Native regional or village corporation
may provide Tribal general welfare benefits excluded from gross income
under section 139E.
The Treasury Department and the IRS held a consultation with Alaska
Native regional and village corporations on July 29, 2025, in order to
gather input before promulgating proposed regulations under section
139E customized to the specific circumstances of Alaska Native regional
or village corporations. Discussion at this consultation focused on the
application of section 139E to Alaska Native regional or village
corporations and what guidance specific to Alaska Native regional or
village corporations' distinct Federal income tax characteristics and
circumstances would be helpful. Additionally, the Treasury Department
and the IRS included section 139E guidance for Alaska Native regional
or village corporations as a priority on the Priority Guidance Plan for
the 2025-2026 plan year, released on September 30, 2025. The current
Priority Guidance Plan is available at https://www.irs.gov/privacy-disclosure/priority-guidance-plan.
The Treasury Department and IRS are aware that Alaska Native
regional or village corporations may want more certainty regarding
their general welfare programs prior to the promulgation of additional
final regulations under section 139E. Accordingly, the Treasury
[[Page 58399]]
Department and the IRS have determined that Alaska Native regional or
village corporations may choose to apply the final rules in Sec.
1.139E-1 until proposed regulations that specifically address the
application of the requirements of section 139E to Alaska Native
regional or village corporations are published under Sec. 1.139E-2.
However, an Alaska Native regional or village corporation that chooses
to apply the rules in Sec. 1.139E-1 must consistently apply the rules
of Sec. 1.139E-1 with respect to any general welfare benefits provided
to a shareholder of the Alaska Native regional or village corporation
(and the shareholder's spouse and dependents) and other Tribal program
participants from general welfare programs of the Alaska Native
regional or village corporation that satisfy Sec. 1.139E-1(c). These
final regulations set forth the substance of the preceding two
sentences at Sec. 1.139E-2. Moreover, the Treasury Department and the
IRS acknowledge that section 3(b) of the Act requires education and
training specific to Alaska Native regional or village corporations.
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 final regulations have a substantial direct effect on one
or more Federally recognized Indian Tribes and do impose substantial
direct compliance costs on Indian Tribal governments within the meaning
of the Executive order. As a result, the Treasury Department complied
with section 5(b)(2)(A) and (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 these final regulations, the Treasury
Department and the IRS held consultations with Tribal leaders on
November 18, 19, and 20, 2024, requesting assistance in addressing
questions related to the Act and the proposed regulations, which
informed the development of these final regulations. The Treasury
Department and the IRS also intend to conduct Tribal consultation on
the required training described in section 3(b)(2) of the Act.
II. Regulatory Planning and Review
The Office of Information and Regulatory Analysis of the Office of
Management and Budget (OMB) has determined that this regulation is not
subject to review under section 6(b) of Executive Order 12866 pursuant
to the Memorandum of Agreement (July 4, 2025) between the Treasury
Department and the OMB regarding review of tax regulations. Therefore,
a regulatory impact assessment is not required.
The Executive Order 14192 designation for this rule is anticipated
to be deregulatory.
III. Paperwork Reduction Act
The collection of information contained in these regulations has
been reviewed and approved by the OMB in accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3501-3520) under control number 1545-
2328.
These regulations 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.
The recordkeeping requirements in Sec. 1.139E-1(c)(3) provide that
Indian Tribal government programs must be administered under specified
guidelines and provide general requirements on the content of those
guidelines. Written specified guidelines are not required.
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 Sec. 1.139E-1(c)(4), are not lavish or
extravagant, as described in Sec. 1.139E-1(d)(4), and are not
compensation for services, as described in Sec. 1.139E-1(d)(5). This
information will generally be used by the IRS for tax compliance
purposes to ensure Indian Tribal governments are distributing Tribal
general welfare benefits in accordance with Sec. 1.139E-1.
A 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 final regulations do not
prescribe a specific method 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 final regulations do not change the general recordkeeping
requirement under section 6001 or create any new recordkeeping
requirements for Tribal program participants that receive a Tribal
general welfare benefit.
The estimated total reporting burden for Indian Tribal governments
(third-party disclosure and recordkeeping burden for Tribal entities)
is as follows:
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 Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA)
generally requires 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 assigned by
the OMB.
IV. Regulatory Flexibility Act
The Secretary of the Treasury hereby certifies these final
regulations will 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 final regulations 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 will potentially be affected by these
final regulations, it is possible that a substantial number of small
entities may be affected. However, any impact on those entities will
not be economically significant and therefore a regulatory flexibility
analysis under the Regulatory Flexibility Act is not required.
The impact of these final regulations can be described in the
following categories. First, Sec. 1.139E-1(c) provides guidance on
what criteria a program must meet in order to be an ``Indian Tribal
Government Program.'' Specifically, Sec. 1.139E-1(c) provides that the
program must be established by the
[[Page 58400]]
Indian Tribal government; administered under specified guidelines; and
not discriminate in favor of members of the governing body of the
Tribe. Even assuming these provisions affect a substantial number of
small entities, they will not have a significant economic impact.
Section 139E(b) imposes the burden of what is needed to create an
Indian Tribal government program. These final regulations will 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 final
regulations will have a minimal economic impact on Indian Tribal
governments.
Second, Sec. 1.139E-1(d) will provide guidance on whether a
benefit is a ``Tribal General Welfare Benefit'' that is excluded from
an individual's gross income. Specifically, Sec. 1.139E-1(d) will
require 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. Section 1.139E-1(d) will 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 final
regulations. It also provides that deference is given to the
attestations of the facts and circumstances at the time that a benefit
is provided to the Tribal program participant, and that the 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 that exist at the time that the
benefit is provided to the Tribal program participant. As such, it is
expected that the final regulations will have a minimal economic impact
on Indian Tribal governments.
Third, an Indian Tribal government program may provide benefits to
a Tribal program participant that are items of cultural significance,
reimbursement of costs, or cash honoraria for the Tribal program
participant's participation in certain cultural or ceremonial
activities. See Sec. 1.139E-1(e). Indian Tribal governments have broad
discretion to determine whether or not these benefits are provided.
Even assuming this provision affects a substantial number of small
entities, it will 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 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.
V. Section 7805(f)
Pursuant to section 7805(f) of the Code, the proposed regulations
(REG-106851-21) preceding this final regulation were submitted to the
Chief Counsel for the Office of Advocacy of the Small Business
Administration for comment on its impact on small business, and no
comments were received.
VI. 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
final 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.
VII. 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 the agency meets the consultation and funding requirements of
section 6 of the Executive order. These final 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.
Effect on Other Documents
Revenue Procedure 2014-35 (2014-26 I.R.B. 1110) and Notice 2015-34
(2015-18 I.R.B. 942) are obsolete for taxable years beginning on or
after January 1, 2027.
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 regulations are Mon Lam, Jonathan
Dunlap, and Thomas Brown of the Office of Associate Chief Counsel
(Income Tax and Accounting). However, other personnel from the Treasury
Department and the IRS participated in the development of the
regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by adding
entries for Sec. Sec. 1.139E-1, 1.139E-1(d)(6), 1.139E-2, and 1.7872-
5(b)(17), in numerical order, to read in part, as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.139E-1 also issued under 26 U.S.C. 139E.
Section 1.139E-1(d)(6) also issued under 26 U.S.C. 7872.
Section 1.139E-2 also issued under 26 U.S.C. 139E.
* * * * *
Section 1.7872-5(b)(17) also issued under 26 U.S.C. 7872.
* * * * *
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 Alaska Native regional or village corporations.
* * * * *
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.
[[Page 58401]]
(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 specified 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.
(6) Loans from an Indian Tribal Government to a Tribal Program
Participant.
(e) Cultural or ceremonial activities.
(1) In general.
(2) Application.
(3) Examples.
(f) Section 2(c) of the Act.
(g) Audit suspension.
(h) Applicability date.
Sec. 1.139E-2 Alaska Native regional or village corporations.
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 restates the
deference provided to Indian Tribal governments under section 2(c) of
the Act. Paragraph (g) of this section describes the audit suspension
provisions in section 4(a) of the Act. Paragraph (h) 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, legally
recognized domestic partner or former domestic partner, or an
individual for whom a Tribal Member is a caregiver authorized under
Tribal or State law.
(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, and other individuals described in paragraph (b)(8)(i) of this
section. For purposes of this paragraph (b)(8)(ii), in applying
paragraph (b)(8)(i) of this section, such member or citizen of another
Tribe will be treated as a Tribal Member.
(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;
(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 is a
qualifying child or a qualifying relative, as defined in section 152 of
the Code, of a Tribal Member for the taxable year determined:
(i) 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.
(ii) 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; and
(iii) 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
[[Page 58402]]
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 this paragraph (c)(2) are
illustrated by the following examples, which are not intended to be an
exhaustive or exclusive illustration of the rules provided in this
paragraph (c)(2):
(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--(1) Facts. The facts are the same 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:
(i) Approving $X of funding for the 2024 year for the scholarship
program; and
(ii) Authorizing the director of the Tribal Education office to use
the approved funds for the scholarship program.
(2) Analysis. A's Council has established the education program
under paragraph (c)(2)(i) of this section.
(C) Example 3. The facts are the same 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 eligibility requirements
for the program, a description of the type of benefits authorized by
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. 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. 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). Additionally, the administration of a program discriminates in
favor of members of the governing body of the Tribe if, based on the
totality of the facts and circumstances, the benefits provided during
the year disproportionately favor members of the governing body of the
Tribe because of their status as members of the governing body.
(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) and in effect at
the time of the payment.
(iii) Benefits paid as distributions from certain trusts. Benefits
under the Indian Tribal Government Program may be provided to Tribal
Program Participants as distributions from the portion of a trust of
which the Indian Tribal Government is treated as owner under sections
671 through 677. For purposes of section 139E and this section, the
determination of whether a benefit is a Tribal General Welfare Benefit
is made at the time the benefit is distributed from the trust to the
Tribal Program Participant. A benefit, or a portion thereof, that an
Indian Tribal Government Program distributes from a trust is a Tribal
General Welfare Benefit under section 139E if it otherwise satisfies
the requirements of section 139E and this section.
(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
[[Page 58403]]
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.
Moreover, an Indian Tribal Government may also determine that providing
a benefit to a Tribal Program Participant to support, develop, operate,
expand or start a trade or business is a benefit for the promotion of
general welfare. However, a benefit paid to or on behalf of a Tribal
Program Participant for a trade or business must be paid to or on
behalf of the Tribal Program Participant in the Tribal Program
Participant's capacity as an individual (for example, the benefit
cannot be paid to or on behalf of the Tribal Program Participant's
corporation or partnership).
(ii) Examples. The requirements of paragraph (d)(2)(i) of this
section are illustrated by the following examples. Items listed in
these examples following the term ``including'' are not intended to be
an exhaustive or exclusive illustration of the application of the rules
in paragraph (d)(2)(i) of this section. 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: payments for Tribal Members to use to make
mortgage payments, down payments, and rent payments (including security
deposits); payments for Tribal Members to enhance habitability of
housing, such as by remedying water, sewage, sanitation service, safety
(including mold remediation), and heating or cooling issues; payments
for Tribal Members to provide for basic housing repairs or
rehabilitation (including roof repair and replacement); and payments to
Tribal Members to pay utility bills and charges (including 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 post-secondary students) of
transportation to and from school, tutors, and supplies (including
clothing, backpacks, laptop computers, textbooks, musical instruments,
and sports equipment) for use in school activities and extracurricular
activities; tuition payments for students (as well as 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 allowances for expenses for
interviewing or training away from home (including travel, auto
expenses, lodging, and food), tutoring, and appropriate clothing for a
job interview or training (including an interview suit 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 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, including for rental cars,
mileage, and fares for taxis, ride-sharing or ride-hailing services,
buses, and other public transportation. 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 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 to individuals in exigent circumstances (including victims of
abuse): assistance to cover costs, including the costs of food,
clothing, shelter, transportation, auto repair bills, and similar
expenses;
[[Page 58404]]
payment of costs for temporary relocation and shelter for individuals
involuntarily displaced from their homes (including 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 admission fees,
transportation, food, and lodging) to attend or participate in a
Tribe's cultural, social, religious, or community activities, including
powwows, potlatches, ceremonies, and traditional dances; payment of
expenses (including admission fees, transportation, food, and lodging)
to visit sites that are culturally or historically significant for the
Tribe, including other Indian reservations; payment of the costs of
receiving instruction about a Tribe's culture, history, and traditions
(including 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; payment of transportation costs and admission fees to attend
educational, social, or cultural programs offered or supported by the
Tribe or another Tribe; and cash or property provided as prizes or
awards in connection with cultural, social, religious, or community
activities (including powwows, potlatches, ceremonies, and traditional
dances). In addition, the benefits provided by program P include the
payment of expenses to assist in the preparation and clean-up
activities related to the Tribe's cultural, social, religious, or
community activities. The payments made by N under P are for the
promotion of general welfare as described in paragraph (d)(2)(i) of
this section.
(H) Example 8: Economic development benefits. Indian Tribal
Government Q administers a program, R, pursuant to which Q provides
benefits to Tribal Program Participants to support, develop, operate,
expand or start a trade or business. Q provides benefits under program
R, which include: a nonreimbursable grant paid directly to a Tribal
Program Participant; an interest-free or other below-market loan to a
Tribal Program Participant; and a cash benefit to a Tribal Program
Participant to pay rent on a commercial lease. The benefits provided by
Q to Tribal Program Participants under R, 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--(i) Facts and
circumstances test. 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. For purposes of this paragraph (d)(4)(i), the
Internal Revenue Service will defer to an Indian Tribal Government's
attestations of the fact and circumstances but may also consider other
facts and circumstances that are not attested to by the Indian Tribal
government at the time that the benefit is provided to the Tribal
Program Participant.
(ii) Presumption for written specified guidelines. 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 that exist at the time that the
benefit is provided to the Tribal Program Participant.
(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.
(6) Loans from an Indian Tribal Government to a Tribal Program
Participant. Except as provided in Sec. 1.7872-5(a)(2), section 7872
of the Code does not apply to a loan from an Indian Tribal Government
to a Tribal Program Participant pursuant to an Indian Tribal Government
Program.
(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 the
Tribal Program Participant's 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; honoring events; Tribal community service events, such as a
neighborhood clean-up or a youth woodcutting program to benefit elders;
participation in training in traditional construction techniques;
Tribal language education; and other activities, including, for
example, those described in paragraph (d)(2)(ii)(G) of this section);
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. A benefit provided under this paragraph (e) can be a prize
or award given to a Tribal Program Participant for the Tribal Program
Participant's participation in cultural or ceremonial activities for
the transmission of Tribal culture. 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, which are not intended to be an exhaustive
or exclusive illustration of the rules provided in this paragraph (e):
[[Page 58405]]
(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 (b)(8)(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 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) Section 2(c) of the Act. Section 2(c) of the Act provides that
ambiguities in section 139E of the Internal Revenue Code, as added by
the Act, shall be resolved in favor of Indian Tribal governments and
deference shall be given to Indian Tribal governments for the programs
administered and authorized by the Tribe to benefit the general welfare
of the Tribal community.
(g) Audit suspension. After December 16, 2025, the Department of
the Treasury and the Internal Revenue Service 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 (see sections 7602 and
7605 of the Code) described in section 4(a) of the Act applies to
Indian Tribal governments and Tribal Program Participants and will not
be lifted until after the education and training prescribed by section
3(b)(2) of the Act is completed. An inquiry into a taxpayer's
eligibility for the audit suspension does not constitute an audit or
examination for purposes of the audit suspension described in section
4(a) of the Act.
(h) Applicability date. This section applies to taxable years of
Tribal Program Participants that begin on or after January 1, 2027.
Indian Tribal Governments and Tribal Program Participants may choose to
apply the provisions of this section, in their entirety, to taxable
years that begin before January 1, 2027.
Sec. 1.139E-2 Alaska Native regional or village corporations.
An Alaska Native regional or village corporation, as defined in, or
established pursuant to, the Alaska Native Claims Settlement Act (43
U.S.C. 1601 et seq.), may choose to apply the rules in Sec. 1.139E-1
until rules that specifically address the application of the
requirements of section 139E of the Internal Revenue Code to Alaska
Native regional or village corporations are published under this
section. However, an Alaska Native regional or village corporation that
chooses to apply the rules in Sec. 1.139E-1 must apply all of the
rules of Sec. 1.139E-1 with respect to any general welfare benefits
provided to a shareholder of the Alaska Native regional or village
corporation (and the shareholder's spouse and dependents) and other
Tribal Program Participants (as defined in Sec. 1.139E-1(b)).
0
Par. 3. Section 1.7872-5 is amended by adding paragraph (b)(17) to read
as follows:
Sec. 1.7872-5 Exempted loans.
* * * * *
(b) * * *
(17) See Sec. 1.139E-1(d)(6) for rules for a loan from an Indian
Tribal Government to a Tribal Program Participant pursuant to an Indian
Tribal Government Program within the meaning of Sec. 1.139E-1(c). See
Sec. 1.139E-1(h) for the applicability date of this paragraph (b)(17).
* * * * *
Frank J. Bisignano,
Chief Executive Officer.
Approved: November 19, 2025.
Kenneth J. Kies,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2025-22873 Filed 12-15-25; 8:45 am]
BILLING CODE 4831-GV-P