Tribal General Welfare Benefits

<RULE> DEPARTMENT OF THE TREASURY <SUBAGY>Internal Revenue Service</SUBAGY> <CFR>26 CFR Part 1</CFR> <DEPDOC>[TD 10040]</DEPDOC> <RIN>RIN 1545-BQ95</RIN> <SUBJECT>Tribal General Welfare Benefits</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Internal Revenue Service (IRS), Treasury. <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> 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. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> <E T="03">Effective date:</E> These final regulations are effective on December 16, 2025. <E T="03">Applicability date:</E> These final regulations apply for taxable years beginning after December 16, 2025. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Jonathan A. Dunlap at (202) 317-4718 (not a toll-free number). </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Authority</HD> 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.” <HD SOURCE="HD1">Background</HD> <HD SOURCE="HD2">I. The Tribal General Welfare Exclusion Act of 2014</HD> 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. <HD SOURCE="HD2">II. Prior Guidance</HD> 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 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 <E T="04">Federal Register</E> (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 ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 207k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━