Proposed regs. would exclude tribal general welfare benefits from income

Tribal general welfare benefit payments will be excluded from income under proposed regulations the IRS issued on Friday (REG-106851-21). The proposed regulations, which are the first regulations issued under Sec. 139E, lay out the requirements for determining whether benefits provided by an Indian tribal government program qualify as tribal general welfare benefits.

Exclusion of tribal benefits

Although Indian tribal members are required to pay federal income tax, Sec. 139E, which was enacted in 2014 by the Tribal General Welfare Exclusion Act of 2014, P.L. 113-168, excludes the value of certain tribal benefits from income. Under Sec. 139E, gross income does not include the value of any “Indian general welfare benefit,” which is defined as “any payment made or services provided to or on behalf of any member of an Indian tribe (or any spouse or dependent of such a member) pursuant to an Indian tribal government program.”

The tribal government program must be administered under specified guidelines and not discriminate in favor of members of the tribe’s governing body. Furthermore, to be eligible for exclusion under Sec. 139E(b)(2), the benefits must be available to any tribal member who meets the program’s guidelines, must be for the promotion of general welfare, must not be lavish or extravagant, and must not be compensation for services.

Overview of the proposed regulations

The proposed regulations are the result of a consultative process that involved Treasury’s Tribal Advisory Committee, which began meeting in 2019. The committee advises Treasury on matters relating to the taxation of Indians and other issues. The committee produced a report on the Sec. 139E general welfare benefit exclusion that was then sent to tribal leaders, and 65 written comments were received from tribes and tribal organizations.

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

The proposed regulations define various terms in Sec. 139E. They also set the requirements for a program to qualify as an Indian tribal government program and for a benefit to qualify as a tribal general welfare benefit.

The regulations are proposed to apply to tax years of tribal program participants that begin on or after the date they are published as final in the Federal Register.

The IRS is requesting comments on the proposed regulations and will hold a public hearing on Jan. 13, 2025.

— To comment on this article or to suggest an idea for another article, contact Alistair Nevius at Alistair.Nevius@aicpa-cima.com.