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Proposed Rule2024-20826

Tribal General Welfare Benefits

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Published

September 17, 2024

Issuing agencies

Treasury DepartmentInternal Revenue Service

Abstract

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

Full Text

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<title>Federal Register, Volume 89 Issue 180 (Tuesday, September 17, 2024)</title>
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[Federal Register Volume 89, Number 180 (Tuesday, September 17, 2024)]
[Proposed Rules]
[Pages 75990-76013]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-20826]

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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-106851-21]
RIN 1545-BQ95

Tribal General Welfare Benefits

AGENCY: Internal Revenue Service (IRS), Treasury.

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

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

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

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

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Jonathan A. Dunlap of the Office of Associate Chief Counsel (Income Tax
and Accounting), (202) 317-4718 (not a toll-free number); concerning
submissions of comments or outlines, the hearing, or any questions to
attend the hearing by teleconferencing, Publication and Regulations
Section at (202) 317-6901 (not a toll-free number) or preferably by
email to <a href="/cdn-cgi/l/email-protection#334346515f5a505b5652415a5d5440735a41401d545c45">[email&#160;protected]</a>. If emailing, please include the
following information in the subject line: Attend, Testify, or Question
and REG-106851-21.

SUPPLEMENTARY INFORMATION:

Authority

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

Background

This notice of proposed rulemaking contains proposed amendments to
the Income Tax Regulations (26 CFR part 1) to implement section 139E of
the Internal Revenue Code (Code).
Section 61 of the Code provides that, except as otherwise provided
by law, the term ``gross income'' means all income from whatever source
derived. The term ``income'' is broadly defined as ``instances of
undeniable accessions to wealth, clearly realized, and over which the
taxpayers have complete dominion.'' Commissioner v. Glenshaw Glass Co.,
348 U.S. 426, 431 (1955). As a general rule, exclusions from income are
construed narrowly, and taxpayers must bring themselves within the
clear scope of the exclusion for the exclusion to apply. Commissioner
v. Schleier, 515 U.S. 323, 328-329 (1995). Tribal members are subject
to the same requirement to pay Federal income taxes as non-Tribal
members, unless exempted by a treaty or agreement between the United
States and the Tribal member's Tribe or an Act of Congress dealing with
Indian affairs. Squire v. Capoeman, 351 U.S. 1, 6 (1956).
Generally, if the provision of a benefit satisfies the requirements
of section 139E (discussed in part IV of this Background), section 139E
will apply to exclude the value of the benefit from the

[[Page 75991]]

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

I. Administrative General Welfare Exclusion

The IRS generally has determined that payments made to or on behalf
of individuals by governmental units under legislatively provided
social benefit programs for the promotion of the general welfare are
not includible in an individual recipient's Federal gross income; this
concept is referred to in this preamble as the ``administrative general
welfare exclusion.'' See, e.g., Rev. Rul. 78-170, 1978-1 C.B. 24
(concluding that amounts paid under the laws of the State of Ohio to
low-income elderly and disabled persons to help alleviate their cost of
winter energy consumption are made for the promotion of general
welfare, and are not includible in the recipients' gross income for
Federal income tax purposes); see also Rev. Rul. 76-395, 1976-2 C.B. 16
(applying the general welfare exclusion to home rehabilitation grants
to low-income families to correct substandard conditions).
To qualify under the administrative general welfare exclusion,
payments must (1) be paid from a governmental fund, (2) be for the
promotion of the general welfare (that is, based on the need of the
individual or family receiving such payments), and (3) not represent
compensation for services absent a specific Federal income tax
exclusion. See Notice 2023-56, 2023-38 I.R.B. 824.
Payments that are based on some criteria other than individual or
family need do not qualify for the administrative general welfare
exclusion. Compare Rev. Rul. 76-395, 1976-2 C.B. 16 (home
rehabilitation grants received by low-income homeowners residing in a
defined area of a city under the city's community development program
funded under the Housing and Community Development Act of 1974 are in
the nature of general welfare and are not includible in their gross
income) with Rev. Rul. 76-131, 1976-1 C.B. 16 (payments made by the
State of Alaska to individuals at least 65 years of age who have
maintained an Alaska domicile for at least 25 years to encourage them
to continue their residence in the State did not qualify under the
general welfare exclusion because the payments were made to residents
regardless of financial status, health, educational background, or
employment status).
The administrative general welfare exclusion does not generally
apply to permit a business to exclude payments from gross income
because such payments are not based on individual or family need. See
Bailey v. Commissioner, 88 T.C. 1293, 1300-1301 (1987), acq. 1989-2
C.B. 1; Revenue Ruling 2005-46 (2005-2 C.B. 120).

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

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

III. Revenue Procedure 2014-35

In 2014, the Treasury Department and the IRS issued Revenue
Procedure 2014-35 (2014-26 I.R.B. 1110),\1\ which provides safe harbors
under which the IRS conclusively presumes that the individual need
requirement of the administrative general welfare exclusion is met for
benefits provided under Indian Tribal governmental programs that meet
the safe harbor requirements. The revenue procedure provides that the
IRS will not assert that recipients of benefits under a safe harbor
must include the value of those benefits in gross income or that the
benefits are subject to the information reporting requirements of
section 6041 of the Code. The safe harbors apply if the following
requirements are met: (1) the benefit is provided pursuant to a
specific Indian Tribal government program, (2) the program has written
guidelines specifying how the individual qualifies for the benefit; (3)
the benefit is available to any Tribal member and certain other
individuals who satisfy the program's guidelines; (4) the program does
not discriminate in favor of members of the governing body; (5) the
benefit is not lavish or extravagant under the circumstances, and (6)
the benefit is not compensation for services. See section 5.02(1) of
Revenue Procedure 2014-35. Categories of qualifying benefits include
housing, education, elder and disabled person care, and cultural
activities. See section 5.02(2) of Revenue Procedure 2014-35. In
addition, nominal cash honoraria and items of cultural significance
that are not lavish or extravagant provided to religious or spiritual
officials or leaders in connection with their participation in
cultural, religious, and social events, are not treated as compensation
for services (and therefore are not gross income) under the revenue
procedure. See section 5.03 of Revenue Procedure 2014-35.
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\1\ Revenue Procedure 2014-35 was preceded by Notice 2012-75
(2012-51 I.R.B. 715). The IRS received over 40 comments in response
to Notice 2012-75, which informed the drafting of Revenue Procedure
2014-35.
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IV. The Tribal General Welfare Exclusion Act of 2014

On August 2, 2013, H.R. 3043, 113th Cong. (2013), whose short title
was the Tribal General Welfare Exclusion Act of 2013, was introduced in
the United States House of Representatives and referred to the
Committee on Ways and Means. On that same date, an identical bill was
introduced in the United States Senate and referred to the Committee on
Finance. On September 16, 2014, after its short title was revised to
the ``Tribal General Welfare Exclusion Act of 2014,'' H.R. 3043 was
passed by the House of Representatives after a floor debate (House
Debate). See Cong. Rec. H7599-7603 (September 16, 2014). On September
17, 2014, after being received by the Senate, H.R.3043 was the subject
of a colloquy (Senate Colloquy). See Cong. Rec. S5686-5687 (September
17, 2014). On September 18, 2024, H.R. 3043 was passed by the Senate by
unanimous consent. See Cong. Rec. S5862 (September 18, 2014). On
September 26, 2014, the President of the United States approved the
United States Congress's enactment of the Tribal General Welfare
Exclusion Act of 2014 (Act), Public Law 113-168, 128 Stat. 1883 (2014).
The Act, among other things, amended the Code by adding section
139E. Under section 139E, gross income does not include the value of
any ``Indian general welfare benefit,'' which this notice of proposed
rulemaking

[[Page 75992]]

refers to as a ``Tribal General Welfare Benefit.'' Section 139E(b)
defines a Tribal general welfare benefit as any payment made or
services provided to or on behalf of a member of a Tribe (or any spouse
or dependent of such a member) pursuant to an Indian Tribal government
program, but only if: (1) the program is administered under specified
guidelines and does not discriminate in favor of members of the
governing body of the Tribe, and (2) the benefits provided under such
program are (A) available to any Tribal member who meets such
guidelines, (B) for the promotion of general welfare, (C) not lavish or
extravagant, and (D) not compensation for services. Further, section
139E(c)(5) provides that any items of cultural significance,
reimbursement of costs, or cash honorarium for participation in
cultural or ceremonial activities for the transmission of Tribal
culture ``shall not be treated as compensation for services.''
Section 2(c) of the Act provides that ambiguities in section 139E
are to be resolved in favor of Indian Tribal governments. Section 2(c)
of the Act also requires that deference be given to Indian Tribal
governments for the programs administered and authorized by the Tribe
to benefit the general welfare of the Tribal community.
Section 2(d)(1) of the Act provides that section 139E shall apply
to taxable years for which the period of limitation on refund or credit
under section 6511 of the Code of 1986 has not expired. Section 2(d)(2)
of the Act provides that if the period of limitation on a credit or
refund resulting from the enactment of section 139E expires before the
end of the 1-year period beginning on the date of the enactment of the
Act, refund or credit of such overpayment (to the extent attributable
to such amendments) may, nevertheless, be made or allowed if claim
therefor is filed before the close of such 1-year period.
Section 3 of the Act requires the Secretary of the Treasury to
establish a Tribal Advisory Committee. The Department of the Treasury
Tribal Advisory Committee (TTAC) held its inaugural meeting on June 20,
2019. Under section 3(b) of the Act, the TTAC's mandate is to advise
the Secretary of the Treasury on matters relating to the taxation of
Indians, and the Secretary of the Treasury is required to consult with
the TTAC to establish and require training and education for internal
revenue field agents who administer and enforce internal revenue laws.
This includes (A) training and education with respect to Federal Indian
law and the Federal Government's unique legal treaty and trust
relationship with Indian Tribal governments, and (B) training of such
internal revenue field agents, and provision of training and technical
assistance to Tribal financial officers, about implementation of the
Act and the amendments made by the Act.
Section 4(a) of the Act requires the Secretary of the Treasury to
temporarily suspend ``all audits and examinations of Indian Tribal
governments and members of Tribes (or any spouse or dependent of such a
member), to the extent such an audit or examination relates to the
exclusion of a payment or benefit from an Indian Tribal government
under the general welfare exclusion'' until the training and education
described above is completed. Section 4(a) further provides that the
period of limitation under section 6501 of the Code is suspended during
the period of suspension.

V. Notice 2015-34

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

VI. TTAC Report and Tribal Consultations on Section 139E

Members of the TTAC formed a Subcommittee on the Act's General
Welfare Exclusion (GWE Subcommittee) in 2019 to provide the TTAC with
technical expertise on recommendations for the implementation of the
Act. On June 16, 2021, the GWE Subcommittee submitted to the TTAC a
report (TTAC Report) containing the GWE Subcommittee's interpretation
of the core principles underlying section 139E, and an Appendix
containing draft proposed regulations interpreting section 139E (TTAC
draft proposed regulations), consistent with those core principles. On
October 26, 2022, the TTAC formally recommended and approved the TTAC
Report to be submitted for the record and published for Tribal comment.
The Treasury Department sent a Tribal consultation letter, dated
October 27, 2022 (Dear Tribal Leader Letter), to Tribal leaders to
request consultation on the Act and the TTAC Report. The Dear Tribal
Leader Letter announced consultation meetings to be held on December
14, 15, and 16, 2022 (December 2022 Consultations), to discuss the Act
and the TTAC Report. The Dear Tribal Leader Letter also requested
responses to certain questions related to the interpretation of
particular provisions of section 139E, as well as comments on the TTAC
Report. In response to the Dear Tribal Leader Letter, and after the
December 2022 Consultations, the Treasury Department received 65
written comments from Tribes and two Tribal organizations
(collectively, Tribal Comments).
The Tribal Comments were broadly supportive of the recommendations
in the TTAC Report,\2\ including the TTAC draft proposed regulations.
In general, the Tribal Comments emphasized that the Act, particularly
section 2(c) of the Act, requires the Treasury Department to recognize
the sovereignty of Tribes by granting broad deference to Indian Tribal
governments in the design and implementation of their general welfare
programs, as well as with respect to any ambiguities in the statute.
Deference to Indian Tribal governments was a guiding principle in the
Tribal Comments addressing each of the questions for which the Treasury
Department requested comment. For example, many Tribal Comments stated
that any Treasury Department and IRS guidance imposing specific
requirements for a general welfare program, such as what constitutes
``the promotion of the general welfare,'' what is a ``lavish or
extravagant'' benefit, or what are ``cultural or ceremonial
activities,'' would infringe upon Indian Tribal sovereignty. Many
Tribal

[[Page 75993]]

Comments urged that section 2(c) of the Act be expressly cited in the
proposed regulations.
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\2\ However, a few Tribal Comments argued that Congress has not
specifically directed the Treasury Department and the IRS to publish
regulations under section 139E.
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Another area of significant concern raised in the Tribal Comments
was ensuring that the regulations under section 139E do not
presumptively treat benefits as outside the scope of section 139E
solely because the benefits are provided to all eligible recipients in
an equal amount, or that the benefits are funded from gaming revenues.
This concern was primarily raised in relation to amounts that are set
aside and paid from net gaming revenues to provide for the general
welfare of the Indian Tribe and its members. See 25 U.S.C. 2710(b).
Finally, the Tribal Comments addressed various other issues,
including the effective date of the proposed regulations, training of
IRS agents, and coordination with other Federal agencies. After
considering these and other Tribal Comments and the TTAC Report, and
after consultation with the TTAC and the GWE Subcommittee, the Treasury
Department and the IRS propose to adopt new Sec. 1.139E-1 to provide
guidance under section 139E (proposed Sec. 1.139E-1). The following
Explanation of Provisions discusses the Tribal Comments in more detail
in relation to each proposed provision in proposed Sec. 1.139E-1.

Explanation of Provisions

The proposed regulations would provide that the gross income of a
Tribal program participant does not include the value of any Tribal
general welfare benefit provided by an Indian Tribal government
program.
The provisions of proposed Sec. 1.139E-1 would provide (1)
definitions of terms used in section 139E and proposed Sec. 1.139E-1
(see proposed Sec. 1.139E-1(b)); (2) requirements for a program to
qualify as an ``Indian Tribal Government Program'' (see proposed Sec.
1.139E-1(c)); (3) requirements for a benefit to qualify as a ``Tribal
General Welfare Benefit'' (see proposed Sec. 1.139E-1(d)); (4) special
rules related to cultural or ceremonial activities (see proposed Sec.
1.139E-1(e)); (5) clarification of the audit suspension required by
section 4(a) of the Act (proposed Sec. 1.139E-1(f)); and (6) the
proposed date of applicability of the final regulations (see proposed
Sec. 1.139E-1(g)). The Treasury Department and the IRS will publish
final regulations under section 139E after consideration of oral and
written comments received in connection with Tribal consultation on
these proposed regulations, consideration of any other comments
received in response to the proposed regulations, and further
consultation with the TTAC, including through the GWE Subcommittee.

I. Section 139E Definitions

Section 139E(a) provides that gross income does not include the
value of any Tribal general welfare benefit. Section 139E(b) defines a
Tribal general welfare benefit, in relevant part, as any payment made
or services provided to or on behalf of a member of a Tribe (or any
spouse or dependent of such a member) pursuant to a program that is
established by an Indian Tribal government and that satisfies specified
requirements. Proposed Sec. 1.139E-1(b) would define an Indian Tribal
government, a Tribe, and the individuals, including a Tribal member,
spouse, and dependent, who may be determined by the Indian Tribal
government to be eligible for a general welfare benefit under section
139E.
A. Definition of Indian Tribal Government
Section 139E(c)(1) provides that the term ``Indian Tribal
government'' includes any agencies or instrumentalities of an Indian
Tribal government and any Alaska Native regional or village
corporation, as defined in, or established pursuant to, the Alaska
Native Claims Settlement Act (ANCSA) (43 U.S.C. 1601 et seq.) (Alaska
Native Corporations). Revenue Procedure 2014-35 provides that the term
``Indian Tribal government'' has the same meaning as in section
7701(a)(40)(A) but for purposes of the revenue procedure includes
agencies or instrumentalities of the Indian Tribal government. The TTAC
Report and the Tribal Comments did not provide any recommendations on
the definition of Indian Tribal government and did not specifically
address Alaska Native Corporations.
If used in a provision of the Code and not otherwise distinctly
expressed or manifestly incompatible with the intent thereof, section
7701(a)(40)(A) defines the term ``Indian Tribal government'' to mean
the governing body of any Tribe, band, community, village, or group of
Indians, or (if applicable) Alaska Natives, which is determined by the
Secretary, after consultation with the Secretary of the Interior, to
exercise governmental functions. Under the Federally Recognized Indian
Tribe List Act of 1994, Public Law 103-454, 108 Stat. 4791 (List Act),
the Secretary of the Interior is required to publish annually a list of
all Federally-recognized Tribes. In Revenue Procedure 2008-55 (2008-39
I.R.B. 768), after consultation with the Department of Interior (DOI),
the Treasury Department and the IRS determined that the Indian Tribal
entities that appear on the current or future lists of Federally-
recognized Tribes published annually under the List Act by the DOI,
Bureau of Indian Affairs, are designated as Indian Tribal governments
for purposes of section 7701(a)(40). See 89 FR 944 (January 8, 2024)
for the most current list published by the DOI, Bureau of Indian
Affairs.
Proposed Sec. 1.139E-1(b)(4) would define the term ``Indian Tribal
Government'' by reference to section 7701(a)(40). In addition, in
accordance with section 139E(c)(1), the definition of Indian Tribal
government for purposes of proposed Sec. 1.139E-1(b)(4) also would
include agencies and instrumentalities of the Indian Tribal government.
This definition is consistent with Revenue Procedure 2014-35.
Although the definition of Indian Tribal government under section
139E(c)(1) includes Alaska Native Corporations, these proposed
regulations would not include Alaska Native Corporations in the
definition of Indian Tribal government for purposes of these rules and
instead reserve proposed Sec. 1.139E-2 for the rules to apply section
139E to benefits provided by Alaska Native Corporations. The Treasury
Department and the IRS intend on holding consultation before issuing
future guidance on issues related to the application of section 139E to
benefits provided by Alaska Native Corporations.
B. Definition of Tribe
Section 139E does not define the term ``Indian Tribe,'' but section
4(c)(2) of the Act defines it by cross-reference to that term as
defined in section 45A(c)(6) of the Code. Revenue Procedure 2014-35
also defines ``Indian Tribe'' by cross-reference to section 45A(c)(6).
The TTAC Report and the Tribal Comments did not provide any
recommendations on the definition of ``Indian Tribe,'' which, for
purposes of these proposed regulations, is referred to as simply
``Tribe.''
Section 45A relates to the Indian employment credit, which was
applicable for taxable years prior to January 1, 2022. Section
45A(c)(6) defines ``Indian Tribe'' to mean any Indian Tribe, band,
nation, pueblo, or other organized group or community, including any
Alaska Native village, or regional or village corporation, as defined
in, or established pursuant to, ANCSA that is recognized as eligible
for the special programs and services provided by the United States to
Indians because of their status as Indians.
Proposed Sec. 1.139E-1(b)(7) generally would define ``Tribe''
using the

[[Page 75994]]

definition of Indian Tribe in section 45A(c)(6). However, for ease of
readability and to prevent confusion arising from citing to an expired
Code provision, the proposed regulations would recite the language of
section 45A(c)(6) rather than incorporating the definition by cross-
reference. As noted, proposed Sec. 1.139E-2 is reserved because the
Treasury Department and the IRS intend to issue future guidance under
section 139E applicable to benefits provided by Alaska Native
Corporations. Accordingly, the proposed regulations would exclude
section 45A(c)(6)'s reference to Alaska Native regional and village
corporations as defined in and established pursuant to ANCSA for
purposes of these rules.
C. Definition of Tribal Program Participant
Section 139E(b) provides that a Tribal general welfare benefit
means any payment made or services provided to or on behalf of a member
of the Tribe (or any spouse or dependent of such a member) pursuant to
a program that satisfies specified requirements. Revenue Procedure
2014-35 allows benefits to be provided to a member of the Tribe, as
well as a ``qualified nonmember,'' meaning a spouse, former spouse,
legally recognized domestic partner or former domestic partner,
ancestor, descendant, or dependent of a member of a Tribe.
The TTAC Report and many Tribal Comments recommend that the
proposed regulations provide that individuals eligible for benefits not
be limited to Tribal members and their spouses and dependents, instead
supporting the use of the more expansive term ``qualified nonmember''
from Revenue Procedure 2014-35. The TTAC Report and many Tribal
Comments state that using this more expansive definition of ``qualified
nonmember'' would be consistent with the House Debate and Senate
Colloquy that explain the Act, and that section 139E should be viewed
no less favorably than Revenue Procedure 2014-35. Moreover, several
Tribal Comments suggest that the language ``to or on behalf of'' in
section 139E(b) is ambiguous and thus supports the proposed regulations
adopting the definition of ``qualified nonmember'' from Revenue
Procedure 2014-35. In addition, the TTAC Report explains that depending
on Tribal culture, custom, or tradition, a member of a Tribe may have
obligations to care for extended family, and that existing Tribal
general welfare programs may provide assistance to these extended
family members.
The Treasury Department and the IRS have considered the TTAC Report
and the Tribal Comments and agree that an expansive definition of
eligible individuals is appropriate. Accordingly, proposed Sec.
1.139E-1(b)(8) would define the term ``Tribal Program Participant'' to
mean a Tribal member, spouse of a Tribal member (including a spouse of
a Tribal member within the meaning of Sec. 301.7701-18, or a spouse of
a Tribal member under applicable Tribal law), dependent of a Tribal
member, or other individual who has been determined by the Indian
Tribal government to be eligible for a Tribal general welfare benefit
because such individual is, with respect to a Tribal member, an
ancestor, descendant, former spouse, widow or widower, or legally
recognized domestic partner or former domestic partner. This definition
is intended to encompass the categories of ``qualified nonmember'' that
are covered by Revenue Procedure 2014-35, with the clarification that a
spouse may be a spouse under applicable Tribal law.
The Treasury Department and the IRS note that the phrase ``on
behalf of'' in section 139E(b) does not make the section 139E exclusion
applicable to the direct recipient of a payment which was made by the
Indian Tribal government ``on behalf of'' the Tribal program
participant. For example, a Tribal program participant who receives a
Tribal general welfare benefit from an Indian Tribal government program
to provide rental assistance can exclude the payment from the Tribal
program participant's gross income under section 139E regardless of
whether the assistance is paid directly to the Tribal program
participant or paid to the landlord on behalf of the Tribal program
participant. In either case, however, section 139E does not apply to
permit the landlord to exclude the rental assistance payment from the
landlord's gross income.
D. Definition of Tribal Member
Section 139E does not define who is a ``member of an Indian Tribe''
or ``Tribal member.'' Revenue Procedure 2014-35 defines who is a member
of a Tribe by cross-reference to 25 CFR 290.2, which defines a member
of a Tribe as an individual who meets the requirements established by
applicable Tribal law for enrollment in the Tribe and (1) is listed on
the Tribal rolls of that Tribe if such rolls are kept, or (2) is
recognized as a member by the Tribal governing body if Tribal rolls are
not kept. The TTAC Report and the Tribal Comments did not provide any
recommendations on the definition of a member of a Tribe.
Proposed Sec. 1.139E-1(b)(9) would define the term ``Tribal
Member'' in a manner similar to Revenue Procedure 2014-35's definition
of ``member of an Indian Tribe.'' The proposed regulations would adopt
the same definition but, for ease of readability, would incorporate the
language from 25 CFR 290.2 rather than providing a cross-reference.
Thus, the proposed regulations would define ``Tribal Member'' as an
individual who is a member or citizen of the Tribe that establishes or
maintains the Indian Tribal government program because the individual
meets the requirements established by applicable Tribal law for
enrollment in the Tribe and (1) is listed on the Tribal rolls of that
Tribe if such rolls are kept, or (2) is recognized as a member by the
Tribal governing body if Tribal rolls are not kept. In addition, the
Treasury Department and the IRS are aware that some Tribes temporarily
close their rolls for enrollment or do not enroll children until they
reach a certain age. These Tribes may provide benefits to an individual
on the basis that the individual may be eligible for benefits, even
though not formally a Tribal member. In particular, Tribes may provide
benefits to an Indian child under the Indian Child Welfare Act of 1978,
Public Law 95-608, 92 Stat. 3069 (1978), codified at 25 U.S.C. 1903(4).
The Indian Child Welfare Act defines ``Indian child'' as any unmarried
person who is under age eighteen and is either (a) a member of a Tribe
or (b) is eligible for membership in a Tribe and is the biological
child of a member of a Tribe. To ensure that Indian Tribal governments
may provide general welfare benefits to an Indian child under section
139E, the proposed regulations also would include in the definition of
Tribal member an ``Indian child'' as defined in 25 U.S.C. 1903.
The Treasury Department and the IRS recognize that an Indian Tribal
government generally develops programs with the intention of providing
general welfare benefits to or for the benefit of its own Tribal
members. The Treasury Department and the IRS interpret section 139E(b)
as providing a relationship nexus between the Indian Tribal government
providing the general welfare benefit and the individual receiving the
benefit. Thus, the proposed regulations would define the term Tribal
member to mean a member of the Tribe that establishes or maintains the
Indian Tribal government program. However, solely for purposes of the
rule in section 139E(c)(5) relating to benefits provided for
participation in ceremonial or cultural activities, proposed Sec.
1.139E-1(b)(8)(ii) would

[[Page 75995]]

provide that the recipient of such benefits may be a member of a Tribe
that is different from the Tribe that establishes or maintains the
program.
E. Definition of Spouse
Section 139E does not define the term ``spouse,'' nor does Revenue
Procedure 2014-35. The TTAC Report and the Tribal Comments did not
provide any recommendations on the definition of spouse for purposes of
section 139E.
Section 301.7701-18(a) of the Procedure and Administration
Regulations (26 CFR part 301) provides that, for Federal tax purposes,
the term spouse means an individual lawfully married to another
individual. Section 301.7701-18(b) generally provides that a marriage
of two individuals is recognized for Federal tax purposes if the
marriage is recognized by the state, possession, or territory of the
United States in which the marriage is entered into, regardless of
domicile. Section 301.7701-18(a) does not specifically refer to a
marriage recognized under Tribal law because Tribal lands are not
states, possessions or territories of the United States or foreign
jurisdictions. However, the term ``spouse'' would include individuals
married under Tribal law if the marriage would be recognized under the
laws of any state, possession, or territory of the United States. See
also 1 U.S.C. 7.
Because Sec. 301.7701-18(a) defines spouse for Federal tax
purposes, that definition applies for purposes of section 139E and
would apply by default under proposed regulations. However, as noted in
part I.C. of this Explanation of Provisions section, the proposed
regulations would include in the definition of Tribal program
participant the spouse of a Tribal member, as determined under
applicable Tribal law, whether or not recognized under Sec. 301.7701-
18(a) and 1 U.S.C. 7.
F. Definition of Dependent
Section 139E(c)(2) defines the term ``dependent'' to mean a
dependent as defined in section 152 of the Code, determined without
regard to section 152(b)(1), (b)(2), and (d)(1)(B). Revenue Procedure
2014-35 does not define dependent, and the TTAC Report and the Tribal
Comments did not provide any recommendations on the definition of
dependent for purposes of section 139E.
Section 152(a) defines dependent to mean an individual who is a
qualifying child or qualifying relative of the taxpayer. Section 152(b)
provides that an individual who is a qualifying child or a qualifying
relative of a taxpayer is not a taxpayer's dependent in certain
circumstances. Section 152(b)(1) provides that if an individual is a
dependent of a taxpayer, that individual is treated as having no
dependents. Section 152(b)(2) provides that, to be a dependent of a
taxpayer, an individual must not have filed a joint return with his or
her spouse. Section 152(d)(1)(B) provides that qualifying relative does
not include an individual whose income is not less than the exemption
amount set forth in section 151(d) of the Code.\3\ For purposes of
section 139E, an individual who for the year is a dependent of a
taxpayer who is him or herself a dependent, who files a joint return
with the individual's spouse, or whose income is not less than the
applicable limit for section 152(d)(1)(B) ($5,050 for 2024) is a
dependent of a Tribal member if the other requirements of section 152
are satisfied, pursuant to section 139E(c)(2).
---------------------------------------------------------------------------

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

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

II. Indian Tribal Government Program

Under section 139E(b), a benefit is a Tribal general welfare
benefit if it meets certain requirements and is provided pursuant to an
Indian Tribal government program, but only if the program is
administered under specified guidelines and does not discriminate in
favor of members of the governing body of the Tribe. Section 139E(c)(4)
provides that a program will not fail to be treated as an Indian Tribal
government program solely by reason of the program being established by
Tribal custom or government practice. Revenue Procedure 2014-35
provides that, to qualify for the safe harbors provided therein, there
must be a specific Tribal program, the program must have written
guidelines specifying how an individual qualifies for the benefit, and
the program cannot discriminate in favor of members of the governing
body.
Some Tribal Comments suggest that programs established by Tribal
custom or government practice without written documentation (that is,
programs established under oral and unwritten customs or traditions)
should satisfy the statutory requirement in section 139E(b)(1) that the
program be administered under specified guidelines. These Tribal
Comments recommend that the proposed regulations allow Indian Tribal
governments to demonstrate the existence of ``specified guidelines''
for these programs through statements, affidavits, or declarations that
describe how the Tribe has operated the program in the past. Other
Tribal Comments argue that section 139E(b)(1) neither specifies who
establishes the ``specified guidelines'' nor defines the term
``specified,'' and that the proposed regulations should presume that a
program administered by or pursuant to Tribal resolution or other
action by a Tribe's governing body is ``administered under specified
guidelines.'' The TTAC Report and the Tribal Comments did not
specifically address the requirement that the program not discriminate
in favor of members of the governing body.
The Treasury Department and the IRS read section 139E(b) as
requiring both that a program be established by an Indian Tribal
government, and that the program be administered under specified
guidelines. This reading is similar to the requirements in Revenue
Procedure 2014-35 that there must be a specific Tribal program, and
that the program must have guidelines specifying how an individual
qualifies for the benefit. Proposed Sec. 1.139E-1(c) generally would
adopt these two requirements and would explain how an Indian Tribal
government program can meet these requirements. The proposed
regulations also would address the requirement that the program not
discriminate in favor of members of the governing body.
A. Program Must Be Established
Proposed Sec. 1.139E-1(c)(2) would provide that a program must be
established by an Indian Tribal government and that the program may be
established by Tribal custom, government practice, or formal action of
the Indian Tribal government under applicable Tribal law. The proposed
regulations also would provide that to the extent permitted by
applicable Tribal law, an Indian Tribal government may delegate
authority to establish general welfare programs to a designated
individual or entity of the Indian Tribal government.
While an Indian Tribal government may find it helpful to set forth
the creation of a program through a written document, the proposed
regulations

[[Page 75996]]

would not specifically require a written document to memorialize the
establishment of the program. However, the proposed regulations would
refer to applicable Tribal law to determine whether a writing is
required for formal actions of the Indian Tribal government. For
example, if Tribal law requires all formal actions of the Indian Tribal
government to be in writing, then proposed Sec. 1.139E-1(c)(2) would
also require the establishment of the program to be in writing. If
written documentation of the Indian Tribal government program is not
required under Tribal law, and the Indian Tribal government does not
provide written documentation of the Indian Tribal government program,
the use of affidavits or Indian Tribal government declarations, whether
oral or written, may be used to substantiate the establishment of the
program. For example, the transcript of the minutes of an Indian Tribal
government session that describe the creation of the program may be
sufficient to establish an Indian Tribal government program under these
proposed regulations.
B. Program Must Be Administered Under Specified Guidelines
Proposed Sec. 1.139E-1(c)(3) would provide the requirements for
the administration of the program under specified guidelines. In
general, the specified guidelines of the program represent the
framework for the program's operations. Thus, the proposed regulations
would provide that the specified guidelines of the program must
include, at a minimum, a description of the program to provide Tribal
general welfare benefits, the benefits provided by the program
(including how benefits are determined), the eligibility requirements
for the program, and the process for receiving benefits under the
program.
The Treasury Department and the IRS agree with the TTAC Report and
the Tribal Comments that section 139E does not require the specified
guidelines of the program to be memorialized in a written document.
However, Indian Tribal governments are encouraged to set forth the
specified guidelines in writing to assist recipients in determining
whether a benefit received under the program is excludable from gross
income under section 139E. In particular, recipients of Tribal general
welfare benefits who are contacted by the IRS will need to substantiate
that the benefit is excludable from gross income under section 139E and
may not have any written documentation in their possession to do so. If
the Indian Tribal government has documented in writing the specific
guidelines of the program, the individual recipient of the benefit may
use the written documentation to substantiate that the benefit received
is intended to be a Tribal general welfare benefit that is excludable
from gross income under section 139E.
C. Program Cannot Discriminate in Favor of Members of the Governing
Body
In accordance with section 139E(b)(1), proposed Sec. 1.139E-
1(c)(4) would provide that one of the requirements for an Indian Tribal
government program is that the program not discriminate in favor of
members of the governing body of the Tribe (non-discrimination
requirement). Proposed Sec. 1.139E-1(c)(4)(i) would generally define a
governing body as the legislative body of the Tribe, such as the Tribal
Council, or the representative equivalent of the legislative body of
the Tribe. However, the Treasury Department and the IRS are aware that
the form and membership of the governing body of a Tribe may vary
between Tribes. For example, a Tribe may form its governing body to
include all Tribal members, known as a general council Tribe. To ensure
that a general council Tribe is not prevented from satisfying this
requirement, proposed Sec. 1.139E-1(c)(4)(ii) would provide that a
program is treated as being in compliance with the non-discrimination
requirement if the governing body of the Tribe consists of the entire
adult membership of the Tribe.
Proposed Sec. 1.139E-1(c)(4)(iii) would provide a facts and
circumstances test to determine whether a program, either by its terms
or in its administration, discriminates in favor of members of the
governing body of the Tribe. For example, the administration of a
program would discriminate in favor of members of the governing body
if, based on the facts and circumstances, the benefits provided during
the taxable year disproportionately favor members of the governing body
of the Tribe because of their status as members of the governing body.
Thus, for example, a program established to provide benefits solely to
the children of members of the governing body of the Tribe (unless the
Tribe is a general council Tribe) and thus defrays costs otherwise
borne by members of the governing body would fail to satisfy the non-
discrimination requirement.
D. No Limitation on Source of Funds
Section 139E does not provide restrictions on how an Indian Tribal
government may fund an Indian Tribal government program. Section 2.03
of Revenue Procedure 2014-35 provides that revenues that the Indian
Tribal government derives from levies, taxes, service fees, tribally-
owned businesses, or other sources are permissible to fund a Tribal
general welfare program.
The TTAC Report and the Tribal Comments argue that the source of
funds used for general welfare benefits does not matter for compliance
with section 139E. The TTAC Report and the Tribal Comments request that
the proposed regulations confirm that the source of funding is
irrelevant and, in particular, that a Tribe's gaming revenues may be
used to fund Tribal general welfare benefits under an Indian Tribal
government program.
The Treasury Department and the IRS agree with the TTAC Report and
the Tribal Comments that section 139E does not prohibit an Indian
Tribal government from funding a general welfare program with net
gaming revenues, or revenues from any other particular source. Thus,
proposed Sec. 1.139E-1(c)(5) would provide that benefits under the
Indian Tribal government program may be funded by any source of revenue
or funds, including net gaming revenues. However, an Indian Tribal
government is permitted to restrict the source and amount of funds
available to provide benefits under an Indian Tribal government
program.
E. Benefits Funded by Net Gaming Revenues
Under the Indian Gaming Regulatory Act, 25 U.S.C. 2701-2721 (IGRA),
a Federally-recognized Tribe is permitted to engage in gaming
activities and provide net gaming revenues to its members. See 25
U.S.C. 2710(b). Section 25 CFR 502.16 defines ``net gaming revenue'' as
gross gaming revenues of an ``Indian gaming operation'' less: (a)
amounts paid out as, or paid for, prizes; and (b) total gaming-related
operating expenses, including all those expenses of the gaming
operation commonly known as operating expenses and non-operating
expenses consistent with professional accounting pronouncements,
excluding management fees. IGRA allows Tribes to use their net gaming
revenues consistent with one or more of the following purposes: (1) to
fund Tribal government operations or programs; (2) to provide for the
general welfare of the Tribe or its members; (3) to promote Tribal
economic development; (4) to donate to charitable organizations; or (5)
to help fund operations of local government.
IGRA also allows Tribes to use their net gaming revenues to
distribute per capita payments. See 25 U.S.C.

[[Page 75997]]

2710(b)(3). Under 25 CFR 290.2, ``per capita payment'' means the
distribution of money or other thing of value to all members of the
Tribe, or to identified groups of members, which is paid directly from
the net revenues of any Tribal gaming activity, but does not include
payments that have been set aside by a Tribe for special purposes or
programs, such as payments made for social welfare, medical assistance,
education, housing, or other similar, specifically identified needs.
Under IGRA, a Tribe cannot distribute per capita payments unless it
has a Revenue Allocation Plan (RAP) that is approved by the DOI prior
to distributing per capita payments. See 25 U.S.C. 2710(b)(3) and 25
CFR 290.11. A Tribe does not need a RAP if no per capita payments are
made or planned to be made to its members. See 25 CFR 290.10. Thus, no
RAP is required if a Tribe intends to use its gaming revenues solely
for special purposes or programs, such as payments made for social
welfare, medical assistance, education, housing, or other similar,
specifically identified needs. These types of payments are not per
capita payments as defined under IGRA.
Section 25 U.S.C. 2710(b)(3)(D) provides that net revenues may be
used to make per capita payments to members of the Tribe only if the
per capita payments are subject to Federal taxation and Tribes notify
members of such tax liability when payments are made. Under section
6041 and Sec. 1.6041-1, the Tribe generally is required to report per
capita payments of $600 or more in any taxable year on Form 1099-MISC,
Miscellaneous Information.
Section 3402(r)(1) requires every person, including an Indian
Tribe, making a payment to a member of an Indian Tribe from the net
revenues of any class II or class III gaming activity conducted or
licensed by such tribe to deduct and withhold from such payment a tax
in an amount equal to such payment's proportionate share of the
annualized tax. A payment that constitutes a per capita payment under
IGRA is gross income under section 61 and continues to be subject to
withholding under section 3402(r)(1) to the extent not otherwise
excepted. See 25 U.S.C. 2701-2721 and 25 CFR part 290. These
provisions, which are intended to ensure adequate withholding on gross
income arising from the distribution of class II and class III gaming
activity, are not intended to and do not extend the scope of what is
gross income. Thus, withholding under section 3402(r) is not imposed
merely by reason of the payment being sourced in class II or class III
gaming activities but rather by reason of the payment being gross
income and made in the form described in section 3402(r). Accordingly,
if a payment is made under an Indian Tribal government program and
meets the requirements to qualify as an excludable Tribal general
welfare benefit under section 139E and these proposed regulations, then
such payment is not subject to the withholding requirements of section
3402(r).
Section 139E does not address IGRA or the Federal tax treatment of
per capita payments. Revenue Procedure 2014-35, however, specifically
provides that per capita payments are gross income under section 61,
and are subject to the information reporting and withholding
requirements of sections 6041 and 3402(r). Thus, under the revenue
procedure, per capita payments are not excludable from income under the
administrative general welfare exclusion.
The TTAC Report argues that a distribution with a general welfare
purpose under IGRA should be presumed to be a Tribal general welfare
benefit under section 139E and not be treated as a taxable per capita
payment under IGRA. In addition, the TTAC Report provides that a
Tribe's RAP should be relied upon when determining whether a payment is
a per capita payment or a general welfare payment under section 139E.
Finally, the TTAC Report states that the IRS should not be allowed to
challenge an approved RAP with respect to any perceived conflict with
IGRA and section 139E. Rather, the TTAC Report argues, the IRS must
engage in consultation with the Tribe to resolve the perceived
conflict. Finally, the TTAC Report requests that any enforcement by the
IRS contrary to the RAP be prospective only, and that Tribes be given
time to amend their RAPs with the DOI.
Some Tribal Comments argue that IGRA makes clear that not all equal
distributions of gaming revenue are necessarily ``per capita payments''
to the extent that they are set aside for social welfare, medical
assistance, education, housing, or similar purposes. Some Tribal
Comments recommend that the proposed regulations focus on the purpose
and methodology used to calculate the distributions, rather than the
source of the funding or the value of the benefit. Finally, some Tribal
Comments request that the IRS defer to a Tribe's RAP and not
recharacterize general welfare payments as per capita payments.
The Treasury Department and the IRS are of the view that IGRA
defines per capita payments and provides that those payments are
includible in gross income for Federal income tax purposes. However,
the Treasury Department and the IRS agree with the TTAC Report and the
Tribal Comments noting that IGRA distinguishes between taxable per
capita payments and other types of payments, such as general welfare
payments. The Treasury Department and the IRS also are of the view that
Indian Tribal governments are in the best position to determine whether
net gaming revenues should be used to fund per capita payments or
general welfare payments.
The Treasury Department and the IRS do not agree with the TTAC
Report that a distribution with a general welfare purpose under IGRA
should be presumed to be a Tribal general welfare benefit under section
139E. Even if a payment is treated as having a general welfare purpose
under IGRA, as designated in a RAP or otherwise, that purpose, by
itself, is not sufficient to conclude that the payment is excludable
from gross income under section 139E. Instead, the Indian Tribal
government program must satisfy the requirements of section 139E (or
other exclusion provision) for the payment to be excluded from the
recipient's gross income.
Accordingly, proposed Sec. 1.139E-1(c)(5)(ii) would provide that
benefits under the Indian Tribal government program may be funded by
net gaming revenues as permitted under IGRA. However, per capita
payments, as defined under IGRA, are subject to Federal taxation under
IGRA and are not excludable from gross income under section 139E or
these proposed regulations. Proposed Sec. 1.139E-1(c)(5)(ii) would
further provide that, for purposes of section 139E and the proposed
regulations, a payment is a per capita payment if it is identified by
the Indian Tribal government as a per capita payment in a RAP that is
approved by the DOI. This language is intended to mean that, if the
Indian Tribal government has an approved RAP, the provisions of the RAP
determine whether a payment is a per capita payment for purposes of
Federal income taxation. In contrast, if the Indian Tribal government
does not have a RAP, the determination of the Indian Tribal government
that payments are not per capita payments is controlling for Federal
income tax purposes. Whether or not the Indian Tribal government has a
RAP, deference will be given to the Indian Tribal government's
determination of whether net gaming revenues are being used to make
payments. The DOI is the Federal agency with sole authority to approve

[[Page 75998]]

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

III. Tribal General Welfare Benefits

Under section 139E(b), benefits provided under an Indian Tribal
government program are Tribal general welfare benefits only if the
benefits (1) are for the promotion of general welfare; (2) are
available to any Tribal member who meets the guidelines; (3) are not
lavish or extravagant; and (4) are not compensation for services.
Proposed Sec. 1.139E-1(d) would describe each of these requirements.
A. Benefits Must Be for the Promotion of General Welfare
1. Deference to Tribes in Determining Promotion of General Welfare
Section 139E(b)(2)(B) requires that a benefit provided under an
Indian Tribal government program be for the promotion of general
welfare but does not define ``promotion of general welfare.'' The TTAC
Report recommends that promotion of general welfare should be presumed
when the Indian Tribal government can substantiate that the benefit
meets general welfare needs or purpose, and the method of distributing
the benefit is expected to achieve program goals. Further, the TTAC
Report states that an Indian Tribal government may substantiate that
benefits meet general welfare needs or purposes by relying on data or
studies corroborating the expenses. In addition, the TTAC Report
recommends that an Indian Tribal government may show that the method of
distribution is expected to achieve program goals by establishing
Indian Tribal government-approved verification procedures such as
direct pay arrangements, applications in which recipients agree to
specified program requirements, or end-of-year certifications. Finally,
the TTAC Report states that Indian Tribal governments must be afforded
flexibility with regard to substantiating expenses that relate to
Tribal cultural traditions, religious expenses, or historical need
(such as benefits paid to elders to make up for historic economic
deprivation and shorter life expectancy).
Many Tribal Comments request that deference be given to Tribes and
Indian Tribal governments on whether the types and amounts of benefits
are for the promotion of general welfare. These Tribal Comments state
that the Indian Tribal government is best suited to address the unique
needs of its members, with many insisting that such discretion should
be unfettered. The Tribal Comments noted that many programs may not
reflect how the Treasury Department and the IRS would traditionally
view general welfare, including benefits such as wellness centers,
health coaches, and access to dieticians.
Other Tribal Comments state that an official determination by the
Indian Tribal government, such as a Tribal resolution or other formal
action, should be sufficient to demonstrate that a benefit or program
is for the promotion of general welfare. With respect to benefits
provided, some Tribal Comments request that the regulations defer to
Indian Tribal governments on determining whether benefits provided to
Tribal members are considered ``for the promotion of general welfare,''
particularly when the Indian Tribal government relies on its own data
or other empirical data (for example, private studies, or based on
Federal or state statistics). Many Tribal Comments argue that the
Treasury Department and the IRS should avoid listing specific criteria
required for a benefit to satisfy the promotion of general welfare
requirement.
The Treasury Department and the IRS agree with the TTAC Report and
the Tribal Comments that deference should be given to the Indian Tribal
government in determining whether a benefit is for the promotion of the
general welfare of its Tribal members or other eligible individuals.
The Indian Tribal government is in the best position to determine which
general welfare benefits are best suited to meet the needs of its
Tribal members and other eligible individuals. As a result, these
proposed regulations would not define the term ``for the promotion of
general welfare'' or specifically provide requirements that a benefit
must meet in order to satisfy section 139E(b)(2)(B). Instead, proposed
Sec. 1.139E-1(d)(2) would provide deference to the Indian Tribal
government to determine, at the time the program is established,
whether a benefit is for the promotion of general welfare of its Tribal
members or other eligible individuals. Proposed Sec. 1.139E-1(d)(2)
would provide further that an Indian Tribal Government has sole
discretion to determine whether a benefit is for the promotion of
general welfare and that the IRS will defer to the Indian Tribal
Government's determination that a benefit is for the promotion of
general welfare. These proposed rules would be consistent with the
specific language in section 2(c) of the Act, which requires that
deference be given to Indian Tribal governments for the programs
administered and authorized by the Tribe to benefit the general welfare
of the Tribal community.
2. No Need Requirement
The administrative general welfare exclusion requires that payments
be for the promotion of general welfare, which the IRS has interpreted
to require a showing of individual or family need, notably financial
need. This interpretation generally applies regardless of whether the
benefits are provided by a Federal, State, or local government or by an
Indian Tribal government. However, Revenue Procedure 2014-35 provides
that the individual need criterion of the

[[Page 75999]]

administrative general welfare exclusion is presumed to be met for
certain benefits provided under an Indian Tribal government program.
Section 139E(b)(2)(B) requires that a benefit be for the promotion of
general welfare but does not specifically define that term nor mention
whether it incorporates a needs-based requirement.
The TTAC Report and majority of the Tribal Comments contend that
the proposed regulations should not incorporate a needs-based
requirement for the promotion of general welfare requirement in section
139E(b). The Tribal Comments note that section 139E is silent on an
individual need requirement. Also, the Tribal Comments point to the
language in Revenue Procedure 2014-35, which conclusively presumed
individual need was satisfied, as support for not including a
requirement for the showing of individual need in section 139E.
As noted in part III.A.1 of this Explanation of Provisions,
proposed Sec. 1.139E-1(d)(2) would provide that an Indian Tribal
Government has sole discretion to determine whether a benefit is for
the promotion of general welfare and that the IRS will defer to the
Indian Tribal Government's determination that a benefit is for the
promotion of general welfare. Consistent with this approach, Indian
Tribal Governments thus would have sole discretion as to whether to
consider individual need or not in designing a general welfare program.
In addition, the Treasury Department and the IRS agree with the TTAC
Report and the Tribal Comments that section 139E was intended by
Congress to generally codify Revenue Procedure 2014-35, which
conclusively presumed that individual need was satisfied if the program
met certain requirements. This conclusion is also consistent with the
legislative history of section 139E. See House Debate, at H7601
(Representative Devin Nunes stating ``that the IRS will not interpret
the statute as requiring individualized determinations of financial
need where a tribal government has established a program consistent
with the statute''); see also Senate Colloquy, at S5686 (Senator Jerry
Moran asking Senator Ron Wyden, and Senator Wyden agreeing, that the
IRS will ``in no event require an individualized determination of
financial need'' if a Tribal program meets the other requirements of
section 139E).
Accordingly, proposed Sec. 1.139E-1(d)(2) specifically states that
Tribal general welfare benefits may be provided without regard to the
financial or other need of Tribal program participants. However, Indian
Tribal governments have broad discretion to establish and administer
general welfare programs and may choose to limit a program or its
benefits to Tribal program participants based on a showing of
individual need.
3. Benefits May Be in Equal Amounts
Section 139E does not address whether Tribal general welfare
benefits may be provided to recipients in equal amounts. However, in
considering the enactment of section 139E, Representative Nunes
expressed an intent that section 139E apply to pro rata payments. In
addressing the IRS's frequent insistence that Tribal benefits be based
on a stipulation based on individualized financial need, he stated,
``This stipulation prevents the general welfare exclusion from covering
programs designed to provide substantially equal benefits to all
qualifying members of a tribe or to provide benefits based on
determinations of needs that are not financial in nature.'' See House
Debate, at H7601. Revenue Procedure 2014-35 does not directly address
this issue of whether general welfare benefits under its safe harbors
could be provided equally to all eligible individuals, but states that
per capita payments to Tribal members of Tribal gaming revenues that
are subject to IGRA are gross income under section 61, are subject to
the information reporting and withholding requirements of sections 6041
and 3402(r), and are not excludable from gross income.
The TTAC Report correctly notes that section 139E does not prohibit
general welfare benefits from being distributed in uniform amounts. The
Tribal Comments recommend that the Treasury Department and the IRS
defer to Tribes in determining whether pro rata payments (that is,
uniform payments to each recipient) are appropriate. In general,
several Tribal Comments, when referring to net gaming revenues under
IGRA, argue that IGRA does not treat all pro rata payments as taxable,
but instead looks to the purpose and methodology used to calculate the
payments.\4\ The Tribal Comments also request that the proposed
regulations permit pro rata payments under an Indian Tribal government
program, as several Tribal Comments emphasized that distributing
benefits in equal amounts is often the most efficient method to provide
benefits, such as for health and wellness and broadband internet
access.
---------------------------------------------------------------------------

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

The Treasury Department and the IRS agree with the TTAC Report and
the Tribal Comments that section 139E does not prohibit an Indian
Tribal government program from providing Tribal general welfare
benefits to recipients in equal amounts. Accordingly, proposed Sec.
1.139E-1(d)(2) would provide that Tribal general welfare benefits may
be provided on a uniform or pro-rata basis to Tribal program
participants.
4. Specific Types of Benefits
The TTAC Report and the Tribal Comments recommend clarification on
whether payment of benefits for disaster relief and similar assistance
qualify under section 139E. In addition, both the TTAC Report and many
Tribal Comments request that an Indian Tribal government disaster
declaration qualify to establish the existence of a disaster for
purposes of identifying relief payments under section 139E.
Section 139 generally provides an exclusion from gross income for
qualified disaster relief payments. Qualified disaster relief payments
generally include certain amounts paid to or for the benefit of an
individual in connection with a qualified disaster, including a
Federally declared disaster. Specifically, section 139(b)(4) includes
as a qualified disaster relief payment an amount paid by a Federal,
State, or local government, or agency or instrumentality thereof, in
connection with a qualified disaster in order to promote the general
welfare. Section 139(b)(4) was enacted to codify the administrative
general welfare exclusion for certain disaster relief payments, but
does not supplant it. See Notice 2002-76 (2002-2 C.B. 917). Thus,
benefits paid by Indian Tribal governments to individuals affected by a
disaster may be excluded from the individuals' gross income if the
requirements of the administrative general welfare exclusion are met.
Similarly, these disaster relief benefits may be excluded from gross
income if they qualify as Tribal general welfare benefits under section
139E.
The Treasury Department and the IRS recognize that Indian Tribal
governments have broad discretion to provide benefits to individuals
who are affected by a disaster or other emergency situation that does
not meet the requirements of a qualified disaster under section 139.
Thus, proposed Sec. 1.139E-1(d)(2) would include as a permissible
general welfare purpose ``assistance for disasters or emergency
situations.'' The Indian Tribal

[[Page 76000]]

government need not make a specific Tribal disaster declaration.
In addition, the TTAC Report requests that the proposed regulations
specifically provide that wellness and health-related programs may be
Tribal general welfare benefits. The TTAC Report acknowledges that
section 139D applies to certain health care expenses but requests
clarification that section 139E operates independent of, and is not
limited by, section 139D of the Code. In particular, the concern is
that wellness and health-related programs may not fall within the
section 139D exclusion.
Section 139D generally provides an exclusion from gross income for
any qualified Indian health care benefit. Qualified Indian health care
benefits include medical care provided by an Indian Tribe or Tribal
organization, or coverage under insurance or a plan provided by an
Indian Tribe or Tribal organization for medical care. See section
139D(b)(2)-(4). For purposes of section 139D, ``medical care'' has the
same meaning as when used in section 213 of the Code. Amounts paid for
benefits that are merely beneficial to the general health of an
individual, such as certain wellness and health-related programs, as
well as care by an unlicensed spouse or relative, are not amounts paid
for medical care and thus are not excluded under section 139D. See
section 213(d) and Sec. 1.213-1(e)(1)(ii).
The Treasury Department and the IRS agree that section 139E
operates independently of, and is not limited by, section 139D. Thus,
in accordance with the deference provided to Indian Tribal Governments
in proposed Sec. 1.139E-1(d)(2), an Indian Tribal Government may
determine that wellness and health-related programs are for the
promotion of general welfare under section 139E.
B. Benefits Must Be Available to Any Tribal Program Participant
Section 139E(b)(2) provides, in relevant part, that a benefit
provided under the program must be available to any Tribal member who
meets the specified guidelines of the program. Revenue Procedure 2014-
35 requires that the benefit be available to any eligible individual
who satisfies the program guidelines, subject to budgetary constraints.
The TTAC Report and the Tribal Comments do not specifically address
this requirement.
The Treasury Department and the IRS have determined that this
requirement should be interpreted in a manner similar to Revenue
Procedure 2014-35. Thus, proposed Sec. 1.139E-1(d)(3) would provide
that a benefit under the Indian Tribal government program must be
available to any Tribal program participant who meets the specified
guidelines of the program, subject to budgetary constraints.
C. Benefits Cannot Be Lavish or Extravagant
Section 139E(b)(2) provides, in relevant part, that benefits
provided under the program cannot be lavish or extravagant. Section
139E(c)(3) provides that the Secretary, in consultation with the TTAC,
must establish guidelines for what constitutes lavish or extravagant
benefits with respect to Indian Tribal government programs. The
Treasury Department and the IRS have consulted with the TTAC during the
drafting of these proposed regulations. In addition, the Treasury
Department and the IRS will hold Tribal consultation before finalizing
the proposed regulations.
Like section 139E, Revenue Procedure 2014-35 prohibits benefits
that are lavish or extravagant. It does not define ``lavish or
extravagant'' but does provide that the benefits cannot be ``lavish or
extravagant under the facts and circumstances.''
The TTAC Report recommends that the term ``lavish or extravagant''
be defined as a relative term that depends on the unique circumstances
of the Tribe, and also depends on the type of benefit being provided
(such as, one-time payment or monthly assistance). The TTAC Report sets
forth a non-exclusive list of circumstances that should be considered
when determining if a benefit is lavish or extravagant: an Indian
Tribal government's economic circumstances or factors, culture and
cultural practices, history, geographic area, traditions, and
resources. The TTAC Report recommends deference to Indian Tribal
governments and proposes a rebuttable presumption that the benefit is
not lavish or extravagant if the Indian Tribal government program meets
general welfare needs or purposes, and the method of distribution is
expected to achieve program goals.
Several Tribal Comments recommend that the proposed regulations
defer to the Tribes or their Indian Tribal governments for determining
whether a benefit is lavish or extravagant. Most Tribal Comments
provide that the term is relative and depends on the unique
circumstances of each Tribe and the type of benefit provided. Some
Tribal Comments recommend deference to an Indian Tribal government's
definition of lavish or extravagant as established by official actions,
such as Tribal ordinances, resolutions, and policies. In addition, some
Tribal Comments propose that a facts and circumstances standard,
similar to Revenue Procedure 2014-35, be applied to define lavish or
extravagant. Under such a standard, a benefit would not be lavish or
extravagant if based upon a particular Tribe's political, socio-
economic and cultural facts and circumstances as determined by that
Tribe. Some Tribal Comments argue that the definition should be subject
to the Tribal canon, as opposed to the traditional canons of statutory
construction, and that any ambiguity be construed in favor of the
Tribe.
Some Tribal Comments describe what the proposed regulations should
not do when defining lavish or extravagant. For example, some Tribal
Comments urge that the proposed regulations should define lavish or
extravagant in a way that targets egregious abuse but otherwise does
not affect Indian Tribal government programs that are designed and
administered in good faith. Other Tribal Comments suggest that the term
lavish or extravagant not be defined by reference to dollar amounts,
and specifically highlighted cost of living variations (for example,
geographic differences). Some Tribal Comments emphasize that the
proposed regulations should not use examples that may suggest
limitations on the eligibility of program benefits. Specifically, these
commenters suggest that it would be more helpful to include examples of
benefits that are not considered lavish or extravagant. Finally, some
Tribal Comments argue that the Treasury Department and the IRS should
not refer to other Code provisions for guidance on interpreting the
phrase ``lavish or extravagant'' under section 139E.
The Treasury Department and the IRS generally agree with the TTAC
Report and the Tribal Comments. Accordingly, proposed Sec. 1.139E-
1(d)(4) would provide a facts and circumstances test to determine
whether a Tribal general welfare benefit is lavish or extravagant under
section 139E. Under proposed Sec. 1.139E-1(d)(4), whether a benefit is
lavish or extravagant would be based on the facts and circumstances at
the time the benefit is provided. Relevant facts and circumstances
would include a Tribe's culture and cultural practices, history,
geographic area, traditions, resources, and economic conditions or
factors. A facts and circumstances test is consistent with Revenue
Procedure 2014-35, as well as the TTAC Report and the Tribal Comments
suggesting that the Tribe's unique circumstances should be considered
when evaluating whether the Indian Tribal government determined a
Tribal general welfare

[[Page 76001]]

benefit to be lavish or extravagant at the time the benefit is
provided. However, proposed Sec. 1.139E-1(d)(4) also would provide a
presumption that a benefit is not lavish or extravagant if it is
described in, and provided in accordance with, the written specified
guidelines of the Indian Tribal government program.
The TTAC Report and some Tribal Comments mention that the frequency
of benefit (for example, lump sum or monthly payment) should be
considered when evaluating whether a program's benefit is lavish or
extravagant. The Treasury Department and the IRS agree that the
frequency of payment should be considered when determining whether a
Tribal general welfare benefit is lavish or extravagant. Under a facts
and circumstances test, an Indian Tribal government may establish a
program that provides the types of benefits, including frequency of
payment, that best meet the needs of its Tribal members.
D. Benefits Cannot Be Compensation for Services
Section 139E(b)(2)(D) provides that a Tribal general welfare
benefit paid under an Indian Tribal government program cannot be
compensation for services, with exceptions discussed in part IV of this
Explanation of Provisions.\5\ Section 139E(b)(2)(D) does not provide a
specific definition for the term compensation for services for purposes
of section 139E. Revenue Procedure 2014-35 also provides that benefits
under the safe harbors cannot be compensation for services but does not
specifically define compensation for services. The prohibition on
compensation for services is a long-standing core principle of the
administrative general welfare exclusion. See Revenue Ruling 75-246
(1975-1 C.B. 24).
---------------------------------------------------------------------------

\5\ Section 139E(c)(5) provides an exception under which any
items of cultural significance, reimbursement of costs, or cash
honorarium for participation in cultural or ceremonial activities
for the transmission of Tribal culture ``shall not be treated as
compensation for services.'' This exception to the general
prohibition on compensation for services is addressed in part IV of
this Explanation of Provisions.
---------------------------------------------------------------------------

The TTAC Report acknowledges that section 139E prohibits
compensation for services from being treated as Tribal general welfare
benefits. The TTAC Report and the Tribal Comments do not recommend a
specific definition of compensation for services, but the TTAC Report
recommends that the proposed regulations confirm that (1) a benefit in
connection with Tribal custom or tradition regarding community service
is not compensation for services; (2) compensation for services does
not include cultural or ceremonial gifts and payments, as determined by
the Tribe; and (3) payments as part of training programs are not
compensation for services. Similar to this third issue, one Tribal
Comment argues that on-the-job training, apprenticeships, and other
classes for job skills for which participants receive payment should
not be treated as compensation for services. Finally, one Tribal
Comment argues that the rule in section 139E(b)(2)(D) should be read
narrowly to cover services that are traditionally provided under an
employment or contracted-vendor relationship.
The first two issues raised in the TTAC Report overlap with the
rules in section 139E(c)(5), which provides that certain benefits
provided for participation in cultural or ceremonial activities are not
treated as compensation for services. These issues from the TTAC Report
are addressed in part IV of this Explanation of Provisions. The third
issue, relating to whether payments made to individuals in various
types of training programs are compensation for services, is addressed
under section 61 and current law relating to gross income generally.
Section 61(a) generally provides that, except as otherwise provided
in the Code, gross income means all income from whatever source
derived, and this includes compensation for services, including fees,
commissions, fringe benefits, and similar items, whether paid in money
or property. Section 1.61-2(a)(1) of the Income Tax Regulations
provides additional examples of payments that are included in gross
income because they are compensation for services, such as wages,
salaries, and commissions paid salesmen. However, compensation for
services also includes amounts that are not paid in an employment or
contracted-vendor relationship. Thus, the proposed regulations do not
adopt the Tribal Comment arguing that compensation for services should
be read narrowly to cover only services that are traditionally provided
under an employment or contracted-vendor relationship.
In the context of training, apprenticeships, and other skills
training programs, existing IRS guidance on the administrative general
welfare exclusion provides assistance on how to distinguish whether a
payment is a general welfare payment or is compensation for services.
See Revenue Ruling 63-136 (1963-2 C.B. 19) (excluding from income the
payments for on-the-job career training or retraining where such
payments are ``intended to aid the recipients in their efforts to
acquire new skills that would enable them to obtain better employment
opportunities''); Revenue Ruling 65-139 (1965-1 C.B. 31) (as clarified
by Revenue Ruling 66-240 (1966-2 C.B. 19)). In general, the
determination as to whether payments under training programs are
includible in a participant's gross income rests on whether the
activity for which the payments are received is in exchange for the
performance of services (compensation for services) or is for
participation in a training program that promotes the general welfare
(general welfare payment). Revenue Ruling 75-246 (1975-1 C.B. 24).
Because existing guidance addresses the long-standing distinction
between compensation for services and general welfare payments, the
Treasury Department and the IRS have determined that the proposed
regulations should define compensation for services by reference to
current law. Thus, proposed Sec. 1.139E-1(d)(5) would define the term
compensation for services by referring to the rules in section 61(a).
These rules encompass all the regulations and other IRS guidance under
section 61(a) that interpret the meaning of compensation for services.

IV. Exception to Prohibition on Compensation for Services

As noted in part III.D. of this Explanation of Provisions, section
139E(b)(2)(D) generally provides that a Tribal general welfare benefit
cannot be compensation for services. However, section 139E(c)(5)
contains an exception to that general rule and provides that any items
of cultural significance, reimbursement of costs, or cash honorarium
for participation in cultural or ceremonial activities for the
transmission of Tribal culture will not be treated as compensation for
services. Accordingly, such items may, if the other requirements of
section 139E are satisfied, be Tribal general welfare benefits that are
excluded from gross income.
Revenue Procedure 2014-35 contains a similar exception.
Specifically, section 5.03 of the revenue procedure provides that the
safe harbors apply to ``benefits provided under an Indian Tribal
governmental program that are items of cultural significance that are
not lavish or extravagant under the facts and circumstances, or nominal
cash honoraria provided to religious or spiritual officials or leaders
. . . to recognize their participation in cultural, religious, and
social events.''

[[Page 76002]]

A. Participation in Cultural or Ceremonial Activities
The exception in section 139E(c)(5) applies only if specific
benefits are ``for participation in cultural or ceremonial activities
for the transmission of tribal culture.'' Revenue Procedure 2014-35
contains a similar exception, but that exception is limited to specific
benefits ``provided to religious or spiritual officials or leaders
(including but not limited to medicine men, medicine women, and
shamans) to recognize their participation in cultural, religious, and
social events (including but not limited to pow-wows [sic], rite of
passage ceremonies, funerals, wakes, burials, other bereavement events,
and honoring events).'' As the TTAC Report points out, Revenue
Procedure 2014-35 refers only to event participation by religious or
spiritual leaders and does not describe larger Indian Tribal-wide
cultural, ceremonial, and community service general welfare programs.
The TTAC Report recommends that the proposed regulations provide that
the IRS must defer to Tribal determinations on what it means to
participate in cultural or ceremonial activities for the transmission
of Tribal culture. Some Tribal Comments request that the exclusion
apply to attendance at Tribal gatherings and participation in community
service or tribal meetings. Some Tribal Comments provide examples of
services that should not be considered compensation for services, such
as blessings provided by Tribal members, preparation of traditional
foods at events, support for sponsoring Tribal events, and the
activities of traditional healers performed at or for official Tribal
events like ceremonial or traditional gatherings. Finally, some Tribal
Comments state that the proposed regulations should apply the section
139E(c)(5) exception to services that are traditionally provided
through employment or contracted-vendor arrangements.
The Treasury Department and the IRS recognize that the language in
section 139E(c)(5) is broader than Revenue Procedure 2014-35 in that
the section 139E(c)(5) exception is not limited to religious or
spiritual officials or leaders. The Treasury Department and the IRS
also agree with the TTAC Report that Tribes are in the best position to
determine what it means to participate in cultural or ceremonial
activities for the transmission of Tribal culture. Thus, proposed Sec.
1.139E-1(e) would provide that the Indian Tribal government determines
what it means to participate in cultural or ceremonial activities for
the transmission of Tribal culture and would include the list of
examples from Revenue Procedure 2014-35 (powwows, rite of passage
ceremonies, funerals, wakes, burials, other bereavement events, and
honoring events). It would further provide that the IRS will defer to
the Indian Tribal government's determination of whether an activity is
a cultural or ceremonial activity for the transmission of Tribal
culture.
The Treasury Department and the IRS do not agree with the Tribal
Comments stating that the exception in section 139E(c)(5) broadly
applies to services that are traditionally provided under an employment
or contracted-vendor relationship because section 139E is an exclusion
from gross income for individuals and families, not businesses. For
example, a corporation owned by a Tribal member that contracts with the
Indian Tribal government to cater a Tribal ceremony is not within the
section 139E(c)(5) exception. In this case, any payment received by the
corporation from the Tribe to provide catered food at a Tribal ceremony
is business income. However, a Tribal member that volunteers to make
traditional foods for a Tribal ceremony and receives an item of
cultural significance, cash honorarium, or reimbursement of costs is
within the exception of section 139E(c)(5).
B. Items of Cultural Significance
Section 139E(c)(5) provides, in part, that ``items of cultural
significance'' that are provided for participation in cultural or
ceremonial activities for the transmission of Tribal culture are not
treated as compensation for services. Revenue Procedure 2014-35 also
contains an exception for items of cultural significance that are not
lavish or extravagant under the facts and circumstances. The term
``items of cultural significance'' is not defined in section 139E or in
Revenue Procedure 2014-35. The TTAC Report and the Tribal Comments
recommend that deference should be given to Indian Tribal governments
and Tribes to determine what are items of cultural significance for
their Tribe. One Tribal Comment provides a list of examples of items
with cultural significance, including blankets, cash, food, regalia
items, fabric, beads, drums, pelts, feathers, artwork, baskets,
clothing, household items, tobacco, gift cards, animals, and vehicles.
The Treasury Department and the IRS agree that Indian Tribal
governments are in the best position to determine items of cultural
significance. Thus, proposed Sec. 1.139E-1(e)(2) would provide that
the Indian Tribal government determines items of cultural significance
and that the IRS will defer to the Indian Tribal government's
determination. Unlike the similar rule in Revenue Procedure 2014-35,
the proposed regulations would not limit the items of cultural
significance to those that are not lavish or extravagant. However, the
prohibition on lavish or extravagant benefits in proposed Sec. 1.139E-
1(d)(4) would apply broadly to all Tribal general welfare benefits,
including those that are provided under section 139E(c)(5) for
participation in cultural or ceremonial activities. In addition, the
Treasury Department and the IRS do not view cash, gift cards, or
vehicles themselves as items with cultural significance, although such
items may be used to reimburse costs for participation in cultural or
ceremonial activities without being considered compensation for
services.
C. Cash Honorarium
Section 139E(c)(5) provides, in part, that cash honoraria provided
for participation in cultural or ceremonial activities for the
transmission of Tribal culture is not treated as compensation for
services. Revenue Procedure 2014-35 contains a similar exception,
although it is limited to nominal cash honoraria. The term ``cash
honoraria'' is not defined in section 139E or in Revenue Procedure
2014-35. The TTAC Report and the Tribal Comments request that the
proposed regulations recognize Congress's decision to eliminate the
qualifier that honoraria be ``nominal'' and provide that a Tribe's
determination of the proper amount of the honorarium should be presumed
to be reasonable and fair.
The Treasury Department and the IRS agree with the TTAC Report and
the Tribal Comments that section 139E is broader than Revenue Procedure
2014-35 by not limiting the exception to the compensation for services
requirement to nominal cash honoraria. Thus, proposed Sec. 1.139E-1(e)
would not provide that the compensation for services exception in
section 139E(c)(5) is limited to nominal cash honoraria.
D. Reimbursement of Costs
Section 139E(c)(5) provides, in part, that reimbursement of costs
provided for participation in cultural or ceremonial activities for the
transmission of Tribal culture is not treated as compensation for
services. Revenue Procedure 2014-35 does not contain a similar
exception. Section 139E(c)(5) does not define the term ``reimbursement
of costs.'' However, the Treasury Department and the IRS expect that
the usual usage of the term applies for purposes of section 139E. Thus,
the

[[Page 76003]]

reimbursement of costs generally would include amounts paid by the
Indian Tribal government to an individual to reimburse specific amounts
paid by the individual to participate in the cultural or ceremonial
activity.
E. Members of Other Tribes
As noted in part I.D. of this Explanation of Provisions, the
proposed regulations generally would define the term Tribal member to
mean a member of the Tribe that establishes or maintains the Indian
Tribal government program. Some Tribal Comments highlight that some
Tribes may provide benefits to individuals who are Tribal members of a
different Tribe than the one establishing the general welfare program.
For example, an Indian Tribal government may provide benefits to a
cultural, spiritual, or ceremonial leader of another Tribe who teaches
shared Tribal cultural practices or ceremonial functions.
The Treasury Department and the IRS agree that, solely for purposes
of the exception in section 139E(c)(5) relating to benefits provided
for participation in ceremonial or cultural activities, the recipient
may be a member of a Tribe that is different from the Tribe that
establishes or maintains the program. Thus, proposed Sec. 1.139E-
1(b)(8)(ii) would provide that, solely for purposes of proposed Sec.
1.139E-1(e), the definition of Tribal program participant may include a
member of a Tribe that is different from the Tribe that establishes the
Indian Tribal government program and provides the Tribal general
welfare benefit. For example, if a cultural leader from one Tribe
performs at another Tribe's powwow, a cash honorarium given to the
cultural leader is not compensation for services under section
139E(c)(5).

V. Issues Not Addressed in Proposed Regulations

A. Interaction With Other Federal Programs
The TTAC Report requests that the proposed regulations provide that
individual need be presumed for all Tribal general welfare benefits
that meet the requirements of section 139E. Moreover, the TTAC Report
and many Tribal Comments request that the Treasury Department and the
IRS coordinate with other Federal agencies, including the Social
Security Administration, to ensure that Tribal general welfare benefits
are not treated as income or a disqualifying resource for purposes of
program eligibility, such as supplemental security income benefits
under 42 U.S.C. 1381 et seq.
The Treasury Department and the IRS have authority to interpret and
provide rules under section 139E to determine whether a benefit is
excludible from gross income for Federal income tax purposes. However,
the issue of whether a Tribal general welfare benefit is taken into
account for purposes of determining other Federal benefits is outside
the authority of the Treasury Department and the IRS, and therefore
beyond the scope of these proposed regulations. The Treasury Department
and the IRS are willing to work with the TTAC and Tribes to confer with
other Federal agencies and provide advice on how the Federal tax law
applies to Tribal general welfare benefits.
B. Grants to Indian-Owned Enterprises
The TTAC Report requests that the proposed regulations provide that
grants to establish or expand Indian-owned enterprises are excludible
from gross income under section 139E. The TTAC Report cites Revenue
Ruling 77-77 (1977-1 C.B. 11), for the proposition that non-
reimbursable grants made under the Indian Financing Act of 1974 to
Indians to expand profit-making Indian-owned economic enterprises on or
near reservations are excludable from gross income under the
administrative general welfare exclusion. The TTAC Report also requests
that the guidance clarify that ``expanding'' a business includes
assistance to help a business remain in operation or recover from
losses, and also to allow the Tribe to be able to determine what it
means to be an Indian-owned enterprise. One Tribal Comment also
requests that grants for establishing and assisting Indian-owned
enterprises should be excluded from gross income.
The administrative general welfare exclusion generally does not
apply to payments made to businesses, including sole proprietors.
Instead, the exclusion is intended to address benefits that promote the
general welfare of families and individuals. See also Revenue Procedure
2014-35, which applies only to individuals and not to businesses.
Section 139E also applies only to individuals and not to businesses.
Thus, these proposed regulations do not address grants to Indian-owned
enterprises. However, these proposed regulations do not affect the
validity of Revenue Ruling 77-77, which provides a limited exception to
the rule that the administrative general welfare doctrine does not
apply to businesses. Under that revenue ruling, a grant made by an
Indian Tribal government to a Tribal member to expand an Indian-owned
business on or near a reservation is excluded from the Tribal member's
gross income under the administrative general welfare exclusion.
C. Trust Arrangements and Deferred Benefits
The TTAC Report states that an Indian Tribal government program may
distribute general welfare benefits from trust arrangements, including
payments that are set aside for the health, education, and welfare of
trust beneficiaries under IGRA. The TTAC Report recommends that the
proposed regulations provide that the determination of whether a
payment is a general welfare benefit is made at the time the trust
distributes the payment to the beneficiary from the trust. Some Tribal
Comments asked that the proposed regulations expressly recognize that
health, education, and welfare payments under a minor's trust can be
structured in a way to qualify payments for exclusion under section
139E.
The TTAC Report requests that the proposed regulations provide that
an Indian Tribal government program may permit Tribal members and other
recipients to defer and accumulate benefits for future payment. The
TTAC Report suggests that if the amount is not lavish or extravagant at
the time the beneficiary defers receipt of the payment, then section
139E is satisfied at the time the Indian Tribal government distributes
the funds to the beneficiary. The TTAC Report also recommends that
section 139E not be limited by constructive receipt and economic
benefit restrictions on the deferral of taxable income or benefits.
Many Tribal Comments support the TTAC Report on the issue of deferred
benefits, and request that the proposed regulations provide examples of
deferred benefits.
Section 139E does not specifically address trust arrangements or
deferred benefits. Section 139E addresses whether a benefit that is
generally includible in gross income under section 61 may be excluded
from gross income under section 139E. It does not address the taxable
year in which a benefit may be includible in gross income, in
particular if a benefit is put into a trust or its receipt is deferred
through some other arrangement. Most individuals use the cash receipts
and disbursements method of accounting, which incorporates numerous
rules addressing when amounts must be included in gross income. Those
rules generally apply in determining when a benefit must be included in
the gross income and include the concepts of constructive receipt and
economic benefit. In addition, there is existing authority addressing
trusts under IGRA

[[Page 76004]]

that is not affected by these proposed regulations. See Revenue
Procedure 2011-56 (2011-49 I.R.B. 834), which provides a safe harbor
under which the IRS treats a Tribe as the grantor and owner of a trust
for the receipt of Tribal gaming revenues under IGRA for the benefit of
minors and certain other individuals. However, as described in the
Comments and Public Hearing section of this preamble, the Treasury
Department and the IRS request comments on whether additional guidance
is needed under section 139E or other Code sections to address the tax
treatment of deferred benefits or benefits paid from trust arrangements
and, if so, what specific fact patterns should be addressed.
D. Advance Rulings
Some Tribal Comments propose that the Treasury Department and the
IRS allow Tribes to request advance rulings at the option of the Tribe
to address the tax status of general welfare programs. These comments
request, however, that any procedure involving advance rulings requests
must be implemented with narrow parameters to avoid becoming a de facto
audit of Tribal programs. In addition, these Tribal Comments suggest
that these advance rulings be binding on states and other Federal
agencies. The Treasury Department and the IRS appreciate that Indian
Tribal governments have been awaiting guidance under section 139E and
have concerns about how the IRS may view existing general welfare
programs. The IRS has a general process in place for entities and
individuals to request a letter ruling on the tax treatment of a
particular transaction or program, but that process generally does not
apply if the request presents an issue that cannot be readily resolved
before a regulation or any other published guidance is issued. See
Revenue Procedure 2024-1 (2024-1 I.R.B. 1). If an Indian Tribal
government or a Tribal member receives a letter ruling from the IRS,
the ruling generally is binding on the IRS. However, a letter ruling
would address only Federal tax law and would not be binding in any way
on any other Federal agency or any state agency.
As discussed in part VIII of this Explanation of Provisions,
section 4(a) of the Act requires the IRS to suspend all audits or
examinations to the extent the audit or examination relates to the
exclusion from gross income of benefits under the general welfare
exclusion. After soliciting public comments and holding Tribal
consultation on these proposed regulations, the Treasury Department and
the IRS intend to issue final regulations that provide clear and
helpful guidance on Tribal general welfare benefits. Further, in
accordance with section 3(b)(2) of the Act, the Secretary of the
Treasury, in consultation with the TTAC, will establish certain
training and education, which specifically includes the provision of
training and technical assistance to Tribal financial officers about
implementation of section 139E. The Treasury Department and the IRS
will continue to work with the TTAC and Tribes throughout this
rulemaking process to ensure that the final rules are comprehensive and
provide as much clarity and certainty as possible within the parameters
of the section 139E.

VI. Safe Harbors and Examples

The Tribal Comments were not uniform on whether it would be helpful
for the proposed regulations to provide examples of benefits that
qualify as Tribal general welfare benefits. Some Tribal Comments
recommend examples to help Indian Tribal governments identify what
types of benefits would be considered for promotion of general welfare.
In contrast, some Tribal Comments express concern that a list of
examples of permissible benefits would over time be viewed as an
exhaustive list of permissible benefits.
The TTAC Report requests that Indian Tribal governments be given
the ability to rely on programs that meet the safe harbor requirements
of Revenue Procedure 2014-35. Some Tribal Comments argue that the safe
harbors in Revenue Procedure 2014-35 were arbitrarily limiting and
state that the proposed regulations should refrain from using safe
harbors to avoid establishing similar limitations under section 139E.
However, many other Tribal Comments recommend incorporating the safe
harbors from Revenue Procedure 2014-35 into the proposed regulations or
expanding the safe harbors to include payments from net gaming revenue,
payments under section 139E(c)(5), and programs developed pursuant to
official determinations by Indian Tribal governments. The Tribal
Comments also request that the proposed regulations expressly state
that a safe harbor is not intended to limit the types of general
welfare programs otherwise permitted under section 139E.
Revenue Procedure 2014-35 contains numerous safe harbors under
which the IRS will conclusively presume that the individual need
requirement of the administrative general welfare exclusion is met. As
a revenue procedure, this guidance represents an official statement of
a procedure by the IRS that affects the rights or duties of taxpayers
under Federal tax law, rather than an official statement of IRS
position on a substantive tax issue like the administrative general
welfare exclusion. See Sec. 601.601 of the Statement of Procedural
Rules (25 CFR part 601). Thus, the safe harbors in Revenue Procedure
2014-35 do not represent examples of the application of the
administrative general welfare exclusion, but instead are fact patterns
for which the IRS is required to presume that the need requirement of
the administrative general welfare exclusion is met. Accordingly,
taxpayers may rely upon the safe harbors in Revenue Procedure 2014-35,
but the revenue procedure does not have the force and effect of
Treasury regulations.
The enactment of section 139E provides authority for the Treasury
Department and the IRS to issue regulations to interpret section 139E.
Regulations are the most authoritative form of published guidance and
generally include substantive rules interpreting the statute. Treasury
regulations often include examples in the regulatory text to illustrate
specific provisions of the regulation. These examples describe how the
regulatory rule applies to a set of facts, but examples cannot be the
source of the rule itself.
The proposed regulations would provide examples of benefits that
are for the promotion of general welfare under section 139E(b)(2)(B).
The Treasury Department and the IRS agree that the examples in these
proposed regulations are illustrations of benefits that are for the
promotion of general welfare and are not intended to represent an
exhaustive list of qualifying benefits. The examples in the proposed
regulations also would incorporate the safe harbors in Revenue
Procedure 2014-35. Section 139E was intended generally to codify
Revenue Procedure 2014-35, and these proposed regulations are intended
to be no less favorable than Revenue Procedure 2014-35, consistent with
the intent of Congress reflected in the House Debate and Senate
Colloquy in enacting the Act. Therefore, the general welfare programs
described as safe harbors in Revenue Procedure 2014-35 would also be
programs that satisfy the promotion of general welfare requirement
under section 139E(b)(2)(B). Thus, these proposed regulations would
include the list of programs described in section 5.02(2) of Revenue
Procedure 2014-35 as a non-exhaustive list of the types of programs
that would satisfy the general welfare requirement in section 139E and
these proposed regulations. As described in the Comments and Public

[[Page 76005]]

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

VII. Proposed Obsolescence of Revenue Procedure 2014-35

Revenue Procedure 2014-35 generally provides principles for
applying the administrative general welfare exclusion and provides safe
harbors under which the IRS conclusively presumes that the individual
need requirement of the administrative general welfare exclusion is met
for benefits provided under Indian Tribal government programs that are
described under section 5.02 or 5.03 of the revenue procedure. In
Notice 2015-34, the Treasury Department and the IRS announced that
section 139E codified (but does not supplant) the administrative
general welfare exclusion for certain benefits provided under Indian
Tribal government programs, and that ``Revenue Procedure 2014-35 may be
broader than section 139E in some instances.''
Many Tribal Comments argue that the safe harbors in Revenue
Procedure 2014-35 were superseded by section 139E. Some Tribal Comments
express the preference that Revenue Procedure 2014-35 be expanded to
explicitly incorporate the concept of deference to the Tribe.
The Treasury Department and the IRS are of the view that the
proposed regulations, if finalized, generally would provide rules that
are at least as favorable as the safe harbors provided under Revenue
Procedure 2014-35 and therefore, that Indian Tribal governments may
have no further need to rely on Revenue Procedure 2014-35. In addition,
the Treasury Department and the IRS expect that Indian Tribal
governments would benefit by having a single set of rules that apply
specifically to their general welfare benefit programs, rather than
having to analyze their programs under both Revenue Procedure 2014-35
and the section 139E final regulations. Thus, the Treasury Department
and the IRS propose to obsolete and supersede Revenue Procedure 2014-35
after the final regulations are applicable. As described in the
Comments and Public Hearing section of this preamble, the Treasury
Department and the IRS request comments on this issue.

VIII. Audit Suspension and IRS Training

Section 4 of the Act directs the Secretary of the Treasury to
suspend all audits and examinations of Indian Tribal governments and
members of Tribes (or any spouse or dependent of such a member) to the
extent such an audit or examination relates to the exclusion of a
payment or benefit from an Indian Tribal government under the general
welfare exclusion, until the education and training prescribed by
section 3(b)(2) of the Act is completed. Section 3(b)(2) of the Act
directs the Secretary of the Treasury, in consultation with the TTAC,
to establish and require (A) training and education for internal
revenue field agents who administer and enforce internal revenue laws
with respect to Tribes on Federal Indian law and the Federal
Government's unique legal treaty and trust relationship with Indian
Tribal governments, and (B) training of such internal revenue field
agents, and provision of training and technical assistance to Tribal
financial officers, about implementation of the Act and the amendments
made thereby.
The TTAC Report requests that the proposed regulations refer to the
audit suspension provided in section 4 of the Act. Specifically, the
TTAC Report requests that the proposed regulations provide that all
audits and examinations of Indian Tribal governments, Tribal members,
and qualified nonmembers (as defined in Revenue Procedure 2014-35) to
the extent that an audit or examination relates to the reporting or
exclusion of a Tribal general welfare benefit are suspended until a
specified time related to prospective enforcement of the final
regulations. The TTAC Report further requests that enforcement of the
final regulations be delayed for one year after the training and
guidance required by section 3(b)(2) of the Act is completed (the
compliance date), and that when examinations commence, they relate only
to the periods beginning on or after the one-year period beginning on
or after the compliance date. The TTAC Report further states that
guidance under section 139E must be applied prospectively and that
Tribes and Tribal citizens who have developed and administered programs
in good faith will not be audited retroactively once the audit
suspension is lifted. Many Tribal Comments agree with the TTAC Report.
The Treasury Department and the IRS acknowledge that section 4 of
the Act provides a temporary suspension of audits and examinations of
Indian Tribal governments and Tribal members (or any spouse or
dependent of such member) to the extent that the audit or examination
relates to the exclusion of a payment or benefit from an Indian Tribal
government under the general welfare exclusion. The Treasury Department
and the IRS expect that the audit suspension described in section 4 of
the Act will continue until all the requirements of section 3(b)(2) of
the Act are satisfied. In particular, the Treasury Department and the
IRS contemplate that the education and training described in section
3(b)(2) of the Act, which requires training to the Internal revenue
field agents and to Tribal financial officers about implementation of
section 139E, cannot and will not take place until final regulations
are issued under section 139E. Thus, once final regulations under
section 139E are issued, the Treasury Department and the IRS, in
consultation with the TTAC, will conduct the required education and
training under section 3(b)(2) of the Act. Only after that education
and training is complete will the audit suspension be lifted. These
proposed regulations do not address the education and training that
will be required to be complete before the audit suspension is lifted,
but the Treasury Department and the IRS will consult with the TTAC on
the requirements of section 3(b)(2) of the Act before the commencement
of the required education and training and will provide further
guidance after that consultation.

IX. Information Reporting

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

X. Tribal Consultation

Some Tribal Comments request that the Treasury Department and the
IRS engage in consultation with Tribes throughout the development and
implementation of the regulations, and any additional guidance. In
addition, several of these Tribal Comments request additional
consultation before the proposed regulations are published in the
Federal Register.
The Treasury Department and the IRS agree with the Tribal Comments
and expect that consultation will continue throughout the rulemaking
process that will culminate with the publication of

[[Page 76006]]

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

Proposed Applicability Date

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

Comments and Public Hearing

Before these proposed amendments to the regulations are adopted as
final regulations, consideration will be given to any comments that are
submitted timely to the IRS as prescribed in the preamble under the
ADDRESSES section. The Treasury Department and the IRS request comments
on all aspects of the proposed regulations. In addition, the Treasury
Department and the IRS request comments on the following specific
issues:
(1) Should additional examples be included in the final
regulations, and if so, what specific fact patterns or rules should be
addressed by the additional examples?
(2) Should Revenue Procedure 2014-35 be obsoleted when the final
regulations become applicable? If not, why is there a continuing need
for it after the publication of final regulations?
(3) Do Indian Tribal governments anticipate needing any transition
relief to adjust existing general welfare programs to satisfy these
proposed regulations before they are finalized? If yes, please explain
the nature of the transition relief needed and provide recommendations
as to what relief would be helpful to Indian Tribal governments.
(4) Is additional guidance needed under section 139E or other Code
sections to address the tax treatment of deferred benefits or benefits
paid from trust arrangements, and, if so, what specific fact patterns
should be addressed?
Any comments submitted will be made available at <a href="https://www.regulations.gov">https://www.regulations.gov</a> or upon request. Once submitted to the Federal
eRulemaking Portal, comments cannot be edited or withdrawn.
A public hearing will be held on January 13, 2025, beginning at 10
a.m. ET, in the Auditorium at the Internal Revenue Building, 1111
Constitution Avenue NW, Washington, DC. Due to building security
procedures, visitors must enter at the Constitution Avenue entrance. In
addition, all visitors must present photo identification to enter the
building. Because of access restrictions, visitors will not be admitted
beyond the immediate entrance area more than 30 minutes before the
hearing starts. Pursuant to Announcement 2023-16, 2023-20 I.R.B. 854
(May 15, 2023), the public hearing is scheduled to be conducted in
person, but the IRS will provide a telephonic option for individuals
who wish to attend or testify at the hearing by telephone.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to present oral comments at the hearing must submit an outline of
the topics to be discussed as well as the time to be devoted to each
topic by December 16, 2024. A period of ten minutes will be allocated
to each person for making comments. After the deadline for receiving
outlines has passed, the IRS will prepare an agenda containing the
schedule of speakers. Copies of the agenda will be made available free
of charge at the hearing. If no outlines of the topics to be discussed
at the hearing are received by December 16, 2024, the public hearing
will be cancelled. If the public hearing is cancelled, a notice of
cancellation of the public hearing will be published in the Federal
Register.
Individuals who want to testify in person at the public hearing
must send an email to <a href="/cdn-cgi/l/email-protection#bdcdc8dfd1d4ded5d8dccfd4d3dacefdd4cfce93dad2cb">[email&#160;protected]</a> to have your name added to
the building access list. The subject line of the email must contain
the regulation number REG-106851-21 and the language TESTIFY In Person.
For example, the subject line may say: ``Request to TESTIFY In Person
at Hearing for REG-106851-21.''
Individuals who want to testify by telephone at the public hearing
must send an email to <a href="/cdn-cgi/l/email-protection#b3c3c6d1dfdad0dbd6d2c1daddd4c0f3dac1c09dd4dcc5">[email&#160;protected]</a> to receive the telephone
number and access code for the hearing. The subject line of the email
must contain the regulation number REG-106851-21 and the language
TESTIFY Telephonically. For example, the subject line may say:
``Request to TESTIFY Telephonically at Hearing for REG-106851-21.''
Individuals who want to attend the public hearing in person without
testifying must also send an email to <a href="/cdn-cgi/l/email-protection#d6a6a3b4babfb5beb3b7a4bfb8b1a596bfa4a5f8b1b9a0">[email&#160;protected]</a> to have
your name added to the building access list. The subject line of the
email must contain the regulation number (REG-106851-21) and the
language ATTEND In Person. For example, the subject line may say:
``Request to ATTEND Hearing In Person for REG-106851-21.'' Requests to
attend the public hearing must be received by 5 p.m. ET on January 9,
2025.
Individuals who want to attend the public hearing telephonically
without testifying must send an email to <a href="/cdn-cgi/l/email-protection#c8b8bdaaa4a1aba0ada9baa1a6afbb88a1babbe6afa7be">[email&#160;protected]</a> to
receive the telephone number and access code for the hearing. The
subject line of the email must contain the regulation number (REG-
106851-21) and the language ATTEND Hearing Telephonically. For example,
the subject line may say: ``Request to ATTEND Hearing Telephonically
for REG-106851-21.'' Requests to attend the public hearing must be
received by 5 p.m. ET on January 9, 2025.
The hearing will be made accessible to people with disabilities. To
request special assistance during the hearing, contact the Publications
and Regulations Branch of the Office of Associate Chief Counsel
(Procedure and Administration) by sending an email to
<a href="/cdn-cgi/l/email-protection#daaaafb8b6b3b9b2bfbba8b3b4bda99ab3a8a9f4bdb5ac">[email&#160;protected]</a> (preferred) or by telephone at (202) 317-6901
(not a toll-free number) at least January 8, 2025.

Special Analyses

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

Executive Order 13175 (Consultation and Coordination With Indian
Tribal Governments) prohibits an agency from publishing any rule that
has Tribal implications if the rule either imposes substantial, direct
compliance costs on Indian Tribal governments and is not required by
statute, or preempts Tribal law, unless the agency meets the
consultation and funding requirements of section 5 of the Executive
order. These proposed regulations have a substantial direct effect on
one or more Federally-recognized Indian Tribes and do impose
substantial direct compliance

[[Page 76007]]

costs on Indian Tribal governments within the meaning of the Executive
order. As a result, the Treasury Department intends to comply with
section 5(b)(2)(A)-(B) of Executive Order 13175. In compliance with
section 5(b)(2)(A) of Executive Order 13175 and in response to Tribal
leader requests for proposed regulations, the Treasury Department and
the IRS held consultations with Tribal leaders on December 14, 15, and
16, 2022, requesting assistance in addressing questions related to the
Act and the TTAC Report, which informed the development of these
proposed regulations. The Treasury Department and the IRS also intend
to conduct Tribal consultation on these proposed regulations.

II. Regulatory Planning and Review

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

III. Paperwork Reduction Act

The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) generally
requires that a Federal agency obtain the approval of the Office of
Management and Budget (OMB) before collecting information from the
public, whether such collection of information is mandatory, voluntary,
or required to obtain or retain a benefit. An agency may not conduct or
sponsor, and a person is not required to respond to, a collection of
information unless the collection of information displays a valid
control number.
These proposed regulations would include third-party disclosures
and recordkeeping requirements that are required to substantiate that
the value of a Tribal General Welfare Benefit is excluded from a
recipient's gross income. These collections of information would
generally be used by the IRS for tax compliance purposes and by
taxpayers to facilitate proper substantiation of the gross income
exclusion. The likely respondents to these collections are Indian
Tribal governments and individuals.
The recordkeeping requirements in proposed Sec. 1.139E-1(c)(3)
would provide that Indian Tribal government programs must be
administered under specified guidelines and would provide general
requirements on the content of those guidelines. Under proposed Sec.
1.139E-1(c)(3), the specified guidelines would need to, at a minimum,
describe the program, the benefits provided, the eligibility
requirements of the program, and the process for receiving benefits.
Written specified guidelines would not be required. However, Indian
Tribal governments may keep records of affidavits or declarations of
how the program operates. These proposed regulations would not
prescribe the specific method of keeping these records. Indian Tribal
governments should keep these records in the manner they deem
appropriate in order to substantiate that the program qualifies as an
Indian Tribal government program under section 139E and these proposed
regulations, and to assist Tribal program participants with determining
that a Tribal general welfare benefit may be excluded from gross income
under section 139E and these proposed regulations. Additionally, Indian
Tribal governments should keep records they deem appropriate to
substantiate that the Tribal general welfare benefits are distributed
without discriminating in favor of the governing body of the Tribe, as
described in proposed Sec. 1.139E-1(c)(4), are not lavish or
extravagant, as described in proposed Sec. 1.139E-1(d)(4), and are not
compensation for services, as described in proposed Sec. 1.139E-
1(d)(5). This information will generally be used by the IRS for tax
compliance purposes to ensure that Indian Tribal governments are
distributing Tribal general welfare benefits in accordance with
proposed Sec. 1.139E-1.
The recordkeeping requirements in proposed Sec. 1.139E-1(d)(4)
would provide that whether a benefit is lavish or extravagant is based
on the facts and circumstances at the time the benefit is provided.
Proposed Sec. 1.139E-1(d)(4) would provide that a benefit will be
presumed not to be lavish or extravagant if the Indian Tribal
government establishes the program in writing and provides the benefit
in accordance with the program's written specified guidelines. This
presumption in proposed Sec. 1.139E-1(d)(4) for a benefit provided in
accordance with the program's written specified guidelines would be an
optional rule and an Indian Tribal government may choose not to apply
such rule. This information will generally be used by the IRS for tax
compliance purposes to ensure that Indian Tribal governments are
distributing Tribal general welfare benefits in accordance with
proposed Sec. 1.139E-1(d)(4).
The third-party disclosure requirement may apply to Indian Tribal
governments that choose to provide notification to Tribal program
participants that an Indian Tribal government program exists for which
Tribal program participants may apply for benefits. These proposed
regulations would not prescribe a specific method that Indian Tribal
governments must use to announce the existence of a program. An Indian
Tribal government may announce Indian Tribal government programs in any
manner it deems appropriate.
These proposed regulations would not impose any additional
recordkeeping requirements on Tribal program participants. However,
Tribal program participants are required to maintain records under
section 6001 sufficient to show that the value of a Tribal general
welfare benefit received from an Indian Tribal government program is
excludible from gross income. These records are required for the IRS to
validate that taxpayers have met the regulatory requirements for a
Tribal general welfare benefit, and that taxpayers are entitled to
exclude the value of the benefit from gross income. The burden
associated with maintaining tax records is already approved under OMB
number 1545-0074 that is used for Form 1040, Individual Tax Return.
These proposed regulations would not create or change the general
recordkeeping requirement under section 6001.
There is limited data to calculate the burden estimates for these
proposed regulations. The Treasury Department and the IRS estimate the
burden based on the list of 574 Federally-recognized Tribes published
by the Department of Interior, and estimate an upper bound of 2,296
Indian Tribal governments, including their agencies or
instrumentalities. The estimate is based on an upper bound assumption
that Indian Tribal government programs are set up by each Indian Tribal
government of a Federally-recognized Tribe and by 3 separate agencies
or instrumentalities of each such Indian Tribal government. A summary
of the Paperwork Reduction Act burden estimates for the collections are
as follows:
Indian Tribal governments (third-party disclosure and recordkeeping
burden for Tribal entities):
Estimated Number of Respondents: 2,296.
Estimated Time per Response: 2 hours.
Estimated Frequency of Response: Once or on occasion.
Estimated Total Burden Hours: 4,592 hours.
The collections of information contained in this notice of proposed
rulemaking has been submitted to the Office of Management and Budget
for

[[Page 76008]]

review in accordance with the Paperwork Reduction Act. Commenters are
strongly encouraged to submit public comments electronically. Written
comments and recommendations for the proposed information collection
should be sent to <a href="http://www.reginfo.gov/public/do/PRAMain">www.reginfo.gov/public/do/PRAMain</a>, with copies to the
Internal Revenue Service. Find this particular information collection
by selecting ``Currently under Review--Open for Public Comments'' then
by using the search function. Submit electronic submissions for the
proposed information collection to the IRS via email at
<a href="/cdn-cgi/l/email-protection#c5b5b7a4eba6aaa8a8a0abb1b685acb7b6eba2aab3">[email&#160;protected]</a> (indicate REG-106851-21 on the subject line).
Comments on the collection of information should be received by
December 16, 2024. Comments are specifically requested concerning:
Whether the proposed collection of information is necessary for the
proper performance of the functions of the IRS, including whether the
information will have practical utility; the accuracy of the estimated
burden associated with the proposed collection of information; how the
quality, utility, and clarity of the information to be collected may be
enhanced; how the burden of complying with the proposed collection of
information may be minimized, including through the application of
automated collection techniques or other forms of information
technology; and estimates of capital or start-up costs and costs of
operation, maintenance, and purchase of services to provide
information. The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520)
(PRA) generally requires that a Federal agency obtain the approval of
OMB before collecting information from the public, whether such
collection of information is mandatory, voluntary, or required to
obtain or retain a benefit. An agency may not conduct or sponsor, and a
person is not required to respond to, a collection of information
unless the collection of information displays a valid control number.

IV. Regulatory Flexibility Act

The Secretary of the Treasury hereby certifies that the proposed
regulations would not have a significant economic impact on a
substantial number of small entities pursuant to the Regulatory
Flexibility Act (5 U.S.C. chapter 6). These proposed regulations would
affect Indian Tribal governments that establish and administer Tribal
general welfare programs and that distribute Tribal general welfare
benefits to certain individuals. The Treasury Department and the IRS
have no reliable data to determine whether Tribal general welfare
programs may be established and administered through small entities,
such as not-for-profit entities. Although data is not readily available
about the number of small entities that would potentially be affected
by these proposed regulations, it is possible that a substantial number
of small entities may be affected. However, any impact on those
entities would not be economically significant and therefore a
regulatory flexibility analysis under the Regulatory Flexibility Act is
not required.
The impact of these proposed regulations can be described in the
following categories. First, proposed Sec. 1.139E-1(c) would provide
guidance on what criteria a program must meet in order to be an
``Indian Tribal Government Program.'' Specifically, proposed Sec.
1.139E-1(c) would provide that the program must be established by the
Indian Tribal government; administered under specified guidelines; and
not discriminate in favor of members of the governing body of the
Tribe. Even assuming that these provisions would affect a substantial
number of small entities, they would not have a significant economic
impact. Section 139E(b) imposes the burden of what is needed to create
an Indian Tribal government program. These proposed regulations would
provide deference to Indian Tribal governments on the types of general
welfare programs established, and generally defer to Indian Tribal
governments on the form of the program's specified guidelines and the
specific records they should maintain. As such, it is expected that the
proposed regulations would have a minimal economic impact on Indian
Tribal governments.
Second, proposed Sec. 1.139E-1(d) would provide guidance on
whether a benefit is a ``Tribal General Welfare Benefit'' that is
excluded from an individual's gross income. Specifically, proposed
Sec. 1.139E-1(d) would require that the benefit be provided pursuant
to an Indian Tribal government program; be for the promotion of general
welfare; be available to any eligible Tribal program participant; not
be lavish or extravagant; and, except as provided in section
139E(c)(5), not be for compensation for services. Proposed Sec.
1.139E-1(d) would provide deference to Indian Tribal governments on the
types of benefits that promote the general welfare, the individuals who
are eligible for benefits, and whether benefits are provided in
exchange for participation in certain cultural or ceremonial activities
under section 139E(c)(5) and these proposed regulations. It would also
provide that a benefit is presumed to not be lavish or extravagant if
it is described in, and provided in accordance with, the written
specified guidelines of an Indian Tribal government program. As such,
it is expected that the proposed regulations would have a minimal
economic impact on Indian Tribal governments.
Third, proposed Sec. 1.139E-1(e) would permit an Indian Tribal
government program to provide to Tribal program participant benefits
that are items of cultural significance, reimbursement of costs, or
cash honoraria for their participation in certain cultural or
ceremonial activities. Indian Tribal governments have broad discretion
to determine whether or not these benefits are provided. Even assuming
that this provision affects a substantial number of small entities, it
would not have a significant economic impact because benefits that are
items of cultural significance, reimbursement of costs, and cash
honoraria are only a few types of the benefits that are permitted to be
provided under section 139E and proposed Sec. 1.139E-1. An Indian
Tribal government is not required to provide these types of benefits.
For the reasons stated, a regulatory flexibility analysis under the
Regulatory Flexibility Act is not required. The Treasury Department and
the IRS invite comments on the impact of the proposed regulations on
small entities.
Pursuant to section 7805(f), this notice of proposed rulemaking has
been submitted to the Chief Counsel for the Office of Advocacy of the
Small Business Administration for comment on its impact on small
business.

V. Unfunded Mandates Reform Act

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

VI. Executive Order 13132: Federalism

Executive Order 13132 (Federalism) prohibits an agency from
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless

[[Page 76009]]

the agency meets the consultation and funding requirements of section 6
of the Executive Order. These proposed regulations do not have
federalism implications and do not impose substantial direct compliance
costs on State and local governments or preempt State law within the
meaning of the Executive order.

Statement of Availability of IRS Documents

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

Drafting Information

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

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

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

PART 1--INCOME TAXES

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

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

Sec. 1.139E-0 Table of contents.

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

Sec. 1.139E-1 Tribal general welfare benefits.

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

Sec. 1.139E-2 [Reserved]

Sec. 1.139E-1 Tribal general welfare benefits.

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

[[Page 76010]]

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

[[Page 76011]]

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

[[Page 76012]]

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

[[Page 76013]]

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

Sec. 1.139E-2 [Reserved]

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

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Indexed from Federal Register on September 17, 2024.

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