Rule2026-08613
Treatment of Income From Indian Fishing Rights-Related Activity as Compensation
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
May 4, 2026
Effective
May 4, 2026
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains final regulations providing that amounts paid to a member of an Indian Tribe as remuneration for services performed in a fishing rights-related activity may be treated as compensation for purposes of applying the limits on qualified retirement plan benefits and contributions. These regulations affect participants, beneficiaries, sponsors, and administrators of Tribal plans.
Full Text
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<title>Federal Register, Volume 91 Issue 85 (Monday, May 4, 2026)</title>
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[Federal Register Volume 91, Number 85 (Monday, May 4, 2026)]
[Rules and Regulations]
[Pages 23915-23918]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-08613]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 10046]
RIN 1545-BL61
Treatment of Income From Indian Fishing Rights-Related Activity
as Compensation
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final Regulations.
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SUMMARY: This document contains final regulations providing that
amounts paid to a member of an Indian Tribe as remuneration for
services performed in a fishing rights-related activity may be treated
as compensation for purposes of applying the limits on qualified
retirement plan benefits and contributions. These regulations affect
participants, beneficiaries, sponsors, and administrators of Tribal
plans.
DATES:
Effective Date: These regulations are effective on May 4, 2026.
Applicability Date: For date of applicability, see Sec. 1.415(a)-
1(g)(5).
FOR FURTHER INFORMATION CONTACT: Jamie Dvoretzky at (202) 317-4102, or
Pamela Kinard at (202) 317-6000 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Authority
This Treasury Decision contains final regulations that amend the
Income Tax Regulations (26 CFR part 1) under section 415, related to
the definition of the term ``compensation'' for purposes of
contribution and benefit limits applicable to qualified retirement
plans. These final regulations are issued under the authority granted
by section 415(j) of the Internal Revenue Code (Code), which authorizes
the Secretary of the Treasury or his delegate (Secretary) to prescribe
such regulations as may be necessary to carry out the purposes of
section 415. These final regulations are also issued under the
authority granted by section 7805(a), which authorizes the Secretary to
prescribe all needful rules and regulations for the enforcement of the
Code.
Background
This document contains amendments to regulations under section 415
of the Code, which generally imposes limitations on the annual amount
that a qualified retirement plan may provide, with respect to a
participant, in either benefit payments or in contributions
[[Page 23916]]
and other additions to the plan. These limitations generally are based
on a participant's compensation. Section 415(c)(3) provides that the
term ``participant's compensation'' means the compensation of the
participant from the employer for the year.
Section 1.415(c)-2(a) of the Income Tax Regulations generally
provides that compensation from the employer within the meaning of
section 415(c)(3) includes all items of remuneration described in Sec.
1.415(c)-2(b) to the extent that the amounts are includible in gross
income, but excludes the items of remuneration described in Sec.
1.415(c)-2(c), such as contributions made by an employer to a plan of
deferred compensation to the extent that the contributions are not
includible in the gross income of the employee for the taxable year in
which contributed.
Section 7873(a)(1) provides that no tax shall be imposed on income
derived from a fishing rights-related activity of an Indian tribe by
(A) a member of the Indian tribe directly or through a qualified Indian
entity, or (B) a qualified Indian entity. Section 7873(a)(2) provides
that no employment tax shall be imposed on remuneration paid for
services performed in a fishing rights-related activity of an Indian
tribe by a member of such tribe for another member of such tribe or for
a qualified Indian entity.
On November 15, 2013, proposed regulations under section 415 were
published in the Federal Register (78 FR 68780). The proposed
regulations would provide that income described in section 7873(a)
(``fishing rights-related income'') is included in the definition of
compensation under section 415. Specifically, the proposed regulations
would provide that amounts paid to a member of an Indian tribe as
remuneration for services performed in a fishing rights-related
activity (as defined in section 7873(b)(1)) do not fail to be treated
as compensation under Sec. 1.415(c)-2(b)(1) and (b)(2) (and are not
excluded from the definition of compensation pursuant to Sec.
1.415(c)-2(c)(4)) merely because those amounts are not subject to
income tax or employment taxes as a result of section 7873(a)(1) and
(a)(2). Thus, the determination of whether an amount constitutes wages,
salaries, or earned income for purposes of Sec. 1.415(c)-2(b)(1) or
(b)(2) is made without regard to the exemption from income tax under
section 7873(a)(1) or employment tax under section 7873(a)(2). In
addition, by permitting fishing rights-related income to be treated as
wages, salaries, or earned income under Sec. 1.415(c)-2(b)(1) and
(b)(2), plans that accept contributions of fishing rights-related
income would not be precluded from utilizing the safe harbor
definitions of compensation under Sec. 1.415(c)-2(d)(2) and (d)(3).
Written comments on the proposed regulations were received and
considered. The Department of the Treasury (Treasury Department) and
the IRS did not receive any requests for a public hearing to address
the proposed regulations, and, accordingly, no hearing was held. The
Treasury Department held a Tribal consultation on this proposed rule on
December 17, 2013. Additionally, on August 22, 2024, the Treasury
Department met with the Treasury Tribal Advisory Committee,
Subcommittee on Parity and Reform and received additional feedback on
the proposed regulations. After consideration of the comments received,
the proposed regulations are adopted by this Treasury decision without
material modification.
Summary of Comments and Explanation of Provisions
A. Treatment of Fishing Rights-Related Income as Compensation Under
Section 415
The proposed regulations were issued primarily in response to
requests from the Tribal community that the Treasury Department and the
IRS address whether contributions can be made to qualified retirement
plans based on fishing rights-related income. Under the proposed
regulations, fishing rights-related income would not fail to be treated
as compensation under Sec. 1.415(c)-2(b)(1) and (b)(2) (and is not
excluded from the definition of compensation pursuant to Sec.
1.415(c)-2(c)(4)) merely because those amounts are not subject to
income tax or employment tax as a result of section 7873(a)(1) or
(a)(2).
Commenters generally reacted favorably to this proposed rule,
stating that the proposed regulations provided much needed clarity on
how plans should treat fishing rights-related income paid to employees
subject to section 7873 (Tribal employees) under section 415. The
Treasury Department and the IRS also received comments stating that
additional guidance is needed with respect to a variety of issues
relating to fishing rights-related income in retirement plans. Many of
these issues are outside the scope of these regulations, which are
modifying the definition of compensation for purposes of section 415,
and so the text of the final regulations does not address them.
However, this preamble (under the headings ``Taxation of
Distributions,'' ``Treating Contributions as Roth Contributions,'' and
``Self-Employed Tribal Members'' in this Summary of Comments and
Explanation of Provisions) provides clarifying information relating to
many of these issues.
B. Taxation of Distributions
The preamble to the proposed regulations requested comments
regarding the taxation of qualified plan distributions attributable to
contributions based on fishing rights-related income, and the
application of section 72(f)(2) \1\ to such distributions. All of the
comments received requested that distributions attributable to
contributions based on fishing rights-related income should not be
taxable to a Tribal employee.
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\1\ Section 72(f)(2) treats employer contributions as investment
in the contract if those amounts would not have been includible in
income of the employee had they been paid directly to the employee.
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Several of the commenters referred to Hall v. Commissioner, 76
T.C.M. 473 (1998), in which the petitioner was a full-time employee in
a Tribal fish hatchery who received a choice between an employer
contribution to a retirement account or an employer contribution to a
health plan. In 1992, the petitioner elected the retirement benefit and
the employer contributed a monthly amount to an individual retirement
account (IRA). That same year, the petitioner received early
distributions from the IRA attributable to those employer contributions
and to income earned in the IRA. The Tax Court generally found that,
under section 72 (as modified by section 408(d)(1) and (2)), the amount
of the distributions attributable to contributions based on fishing
rights-related income represents a nontaxable return of his investment
in the contract, but added that the amount of distributions
attributable to the earnings on the IRA contributions represents
accrued income that is taxable to the petitioner.
In response to the requests to clarify the taxation of qualified
plan distributions attributable to contributions based on fishing
rights-related income, the Treasury Department and the IRS have
determined that the holding in Hall v. Commissioner should apply to
these distributions. Thus, consistent with Hall, any contribution to a
qualified retirement plan that is attributable to remuneration for
services performed by a Tribal employee in a fishing rights-related
activity is treated as investment in the contract for a plan
participant
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under the rules of section 72(f)(2). Therefore, any distribution of
such amounts is nontaxable to the participant. However, also consistent
with Hall, the amount of the distribution attributable to earnings on
those contributions is taxable.
Another commenter raised an issue regarding the ordering for
determining the taxable and nontaxable amounts of a qualified
retirement plan distribution. Referring to qualified retirement plan
distributions attributable to fishing rights-related income, this
commenter suggested that plan participants be allowed to elect the
order in which the qualified retirement plan distributions are made so
that the nontaxable amounts could be received first. This suggestion is
not adopted because it is inconsistent with the basis recovery rules in
section 72.\2\ Tribal employees will have investment in the contract on
contributions to the plan attributable to fishing rights-related
income, and thus the general basis recovery rules of section 72 will
apply.
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\2\ Section 72(b) provides that gross income does not include
that part of any amount received as an annuity which bears the same
ratio to such amount as the investment in the contract bears to the
expected return under the contract.
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The Treasury Department and the IRS also received comments
concerning the treatment of earnings on contributions attributable to
fishing rights-related income and the treatment of employer matching
and profit-sharing contributions related to contributions attributable
to fishing rights-related income. As explained in the preceding
paragraph, section 72 provides basis recovery rules for determining the
taxable and nontaxable portions of a distribution. Section 72(f)
applies to amounts contributed by the employer and does not distinguish
employer matching or employer profit-sharing contributions from
employee elective deferrals (which are treated as employer
contributions pursuant to section 402(e)(3)). Therefore, section
72(f)(2) applies not only to employee elective deferrals but also to
employer matching and employer profit-sharing contributions
attributable to remuneration for services performed by a Tribal
employee in a fishing rights-related activity. As explained in Hall v.
Commissioner, however, section 72(f)(2) does not apply to earnings.
Therefore, qualified retirement plan distributions attributable to the
earnings on contributions based on fishing rights-related income
generally will be taxable to the participant and the basis recovery
rules of section 72 will apply in determining the portion of a
distribution that is includible in income.
C. Treating Contributions as Roth Contributions
One commenter suggested that guidance be provided to allow a
qualified retirement plan to treat contributions attributable to
fishing rights-related income as either Roth contributions or after-tax
contributions. The commenter added that the guidance could provide
that, if the plan permits participants to make Roth contributions, then
the employee's contributions attributable to fishing rights-related
income would be treated as Roth contributions. If the plan does not
provide for Roth contributions, then these contributions would be
treated as after-tax contributions.
Section 1.401(k)-1(f)(2) provides that if an elective contribution
would not have been includible in gross income if the amount had been
paid directly to the employee (rather than being subject to a cash or
deferred election), the elective contribution is nevertheless permitted
to be a designated Roth contribution, provided the employee is entitled
to treat the amount as an investment in the contract pursuant to
section 72(f)(2). As previously stated in this preamble under the
heading ``Taxation of Distributions,'' any contributions attributable
to remuneration for services performed in a fishing rights-related
activity are treated as investment in the contract for the plan
participant under the rules of section 72(f)(2). Therefore,
contributions attributable to fishing rights-related income are
permitted to be designated Roth contributions under a qualified
retirement plan that permits participants to make those contributions.
D. Self-Employed Tribal Members
Two commenters asked about the retirement plan options for Tribal
members who earn fishing rights-related income but who may not be
employed by an Indian tribe. Section 401(a) provides that a plan of an
employer is a qualified plan only if it is created or organized for the
exclusive benefit of the employer's employees or their beneficiaries.
For these purposes, whether an individual is an employee of the
employer maintaining a plan is generally determined under common law
principles. See Nationwide Mutual Insurance Co. v. Darden, 503 U.S. 318
(1992). Self-employed individuals generally may not participate in a
qualified retirement plan sponsored by another employer. Moreover,
whether an individual earns fishing-rights related income is not
determinative of whether that individual is an employee. However, an
individual who is self-employed under section 401(c)(1) may
nevertheless maintain his or her own qualified retirement plan, such as
a section 401(k) plan.
E. Additional Comments
Commenters also requested guidance on several other issues,
including guidance permitting rollover of contributions attributable to
fishing rights-related income from a nonqualified plan to a qualified
plan, guidance permitting Tribal employers to take retroactive action
to permit Tribal employees to contribute fishing rights-related income
to a qualified plan, and guidance on testing for contributions
attributable to fishing rights-related income. These comments are all
beyond the scope of these regulations and, in certain cases, the
requested guidance may not be permissible under the Code (for example,
rollover of amounts from a nonqualified plan into a qualified plan).
However, the Treasury Department and IRS will continue to review
comments that are beyond the scope of these regulations and consider if
any further guidance is needed. If additional guidance is needed, the
Treasury Department and the IRS will conduct Tribal consultation
pursuant to Executive Order 13175.
Applicability Date
These final regulations apply for plan years ending on or after May
4, 2026.
Special Analyses
I. Regulatory Planning and Review
OMB's Office of Information and Regulatory Affairs has determined
that this regulation is not significant and is not subject to review
under section 6(b) of Executive Order 12866, as amended.
II. Regulatory Flexibility Act
It is hereby certified that these final regulations will not have a
significant economic impact on a substantial number of small entities
within the meaning of section 601(6) of the Regulatory Flexibility Act
(5 U.S.C. chapter 6). This certification is based on the fact that only
5,000 to 6,000 employees nationwide are estimated to earn fishing
rights-related income. Therefore, a regulatory flexibility analysis
under the Regulatory Flexibility Act is not required.
Pursuant to section 7805(f) of the Code, the proposed regulations
that preceded these final regulations were submitted to the Chief
Counsel for the Office of Advocacy of the Small Business Administration
for comment on their impact on small business, and no comments were
received.
[[Page 23918]]
Consultation and Coordination With Tribal Governments
In addition to written comments responding to the proposed
regulations, these final regulations reflect comments provided in a
Tribal consultation held on December 17, 2013, as well as comments
provided in a meeting with members of the Treasury Tribal Advisory
Committee Subcommittee on Parity and Reform on August 22, 2024.
Drafting Information
The principal author of these regulations is Jamie Dvoretzky,
Office of Associate Chief Counsel (Employee Benefits, Exempt
Organizations, and Employment Taxes). However, other personnel from the
Treasury Department and the IRS participated in the development of
these regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, the Treasury Department and the IRS amend 26 CFR part
1 as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
0
Par. 2. Section 1.415(a)-1 is amended by adding paragraph (g)(5) to
read as follows:
Sec. 1.415(a)-1 General rules with respect to limitations on
benefits and contributions under qualified plans.
* * * * *
(g) * * *
(5) Special effective date. Section 1.415(c)-2(g)(9) applies for
plan years ending on or after May 4, 2026.
0
Par. 3. Section 1.415(c)-2 is amended by adding paragraph (g)(9) to
read as follows:
Sec. 1.415(c)-2 Compensation.
* * * * *
(g) * * *
(9) Income derived by Indians from exercise of fishing rights-
related activities. Amounts paid to a member of an Indian tribe
directly or through a qualified Indian entity (within the meaning of
section 7873(b)(3)) as compensation for services performed in a fishing
rights-related activity (as defined in section 7873(b)(1)) of the tribe
do not fail to constitute compensation under paragraphs (b)(1) and (2)
of this section (and are not excluded from the definition of
compensation pursuant to paragraph (c)(4) of this section) merely
because those amounts are not subject to income or employment taxes as
a result of section 7873(a)(1) and (a)(2). Thus, the determination of
whether an amount constitutes wages, salaries, or earned income for
purposes of paragraph (b)(1) or (2) of this section is made without
regard to the exemption from taxation under section 7873(a)(1) and
(a)(2).
Frank J. Bisignano,
Chief Executive Officer, IRS.
Approved: April 1, 2026.
Kenneth J. Kies,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2026-08613 Filed 5-1-26; 8:45 am]
BILLING CODE 4831-GV-P
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</html>Indexed from Federal Register on May 4, 2026.
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