|Attorney discusses new guidance from the Internal Revenue Service regarding the Application of
the General Welfare Exclusion to Indian Tribal Government Programs That Provide
Benefits to Tribal Members:
On June 3, 2014, the IRS released Revenue Procedure 2014-35 providing final guidance for Indian tribal governments regarding the application of the general welfare exclusion to Indian tribal government programs that provide benefits to tribal members and other specified individuals. Largely responding to comments and concerns voiced by tribes and tribal groups regarding the IRS’s preliminary guidance on this topic issued in late 2012, the Revenue Procedure includes within its scope benefits provided to broader categories of non-tribal members than merely spouses and dependents, adding the categories of “former spouse, legally recognized domestic partner or former domestic partner, ancestor, and descendent” of a tribal member. The Revenue Procedure also significantly expands upon the preliminary guidance to provide that a much larger number of commonly provided tribal benefits will be nontaxable under the safe harbors provided for in the guidance. Finally, the Revenue Procedure also clarifies certain ambiguities that tribes and tribal groups identified in the preliminary guidance.
We have created a comparison document that shows the differences between the preliminary guidance and the final Revenue Procedure (additions shown by underscoring, deletions shown by strikeout, and moves shown in green font), which can be found here.
Under the general welfare exclusion, benefits provided by a government to an individual pursuant to a qualified general welfare program are not includible in the individual’s gross income for federal income tax purposes and are not subject to information reporting to the IRS. As the preliminary guidance anticipated, the new Revenue Procedure (1) describes general principles for the general welfare exclusion, (2) provides a number of safe harbors under which the IRS will conclusively presume that the "individual need" requirement for general welfare exclusion is met for benefits provided under a wide variety of housing, educational, elder and disabled, other assistance, and cultural and religious programs, provided that certain general requirements are satisfied, and (3) provides an additional safe harbor under which the IRS will not assert that certain items of cultural significance or nominal cash honoraria provided to certain individuals represent compensation for services, a classification that would prevent general welfare treatment in the absence of the safe harbor.
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Mary J. Streitz:
IRS issues final revenue procedure addressing application of general welfare exclusion to tribal government programs
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