Law

Law Article: Tribes gain more flexibility under new taxation law

Tuesday, October 7, 2014

Rep. Tom Cole (R-Oklahoma), a member of the Chickasaw Nation, was one of the many supporters of H.R.3043, the Tribal General Welfare Exclusion Act. Photo from Flickr

Attorneys discuss H.R.3043, the Tribal General Welfare Exclusion Act, which became law on September 26:

One of the last pieces of legislation agreed upon by the U.S. Congress before breaking for the fall campaign season, the new law definitively establishes the rules applicable to social welfare programs provided by Indian tribes for their citizens. H.R. 3043, the Tribal General Welfare Exclusion Act, was passed by the House on Sept.16, 2014, under suspension of the rules and by the Senate on Sept.18, 2014, by unanimous consent. Since the bill did not go through a committee markup in either the House or the Senate, the bill's legislative history is contained in floor statements by the bill's sponsors, a colloquy among Senate Finance Chairman Wyden and the bill's Senate sponsors, and a summary of the bill prepared by the Joint Committee of Taxation for Rep. Devin Nunes in response to his request for a revenue estimate. This alert takes into account the legislative history in describing the scope and significance of the new law.
Under prior law, taxpayers must generally include all items of income when computing gross income. Long-standing IRS guidance established a general welfare exclusion under which payments made to individuals by governmental entities according to legislatively provided social benefit programs for the promotion of general welfare are not included in the recipient’s gross income. To qualify under the general welfare exclusion as contained in this general guidance, payment must be made:
• under a government program
• for the promotion of general welfare
• not as compensation for services

In evaluating Indian tribal government programs under the second prong of this test ("for the promotion of general welfare"), the IRS frequently insisted that tribal benefits – including universal health coverage, education, and cultural programs – be based on individualized determinations of financial need, thus preventing the general welfare exclusion from covering programs designed to provide substantially equal benefits to all members of a tribe without regard to financial need. Such insistence led to a spate of controversies between tribes and IRS field agents who conducted examinations of tribal government programs over the last 10 years.

Get the Story:
Kathleen M. Nilles, Kenneth W. Parsons and Zehava Zevit: Tribal General Welfare Exclusion Act: New Law Supersedes IRS Guidance - H.R. 3043 Allows Tribes More Latitude in Social Programs (JD Supra 10/7)