IRS Proposes General Welfare Exclusion Safe Harbors for Tribal Government Programs

by Holland & Knight LLP

On December 5, 2012, the Internal Revenue Service proposed a revenue procedure that would address the general welfare exclusion from gross income as it applies to tribal government programs. It would also offer a safe harbor applicable to specific types of government programs under which the IRS would presume that the "individual need" requirement of the exclusion is met.

Under the procedure proposed in Notice 2012-75 (to be published in the December 17, 2012 Internal Revenue Bulletin), the IRS outlined the circumstances in which it would not assert that members of a tribe (or their spouses or dependents) must include the value of governmental program benefits in their gross income, or that the benefits are subject to information reporting requirements by the tribe. As explained below, tribes may apply the new guidance now even though it is still in proposed form and the IRS is soliciting tribal comments over an extended period that will end on June 3, 2013.  


Under the general welfare doctrine generally, benefits provided to members by tribal governments (like those provided by other governments) qualify for exclusion from gross income if: 

  • they are made pursuant to a governmental program
  • they are for the promotion of general welfare (based on individual or family need, and uniquely in the case of programs of tribal governments, to help establish Indian-owned businesses on or near a reservation)
  • they are not compensation for services

In many recent IRS audits, however, the IRS has refused to apply the general welfare exclusion to tribal programs where the benefits were disbursed on a basis that did not appear to the IRS to be "needs-based."  

Key Elements of the New Safe Harbor

The new safe harbor does not supplant current law but provides a sure way for tribal programs to avoid IRS challenge under the traditional three-part test described above. The safe harbor applies to programs that both meet certain general criteria in Section 5.02(1) and are specifically described in Section 5.02(2) of the Notice.

General Criteria in Section 5.02(1)

The general criteria in Section 5.02(1) requires that the benefit meet the following requirements:    

  • the benefit is provided pursuant to a specific Indian tribal government program
  • the program has written guidelines that specify how individuals may qualify for the benefit
  • the benefit is available to any tribal member who satisfies the program guidelines
  • the distribution of benefits from the program does not discriminate in favor of members of the governing body of the tribe
  • the benefit is not compensation for services
  • the benefit is not lavish or extravagant

In addition to meeting these general criteria, the benefit must be a specific type of benefit that is described in Section 5.02(2) of the Revenue Procedure.

Specific Types of Benefits Described in Section 5.02(2)

The specific types of benefits described in Section 5.02(2) of the proposed Notice include a wide range of benefits falling with five main categories: (1) housing program benefits; (2) educational program benefits; (3) elder and disabled programs; (4) other qualifying assistance; and (5) cultural and religious programs. These categories include the following specific benefits.

  • Housing program benefits relating to principal residences that: (1) assist in making mortgage or rent payments for residences on or near a reservation; (2) enhance habitability of housing (such as by remedying water, sewage, sanitation services, or heating or cooling issues); (3) provide basic housing repairs or rehabilitation; or (4) assist in paying charges for utilities
  • Educational program benefits to: (1) provide students (including post-secondary students) transportation to and from school, tutors, and school supplies; (2) provide tuition payments and living expenses for students to attend various educational programs; or (3) provide job counseling, job training and other assistance to individuals seeking employment
  • Elder and disabled program benefits for individuals age 55 or older or who are disabled that provide: (1) meals; (2) home care or day care outside the home; (3) local transportation expenses; (4) travel expenses for doctor appointments or other medical care; (5) transportation costs and admission fees to attend educational, social, or cultural programs offered by the tribe or another tribe; or (6) improvements to adapt housing to special needs
  • Other qualifying assistance program benefits to: (1) pay bus, taxi or public transportation fares from the Indian reservation to public facilities (such as medical facilities and grocery stores); (2) pay for the cost of transportation and temporary meals and lodging of a tribal member, spouse, or dependent while the tribal member, spouse, or dependent is receiving medical care away from home; (3) provide assistance to individuals in exigent circumstances (such as victims of abuse); (4) pay costs for temporary relocation and shelter for individuals displaced from their homes (due to fire or natural disaster); (5) provide emergency food, travel or lodging assistance to an individual who is stranded off the Indian reservation; or (6) provide or reimburse the cost of nonprescription drugs
  • Cultural and religious program benefits to: (1) pay or reimburse travel expenses (transportation, food, and lodging) to attend an Indian tribe's cultural, social or community activities such as pow-wows, ceremonies, and traditional dances; (2) pay or reimburse travel expenses to visit other Indian reservations or sites that are culturally and historically significant for the tribe; (3) pay or reimburse the costs of receiving instruction about an Indian tribe's culture, history, and traditions (such as traditional language, music and dances); or (4) pay or reimburse funeral and burial expenses and expenses of hosting or attending wakes, funerals, burials or similar bereavement events

Special Presumption: Certain Benefits Do Not Represent Compensation for Services

In addition to applying the general welfare exclusion to this broad range of specific benefits offered by tribal government programs meeting the general requirements of the safe harbor, the proposed Revenue Procedure would also presume that certain "benefits" do not represent compensation for services. This special presumption would apply to one of the following:

  • benefits provided under an Indian tribal governmental program that are items of cultural significance (but not lavish or extravagant)
  • nominal cash honoraria provided to medicine men or women, shamans or similar religious or spiritual officials to recognize their participation in cultural, religious and social events (for example, pow-wows, rites of passage ceremonies, or funerals, wakes, burials or other bereavement events)

This presumption is in marked contrast to earlier informal guidance from the IRS indicating that any participant in a pow-wow should be issued a Form 1099 if paid to perform services at such an event.

Effective Date of the Guidance

Although the guidance is in proposed form, taxpayers may rely on it immediately. In addition, taxpayers may apply the guidance to any year for which the statute of limitations on refunds remains open. Generally, this will be three years from the time the return was filed or two years from the time the tax was paid, whichever is later. For example, a taxpayer who filed his or her 2009 return on April 15, 2010 could apply the Notice to specific benefits received in 2009 until April 15, 2013.


The IRS's release of guidance on the general welfare exclusion provides an opportunity for tribes to evaluate their current general welfare programs and determine which of those programs meet the safe harbor described in the Notice. Although a program's failure to meet the safe harbor does not necessarily mean that any payments made and benefits provided pursuant to such program should be included in income, if a tribe is able to take steps to modify an otherwise compliant program (such as by establishing written guidelines for the program), doing so would provide the tribe and its members assurances of the tax-free treatment of such payments. In addition, tribal members who have paid tax on a substantial amount of any of the types of payments described in the Notice should consider filing an amended return for open years to claim a refund for their overpayment of tax, particularly if the tribe issues a corrected 1099 for such benefits.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Holland & Knight LLP | Attorney Advertising

Written by:

Holland & Knight LLP

Holland & Knight LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.