On December 6, 2012, the IRS released Notice 2012-75 providing important, favorable guidance for Indian tribal governments regarding the application of the general welfare exclusion to Indian tribal government programs that provide benefits to tribal members, their spouses, and their dependents. Under the general welfare exclusion, benefits provided by governments 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.

The new IRS guidance takes the form of a proposed revenue procedure that (1) describes general principles for the general welfare exclusion, and (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. The proposed revenue procedure provides an additional safe harbor under which the IRS will not assert that certain items of cultural significance or nominal cash honoraria provided to religious or spiritual officials represent compensation for services, a classification that would prevent general welfare treatment in the absence of the safe harbor. A copy of the Notice can be found at the following link:


A. Safe Harbors Under Which Individual Need Will Be Presumed

The central provisions of the Notice are those which provide that as long as certain general requirements are satisfied, the IRS will conclusively presume that the "individual need" requirement for general welfare treatment is satisfied for benefits provided to tribal members, their spouses, and/or their dependents under a wide range of tribal government benefit programs.

        1. General Requirements

In order for individual need to be presumed under any of the proposed safe harbors, all of the following general requirements must be satisfied:

  • The benefit must be provided pursuant to a specific government program of the tribe; 
  • The program must have written guidelines that specify how individuals may qualify for the benefit; 
  • The benefit must be available to any tribal member who satisfies the program guidelines; 
  • The distribution of benefits must not discriminate in favor of members of the governing body of the tribe; 
  • The benefit must not be compensation for services; and
  • The benefit must not be lavish or extravagant.

        2. Proposed Safe Harbors

As long as these general requirements are satisfied, the proposed revenue procedure provides that the IRS will conclusively presume individual need, a key element of the general welfare doctrine, in the case of benefits provided pursuant to the following programs:

  • Housing programs relating to principal residences that (i) provide mortgage or rent assistance for residences on or near a reservation, (ii) enhance habitability of housing, (iii) provide basic housing repairs or rehabilitation, or (iv) assist in paying utility bills and charges; 
  • Educational programs that provide (i) students transportation to and from school, tutor, and supplies (including clothing, backpacks, laptop computers, musical instruments, and sports equipment) for use in their studies, (ii) tuition payments and room and board allowances in attending an accredited college or university, educational seminars, vocational and technical school, and adult, continuing, or alternative eduction, and (iii) job counseling and relating training, including allowances for certain expenses incurred in interviewing and training; 
  • Programs for individuals age 55 and older or who are disabled that provide (i) meals, (ii) home care or day care, (iii) local transportation assistance, (iv) travel expenses for medical care, (v) transportation costs and admission fees to attend educational, social, or cultural program offered by the tribe or another tribe; and (vi) improvements to adapt housing to special needs; 
  • Other qualifying assistance programs that provide (i) transportation fares from the reservation to public facilities, (ii) travel and loding expenses while the member, spouse, or dependent is receiving medical care away from home, (iii) assistance to individuals in “exigent circumstances,” (iv) temporary relocation expenses for individuals displaced from their homes, and (v) emergency assistance to individuals stranded off the reservation.
  • Cultural and religious programs that provide reimbursements for (i) travel expenses to attend an Indian tribe’s cultural, social, or community activities, (ii) travel expenses to visit other Indian reservations or sites of cultural or historical significance for the tribe, (iii) the cost of receiving instruction about a tribe’s culture, history, and traditions, and (iv) funerals, burials, and related activities.

If the safe harbors apply, the proposed revenue procedure provides that the IRS will not assert that members, their spouses, or their dependents receiving benefits must include the value of the benefits in gross income or that the benefits are subject to information reporting by the tribe on a Form 1099.

B. Limited Safe Harbor for Honoraria Provided to Religious or Spiritual Officials

In addition to the above safe harbors, the proposed revenue procedure also provides that the IRS will conclusively presume that the individual need requirement for general welfare treatment is met and that the benefits are not compensation for services when items of cultural significance (not lavish or extravagant) or nominal cash honoraria are provided to medicine men or women, shamans, or similar religious or spiritual officials to recognize their participation in cultural, religious, and social events.

C. General Principles Where Safe Harbors Do Not Apply

In situations in which the safe harbors do not apply, the Notice and proposed revenue procedure set forth the IRS’s general position on the applicability of the general welfare exclusion to tribal government benefit programs. There is nothing surprising or momentous in the statement of the IRS’s position in this regard. The proposed revenue procedure states that in order for tribal government benefits to qualify for the general welfare exclusion, the benefits must (1) be made pursuant to a governmental program of the tribe, (2) be for the promotion of the general welfare (that is, based on individual or family need or to help establish Indian-owned businesses on or near a reservation), and (3) not represent compensation for services. In addition, the proposed revenue procedure provides that benefits will qualify under the general welfare exclusion “only if they are not lavish or extravagant,” without defining or illustrating that limitation.

D. Comment Period and Effective Date

The Notice invites public comments regarding the proposed revenue procedure on or before June 3, 2013, after which the IRS anticipates issuing a final proposed revenue procedure. Although the guidance is in proposed form, the Notice provides that the proposed revenue procedure can be applied in any taxable year for which the statute of limitations on refunds and credits under Section 6511 of the Internal Revenue Code has not expired. Presumably, the IRS also will follow the guidance in audits and administrative appeals involving open tax years, until a final revenue procedure is issued.

E. Conference Call for Tribal Leaders and Representatives

NAFOA and the Inter-tribal Organization Tax Initiative (“IOTI”) will host a conference call on Wednesday, December 12, 2012, at 2pm Eastern Time for tribal leaders, professionals, and representatives to review the Notice. The call will be closed to the press. Our partner Mary Streitz, the head of Dorsey’s Indian tax practice, works closely with NAFOA on tax policy matters, including matters involving the general welfare doctrine, and is an active participant in IOTI. She plans to participate in the conference call. For tribal leaders and their representatives who wish to participate in the call, Mary would be happy to provide you with the call-in information.

F. Implications for Tribal Programs and Next Steps

Mary Streitz has worked directly with tribal governments for over 20 years developing tribal general welfare programs and providing related tax advice. Mary is available to advise tribal governments regarding the implications of the proposed revenue procedure for their existing tribal programs.

Many tribes may wish to review their tribal program documents to determine whether any of the programs can be brought within the safe harbors, which will provide more certainty that the provision of benefits will not have adverse tax consequences. Tribes also may wish to explore setting up new tribal programs that fall within the safe harbors. Such programs might be viewed as appropriate mechanisms to achieve desirable tribal policy goals, without putting tribal members at risk of adverse tax consequences. Also, for tribes that have issued any Forms 1099 for years that are still open under the statute of limitations (i.e., 2009, 2010, and 2011) reporting as taxable benefits falling within the safe harbors, Mary and her colleagues in our tax group can assist tribal members in filing refund claims with the IRS. Finally, Mary is available to assist in the preparation of public comments regarding the proposed revenue procedure. Mary can be reached in our Minneapolis office at (612) 340-7813.