To qualify under the general welfare exclusion, which exempts certain government benefit payments from being taxed, the payments must (1) be made pursuant to a governmental program, (2) be for the promotion of the general welfare (that is, based on need), and (3) not represent compensation for services. Over the years, the IRS and Native American tribal governments have disagreed as to which programs provided by tribal governments qualify for the general welfare exception.

Rev Proc 2014-35 provides safe harbors under which the IRS will conclusively presume that the individual need requirement of the general welfare exclusion is met for benefits provided under certain Indian tribal governmental programs, making these benefits nontaxable to the recipient tribal members and “qualified nonmembers” (a spouse, former spouse, legally recognized domestic partner or former domestic partner, ancestor, descendant, or dependent of a member of an Indian tribe).

To be eligible the benefits cannot be lavish or extravagant. Rev Proc 2014-35 contains an extensive list of the types of benefits provided by tribes for housing, education, elder and disabled, cultural and religious, and other programs that qualify as safe harbor programs.

IRC Sec 139E – Subsequent to publication of Rev Proc 2014-35, the Tribal General Welfare Exclusion Act of 2014 was enacted on September 26, 2014. This Act created IRC Sec 139E, which codifies the general welfare exclusion for certain benefits provided under Indian tribal government programs. IRS has advised taxpayers in Notice 2015-34 that they may continue to rely on the safe harbors provided in Rev. Proc. 201435, which is broader than new Sec 139E.

The Act provides that certain Indian general welfare benefits that were reported as taxable are eligible for refund or credit. Use Form 1040X to apply for a refund (a one-year waiver of the statute of limitations provided in the Act has expired so only open years may be amended to claim a refund), and send it to:

Internal Revenue Service

1973 North Rulon White Blvd

M/S 1110 Attn: GECS

Ogden, UT 84404-7843

Write “Tribal General Welfare Exclusion Act” at the top of the form to ensure the claim is properly processed.

COVID RELIEF PAYMENTS – Various provisions of the CARES Act, the Consolidated Appropriations Act, 2021 and the American Rescue Plan Act created programs that allow Tribes to provide emergency relief payments to tribal members and their families for necessary expenses that resulted from the COVID-19 pandemic. Generally, these payments that were distributed by a Tribe for personal, living, family, or funeral expenses that the tribal members incurred as a result of the COVID-19 pandemic are nontaxable to the tribal members. For the federal tax treatment of specific types of relief payments, see the draft FAQs on the IRS web site (enter in the search box: Covid relief tribal members final FAQs). The FAQs posted at the time this text was updated were updated March 25, 2022.