n-12-75.pdf

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Application of the General Welfare Exclusion to Indian Tribal Government
Programs That Provide Benefits to Tribal Members

Notice 2012-75

PURPOSE

This notice proposes a revenue procedure that would describe general
principles for the general welfare exclusion and provide safe harbors under which
the Internal Revenue Service would presume that the individual need
requirement of the general welfare exclusion is met for benefits provided under
Indian tribal governmental programs described in sections 5.02 and 5.03 of the
proposed revenue procedure, and would not assert that benefits provided under
programs described in section 5.03 represent compensation for services. The
proposed revenue procedure provides certainty that the value of the benefits
described will be excluded from gross income under the general welfare
exclusion, but does not limit the applicability to Indian tribes of existing guidance
holding that certain benefits are excluded from gross income under the general
welfare exclusion.
Under the general welfare exclusion, the Service has consistently concluded
that certain payments made to or on behalf of individuals by governmental units
under legislatively provided social benefit programs for the promotion of the
general welfare are not included in a recipient’s gross income. Pursuant to
Executive Order 13175, representatives of the Service and the Treasury
Department consulted with tribal leaders and members of Indian tribes

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concerning the application of the general welfare exclusion to programs of Indian
tribal governments. In Notice 2011-94, 2011-49 I.R.B. 834, the Service invited
comments concerning the application of the general welfare exclusion to Indian
tribal government programs that provide benefits to tribal members. The Service
received over 85 comments from Indian tribal governments and other individuals
and groups describing various Indian tribal government programs for tribal
members and how the general welfare exclusion should apply to those programs.
The proposed revenue procedure responds to the issues addressed in the
written comments and discussed as part of the consultation process, including
the requirement under the general welfare exclusion to establish individual need.
Under the proposed revenue procedure, the Service would conclusively presume
that the individual need requirement is met for each tribal member, spouse, or
dependent receiving a benefit under the housing programs, educational
programs, elder and disabled programs, other qualifying assistance programs,
and cultural and religious programs described in sections 5.02 and 5.03 of the
proposed revenue procedure. For tribal members receiving a benefit described
in section 5.03, the Service also would conclusively presume that the benefit
does not represent compensation for services.
Pursuant to Executive Order 13175, the Service and Treasury Department are
issuing this proposed revenue procedure to allow Indian tribes to review the
guidance and provide comments prior to the issuance of final guidance.
Accordingly, the Service and Treasury Department request comments on the
proposed revenue procedure. Comments may be submitted in writing on or

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before June 3, 2013. Comments should be submitted to Internal Revenue
Service, CC:PA:LPD:PR (Notice 2012-75), Room 5203, P.O. Box 7604, Ben
Franklin Station, Washington, DC 20044, or electronically to
Notice.Comments@irscounsel.treas.gov. Please include “Notice 2012-75” in the
subject line of any electronic communications. Alternatively, comments may be
hand delivered between the hours of 8:00 a.m. and 4:00 p.m. Monday to Friday
to CC:PA:LPD:PR (Notice 2012-75), Courier’s Desk, Internal Revenue Service,
1111 Constitution Ave., NW, Washington, DC. All comments will be available for
public inspection and copying.
Although the revenue procedure is in proposed form, until additional guidance
is published taxpayers may apply the proposed revenue procedure in taxable
years for which the period of limitation on refund or credit under § 6511 has not
expired.
PROPOSED REVENUE PROCEDURE
SECTION 1. PURPOSE

This revenue procedure describes general principles for the general welfare
exclusion and provides safe harbors under which the Internal Revenue Service
will presume that the individual need requirement of the general welfare
exclusion is met for benefits provided under Indian tribal governmental programs
described in sections 5.02 and 5.03 of this revenue procedure, and will not assert
that benefits provided under programs described in section 5.03 of this revenue
procedure represent compensation for services. Consequently, under this
revenue procedure, the Service will not assert that members of an Indian tribe or

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their spouses or dependents must include the value of their benefits described in
section 5.02 or 5.03 of this revenue procedure in gross income under § 61 of the
Internal Revenue Code or that the benefits are subject to the information
reporting requirements of § 6041.
SECTION 2. BACKGROUND
.01 Gross income. Under § 61(a), except as otherwise provided in subtitle A,
gross income means all income from whatever source derived. Under § 61,
Congress intends to tax all gains or undeniable accessions to wealth, clearly
realized, over which taxpayers have complete dominion. Commissioner v.
Glenshaw Glass Co., 348 U.S. 426 (1955), 1955-1 C.B. 207.
Section 1.61-1(a) of the Income Tax Regulations provides that gross income
includes income realized in any form, whether in money, property, or services.
Income may be realized, therefore, in the form of services, meals,
accommodations, or other property or in-kind benefits, as well as in cash.
Indians are citizens subject to the payment of income taxes. Squire v.
Capoeman, 351 U.S. 1, 6 (1956), 1956-1 C.B. 605, 607.
.02 General welfare exclusion. Payments made to or on behalf of individuals
or other persons under governmental programs are included within the broad
definition of gross income under § 61 unless an exclusion applies. See Notice
2003-18, 2003-1 C.B. 699; Rev. Rul. 79-356, 1979-2 C.B. 28. The Service has
consistently concluded, however, that certain payments made to or on behalf of
individuals by governmental units under legislatively provided social benefit
programs for the promotion of the general welfare are not included in a

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recipient’s gross income (general welfare exclusion). See, for example, Rev.
Rul. 98-19, 1998-1 C.B. 840 (relocation payment authorized by the Housing and
Community Development Act and made by a local jurisdiction to an individual
moving from a flood-damaged residence to another residence is not includible in
the individual’s gross income); Rev. Rul. 74-205, 1974-1 C.B. 20 (replacement
housing payments to aid individuals displaced from their homes in acquiring
decent, safe, and sanitary dwellings of modest standards are not includible in
gross income).
To qualify under the general welfare exclusion, 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. Rev. Rul. 2005-46, 2005-2 C.B. 120; Rev. Rul. 82-106, 1982-1 C.B.
16; Rev. Rul. 75-246, 1975-1 C.B. 24. Thus, the general welfare exclusion
applies if “the grant [is] received under a program requiring the individual
recipient to establish need. [Internal citations omitted.] Grants received under
social welfare programs that [do] not require recipients to establish individual
need” do not qualify under the general welfare exclusion. Bailey v.
Commissioner, 88 T.C. 1293, 1300 (1987), acq., 1989-2 C.B. 1.
Whether a payment qualifies under the general welfare exclusion is
determined under the federal income tax laws (including provisions not in the
Internal Revenue Code), not under the laws of state, local, sovereign tribal, or
foreign governments, or other federal laws. Thus, an incentive payment that a
United States citizen received from the City of Berlin, Germany under a program

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to encourage spending and consumption was not excludable from the recipient’s
gross income simply because it was a program of a sovereign government when
the program did not meet the requirements of the general welfare exclusion
under U.S. tax law. Foley v. Commissioner, 87 T.C. 605 (1986).
If the activity engaged in is basically the performance of services, the
payments are compensation for services rendered and are includible in the gross
income of the recipient under § 61. Thus, Rev. Rul. 74-413, 1974-2 C.B. 333,
concludes that payments to participants in a state program that provided short-
term employment in disaster relief activities for unemployed individuals, but not
any training or retraining to help the participants obtain better employment
opportunities, are compensation includible in gross income under § 61.
In the context of job training programs, however, the Service has held that
payments that primarily provide job-training skills to unemployed and
underemployed individuals to enhance their employability are not compensation
for services and, therefore, are excluded from the gross income of recipients
under the general welfare exclusion. For example, Rev. Rul. 68-38, 1968-1 C.B.
446, concludes that payments to participants in a program sponsored by an
Indian tribal council to train underemployed and unemployed residents of the
Indian reservation in construction skills to enhance employability are excluded
from the participants’ gross income under the general welfare exclusion because
the basic purpose of the program is training.
Payments under training programs that include reasonable and limited
allowances for meals, travel, transportation, subsistence, emergency, and other

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purposes also are excluded from gross income under the general welfare
exclusion. Rev. Rul. 75-246 (Situation 1). Allowances on the basis of need to
cover certain expenses incident to the training (such as payments for auto
insurance or to make the trainee’s presence possible, or expenditures for work
clothing, without which the trainee could not engage in the work training
experience) also are excluded from gross income under the general welfare
exclusion. Rev. Rul. 75-246 (Situation 3).
Benefits qualify under the general welfare exclusion only if they are not lavish
or extravagant. For example, replacement housing payments to help displaced
individuals and families acquire dwellings of modest standards qualify for
exclusion from gross income under the general welfare exclusion. Rev. Rul. 74-
205. Assistance to help disaster victims meet necessary expenses or serious
needs in the categories of medical or dental, housing, personal property,
transportation, and funeral expenses qualifies for exclusion from gross income
under the general welfare exclusion, but assistance for nonessential, luxurious,
or decorative items does not qualify. Rev. Rul. 76-144, 1976-1 C.B. 17.
Payments to compensate individuals for unreimbursed reasonable and
necessary personal, living, and family expenses they incur due to a disaster or
emergency situation also are excluded from gross income under the general
welfare exclusion. Notice 2002-76, 2002-2 C.B. 917 (Q&As 1 and 2).
In general, payments to businesses do not qualify under the general welfare
exclusion because the payments are not based on individual or family need. See
Rev. Rul. 2005-46; Notice 2003-18. Rev. Rul. 77-77, 1977-1 C.B. 11, however,

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provides that nonreimbursable grants made under the Indian Financing Act of
1974 to Indians to expand profit-making Indian-owned economic enterprises on
or near reservations are excludable from gross income under the general welfare
exclusion.
.03 Application of the general welfare exclusion to programs of Indian tribal
governments. Indian tribal governments have a unique legal status. They have
inherent sovereignty and a government-to-government relationship with the
United States. Indian tribes have developed a broad range of programs to
address their unique social, cultural, and economic issues. In developing these
programs, Indian tribes give significant consideration to the needs of the entire
community. The general welfare exclusion applies to payments by Indian tribal
governments no less favorably than it applies to payments by federal, state,
local, or foreign governments.
Payments by Indian tribal governments qualify for the general welfare
exclusion if the payments are (1) made pursuant to a governmental program of
the tribe; (2) for the promotion of general welfare (that is, based on individual or
family need, and, uniquely in the case of programs of Indian tribal governments,
to help establish Indian-owned businesses on or near a reservation); and (3) not
compensation for services. Rev. Rul. 2005-46; Notice 2003-18; Rev. Rul. 77-77;
Rev. Rul. 75-246; Rev. Rul. 82-106. Payments under Indian tribal governmental
programs meeting these requirements qualify for the general welfare exclusion
whether the revenues that the Indian tribal government uses to fund the
programs derive from levies, taxes, service fees, or revenues from tribally-owned

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businesses. For example, general welfare programs may be funded from casino
revenues. However, per capita payments to tribal members of tribal gaming
revenues that are subject to the Indian Gaming Regulatory Act are gross income
under § 61, are subject to the information reporting and withholding requirements
of §§ 6041 and 3402(r), and are not excludable from gross income under the
general welfare exclusion or this revenue procedure. See 25 U.S.C. §§ 2701-
2721 and 25 C.F.R. Part 290.
.04 Benefits excluded generally from § 61. This revenue procedure does not
address benefits under Indian tribal governmental programs that do not fall within
the definition of gross income under § 61. For example, an Indian tribal
government may provide benefits in the form of public libraries or recreational
facilities, which are available for the general public use of members of the tribe.
Like other taxpayers, members of Indian tribes and their dependents do not
include the value of these benefits in income regardless of whether the
requirements of the general welfare exclusion are met because these benefits
are not gross income under § 61. In addition, this revenue procedure does not
address payments under programs of Indian tribal governments that qualify for
an exclusion from gross income under a specific provision of the Internal
Revenue Code or other federal statute. For example, § 139D provides that gross
income does not include the value of any qualified Indian health care benefit. A
qualified Indian health care benefit includes amounts that an Indian tribe (as
defined in § 45A(c)(6)) provides for the medical care (as used in § 213) of a
member of the tribe or the member’s spouse or dependents. Thus, a payment

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that an Indian tribe makes to an Indian medicine man to use traditional practices
for the purpose of treating a tribal member’s disease may be excludable from the
tribal member’s gross income under § 139D. See Tso v. Commissioner, T.C.M.
1980-399.
SECTION 3. SCOPE
This revenue procedure applies to Indian tribal governments and members of
Indian tribes, their spouses, and dependents.
SECTION 4. DEFINITIONS
The following definitions apply for purposes of this revenue procedure.
.01 Indian tribal government. The term “Indian tribal government” has the
same meaning as in § 7701(a)(40) but for purposes of this revenue procedure
includes agencies or instrumentalities of the Indian tribal government.

.02 Indian tribe. The term “Indian tribe” has the same meaning as in
§ 45A(c)(6).
.03 Member of an Indian tribe. The term “member of an Indian tribe” has the
same meaning as in 25 C.F.R. § 290.2.
.04 Reservation. The term “reservation” has the same meaning as in § 168(j).
SECTION 5. APPLICATION
.01 Application of general welfare exclusion to Indian tribal government
programs. If section 5.01(1) or 5.01(2) of this revenue procedure applies, the
Service will not assert that members of an Indian tribe or their spouses or
dependents must include the value of the applicable benefits in gross income

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under § 61 or that the benefits are subject to the information reporting
requirements of § 6041.
(1) If an Indian tribal government provides a benefit (whether in cash or in
kind) meeting the criteria specified in section 5.02(1) of this revenue procedure
and described in section 5.02(2) of this revenue procedure, the Service will
conclusively presume that individual need is met for each tribal member, spouse,
or dependent of a tribal member receiving the benefit.
(2) If an Indian tribal government provides a benefit meeting the criteria
specified in section 5.03, the Service will conclusively presume that individual
need is met for each tribal member, spouse, or dependent receiving the benefit
and that the benefit does not represent compensation for services.
.02 Benefits provided by a tribe for which individual need is presumed.
Section 5.01(1) of this revenue procedure applies to benefits meeting the general
criteria of section 5.02(1) of this revenue procedure and described in section
5.02(2) of this revenue procedure.
(1) General criteria. To qualify for exclusion under this revenue procedure,
a benefit described in section 5.02(2) of this revenue procedure must meet the
following requirements--
(a) The benefit is provided pursuant to a specific Indian tribal
government program;
(b) The program has written guidelines that specify how individuals may
qualify for the benefit;

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(c) The benefit is available to any tribal member who satisfies the
program guidelines;
(d) The distribution of benefits from the program does not discriminate
in favor of members of the governing body of the tribe;
(e) The benefit is not compensation for services; and
(f) The benefit is not lavish or extravagant.
(2) Specific benefits. Benefits provided under the following programs are
benefits described in this section 5.02(2).
(a) Housing programs. Programs relating to principal residences that--
(i) Assist in making mortgage or rent payments for residences on or
near a reservation;
(ii) Enhance habitability of housing, such as by remedying water,
sewage, sanitation service, or heating or cooling issues;
(iii) Provide basic housing repairs or rehabilitation; and
(iv) Assist in paying utility bills and charges (such as water,
electricity, and gas).
(b) Educational programs. Programs to--
(i) Provide students (including post-secondary students)
transportation to and from school, tutors, and supplies (including clothing,
backpacks, laptop computers, musical instruments, and sports equipment) for
use in their studies;
(ii) Provide tuition payments for students (including allowances for
room and board for the student, spouse, and dependents) to attend an

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accredited college or university, educational seminars, vocational education,
technical education, adult education, continuing education, and alternative
education; and
(iii) Provide job counseling and programs for which the primary
objective is job placement or training, including allowances for--
(A) Expenses for interviewing or training away from home (such
as travel, auto expenses, lodging, and food);
(B) Tutoring; and
(C) Necessary clothing for a job interview or training (for example,
an interview suit or a uniform required during a period of training).
(c) Elder and disabled programs. Programs for individuals who have
attained age 55 or are disabled that provide--
(i) Meals through home-delivered meals programs or at a community
center;
(ii) Home care such as assistance with preparing meals or doing
chores, or day care outside the home;
(iii) Local transportation assistance;
(iv) Travel expenses for doctor appointments or other medical care;
(v) Transportation costs and admission fees to attend educational,
social, or cultural programs offered by the tribe or another tribe; and
(vi) Improvements to adapt housing to special needs (such as grab
bars and ramps).
(d) Other qualifying assistance programs. Programs to--

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(i) Pay bus, taxi, or public transportation fares from the Indian
reservation to public facilities (such as medical facilities and grocery stores);
(ii) 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;
(iii) Provide assistance to individuals in exigent circumstances (such
as victims of abuse), including the costs of food, clothing, shelter, transportation,
auto repair bills, and similar expenses;
(iv) Pay costs for temporary relocation and shelter for individuals
displaced from their homes (for example, when a home is destroyed by a fire or
natural disaster);
(v) Provide emergency assistance in the form of bus fare, a hotel
room, or meals for an individual who is stranded off the Indian reservation; and
(vi) Provide or reimburse the cost of nonprescription drugs.
(e) Cultural and religious programs. Programs to--
(i) 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;
(ii) Pay or reimburse travel expenses (transportation, food, and
lodging) to visit other Indian reservations or sites that are culturally and
historically significant for the tribe;

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(iii) Pay or reimburse the costs of receiving instruction about an
Indian tribe’s culture, history, and traditions (for example, traditional language,
music, and dances); and
(iv) Pay or reimburse funeral and burial expenses and expenses of
hosting or attending wakes, funerals, burials, or similar bereavement events.
.03 Benefits provided by a tribe that are presumed not to be compensation for
services. Except as provided in this section 5.03, section 5.01 of this revenue
procedure does not apply to benefits that are compensation for services.
However, section 5.01(2) of this revenue procedure applies to benefits provided
under an Indian tribal governmental program that are items of cultural
significance (not lavish or extravagant) or 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, rite of passage ceremonies, or funerals, wakes, burials, or other
bereavement events). The Service will conclusively presume that individual need
is met for the tribal officials receiving these benefits and that the benefits do not
represent compensation for services.
DRAFTING INFORMATION
The principal author of this notice is Sheldon Iskow of the Office of Associate
Chief Counsel (Income Tax and Accounting). For further information regarding
this revenue procedure, please contact Mr. Iskow at (202) 622-4920 (not a toll-
free call).