Due to the COVID-19 pandemic, tribes are looking to provide immediate relief to their members.
Although It is important to note that the General Welfare Act’s statutory construction clause states all ambiguities in 26 USC 139E shall be resolved in favor of the tribe, such benefit payments to tribal members should be properly supported and the general welfare program should be in compliance with the regulations.
Below are three frequently asked questions on non-taxable emergency relief payments to tribal members as described in Revenue Procedure 2014-35 Application of the General Welfare Exclusion to Indian Tribal Government Programs That Provide Benefits to Tribal Members.
Would emergency cash assistance payments distributed in equal amounts to all tribal members qualify as a general welfare exclusion?
A national emergency declaration for COVID-19 was signed by President Trump on March 13, 2020. A tribe’s governing body could also declare a similar emergency declaration under a tribe’s general welfare program and policies.
There are several areas within Revenue Procedure 2014-35 that describe emergency and disaster relief options where assistance payments to tribal members can be excluded from their gross income including:
- Assistance to help disaster victims meet necessary expenses or serious needs in the following categories: medical or dental, housing, personal property, transportation, and funeral expenses
- Payments to compensate individuals for unreimbursed reasonable and necessary personal, living, and family expenses they incur due to a disaster or emergency situation
- Assistance for transportation emergencies
Payments provided to safeguard against the threat of COVID-19 and provide economic relief could be excluded from the tribal member’s gross income as long as the following compliance rules are addressed:
- Payments provided in equal amounts can’t be per capita payment in disguise.
- An individual needs requirement must be met in order to meet the general welfare exclusion, and the individual needs requirement must be clearly defined in the tribe’s general welfare program, or the tribe provides benefits for which individual need is presumed.
It’s important to note that Revenue Procedure 2014-35 states business payments generally don’t qualify as general welfare because they aren’t based on individual or family need. However, payments provided under the Indian Financing Act of 1974 to tribal members to help establish native-owned economic enterprises on or near a reservation based on need could also qualify.
There is currently no restriction prohibiting equal payments to tribal members as long as the requirements are followed based on need. Additionally, need is presumed under the safe harbors and requirements of Revenue Procedure 2014-35— discussed below.
Does a tribe need to create a separate or new general welfare program for emergency assistance?
It’s likely general tribal welfare programs and policies didn’t take a pandemic into account.
Tribes should consider creating a separate, temporary general welfare program that describes the emergency and economic relief from COVID-19 to avoid delays in distributing assistance. This action could be more straightforward than combining relief payments under an existing program.
To qualify such assistance under the general welfare exclusion the following must occur:
- Payments must be made pursuant to a governmental program and are nondiscriminatory.
- All payments must be for the promotion of the general welfare and based on need.
- The payments can’t represent compensation for services and aren’t lavish or extravagant.
Additionally, benefits provided by a tribe for which individual need is presumed under the safe harbors contained in Revenue Procedure 2014-35 must abide by the following:
- The benefit is provided pursuant to a specific tribal government program.
- The program has written guidelines specifying how individuals may qualify for the benefit.
- The program can’t discriminate and must be provided to all tribal members, qualified nonmembers, or an identified group of tribal members or qualified nonmembers who satisfy the program guidelines.
- The benefit is not compensation for services.
- The benefit is not lavish or extravagant under the facts and circumstances.
What supporting documentation should a tribe maintain to ensure the assistance qualifies as a general welfare exclusion to gross income?
Revenue Procedure 2014-35 indicates to substantiate a payment qualifies for the general welfare exclusion, tribes and tribal members must maintain accurate books or records.
Given the emergency matters of the COVID-19 pandemic, it’s important for tribes to maintain documentation justifying:
- How payments to all tribal members for emergency relief was determined based needs and expenses tied to COVID-19, or how individuals qualify for the benefit if using needs requirement is presumed as discussed above
- How payments weren’t considered lavish and extravagant and they don’t represent compensation for services
It’s also important for tribes to communicate the need to members to keep any support—such as receipts, hospital or medication bills, or bank statements—related to expenses from COVID-19 in order to receive additional necessary benefits in the future.
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If you have any questions about non-taxable emergency relief payments for tribes, please contact your Moss Adams professional.
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