Alert
Final Rules Governing Treatment of General Welfare Benefit Programs Explained
Tribes now have clarity around the treatment of general welfare benefit programs.
The Department of Treasury released final rules providing key definitions and criteria for programs operated by Tribes under the Tribal General Welfare Exclusion Act of 2014.
The rules, released December 15, 2025, clarify criteria that need to be met so program benefits and payments provided to Tribal citizens or other eligible recipients are structured to be treated as tax exempt payments and excluded from gross income of the recipients under Internal Revenue Code (IRC) Section 139E.
The final rules clarify a few open questions that Tribes had from the preliminary rules that were issued in Proposed Regulations on September 17, 2024, particularly around how these rules work with a Tribe’s gaming revenue allocation plan and treatment of payments to minors established as part of a trust.
Impact on Tribes
This new guidance is a big win for Tribes and allows much needed flexibility in how Tribes might structure general welfare programs for its citizens.
This creates an opportunity for Tribes to redesign existing programs to ensure benefits provided to Tribal members are structured to reduce taxes for Tribal citizens.
Actions to Take to Structure General Welfare Programs
- Revisit Tribal strategies and priorities
- Survey Tribal members to update needs assessments
- Amend minor trust agreements where necessary
- Revise codes, policies or gaming revenue allocation plans
- Evaluate existing programs for new compliance requirements
Effective Dates
The new rules are effective for tax years of Tribal program participants beginning on or after January 1, 2027.
They follow the calendar tax year of the recipient and may not align with the Tribe’s fiscal year end.
This provides Tribes an opportunity over the next year to plan, develop, or revise existing programs in accordance with the new rules.
Overview of Final Guidance
General Welfare Exclusion (GWE) program requirements should be structured to meet the program criteria, meaning it must be formally established by the Indian Tribal Government, either by custom, government practice, or formal written action.
An Indian Tribal Government for these purposes also includes any agencies or instrumentalities of the Tribe. Although the guidance doesn’t require a formal written code or policy to be deemed allowable, it does provide additional deference to written policies for determining whether benefits are considered lavish or extravagant. As such, documenting such policies and program requirements is recommended.
In addition to creating a clear record for compliance purposes, it also provides transparency to Tribal citizens on the nature of programs established and any related eligibility requirements.
The establishment of a GWE program must at a minimum include:
- A description of the program to provide the Tribal general welfare benefits
- Eligibility requirements for the program
- A description of the type of benefits
- The process for receiving the benefits
Promotion of General Welfare
An Indian Tribal Government has sole discretion to determine whether a benefit is for the promotion of general welfare, and the IRS will defer to the Indian Tribal Government’s determination that a benefit is for the promotion of general welfare.
Benefits may be provided without regard to the financial or other need of Tribal program participants and may be provided on a uniform or pro-rata basis to Tribal program participants.
The guidance specifically lists or includes examples of the following general welfare programs, but clarifies this is not an exhaustive list:
- Cultural and religious
- Housing assistance
- Education
- Job training
- Disasters or emergency relief
- Funeral or burial assistance
- Legal aid
- Transportation
- Wellness, medical, and health-related
- Any programs that provide benefits to specific categories of individuals, such as elderly, disabled, or minors
- Programs to support, develop, operate, expand, or start a trade or business paid to an individual—but cannot be paid to a corporation or partnership
Administration
The rules must be administered under established guidelines including meeting established eligibility, benefits, and application processes and made available to any qualifying Tribal program participant.
Funding
There is no limitation on the source of funds and may be provided from any Tribal revenues including general fund, taxes, gaming, government grants, and trusts.
Payments Made Under Gaming Revenue Allocation Plans (GRAP)
Per capita payments funded by gaming revenues in accordance with a GRAP are taxable and excluded from general welfare benefits.
The guidance clarifies that if a Tribe has a GRAP that allocates a portion of gaming revenues to per capita payments, they still need to comply with their GRAP, and those payments would continue to be taxable, even if the Tribe had justification to consider them a general welfare benefit.
This will likely mean many Tribes will need to begin the process of revising or terminating their GRAP if they plan to eliminate or reduce per capita payments in favor of developing or expanding general welfare benefits paid from gaming revenues.
Payments Made from a Trust
The guidance also clarifies payments from a trust can be considered a general welfare benefit and that such determination should be made when the benefit is paid to the recipient, not when the funds are deposited in the trust.
This includes payments from an IGRA minors trust established under a GRAP that were previously funded with per capita payments; however, similar to the guidance above, such payments can only be treated as general welfare if the Tribe’s GRAP has been modified.
Tribal Program Participant
Program participants may include Tribal members, their spouses, dependents, and others determined eligible by the Tribal government such as Tribal descendants or an individual for whom a Tribal member is a caregiver.
However, program participants cannot include corporations or businesses, and, except for exemptions for certain ceremonial or cultural activities, do not include citizens of another Tribe.
Deference to Tribes
The regulations require that ambiguities in the statute and regulations be resolved in favor of Indian Tribal Governments.
This statutory mandate underpins the IRS’s deference to Tribal determinations regarding program administration, eligibility, and benefit classification.
Limitations and Restrictions to Consider in Development of Programs
Can’t Be Lavish or Extravagant
Whether a program is lavish or extravagant is determined by facts and circumstances at the time the benefit is provided.
Relevant facts and circumstances include Tribal culture, history, geographic area, traditions, resources, and economic conditions.
The rules require the IRS to defer to the Tribe’s attestations of the facts and circumstances but also allow the IRS to consider other factors in determining compliance with this requirement.
Additionally, the guidance indicates a benefit will be presumed not to be lavish or extravagant if it’s described in and provided in accordance with the written specified guidelines that exist at the time.
Since this is still an area of some judgment, and open to IRS determination, best practice would include documentation of the Tribe’s consideration on why a benefit is not lavish or extravagant.
Cannot be Compensation for Services
Payments can’t be compensation for services, except for cultural or ceremonial activities.
Such compensation for services would still be reportable as W-2 wages or 1099-NEC for non-employee compensation exceeding $2,000.
Non-Discrimination
Programs can’t discriminate in favor of members of the Tribal governing body, except in general council Tribes where all adults are governing members.
Exemptions and Other Clarifications
Tribal Loan Programs
The regulations also revise other IRS guidance—IRC Section 7872—dealing with the tax treatment of below-market interest loans, that exempt Tribal loans under a general welfare program from those requirements.
Allowing Tribes a clearer path to offer loans programs to Tribal members as part of their general welfare programs.
Cultural or Ceremonial Activities
The regulations provide a specific exemption on considering whether a payment is compensation for services when the service is related to participation in a cultural or ceremonial activity and the benefit paid or provided consists of an item of cultural significance, the reimbursements of costs, or a cash honorarium.
Such benefits or payments may be made to Tribal program participants as described above and citizens of other federally recognized Tribes.
While payments made directly to corporations or businesses don’t qualify for this exemption, payments such as honoraria or culturally significant items may be made to individual owners, employees, or participants of those businesses when they are involved in cultural or ceremonial activities.
The IRS defers sole determination of whether an activity is a cultural or ceremonial activity and the determination of whether an item is an item of cultural significance. Such benefit can also be a prize or award given to a program participant but indicates that cash, gift cards, and vehicles are generally not items of cultural significance.
Although Tribes will each determine what’s considered a cultural or ceremonial activity, the guidance provides the following non-exhaustive list of examples:
- Powwows
- Rite of passage ceremonies
- Funerals
- Wakes
- Burials
- Other bereavement events
- Honoring events
- Tribal community service events, such as a neighborhood clean-up or youth woodcutting program to benefit elders
- Participation in training in traditional construction techniques
- Tribal language education
Consider how you’ll track activities considered to be cultural or ceremonial activities under this guidance and any related costs or benefits provided.
Audits
Audits by the IRS of such general welfare benefit programs continue to be paused pending development and completion of training programs.
Specifically, the regulations implement the statutory audit suspension which prohibits IRS audits and examinations of these programs and participants until the Treasury and IRS establish and complete required education and training programs which are expected to be developed with input from Tribes and the Tribal Technical Advisory Committee (TTAC).
They also indicated the IRS doesn’t intend to open audits or examinations for taxable years ending before December 16, 2025.
This is also good news as it means Tribes should generally not be subject to audit or examination of periods prior to this issuance of this guidance where formal regulations had not yet been provided. For audits that may occur between the date of the federal register notice and the effective date of January 1, 2027, the IRS will consider compliance with the requirements by considering the good faith efforts of the Tribe to comply.
Additionally, prior Safe Harbor guidance under Revenue Procedure 2014-35 will be obsolete and superseded effective January 1, 2027, to avoid any possible confusion with the final regulations under IRC Section 139E.
Alaskan Native Corporations (ANC)
Another significant clarification in these regulations allows Alaska Native regional or village corporations under the Alaska Native Claims Settlement Act (ANCSA) to opt to apply these rules in relation to benefits and payments provided to shareholders. If an ANC elects to follow the guidance, they must implement and apply all the rules.
The IRS intends to publish specific guidance for ANCs at a later date.
What’s Next
Maintain documentation of program parameters and eligibility and add justification for any programs where you think it would help to substantiate that programs are not lavish or extravagant.
Tribes are encouraged to carefully apply these new rules to increase benefits for their communities while maintaining compliance.
We’re Here to Help
To learn more about the general welfare benefit programs and how they could impact your Tribe, contact your firm professional.