The IRS has issued two sets of final regs addressing the federal tax treatment of entities wholly owned by Indian Tribal governments and the exclusion of certain Tribal general welfare benefits from gross income. (TD 10039; TD 10040, 12/15/2025)
Announced at the Treasury Tribal Advisory Committee (TTAC) December 15, the new rules clarify the classification of Tribal entities for income, employment, and excise tax purposes, and provide guidance on the administration and tax treatment of Tribal general welfare programs.
“The rules provide clear guidelines and reduce the cost of compliance to the benefit of individuals and federal tax administration,” said Treasury Secretary Scott Bessent in a press release. He added that the rules are part of Treasury’s ongoing deregulatory effort. “Deregulation is a win-win for all,” said Bessent.
According to TTAC Chair and Jamestown S’Klallam Tribe CEO W. Ron Allen, “Tribes had sought guidance on general welfare for a decade and asked to confirm the tax status of Tribal businesses for 30 years.”
Entities Wholly Owned by Indian Tribal Governments
Background
The federal tax status of entities wholly owned by Indian Tribal governments — such as corporations or LLCs organized under Tribal law — has historically been uncertain, particularly regarding whether such entities are recognized as separate from the Tribe for federal tax purposes.
While Tribes themselves are not subject to federal income tax, prior IRS guidance did not fully resolve the treatment of entities organized under Tribal law, leading to uncertainty for Tribes seeking to support economic development and self-governance.
New Rules
The final regs provide that entities wholly owned by one or more federally recognized Tribes and organized or incorporated exclusively under the laws of the owning Tribe(s) are generally not recognized as separate entities for federal income tax purposes. Their income is not subject to federal income tax, regardless of the source or location of the activity.
However, these entities, as well as certain federally chartered Tribal corporations, are treated as separate entities for federal employment tax and certain federal excise tax purposes. For purposes of making elective payment elections for energy credits under the Inflation Reduction Act, such entities are treated as instrumentalities of the owning Tribe(s), allowing the entity itself to make the election and receive payments.
The regs also provide flexibility for multi-Tribe ownership and clarify that entities must be organized under the laws of the owning Tribe(s), not under state or foreign law.
Applicability Dates
The rules apply to taxable periods beginning on or after January 1, 2026, with optional early adoption for open years.
Tribal General Welfare Benefits
Background
The Tribal General Welfare Exclusion Act of 2014 added IRC § 139E to the Internal Revenue Code, providing that gross income does not include the value of any “Indian general welfare benefit.”
This exclusion applies to payments or services provided to or on behalf of a Tribal member (or their spouse or dependent) under a Tribal government program, provided the program is administered under specified guidelines, does not discriminate in favor of the governing body, and the benefits are for the promotion of general welfare, not lavish or extravagant, and not compensation for services.
Prior to these regs, guidance was limited and often relied on safe harbors that did not fully reflect the breadth of Tribal programs or the deference intended by Congress.
New Rules
The final regs set out requirements for Tribal general welfare benefits to be excluded from gross income. A benefit is excludable if provided under a program established by a Tribal government, administered under specified guidelines, and not discriminatory in favor of the governing body. Benefits must be for the promotion of general welfare, not “lavish or extravagant,” and not compensation for services, with exceptions for certain cultural or ceremonial activities.
Tribes have discretion to determine what constitutes the promotion of general welfare and cultural significance, and the IRS will defer to Tribal determinations. The rules clarify eligibility for benefits, including definitions of Tribal members, dependents, and program participants, and address the use of grantor trusts and funding sources.
The regs also provide a facts-and-circumstances test for determining whether benefits are lavish or extravagant, with a presumption in favor of written program guidelines.
Applicability Dates
The general welfare benefit regs apply to taxable years beginning on or after January 1, 2027, with transition relief and optional early adoption. Revenue Procedure 2014-35 is obsolete for years beginning on or after that date.
For more on the tax status of Tribal corporations, including wholly owned tribal entities, see Checkpoint’s Federal Tax Coordinator 2d ¶ J-1525. For more on § 139 and the general welfare exclusion for Tribal governments, see Checkpoint’s Federal Tax Coordinator 2d ¶ J-1520.
Take your tax and accounting research to the next level with Checkpoint Edge and CoCounsel. Get instant access to AI-assisted research, expert-approved answers, and cutting-edge tools like Advisory Maps and State Charts. Try it today and transform the way you work! Subscribe now and discover a smarter way to find answers.
