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. Capoe- man, 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

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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 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 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.

the requirements of the general welfare exclusion under U.S. tax law. Foley v. Com- missioner, 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 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 wel

fare 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, 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 gov- ernments . 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

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(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 pro- grams. Programs to—

(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—