The General Welfare Exclusion & Indian Tribal Government Programs

Transcription

1 The General Welfare Exclusion & Indian Tribal Government Programs A Discussion Regarding the IRS New Guidance, Revenue Procedure Yoder & Langford, P.C. Law Offices

2 Background, Consultation Process, and Notice Indian Country audits Consultations held between tribal leaders and the IRS and Treasury Notice issued Final Guidance, June 3, 2014, the IRS & Treasury released Final Guidance (Revenue Procedure ) on its General Welfare Exclusion policy in Indian Country.

3 Final Guidance: Specific Types of Benefit Housing: Introduction Applies to principal residences and ancillary structures that are not used in a trade or business or for investment purposes. Basic Safe Harbors: Assist with mortgage payments Enhance habitability of housing (such as remedying water supply) Provide basic housing repairs or rehabilitation Assist in paying charges for utilities (such as water or internet)

4 Final Guidance: Specific Types of Benefit Education: Basic Safe Harbors Providing students with necessary transportation to and from school, tutors, and supplies. Providing tuition payments and living expenses (on or off campus) for students to attend educational programs/school Providing child care Providing training and other assistance to individuals seeking employment

5 Final Guidance: Specific Types of Benefit Programs For The Elderly & Disabled: Basic Safe Harbors Applies to programs (for individuals aged 55 or older or who are disabled) that provide: Meals; Home care or day care outside the home; Local transportation expenses; or Improvements to adapt housing to special needs

6 Final Guidance: Specific Types of Benefits Other Qualifying Assistance Programs: Basic Safe Harbors Pay transportation costs between the reservation, service area, or service unit area to facilities providing essential services to the public (such as medical facilities and grocery stores) Pay associated expenses while the individual is receiving medical care away from home Provide assistance to individuals in exigent circumstances (including but not limited to victims of abuse) Pay temporary relocation and shelter expenses for individuals involuntarily displaced from their homes Provide transportation costs, lodging, and meals in transportation emergencies (for example, when an individual is stranded away from home) Pay the cost of nonprescription drugs (including but not limited to traditional Indian tribal medicines)

7 Final Guidance: Specific Types of Benefits Cultural & Religious Programs: Basic Safe Harbors Pay expenses (including but not limited to admission fees, transportation, food, and lodging) to attend or participate in an Indian tribe s cultural, social, religious or community activities Pay expenses (including but not limited to admission fees, transportation, food, and lodging) to sites that are culturally and historically significant for the tribe, including other Indian reservations Pay costs of receiving instruction about an Indian tribe s culture, history, and traditions (such as traditional language, music and dances)

8 Final Guidance: Specific Types of Benefits Cultural & Religious Programs: Basic Safe Harbors Pay expenses for funerals, burials, and hosting or attending wakes, funerals, burials, other bereavement events, and subsequent honoring events; and Pay transportation costs and admission fees to attend educational, social, or cultural programs offered or supported by the tribe or another tribe

9 Enactment of Tribal General Welfare Exclusion Act of 2014 Code Section 139E Indian general welfare benefits, include payments or services to or on behalf of a member (spouse / dependent) pursuant to a program that meets the following statutory criteria: Guidelines cannot discriminate Availability to any member per guidelines Must promote the general welfare; May not be lavish or extravagant; and Benefits cannot be compensation for services

10 Tribal General Welfare Exclusion Act of 2014 Code Section 139E (cont) Guidance for interpreting IRC 139E: Ambiguity to be construed in favor of tribes Calls for new Tribal Advisory Committee Committee to consider lavish or extravagant Temporary suspension of GWE examinations Not restricted to safe harbor expenses Can be established by tribal custom or government practice IRC Notice (may continue to use safe harbors)

11 Tribal General Welfare Exclusion Act of 2014 Legislative History To be construed no less favorable than the safe harbor approach in no event will IRS require an individualized determination of financial need where a tribal Program meets all other requirements... The Congressional intent is to expand rather than restrict the safe harbor provisions in Rev. Proc The purpose of this legislation is to further empower Tribal self determination. these programs are fundamental to the sovereignty and cultural integrity of tribes. Tribes, and not the IRS, are in the best position to determine the needs of their members...

12 Program Design Options and Considerations Key Points to Consider Desire for equal benefits IGRA requirement that per capita payments be taxed Constructive Receipt Coordination with RAP Substantiation Lack of IRS guidance

13 Program Design Options and Considerations Possible* program designs Traditional programs to serve only members with specific needs education assistance, housing repairs... Flexible programs that offer assistance from among pre approved purposes safe harbor program Reallocating RAP percentages Disclaimer elections and tribal designations * NOTE: IRS has not issued guidance approving specific program designs following the enactment of IRC 139E.

14 Program Design Options and Considerations Program case studies ( traditional program) Tribe historically allocates $3,000 per year in taxable per cap. Tribe amends RAP to reduce taxable per cap to $2,000 per year, but establishes new GWE program for up to $1,000 per member in nontaxable safe harbor benefits. Members can receive up to $1,000 in reimbursement for substantiated GW program expenses. Per cap + potential GWE benefits = $3,000 Members only receive full amount if they substantiate GW expenses

15 Program Design Options and Considerations Program case studies (member election / disclaimer model) Tribe historically pays $3000 per year in taxable per cap Tribe amends RAP to allow disclaimer of per capita Members who have disclaimed per cap may apply for reimbursement of qualified expenses (up to $3,000) under tribal GW programs that meet Code Section 139E Disclaimer elections must IRS requirements Members only receive full amount if they substantiate GW expenses

16 Program Design Options and Considerations Program case studies (tribal designation) Tribe historically pays $3000 per year in taxable per cap Tribe conducts a review of the membership and finds members, on average, have unmet safe harbor needs far in excess of $3,000 per year Tribe amends RAP to continue distributions of $3,000 per member, but designates $1,000 for taxable per cap and $2,000 to meet GW needs. If the member does not substantiate GW use, the GW distribution is reported as taxable Consider travel advance and accountable plan rules as model... Consider withholding prior to substantiation...

17 Program Design Options and Considerations Items for future guidance There is no guidance from IRS yet on the use of disclaimers in coordination with benefit eligibility under Code Section 139E There is no guidance from IRS yet on whether a tribe may designate and distribute certain amounts as GW and treat them as taxable if not substantiated. Constructive receipt and related IRS concepts must be considered before designing a program that provides flexibility or choice at the individual member level The examples / models set forth in this presentation are for consideration only. There is no guidance from IRS approving these program designs. Tribes should consult tax counsel before designing any GW program.

18 Specific Benefits for this Tribe: 6. Medical Assistance 7. Disability, Life and other Insurance

19 Advantages of a GWE Program Benefits provided to all Tribal Members Benefits provided cannot favor certain individuals Program guidelines can differentiate groups within the Tribe: Elders vs. Non-Elders In-Service Area Members vs. Out-of-Service Area Members Age-tiered Groups Benefits provided are based on the needs of the Tribal Membership Benefits provided cannot be lavish or extravagant To determine the needs of its Membership, a Tribe may utilize: Member surveys Cost of living reports for the Tribe s dominant geographic area(s) including reservation, trust lands, and/or in-service area National reports 19

20 Advantages of a GWE Program Provides structure to benefits offered for the basic living needs of Members Improves quality of life for Members Discretionary funds generated from tax-savings can now be used to further a Member and their family s education, housing, healthcare and other eligible expenses Discretionary funds generated also allows Members to increase personal savings and investments Benefits provided by the Tribe reduce the stress of Members struggling with essential living expenses 20

21 Advantages of a GWE Program Ensures Accountability of Funds Used Reduces Additional Member Assistance A structured program with defined benefits for all Members can ease the burden of Leadership s approval of benefits on an individual or as needed Member basis Improves Tribal Accounting and Budgeting Defined benefits under a structured program allows accounting departments to be more efficient in managing benefits and other Tribally-sponsored programs Defined annual benefits and distribution procedures improve budgeting versus circumstantial payments issued to individual Members 21

22 Advantages of a GWE Program Creates a Defined Tribal Program for the Use of General Welfare Benefits GWE Safe Harbor guidelines do not provide clear guidance on program substantiation requirements or procedures Decisions regarding substantiation currently resides at the Tribal level To ensure Tribal benefits are used for the purposes of the program and for program accountability, Tribes may consider the following: Require Members to provide receipts for all expenses Set predefined substantiation limits Reimburse Members for eligible expenses Implement an automated system to track and manage the use of funds for eligible expenses 22

23 Tribal Member Benefits Program (TMBP ) Debit Card Three Ways to Access GWE Funds: 1. FSA TMBP Debit Card 2. Automated Payment Schedule For Tribal Members electing to add a recurring or one-time payment schedule to their TMBP account, a physical check payment will be made directly to their provider(s) on their behalf. 3. Reimbursement for Eligible Expenses Members may submit claims for reimbursement for eligible expenses incurred. Reimbursements will be issued weekly via a check or direct deposit. 23

24 Tribal Member Benefits Program (TMBP ) Debit Card Qualified Merchant Codes: Utility Providers Health Care Education (K-College & Trade) Child Care Services Limited Public Transportation Debit card may only be used with companies having approved Merchant Codes. 24

25 TMBP Member Portal MYTMBP.com 25

26 TMBP Member Portal MYTMBP.com Tribal Logo Please join us for a Tribal Member Benefits Education Workshop. Don t forget to complete your enrollment by November 30 th! Select View My Benefits to begin your enrollment process. 26

27 Optional Design: Elder Benefit Program The program is designed to provide additional benefit assistance for the Tribe s Elder Members. Additional assistance is provided to overcome long-term barriers that were created prior to the opportunities available through the Tribe. In addition to the benefits provided under the General Welfare Assistance Program, tribes may wish to provide supplemental benefits to their Elder Members. Eligibility and guidelines must be defined Supplemental benefits cannot be lavish or extravagant 27

28 How does the TMBP Elder Program Work? Defined Benefit Model The Tribe establishes a defined benefit for eligible members to receive under the TMBP. Tribal Members continue to receive per-capita payments. Funding Example: Tribe provides an annual defined benefit of $10,000 for Members to utilize under the TMBP. Elder Tribal Members will receive an additional $1,000 as an elder supplemental income stipend. 28

29 How does the TMBP Elder Program Work? Elder Tribal Members receive $10,000 in GWE benefits plus an additional $1,000 in elder supplemental income. $11,000 $600/mo ($7,200/yr) Monthly Payment Schedule for Rent Accessible Benefits on Card AND/OR $2,800 Available for Reimbursement $2,800 $1,000 Stipend for Elder Supplemental Income Funds allocated to a payment schedule are automatically deducted from the available benefits on the debit card. Funds used for reimbursement will be deducted from the card balance at the time of claim request. 29

30 Questions/Comments?