Tax Burdens and Tribal Sovereignty: The Prohibition on Lavish and Extravagant Benefits under the Tribal General Welfare Exclusion

This article examines a portion of a relatively new federal tax statute, the
Tribal General Welfare Exclusion (TGWE), that allows qualified individuals an
exclusion from gross income for payments received from American Indian/Alaska
Native tribes for any “Indian general welfare benefit.” Indian general welfare
benefits are payments made to tribal members by the tribe pursuant to an Indian
tribal government program for the promotion of general welfare, such as for
health, education, or housing. The TGWE is intended, in part, to promote partici-
pation in American Indian tribal cultural and ceremonial practices. To that end,
Indian general welfare benefits include payments made for participation in “cul-
tural or ceremonial activities for the transmission of tribal culture.” The statute
expressly states that excludable welfare benefits cannot be “lavish and extrava-
gant,” but it does not define what lavish and extravagant means.

This article makes the following contributions: It is the first piece of legal
scholarship to examine the new TGWE, and it provides in depth description and
explanation of the provision. The article also brings attention to federal tax en-
forcement on certain transfers between tribes and tribal members, particularly
those transfers that occur in the scope of tribes engaging in cultural, ceremonial,
or religious practices. This article also analyzes a particular limitation in the
language of the TGWE, that transfers from tribes to tribal members may not be
“lavish and extravagant,” and makes policy recommendations as to the interpre-
tation of that language as the IRS and consulted tribes move forward with inter-
pretative guidance. Finally, on a broader level, this article seeks to contribute to
the greater conversations about tribal self-determination and self-governance
and the role federal tax law plays as an instrument of those federal Indian poli-
cies.