TO: Indian Gaming Association Member Tribes

FROM: David Z. Bean, Chairman
Jason Giles, Executive Director
Danielle Her Many Horses, Deputy Director/General Counsel

RE: IRS Issues Final Rules on Tribal General Welfare Benefits and Tax Treatment of Entities Wholly Owned by Indian Tribal Governments

Date: December 17, 2025

I. Introduction 

On December 15, 2025, the Internal Revenue Service (“IRS”) and U.S. Department of the Treasury finalized two final rules that would provide tribal nations with clarity regarding tribal tax treatment as it relates to tribal welfare benefits for tribal citizens and business entities that are wholly owned by tribal governments. In short, the final rules establish that tribal governmental welfare programs are exempt from federal income tax, and wholly owned business entities are not subject to federal taxation. These final rules are now published in the Federal Register, roughly a year after they were proposed in September and October 2024. Both final rules offer greater deference to tribal governments in establishing tax exempt welfare programs and wholly owned business entities. The IRS is hopeful that the final rules will provide greater clarity for tribal governments and their wholly owned business entities as to how they are expected to approach federal taxes. In turn, tribal governmental and business entities are hopeful that this will positively impact tribal economies and business growth. 

II. Tribal General Welfare Benefits

The first final rule serves to provide guidance in implementing Section 139E of the Internal Revenue Code, as amended by the Tribal General Welfare Act of 2014. This final rule amending the Income Tax Regulations at 26 C.F.R. Part 1 confirms that welfare program benefits for tribal members, which are provided by tribal governments, are exempt from federal income tax. Specifically, the final § 1.139E-1(a) states, “the gross income of a Tribal Program Participant for the taxable year does not include the value of any Tribal General Welfare Benefit provided by an Indian Tribal Government Program during the year to or on behalf of the Tribal Program Participant.” This provision explicitly recognizes tribal sovereign authority to govern and support tribal communities in a manner that also promotes tribal economic growth.

In addition to this clarification, the final rule defers to the tribal governments to determine what may constitute an “Indian Tribal Government Program”. These programs must only meet three criteria – the program must be (1) established by an Indian Tribal Government, or designated entity within the tribal government, if permitted under tribal law; (2) administered under specified guidelines, which must provide a description of the program including eligibility requirements and the types of benefits offered, but need not be written; and (3) may not discriminate in favor of governing members of the tribe. By establishing broad definitions to aid in determining what may constitute a government program, this final rule grants tribal governments greater deference in governing and supporting their citizens. 

Also notable in this final rule is the explicit recognition that “[b]enefits under the Indian Tribal Government Program may be funded by net gaming revenues as permitted under the Indian Gaming Regulatory Act, 25 U.S.C. 2701-2721 (IGRA).” This is significant because net gaming revenue often serves as a major source of revenue for tribal governments. The permission to use any revenue source for welfare programs not only aids in recognizing tribal sovereignty but also will increase the amount of revenue eligible to qualify for use in the tribe’s welfare program. The final rule also clarifies that per capita payments are still subject to federal taxation. According to the final rule, payments are defined as per capita payments if they are identified as per capita payments in the tribe’s revenue allocation plan (“RAP”). This again demonstrates the IRS’ willingness to defer to tribal discretion in matters of financial planning.

III. Tax Treatment of Wholly Owned Business Entities

In addition to the updates to the regulations governing general welfare programs for tribal citizens, the IRS and Treasury Department also published a shorter final rule clarifying that business entities that are wholly owned by tribal governments are “not recognized as separate entities for Federal tax purposes and, therefore, are not subject to Federal income tax.” This clarification will ideally create smoother operations for such tribal business entities by removing uncertainties surrounding their tax status and financing. It will also hopefully allow these business entities to concentrate greater resources on generating revenue for government programs, such as the programs discussed above. 

Although the final rule is helpful in its clarification of the tax treatment for wholly owned business entities, the IRS did not address the federal tax treatment of state-chartered tribally owned entities as requested by some members of the public. Nor did the IRS provide further guidance on the treatment for partially owned and majority owned entities. During the rulemaking process, many commentors requested such guidance, to which the IRS stated it would consider issuing guidance for businesses that are owned in part by entities other than tribes. Moving forward, many are hopeful that there will be movement on the treatment of these entities. However, based on the slow timing of these regulations, it is unlikely that the IRS will issue further guidance soon. 

IV. Conclusion

The final rule on the exclusion from tribal general welfare benefits is effective as of December 16, 2025. The notice, as published in the Federal Register may be read here: https://www.govinfo.gov/content/pkg/FR-2025-12-16/pdf/2025-22873.pdf. 

The final rule discussing the federal tax classification of entities wholly owned by Indian tribal governments shall become effective on January 15, 2026. The notice, as published in the Federal Register may be read here: https://www.govinfo.gov/content/pkg/FR-2025-12-16/pdf/2025-22874.pdf.

Please contact Danielle Her Many Horses at dhermanyhorses@indiangaming.org with any questions or concerns regarding this Alert.