Internal Revenue Bulletin 2026-5 (PDF rendition): IRS Announcements

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Bulletin No. 2026–5
January 26, 2026
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
ADMINISTRATIVE
REG-112829-25, page 452.
These proposed regulations would amend regulations under
section 3406 to change the threshold for when certain third
party settlement organizations (TPSOs) are required to per-
form backup withholding. These proposed regulations would
clarify that in the case of certain payments made through
third parties, the amount subject to backup withholding
under section 3406 is determined by taking into account
the exception for de minimis payments by TPSOs in section
6050W(e). These proposed regulations would also clarify the
amount subject to backup withholding and clarify situations
when the threshold does not apply. The proposed regulations
reflect recent changes to the statutory law.
ADMINISTRATIVE, INCOME TAX
REG-113515-25, page 455.
This document contains proposed regulations regarding the
deduction for certain taxpayers for an amount up to $10,000
of qualified passenger vehicle loan interest. This document
also contains proposed regulations regarding new informa-
tion reporting requirements for certain persons who, in a
trade or business, receive from any individual interest aggre-
gating $600 or more for any calendar year on a specified
passenger vehicle loan, including applicable penalties for fail-
ures to file information returns or furnish payee statements
as required. The proposed regulations would affect taxpay-
ers that may deduct qualified passenger vehicle loan inter-
est, and also persons subject to these information reporting
requirements. This document also provides notice of a public
hearing on these proposed regulations.
ADMINISTRATIVE, EMPLOYMENT TAX,
EXCISE TAX, INCOME TAX
T.D. 10039, page 403.
These final regulations contain amendments to provisions
of 26 CFR part 1 (Income Tax Regulations) under section
6417 of the Internal Revenue Code (Code) and 26 CFR part
301 (Procedure and Administration Regulations) under
section 7701 of the Code that address the Federal tax
treatment of an entity wholly owned by one or more Indian
Tribal governments within the meaning of section 7701(a)
(40) that is organized or incorporated under the laws of
the Tribe or Tribes that own it (final regulations). Specif-
ically, the final regulations provide that such an entity is
not recognized as an entity separate from its owner for
Federal income tax purposes, but is recognized as sep-
arate for employment and excise tax purposes. Addition-
ally, the final regulations provide that such entities, as
well as corporations incorporated under section 17 of
the Indian Reorganization Act of 1934, as amended, 25
U.S.C. 5124, or under section 3 of the Oklahoma Indian
Welfare Act, as amended, 25 U.S.C. 5203, are treated
solely for purposes of section 6417 (“Elective payment of
applicable credits”) as instrumentalities of the Indian Tribal
government(s) that own them.
EXCISE TAX
Announcement 2026-2, page 447.
Announcement 2026-2 provides important information for
taxpayers who are liable for the tax on petroleum under
§ 4611 of the Internal Revenue Code.
Finding Lists begin on page ii.

REG-103430-24, page 447.
These proposed regulations would amend the Branded Pre-
scription Drug Fee Regulations regarding the annual fee
imposed on covered entities engaged in the business of
manufacturing or importing certain branded prescription
drugs by section 9008 of the Patient Protection and Afford-
able Care Act, as amended. These proposed regulations
reflect statutory changes made to Medicare Part D that,
in turn, affect the calculation of the branded prescription
drug fee.
INCOME TAX
T.D. 10040, page 416.
This document contains final regulations regarding the exclu-
sion from gross income of certain Tribal general welfare ben-
efits. The regulations address the requirements that apply to
determine whether the benefits an Indian Tribal government
program provides qualify as Tribal general welfare benefits.
These regulations affect Indian Tribal governments, agencies
or instrumentalities of such governments, Federally recognized
Tribes, members of such Tribes, such members’ spouses and
dependents, and other Tribal program participants.

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Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of inter-
nal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rul-
ings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
January 26, 2026 Bulletin No. 2026–5

Part I
26 CFR 1.6417-1: Elective payment election of
applicable credits; 26 CFR 301.7701-1: Classifica-
tion of organizations for federal tax purposes
T.D. 10039
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
Entities Wholly Owned by
Indian Tribal Governments
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final rule.
SUMMARY: This document contains
final regulations regarding the Federal tax
classification of entities wholly owned by
Indian Tribal governments (Tribes). The
final regulations provide that entities that
are wholly owned by Tribes and organized
or incorporated under the laws of one or
more of the Tribes that own them generally
are not recognized as separate entities for
Federal tax purposes. The final regulations
also provide that such entities, as well as
certain Tribal corporations chartered by
the Department of the Interior (DOI), are
recognized as separate entities for Federal
employment and certain Federal excise
tax purposes. In addition, the final regu-
lations provide that, for purposes of mak-
ing elective payment elections (including
determining eligibility for and the con-
sequences of such elections) for energy
credits under the Inflation Reduction Act
of 2022, each of these types of Tribal enti-
ties is treated as an instrumentality of one
or more Indian Tribal governments.
DATES: Effective date: These regulations
are effective on January 15, 2026.
Applicability dates: For dates of appli-
cability, see §§ 301.7701-1(f) and 1.6417-
1(q).
FOR FURTHER INFORMATION
CONTACT: Concerning the final regula-
tions, contact Iris Chung of the Office of
Associate Chief Counsel (Passthroughs,
Trusts, and Estates) at (202) 317-5279
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Authority
This document contains amendments
to provisions of 26 CFR part 1 (Income
Tax Regulations) under section 6417 of
the Internal Revenue Code (Code) and
26 CFR part 301 (Procedure and Admin-
istration Regulations) under section 7701
of the Code that address the Federal tax
treatment of certain Tribal entities wholly
owned by one or more Indian Tribal gov-
ernments
1
(final regulations).
Section 6417(h) provides an express
delegation of authority to the Secretary of
the Treasury or the Secretary’s delegate
(Secretary) relating to elective payment
elections under section 6417 (section 6417
elections), stating, “[t]he Secretary shall
issue such regulations or other guidance
as may be necessary to carry out the pur-
poses of this section, including guidance
to ensure that the amount of the payment
or deemed payment made under this sec-
tion is commensurate with the amount of
the credit that would be otherwise allow-
able (determined without regard to section
38(c)).”
Section 7701(a)(40) provides an express
delegation of authority to the Secretary
related to identifying Indian Tribal gov-
ernments for Federal tax purposes, stating,
“[t]he term ‘Indian tribal government’
means the governing body of any tribe,
band, community, village, or group of
Indians, or (if applicable) Alaska Natives,
which is determined by the Secretary, after
consultation with the Secretary of the Inte-
rior, to exercise governmental functions.”
Finally, section 7805(a) of the Code
provides an express delegation of author-
ity to the Secretary to “prescribe all need-
ful rules and regulations for the enforce-
ment of [the Code], including all rules and
regulations as may be necessary by reason
of any alteration of law in relation to inter-
nal revenue.”
Background
I. Overview of Prior Guidance
The Federal government has long
recognized the unique aspects of Tribal
sovereignty and Tribal sovereign immu-
nity. Tribes themselves are not subject to
Federal income tax under the Code.
2
IRS
guidance on the issue in the 1960s raised
questions about the extent to which Tribal
corporations incorporated under section
17 of the Indian Reorganization Act of
1934 (IRA), as amended, 25 U.S.C. 5124
(section 17 corporations) or under section
3 of the Oklahoma Indian Welfare Act,
as amended, 25 U.S.C. 5203 (section 3
corporations) should share the Tribe’s
Federal income tax status. In response,
the IRS published further guidance and
issued proposed regulations in 1996 on
the treatment of section 17 corporations
and section 3 corporations for Federal
tax purposes. See the notice of proposed
rulemaking, Simplification of Entity Clas-
sification Rules (PS–43–95), published in
the Federal Register (61 FR 21989) on
May 13, 1996 (explaining the basis for the
1
The term “Indian Tribal government,” also referred to as a “Tribe” herein, is defined as a federally recognized Tribe pursuant to the Federally Recognized Indian Tribe List Act of 1994,
Public Law 103-454, 108 Stat. 4791 (List Act). Pursuant to the List Act, the Secretary of the Interior is required to publish annually a list of all federally recognized Tribes. This definition is
also consistent with Revenue Procedure 2008-55 (2008-39 I.R.B. 768), which provides that the Treasury Department and the IRS utilize current or future lists of federally recognized Tribes
published annually under the List Act by the DOI Bureau of Indian Affairs, for identification of Indian Tribal governments for purposes of section 7701(a)(40). See 89 FR 944 (January 8,
2024) for the most current list published by the DOI, Bureau of Indian Affairs.
2
See Rev. Rul. 67-284, 1967-2 C.B. 55. However, Tribes generally are subject to Federal employment taxes. Employment taxes refers to Federal Insurance Contributions Act (FICA) (con-
sisting of both social security and Medicare taxes), Federal Unemployment Tax Act (FUTA), and Income Tax Withholding. Section 3306(c)(7) of the Code provides an exception from FUTA
taxes under certain circumstances. Further, subject to applicable law, including statutes (such as section 7871 of the Code) and treaties or agreements with the United States, Tribes are subject
to Federal excise taxes. See Rev. Rul. 94-81, 1994-2 C.B. 412.
Bulletin No. 2026–5 403 January 26, 2026

proposed rule later adopted in § 301.7701-
1(a)(3)).
On December 18, 1996, the Depart-
ment of the Treasury (Treasury Depart-
ment) and the IRS published final
regulations (TD 8697) in the Federal
Register (61 FR 66584) under section
7701, known as the entity classifica-
tion regulations. These regulations (at
§ 301.7701-1(a)(3)) make clear that
entities formed under local laws are not
always recognized as separate entities
for Federal tax purposes. For example,
an organization wholly owned by a State
is not recognized as a separate entity for
Federal tax purposes if it is an integral
part of the State. Similarly, these regula-
tions (until their amendment by this Trea-
sury decision) provided that section 17
corporations and section 3 corporations
are not recognized as separate entities for
Federal tax purposes. These regulations,
however, did not specifically address
whether an entity organized or incorpo-
rated under Tribal law and wholly owned
by a Tribe (that is, a wholly owned Tribal
entity) is recognized as a separate entity
for Federal tax purposes.
The preamble to TD 8697 stated that
the IRS received a number of comments
asking for clarification of the tax treat-
ment of wholly owned Tribal entities. 61
FR 66584. The preamble also indicated
that the Treasury Department and the IRS
continued to study the issue and would
issue additional guidance, if necessary. Id.
at 66585-86.
II. Tribal Consultation
Over the past several decades, Tribes
have sought clarity concerning the Fed-
eral tax status of wholly owned Tribal
entities, in part to provide certainty for
Tribal economic development and to sup-
port the generation of revenue for Indian
Tribal governments. To obtain Tribal
input on the issue before publishing the
proposed regulations, and in accordance
with Executive Order 13175 (November
6, 2000), “Consultation and Coordination
with Indian Tribal Governments,” and the
Treasury Department’s Tribal Consulta-
tion Policy (80 FR 57434, September 23,
2015), superseded by Treasury Order 112-
04 (November 22, 2023), the Treasury
Department and the IRS held Tribal con-
sultations on the issue on June 21 and June
22, 2023, October 8 and 10, 2019, and a
listening session on December 3, 2019.
During Tribal consultations, Tribes
have explained that they view incorpo-
rating corporations under Tribal law as
an exercise of their inherent sovereign
authority to generate governmental rev-
enue, self-govern the use of that revenue
according to their own laws, and self-de-
termine the use of that revenue for their
citizenry. Tribes highlighted that incor-
porating corporations under Tribal law
enables Tribes to create entities that meet
their emerging revenue opportunities,
establish guidelines for the operation of
these entities that are culturally appropri-
ate and protect Tribal assets, and dissolve
them when they are no longer needed.
Tribes also highlighted that clarifying the
status of corporations incorporated under
Tribal law is consistent with recent Fed-
eral policy to promote Tribal sovereignty,
self-governance, and self-determination in
economic development activities.
In contrast, Tribes highlighted that sec-
tion 17 and section 3 corporations are not
always sufficient to meet their needs. The
incorporation process for these entities is
a lengthy multi-step Federal process that
subjects Tribal authority to Federal over-
sight and approval and results in increased
administrative costs to Tribes. In addition,
an act of Congress is required to dissolve
the chartered entity.
This issue has taken on increased
salience in recent years with the enact-
ment of laws that extend greater access
to capital and new economic opportuni-
ties to certain governments (including
Indian Tribal governments), tax-exempt
organizations, and other entities. Tribes
have reiterated their requests for guidance
through meetings of the Treasury Tribal
Advisory Committee and other Tribal
consultations.
III. Proposed Regulations
In light of the considerations of Tribal
sovereignty and self-determination
described previously, on October 9, 2024,
the Treasury Department and the IRS pub-
lished a notice of proposed rulemaking
(REG-113628-21) in the Federal Register
(89 FR 81871), which provided proposed
guidance under sections 6417 and 7701
(proposed regulations). See the preamble
to the proposed regulations for additional
information regarding the developments
leading to this rulemaking.
The proposed regulations proposed to
amend the existing section 7701 regula-
tions to make clear that entities wholly
owned by Tribes and organized, incor-
porated, or authorized under the laws of
the Tribes that own them generally are not
recognized as separate entities for Fed-
eral tax purposes. As has been the case
with Tribes and section 17 corporations
or section 3 corporations, the proposed
regulations proposed that an entity wholly
owned by one or more Indian Tribal gov-
ernments, within the meaning of section
7701(a)(40), that is organized or incor-
porated under the laws of the Tribe or
Tribes that own the entity, or organized
or incorporated under the laws of one or
more of the owning Tribes and authorized
by all of the other owning Tribes (wholly
owned Tribal entity), would not be recog-
nized as a separate entity for Federal tax
purposes (and thus not subject to Federal
income tax). The use of the term “orga-
nized” includes the creation of Tribal enti-
ties other than corporations. For instance,
a single member limited liability com-
pany (LLC) organized under the laws of
the Tribe that owns the LLC would be a
wholly owned Tribal entity covered by the
proposed regulations. Accordingly, such
wholly owned entities generally would be
viewed as one and the same as the Tribes
that own them for Federal income tax pur-
poses and therefore are not subject to Fed-
eral income tax.
In addition, the proposed regulations
proposed to amend the existing section
6417 regulations to provide that wholly
owned Tribal entities, section 17 corpo-
rations, and section 3 corporations are
treated, for purposes of making section
6417 elections (including determining
eligibility for and the consequences of
such elections), as instrumentalities of
the Indian Tribal government(s) that
wholly own them. As a result, the wholly
owned Tribal entity itself, rather than the
Indian Tribal government(s) owning the
entity, would be required to make a sec-
tion 6417 election for an applicable credit
determined with respect to any applicable
credit property held directly by the wholly
owned Tribal entity.
January 26, 2026 404 Bulletin No. 2026–5

Bulletin No. 2026–5 405 January 26, 2026
A. Wholly Owned Tribal Entity
Requirements Under Proposed
Regulations
1. Tribal law
The proposed regulations recognized
that Tribal law is established by each
individual Tribe. The notice of proposed
rulemaking stated that, where multiple
Tribes work together to establish an entity
that is owned by more than one Tribe,
each Tribe would need to provide for the
entity under its own laws.
2. Wholly owned
The notice of proposed rulemaking
noted that, as is the case for determining
the ownership of all corporations (includ-
ing a corporation wholly owned by a State
or other government), the determination
of whether an outside investor (a person
other than a Tribe) holds equity in a Tribal
entity, such that it would fail to be wholly
owned by one or more Indian Tribal gov-
ernments for Federal tax purposes, would
take into account principles of Federal tax
law, such as the substance over form doc-
trine, debt versus equity analyses, and the
economic substance doctrine.
Under the proposed regulations, an
entity could satisfy the wholly owned
requirement through a multi-Tribe owner-
ship structure, so long as the entity is orga-
nized or incorporated under each Tribe’s
laws. Proposed § 301.7701-1(a)(4)(iii)(D)
(Example 4) illustrates an example of the
organizational structure of such an entity.
The proposed regulations did not
address an entity formed under Tribal law
that was not also wholly owned by one or
more Indian Tribal governments for Fed-
eral tax purposes.
IV. Elective Payment Elections
Under 26 CFR 1.6417-1(f) as of April
1, 2025, section 17 corporations and sec-
tion 3 corporations were treated as “dis-
regarded entities” for purposes of section
6417, and the applicable entity owner of
a disregarded entity that directly holds
applicable credit property was required
to make a section 6417 election for appli-
cable credits determined with respect to
such property pursuant to § 1.6417-2(a)
(1)(ii). Under the proposed regulations,
for purposes of making a section 6417
election (including determining eligi-
bility for and the consequences of such
election), entities described in proposed
§ 301.7701-1(a)(4)(i) (that is, section 17
corporations, section 3 corporations, and
wholly owned Tribal entities), would
be treated as instrumentalities of Indian
Tribal governments. This change would
mean that an entity described in proposed
§ 301.7701-1(a)(4)(i) that directly owns
applicable credit property, rather than the
entity’s owner or owners, would make the
section 6417 election. Such an entity gen-
erally would do so by filing a Form 990-
T, Exempt Organization Business Income
Tax Return, as described in § 1.6417-1(b)
(2), using its own name and employer
identification number.
Given that proposed § 301.7701-1(a)
(4)(i) generally provided that an entity
owned by multiple Tribes is not recognized
as a separate entity from those Tribes for
Federal income tax purposes, treating the
entity as a “disregarded entity” for section
6417 purposes would have required each
of the entity’s owners to make a section
6417 election with respect to an applica-
ble credit determined with respect to an
applicable credit property owned directly
by the entity. That approach would have
been administratively burdensome and
complex for the Tribes that own the entity
as well as for the IRS. Given the need for
coordination among these Tribes in mak-
ing consistent tax filings, that approach
could also have resulted in cases in which
the amount of the total payments or
deemed payments claimed under section
6417 might not be commensurate with the
amount of the underlying credit. In addi-
tion, even for an entity owned by a single
Tribe, the entity directly owning the appli-
cable credit property may be better posi-
tioned to fulfill the pre-filing registration
and other requirements to make the sec-
tion 6417 election. Accordingly, the pro-
posed regulations were intended to sim-
plify the filing obligations for Tribes and
their wholly owned entities and ensure
that the amount of any payment or deemed
payment made under section 6417 will be
commensurate with the amount of the
credit that would be otherwise allowable.
In general, the determination of
whether an entity is an agency or instru-
mentality is analyzed on a facts and cir-
cumstances basis. In determining whether
an entity is an agency or instrumentality
for Federal tax purposes, Federal courts
have applied the six-factor test in Rev.
Rul. 57-128, 1957-1 C.B. 311, which gen-
erally provides guidance on whether an
entity is an instrumentality for purposes
of the exemptions from employment taxes
under sections 3121(b)(7) and 3306(c)(7)
of the Code. See, e.g., Rose v. Long Island
Railroad Pension Plan, 828 F.2d 910, 918
(2d Cir. 1987), cert. denied, 485 U.S. 936
(1988); Berini v. Federal Reserve Bank of
St. Louis, Eighth District, 37 Employee
Benefits Cas. 1072, 420 F. Supp. 2d 1021
(E.D. Mo. 2005).
The special rule in proposed § 1.6417-
1(c)(7) is informed in part by administra-
tive considerations and would be issued
under the express delegation of authority
in section 6417(h) to promulgate rules that
carry out the purposes of section 6417 and
ensure that the amount of the payment or
deemed payment made thereunder is com-
mensurate with the amount of the underly-
ing credit. No inferences should be drawn
from the instrumentality treatment in pro-
posed § 1.6417-1(c)(7) as to whether any
particular entity is or is not an instrumen-
tality for any other Federal tax purpose.
Summary of Comments and
Explanation of Revisions
The Treasury Department and the IRS
conducted Tribal consultations on Decem-
ber 16 -18, 2024, to obtain additional input
on questions involving the proposed regu-
lations. The content of these consultations
is published in a Tribal consultation sum-
mary available at: https://home.treasury.
gov/system/files/136/Tax-Status-of-Trib-
ally-Chartered-Corporations-Consulta-
tion-Summary.pdf. In addition, the Trea-
sury Department and the IRS received
written comments in response to the pro-
posed regulations. A public hearing on the
proposed regulations was held on January
17, 2025. Copies of written comments and
the list of speakers at the public hearing
are available at https://www.regulations.
gov or upon request.
After full consideration of all com-
ments received on the proposed regula-
tions, including through the Tribal con-
sultations, and the testimony presented at

January 26, 2026 406 Bulletin No. 2026–5
the public hearing, this Treasury decision
adopts the proposed regulations as final
regulations with clarifying changes and
modifications as described in this Sum-
mary of Comments and Explanation of
Revisions. Overall, commenters largely
supported the proposed regulations’ rec-
ognition of a Tribe’s inherent authority
to create businesses under Tribal law and
that wholly owned Tribal entities should
have parity with federally chartered Tribal
corporations.
Section I of this Summary of Com-
ments and Explanation of Revisions
addresses the comments and revisions
applicable to § 301.7701-1. Section II of
this Summary of Comments and Explana-
tion of Revisions addresses the comments
and revisions applicable to § 1.6417-1.
Unless otherwise indicated in this
Summary of Comments and Explanation
of Revisions, provisions of the proposed
regulations for which no comments were
received are adopted without substantive
change. Comments that merely summa-
rize the proposed regulations, recommend
statutory revisions to section 7701, sec-
tion 6417, or other statutes, address issues
that are outside the scope of this rulemak-
ing (such as proposed changes to other
guidance), or recommend changes to IRS
forms are beyond the scope of these reg-
ulations and are not adopted. In addition,
comments that are related to executive
orders and prior guidance described in
the preamble to the proposed regulations
are beyond the scope of these regulations
and are not adopted. The final regulations
include non-substantive modifications,
including modifications that promote con-
sistency across rules and examples, rear-
range provisions, and improve the overall
clarity of the guidance. Such non-substan-
tive modifications are not addressed in
this Summary of Comments and Explana-
tion of Revisions.
I. Wholly Owned Tribal Entities Under
the Final Regulations
The final regulations under section
7701 provide that a wholly owned Tribal
entity (including a single member LLC
organized under the laws of the Tribe that
owns it) is not recognized as a separate
entity for Federal income tax purposes,
but is recognized as separate and treated
as a corporation for Federal employment
tax purposes and certain Federal excise
tax purposes. The final regulations also
provide that section 17 corporations and
section 3 corporations are recognized as
entities separate from the Tribe(s) that own
these entities for Federal employment and
certain Federal excise tax purposes.
A. Multi-Tribe ownership
The majority of commenters expressed
support for the recognition that Tribes may
organize or incorporate an inter-Tribal
entity serving multiple Tribes. However,
some commenters stated that it is imprac-
tical and unworkable to require that an
inter-Tribal entity wholly owned by more
than one Indian Tribal government (within
the meaning of section 7701(a)(40) of the
Code) be organized or incorporated under
the laws of each of the Indian Tribal gov-
ernments with an ownership stake in the
entity. Commenters stated that the rules
should provide that an inter-Tribal entity
with a single charter authorized by each
Tribe’s governing body, or other body or
official acting pursuant to authority del-
egated by the Tribe’s governing body,
shares the tax status of the Tribe(s) that
own it. These commenters recommended
that, although authorized under each
Tribe’s legislative or administrative pro-
cess, the inter-Tribal entity charter should
allow for a choice of law or forum clause
that subjects the inter-Tribal entity to the
corporate or limited liability company
laws of just a single Tribe. To clarify the
proposed regulations, the same comment-
ers requested amendments to the language
of the regulations to require that the inter-
Tribal entity be authorized under each
owner Tribe’s law and to allow Tribes
to adopt their choice of law and forum.
Additionally, a commenter requested the
regulations be amended to allow Tribes
to enter into co-ownership arrangements
with respect to existing entities previously
organized and incorporated under the laws
of one or more Tribes.
Other commenters suggested that enti-
ties owned solely by multiple Tribal gov-
ernments should be disregarded where (a)
the entity is formed under the laws of one
of the member Tribes, (b) the Tribe’s laws
permit ownership by the other Tribes, and
(c) each owner Tribe agrees to such out-
come by resolution or other suitable doc-
ument.
Based on these comments, the final
regulations provide that an inter-Tribal
entity is not recognized as a separate
entity when organized or incorporated
exclusively under the laws of one or more
of the Indian Tribal governments that own
it. The final regulations also add a sen-
tence that clarifies that whether an entity
is organized or incorporated under the
laws of one or more Indian Tribal gov-
ernment(s) is determined without regard
to any specified choice of law or forum.
These changes are intended to minimize
the administrative burden on Tribes seek-
ing to form or acquire interests in inter-
Tribal entities that would generally not be
recognized as separate entities under these
final regulations.
The word “exclusively,” as used in
these regulations, means that the entity
must be formed under the laws of one or
more of the Indian Tribal governments
that own it and not the laws of an Indian
Tribal government that does not have
an interest in the entity or the laws of a
state or foreign government. Therefore,
an entity formed solely under the laws
of one owning Indian Tribal government
that is also owned by several other Indian
Tribal governments would be considered
as organized or incorporated exclusively
under the laws of one or more of the Indian
Tribal governments that own it and would
generally not be recognized as a separate
entity for Federal tax purposes.
B. State-recognized Tribes
One commenter expressed concern
that entities organized or incorporated
under the laws of a Tribe that is not fed-
erally recognized but recognized by a
State (State- recognized Tribe) would not
be covered under these proposed regula-
tions and requested clarity as to how the
result might change, if at all, in proposed
§ 301.7701-1(a)(4)(iii)(D) (Example 4)
if one or more of the four participating
Tribes were State-recognized Tribes.
The United States has a govern-
ment-to-government relationship with
and recognizes the sovereignty of feder-
ally recognized Tribes. Revenue Proce-
dure 2008-55 (2008-39 I.R.B. 768) treats
all federally recognized Tribes as Indian

Bulletin No. 2026–5 407 January 26, 2026
Tribal governments under section 7701(a)
(40). Federally recognized Tribes are not
subject to Federal income taxes. Section
301.7701-1(a)(3) has long provided that
section 17 corporations and section 3 cor-
porations chartered under Federal law and
wholly owned by federally recognized
Tribes are not recognized as separate enti-
ties for Federal tax purposes. These final
regulations extend the same treatment to
entities organized or incorporated under
Tribal law and wholly owned by Tribes.
Because section 17 corporations, section
3 corporations, and wholly owned Tribal
entities are not recognized as separate
entities, they, like the Tribes that own
them, are not subject to Federal income
tax.
Corporations wholly owned by
State-recognized Tribes were not covered
by the proposed regulations and are not
covered by these final regulations. If one
or more of the four participating Tribes
in § 301.7701-1(a)(4)(iii)(D) (Example 4)
were a State-recognized Tribe or an entity
created by a State-recognized Tribe, then
the jointly owned corporation would not
satisfy the requirements of § 301.7701-
1(a)(4) and would be respected as a sep-
arate legal entity that could be subject to
Federal income taxation.
C. State-chartered Tribally owned entities
Some commenters suggested that not
only entities wholly owned by Indian
Tribal governments and organized or
incorporated under the laws of their
Indian Tribal government owner, section
3, or section 17, but also Tribally owned
entities organized under State law should
be treated as not separate from the Tribe
for Federal tax purposes. The Treasury
Department and the IRS have previously
ruled that a corporation organized by an
Indian Tribe under State law is subject to
Federal income tax on the income earned
in the conduct of a commercial business
on and off the Tribe’s reservation. See Rev.
Rul. 94-16, situation 3, 1994-1 C.B. 19
(1994). The commenters proposed that the
relevant consideration for Federal income
tax purposes is not which government
created the corporate entity but, rather,
the tax status of the owner. Commenters
explained the advantages of State-char-
tered entities to include that their structure
is more familiar to outside investors and
offers a broader spectrum of opportuni-
ties, particularly for business ventures
outside of the Tribe’s reservation. These
regulations only address the Federal tax
treatment of entities chartered by DOI or
under Tribal law. Accordingly, the Federal
tax treatment of State-chartered entities
is outside the scope of these regulations,
and, therefore, the final regulations do not
adopt this comment.
D. Majority-owned entities
Many commenters recommended
extending Federal income tax exemption
to entities with 51 percent or greater own-
ership by Tribes so that they are on par-
ity with State and local governments to
receive the same tax advantages afforded
to State and local government entities in
public-private partnerships. Commenters
also requested clarifying guidance on the
tax treatment of partially owned entities,
including distinctions between wholly
owned, partially owned, and majority
owned entities.
As these matters are outside the scope
of the guidance contained in the proposed
regulations that these regulations finalize,
the final regulations do not adopt these
comments. The Treasury Department
and the IRS continue to consider possible
guidance on the Federal tax treatment of
corporations incorporated under Tribal
law that are owned in part by persons other
than Tribes. The Treasury Department and
the IRS would conduct Tribal consultation
prior to issuing any guidance in that area.
E. Wholly owned Tribal entities as
separate from the Tribe(s)
Some commenters suggested that
wholly owned corporations incorporated
under Tribal law should be considered
exempt from Federal income tax with-
out the fiction that such corporations are
not separate from the parent Tribe. These
commenters explained that Revenue Rul-
ing 94-16, 1994-1 C.B. 19, does not rely
on this concept. The commenters indi-
cated that section 17 corporations share
the same tax status as the Tribe without
relying on a fiction that the section 17
corporation is not separate from the Tribe.
As support, the commenters indicated that
Federal law permits a Tribe to organize
both section 16 corporations and section
17 corporations, separate classes of enti-
ties with differing powers, purpose, and
function. Commenters further explained
that if a corporation incorporated under
Tribal law is not distinct from the Tribal
government, this could prohibit Tribes
from qualifying a wholly owned Tribal
entity for section 501(c)(3) status and,
thus, would require Tribes to charter non-
profit corporations under State law, con-
trary to Federal policy.
Under the existing framework of the
section 7701 regulations, an entity rec-
ognized as separate from the Tribe does
not share the same tax status as the Tribe.
Thus, in order to be an entity not subject
to Federal income tax under those regu-
lations, section 17 corporations and sec-
tion 3 corporations cannot be recognized
as separate and distinct from the Tribe for
Federal income tax purposes. These final
regulations treat wholly owned Tribal
corporations similarly to section 17 cor-
porations and section 3 corporations. The
commenter is correct that a wholly owned
corporation incorporated under Tribal
law that is not separate and distinct from
the Tribal government cannot qualify for
section 501(c)(3) status. However, there
is nothing in these regulations to prevent
Tribes from creating non-stock Tribal
law entities that are described in section
501(c)(3), nor would doing so be contrary
to Federal policy.
F. Limited liability companies
Commenters requested the addition of
clarifying language to confirm that LLCs
that qualify as wholly owned Tribal enti-
ties are not recognized as separate enti-
ties for Federal income tax purposes and,
therefore, would not be subject to Federal
income tax. The commenters indicated
that confusion arises because an entity can
be classified as one type of entity for local
law purposes such as an LLC or partner-
ship, and then make an entity classifica-
tion election by filing Form 8832, Entity
Classification Election, with the IRS to be
taxed differently for Federal tax purposes.
A majority of commenters supported
the addition to the final regulations of a
separate illustrative example of an LLC
that qualifies as a wholly owned Tribal

January 26, 2026 408 Bulletin No. 2026–5
entity that is not regarded as a separate
entity and, therefore, not subject to Fed-
eral income tax. Other commenters sug-
gested that it is unnecessary for the pro-
posed regulations to apply to entities other
than corporations that qualify as wholly
owned Tribal entities. Those comment-
ers explained that since the section 7701
regulations treat a domestic eligible entity
with a single owner as disregarded unless
the owner otherwise elects, many Tribes
have created LLCs that qualify as wholly
owned Tribal entities with the understand-
ing that the rules under the existing reg-
ulations apply. Commenters expressed
concern that adopting a rule that automat-
ically disregards the separateness of all
wholly owned Tribal entities for Federal
tax purposes disrupts that understanding.
The treatment of limited liability com-
panies for Federal tax purposes is deter-
mined under the general classification
rules of § 301.7701-3(a). However, the
term “organized” used in § 301.7701-1(a)
(4)(i) is meant to apply to LLCs organized
under Tribal law that are wholly owned by
one or more Tribe(s) (Tribally organized
LLC), which is consistent with both the
preamble to the proposed regulations and
proposed § 301.7701-1(a)(4)(iii)(C).
Comments indicate that taxpayers
understand that the proposed regulations
would treat a Tribally organized LLC with
a single member as not separate from the
Tribe for Federal tax purposes, and there-
fore not subject to Federal income tax under
these final regulations. Therefore, the final
regulations do not adopt these comments.
However, the Treasury Department
and the IRS understand the need for cer-
tainty in this area. Therefore, the final reg-
ulations adopt the general comments that
the examples provided in the regulation
should explicitly state that the rules apply
equally to Tribally organized LLCs.
G. Multi-tier entity structures
Many commenters requested clari-
fication in the final regulations that the
treatment of wholly owned Tribal entities
as not separate entities from their Tribal
owners applies equally to subsidiary enti-
ties. Similarly, many commenters also
suggested revising proposed § 301.7701-
1(a)(4)(iii)(B) (Example 2) to indicate
that it involves a holding company and a
subsidiary. A few commenters also sug-
gested adding an example of a multi-tier
partnership entity similar to proposed
§ 301.7701-1(a)(4)(iii)(B) (Example 2).
Proposed § 301.7701-1(a)(4) did not
expressly state that entities that are owned
through a chain of entities that them-
selves are not recognized for Federal tax
purposes are not recognized as separate
entities for Federal tax purposes. In order
to ensure clarity on this point, the final
regulations add language in § 301.7701-
1(a)(4) to clarify that the wholly owned
requirement can be met through owner-
ship by other entities not recognized as
separate under § 301.7701-1(a)(4).
The final regulations, in § 301.7701-
1(a)(4)(iii)(B) (Example 2), illustrate that
in a tiered structure where Corporation Z
is wholly owned by Corporation X and
Corporation X is wholly owned by Tribe
B, where both Corporation Z and Cor-
poration X are organized or incorporated
exclusively under the laws of Tribe B,
both entities are not recognized as sepa-
rate from Tribe B for Federal tax purposes
and are not subject to Federal income tax.
This example was intended to be a gen-
eral illustration of the proposed rule that
subsidiaries in a tiered entity structure of
wholly owned Tribal entities are not rec-
ognized as separate entities for Federal
tax purposes and are, therefore, exempt
from Federal income tax. Revising the
example as suggested by the commenters
to specify that proposed § 301.7701-1(a)
(4)(iii)(B) (Example 2) involves a holding
company and a subsidiary would unnec-
essarily narrow the scope and relevancy
of this example, which was intended to be
a general illustration. Therefore, the final
regulations do not adopt this comment.
H. Partnerships with non-Tribally owned
entities
One commenter requested adding an
example to confirm that a Tribally orga-
nized LLC would retain its status as not
regarded when it enters into a partnership
with a third-party for-profit corporation
formed under State law. Though the final
regulations do not add such an example,
the Treasury Department and the IRS con-
firm that the Federal tax status of a Trib-
ally organized LLC would not be affected
by holding an interest in a partnership
regardless of who the other partners in the
partnership were.
I. Section 17 corporation
A commenter recommended clarifying
that a section 17 corporation is a federally
chartered corporation created through a
lengthy incorporation process for a cor-
poration with the DOI and the eventual
approval of such corporation’s charter.
These final regulations do not adopt
the recommendation in this comment con-
cerning detailing the processes by which a
section 17 corporation is created because
the regulations do not modify or other-
wise affect the incorporation process of
section 17 corporations and section 3 cor-
porations. They do provide certainty that
wholly owned Tribal entities are accorded
the same tax treatment as section 17 cor-
porations and section 3 corporations. The
final regulations do, however, adopt the
recommendation to change the description
of section 17 corporations and section 3
corporations to reflect that they are feder-
ally chartered corporations.
J. Tribal entity formation
Several commenters also requested
clarification that entities formed under
resolutions or interim measures, rather
than formal ordinances, are also afforded
Federal income tax exemption if estab-
lished under Tribal law. The proposed
regulations did not address the specific
mechanisms or administrative processes
by which Tribes organize or incorporate
a wholly owned entity under their sover-
eign laws. While the final regulations do
not specifically adopt these comments by
providing the requested clarification, the
Treasury Department and the IRS confirm
that any acts to organize or incorporate a
wholly owned Tribal entity under the laws
of the Tribes would satisfy the require-
ments of being “organized under Tribal
law” for such entity to not be recognized
as a separate entity from the Tribe under
§ 301.7701-1(a)(4)(i).
K. Not subject to Federal income tax
A commenter recommended expressly
stating in the text of proposed § 301.7701-
1(a)(4)(i) that section 17 corporations,

Bulletin No. 2026–5 409 January 26, 2026
section 3 corporations, and wholly owned
Tribal entities are not subject to Federal
income tax on income earned by them
in the conduct of commercial business,
investment, and/or other activities on or
off the organizing Tribe’s reservation or
Tribes’ reservations (as applicable). The
commenter suggested that, although pro-
posed § 301.7701-1(a)(4)(iii)(A) through
(C) (Examples 1 through 3) illustrated
that entities wholly owned by one or more
Tribes and organized or incorporated
exclusively under the laws of such Tribe
or Tribes are both not recognized as sep-
arate entities for Federal tax purposes and
not subject to Federal income tax, addi-
tional language explicitly stating that such
entities are not subject to Federal income
tax is necessary in proposed § 301.7701-
1(a)(4)(i) for consistency and to avoid any
ambiguity on this issue.
This commenter also indicated that
the use of the phrase “in the conduct of
commercial business” in connection with
the statement of exemption from Federal
income tax in the preamble to the pro-
posed regulations creates uncertainty as
to the scope of the exemption from Fed-
eral income tax of section 17 corporations
and section 3 corporations, creating the
possibility of disputes regarding whether
income from investments or other activ-
ities or sources is excluded from the
exemption from Federal income tax.
Thus, the commenter requests clarifica-
tion in the final regulations on the scope
of the exemption from Federal income tax
for section 17 corporations and section 3
corporations.
The Treasury Department and the IRS
adopt the recommendation and added lan-
guage to § 301.7701-1(a)(4)(i) to clarify
that such entities are not subject to Federal
income tax. As such, the source of their
income is not relevant because their Fed-
eral tax status is not based on the source or
type of income earned. Accordingly, the
final regulations do not comment on the
nature or source of income excluded from
Federal income tax derived by section 17
corporations, section 3 corporations, or
wholly owned Tribal entities.
L. Federal income tax refunds
Some commenters requested that the
IRS defer to Tribes’ sole discretion to
determine whether wholly owned Tribal
entities that have been in existence
for decades have consistently applied
§ 301.7701-1(a)(4) and relied on that pro-
vision for tax years prior to the final regula-
tions’ publication date. By providing such
deference, these commenters suggest, the
IRS would respect Tribal sovereignty and
self-governance, and reduce administra-
tive burdens. To that effect, some com-
menters suggested developing a specific
streamlined refund process for wholly
owned Tribal entities that may have paid
Federal income taxes for a period before
the final regulations’ publication date.
While the final regulations do not
adopt the foregoing comments, the Trea-
sury Department and the IRS confirm that
Federal income tax refund requests may
be processed under the general princi-
ples of tax administration. In particular,
wholly owned Tribal entities that choose
to apply the final regulations retroactively
may seek income tax refunds by filing
Form 1120-X, Amended U.S. Corpora-
tion Income Tax Return, for tax years for
which the applicable period of limitations
is open and obtain the assistance of the
Indian Tribal Governments office of the
Tax Exempt and Government Entities
Division of the IRS to process their refund
requests.
M. Federal excise tax
1. Entity classification
The majority of commenters recom-
mended that the final regulations treat sec-
tion 17 corporations, section 3 corpora-
tions, and wholly owned Tribal entities as
entities that are separate from the Tribe(s)
that own these entities for Federal excise
tax purposes because Tribes create these
entities to limit the risk of liability to the
Tribes themselves. The commenters’ sug-
gestion would be consistent with the treat-
ment of disregarded entities as separate
from their owners for purposes of certain
Federal excise taxes under the special rule
in § 301.7701-2(c)(2)(v). Additionally, the
Background section of the preamble to the
proposed regulations notes at footnote 2
that while Tribes are not subject to Federal
income tax, they generally are subject to
Federal excise taxes absent a rule (such as
section 7871 of the Code) providing oth-
erwise. Other commenters requested that
the final regulations allow Tribes to elect
to treat a wholly owned entity as either
regarded or disregarded for Federal excise
tax purposes. These commenters asserted
that Tribes have a sovereign right to elect
specific Federal tax treatment.
In addition, several commenters
expressed concern that the rules applying
to “business entities” in § 301.7701-2(c)
(2)(i) and (v) may not include section
17 corporations, section 3 corporations,
or wholly owned Tribal entities. Section
301.7701-2(a) defines a “business entity”
as an entity recognized for Federal tax pur-
poses, and § 301.7701-1(a)(3), as of April
1, 2025, provided that section 17 corpora-
tions and section 3 corporations were not
“recognized” for Federal tax purposes.
Similarly, proposed § 301.7701-1(a)(4)
(i) generally would not have recognized
section 17 corporations, section 3 corpo-
rations, or wholly owned Tribal entities as
separate entities for Federal tax purposes.
These commenters requested that the final
regulations explicitly treat these three
types of Tribal entities as separate entities
for Federal excise tax purposes. Specifi-
cally, commenters suggested modifying
§ 301.7701-2(c)(2)(v) to apply both to
business entities described in § 301.7701-
2(c)(2)(i) and to Tribal entities described
in proposed § 301.7701-1(a)(4)(i). In
conjunction with this change, comment-
ers also suggested modifying proposed
§ 301.7701-1(a)(4)(i) to provide an excep-
tion for cases where the (newly modified)
special rule relating to Federal excise
taxes at § 301.7701-2(c)(2)(v) applies to
Tribal entities.
The Treasury Department and the IRS
agree with the recommendation of the
majority of commenters to treat section 17
corporations, section 3 corporations, and
wholly owned Tribal entities as entities
separate from the Tribe(s) that own them
for Federal excise tax purposes. The final
regulations do not adopt these comment-
ers’ specific recommendation to amend
§ 301.7701-2(c)(2)(v) because the rules
of § 301.7701-2 apply solely to “business
entities.” Instead, the final regulations
provide for this separate entity treatment
in § 301.7701-1. Specifically, while the
final regulations in § 301.7701-1(a)(4)
(i) provide the general rule that section
17 corporations, section 3 corporations,

January 26, 2026 410 Bulletin No. 2026–5
and wholly owned Tribal entities are not
recognized as separate entities for Fed-
eral tax purposes, the final regulations in
§ 301.7701-1(a)(4)(iii) provide an excep-
tion under which such entities are treated
as separate entities for certain Federal
excise tax purposes under rules identical
to those of § 301.7701-2(c)(2)(v). This
aligns the rules applicable to section 17
corporations, section 3 corporations, and
wholly owned Tribal entities with the
existing rules under § 301.7701-2(c)(2)
(v) that treat disregarded entities as sepa-
rate from their owners for certain Federal
excise tax purposes.
The Treasury Department and the IRS
decline to adopt the suggestion of some
commenters that Tribes be allowed to
elect the treatment of wholly owned Tribal
entities for Federal excise tax purposes.
Instead, as explained in the previous para-
graph, the final regulations provide that
wholly owned Tribal entities (as well as
section 17 corporations and section 3 cor-
porations) will, in all cases, be regarded as
separate entities for the Federal excise tax
purposes identified in § 301.7701-2(c)(2)
(v). This approach is consistent with most
commenters’ requests and aligns with the
existing Federal excise tax regime under
§ 301.7701-2(c)(2)(v).
This approach also avoids a number
of administrative difficulties that taxpay-
ers and the IRS have experienced with
respect to disregarded entities generally,
due to the interaction of the disregarded
entity rules and certain Federal excise tax
provisions. Many Federal excise tax pro-
visions rely on State law, rather than Fed-
eral law, to determine when tax attaches
or whether to allow an excise tax credit
or refund. Federal excise taxes are gen-
erally transaction-based, and State law
often governs one or more aspects of a
transaction, such as when title to an arti-
cle passes. As such, difficulties arose prior
to the 2007 regulations, TD 9356 (72 FR
45891, August 16, 2007), when an entity
that was regarded under State law, but dis-
regarded under Federal tax law, engaged
in transactions subject to a Federal excise
tax. To address these problems, in 2007,
the Treasury Department and the IRS pro-
mulgated § 301.7701-2(c)(2)(v) to treat
wholly owned business entities otherwise
disregarded for Federal tax purposes as
separate from their owners for certain
Federal excise tax purposes. See TD 9356
(72 FR 45891, August 16, 2007) (adopting
final regulations and stating no comments
were received regarding the excise tax
provisions of the proposed regulations);
REG-114371-05 (70 FR 60475-60476,
October 18, 2005) (preamble to proposed
§ 301.7701-2(c)(2)(v), explaining reasons
for the change).
To prevent similar problems with
respect to Tribal entities, the final regu-
lations adopt separate Federal excise tax
treatment, identical to that of § 301.7701-
2(c)(2)(v), for section 17 corporations,
section 3 corporations, and wholly owned
Tribal entities. Having all wholly owned
Tribal entities on a uniform system for
Federal excise tax purposes that conforms
with the existing § 301.7701-2(c)(2)(v)
rules avoids inconsistency and promotes
sound tax administration.
Finally, other commenters requested
that wholly owned Tribal entities be not
recognized as separate entities for excise
tax exemption purposes but recognized
as separate entities for excise tax liability
purposes. These commenters requested
that the final regulations allow Tribes to
extend their sovereign privileges, such as
a tax exemption, to their wholly owned
entities while also permitting Tribes to
shield their assets from potential liabilities
by forming business entities. The Trea-
sury Department and the IRS decline to
adopt this suggestion because excise tax
exemptions, such as those provided in
section 7871, are outside the scope of this
rulemaking.
2. Section 7871
In expressing their views on the clas-
sification of Tribal entities as separate
from the Tribe for Federal excise tax pur-
poses, some commenters expressed con-
cern about the potential impact of such
treatment on the section 7871 exemption
from certain Federal excise taxes. Those
commenters stated that section 17 corpo-
rations, section 3 corporations, and wholly
owned Tribal entities should be explicitly
permitted to claim Federal excise tax
exemptions to the same extent as Tribes
under section 7871. Some of those com-
menters suggested that language be added
to proposed § 301.7701-1(a)(4) to provide
that section 17 corporations, section 3 cor-
porations, and wholly owned Tribal enti-
ties are treated as an “Indian Tribal gov-
ernment” for purposes of section 7871 and
obsolete § 305.7871-1. Other commenters
requested that such entities be deemed
a “subdivision” for purposes of section
7871.
The final regulations do not adopt these
commenters’ suggestions, as section 7871
and any regulations thereunder are outside
the scope of this rulemaking. The pro-
posed regulations did not address section
7871 or obsolete § 305.7871-1. Accord-
ingly, the final regulations do not address
the existing law under section 7871 or
the availability of the section 7871(a)(2)
exemption from certain Federal excise
taxes for Tribes, section 17 corporations,
section 3 corporations, or wholly owned
Tribal entities.
N. Employment tax
Prior to the publication of this Treasury
decision, § 301.7701-1(a)(3) provided that
section 17 corporations and section 3 cor-
porations are not recognized as separate
entities for Federal tax purposes. How-
ever, the regulations did not specifically
address whether a wholly owned Tribal
entity is recognized as a separate entity for
Federal employment tax purposes.
In general, employment tax responsi-
bilities rest with an employer. Employers
are required to deduct and withhold Fed-
eral income taxes and Federal Insurance
Contributions Act (FICA) taxes from their
employees’ wages under sections 3402(a)
and 3102(a) of the Code, and are separately
liable for their share of FICA taxes as well as
for Federal Unemployment Tax Act (FUTA)
taxes under sections 3111 and 3301 of the
Code. These Federal income tax withhold-
ing, FICA, and FUTA taxes are collectively
referred to herein as “Federal employment
taxes.” Sections 3403, 3102(b), 3111, and
3301 provide that the employer is the per-
son liable for the withholding and payment
of Federal employment taxes. In addition,
the employer is required to make timely
tax deposits, file Federal employment tax
returns, and issue wage statements (Forms
W-2) to employees, which are collectively
referred to herein as “other Federal employ-
ment tax obligations.”
An employer is generally defined as
the person for whom an individual per-

Bulletin No. 2026–5 411 January 26, 2026
forms services as an employee. See sec-
tions 3401(d), 3121(d), and 3306(a) of
the Code. If an entity were not recognized
as separate from its owner for Federal
employment tax purposes, the owner of
the entity would be treated as the employer
for purposes of Federal employment tax
liabilities and all other Federal employ-
ment tax obligations related to wages
paid to employees performing services for
the disregarded entity. In the context of
wholly owned Tribal entities, the IRS has
not previously issued guidance regarding
their employment tax treatment.
Outside the context of wholly owned
Tribal entities, § 301.7701-2(c)(2)(iv)(A)
and (B) treat business entities that are dis-
regarded for Federal tax purposes as sep-
arate corporations for purposes of Federal
employment taxes and related reporting
requirements. Specifically, certain other
single-owner eligible entities (under
§§ 301.7701-1 through 301.7701-3) that
are disregarded as entities separate from
their owners for other Federal tax pur-
poses are treated as entities separate from
their owners for Federal employment tax
purposes. See § 301.7701-2(c)(2)(iv)(A)
and (B).
Several commenters requested a provi-
sion treating wholly owned Tribal entities
separately for employment tax purposes
to ensure that such entities can assume
direct responsibility without burdening
the Tribes that own them. The final reg-
ulations adopt these comments and treat
wholly owned tribal entities as sepa-
rate from their Tribal owners for Federal
employment tax purposes. As discussed
above, this approach is consistent with
the treatment of disregarded entities in
§ 301.7701-2(c)(2)(iv)(A) and (B), which
generally are disregarded as separate from
their owners for Federal tax purposes, but
regarded as separate for Federal employ-
ment tax purposes. Further, this approach
would generally not subject Tribes to lia-
bility for Federal employment taxes owed
with respect to employees performing
services for their wholly owned Tribal
entities, a result that many commenters
support. This approach also minimizes
administrative burdens, particularly for
inter-Tribal entities.
Other commenters expressly requested
that FICA and FUTA tax benefits applica-
ble to Tribes be applied to wholly owned
Tribal entities. Another commenter sug-
gested that the final regulations should
confirm that wholly owned Tribal entities
share their owner’s Federal tax exemption
benefits from certain Federal employment
taxes and provide a wide range of hypo-
thetical examples.
There are some Federal employment
tax provisions that specifically apply to
services performed in the employ of a
Tribe. For example, an exception from
FUTA taxes exists for service performed
in the employ of a Tribe, or any instru-
mentality that is wholly owned by a Tribe.
See section 3306(c)(7). Section 3306(u)
provides that, for FUTA purposes, the
term “Indian tribe” has the meaning given
to such term by section 4(e) of the Indian
Self-Determination and Education Assis-
tance Act (codified at 25 U.S.C. 5304(e)),
and includes any subdivision, subsidiary,
or business enterprise wholly owned by
such an Indian tribe. 25 U.S.C 5304(e)
provides that “Indian Tribe” means,
inter alia, any Indian tribe, band, nation,
or other organized group or community
which is recognized as eligible for the
special programs and services provided
by the United States to Indians because of
their status as Indians.
Accordingly, even though wholly
owned Tribal entities are treated as sepa-
rate from the Tribes for employment tax
purposes, they remain eligible for the
FUTA tax exception in section 3306(c)
(7) because section 3306(u) makes it clear
that for purposes of FUTA tax, the term
“Indian Tribe” has the meaning given
to such term by 25 U.S.C. 5304(e) and
includes “any subdivision, subsidiary, or
business enterprise wholly owned by such
an Indian tribe.”
As an example, if a Tribe establishes a
wholly owned Tribal entity, under the final
regulations, it will generally be treated as
a separate corporation for Federal employ-
ment tax purposes, but it will be treated as
an Indian Tribe for purposes of the FUTA
tax exception provided by section 3306(c)
(7) because it is a subdivision, subsidiary,
or business enterprise wholly owned by
the Tribe as defined in section 3306(u).
II. Elective Payment Elections
The final regulations provide that
wholly owned Tribal entities, section 17
corporations, and section 3 corporations
are treated, for purposes of making sec-
tion 6417 elections (including determin-
ing eligibility for and the consequences of
such elections), as instrumentalities of the
Indian Tribal government(s) that wholly
own them. This is the same rule contained
in proposed § 1.6417-1, which stated that
an entity described in § 301.7701-1(a)(4)
(i) is treated as an instrumentality of the
Indian Tribal government(s) or subdivi-
sion(s) thereof that own(s) it.
Commenters generally supported the
proposed rule treating wholly owned
Tribal entities as instrumentalities of the
Tribes that own them for purposes of the
section 6417 elective payment election.
Some commenters requested clarification
on the application of the elective payment
election rules when an applicable credit is
generated by a wholly owned Tribal entity
jointly owned by multiple Tribes. As a
clarification, a wholly owned Tribal entity
that is jointly owned by multiple Tribes
would be treated as an instrumentality
for purposes of section 6417. The wholly
owned Tribal entity will determine any
applicable credit generated by the Tribal
entity’s activities and make the elective
payment election for any applicable credit
so determined. This avoids each Tribe
having to separately determine a credit
and separately make an elective payment
election. By following the procedural
rules in the section 6417 final regulations,
TD 9988 (89 FR 17584, March 11, 2024),
the wholly owned Tribal entity generally
will make the elective payment election
by completing pre-filing registration and
then filing a return including a completed
Form 990-T, Exempt Organization Busi-
ness Income Tax Return, as described in
§ 1.6417-1(b)(2), using its own name and
employer identification number, any rel-
evant source credit form(s), Form 3800,
General Business Credit (or its successor),
and any additional information, includ-
ing supporting calculations, required in
instructions to the relevant forms. Any
refund resulting from the elective pay-
ment election would be paid to the wholly
owned Tribal entity. This treatment should
reduce overall complexity for Tribes and
the IRS as it reduces the number of nec-
essary credit calculations and elective
payment elections and also helps ensure
any elective payment amount is commen-

January 26, 2026 412 Bulletin No. 2026–5
surate with the amount of the otherwise
allowable credit.
Another commenter suggested that the
proposed regulations be revised to allow
Tribes the choice of having the Tribe or
the wholly owned Tribal entity make the
elective payment election because in some
cases it may be impractical for the wholly
owned Tribal entity to do so. The final reg-
ulations do not adopt this suggestion, con-
sistent with the view of most commenters
who supported the rule providing that the
wholly owned Tribal entity that is treated
as an instrumentality must make the elec-
tion. There also are additional administra-
tive benefits gained for both Tribes and
the IRS by having certainty on how to
file elective payment elections. For exam-
ple, it will be clear that the wholly owned
Tribal entity makes the elective payment
election when an entity is wholly owned
by multiple tribes. Thus, the final regula-
tions provide that a wholly owned Tribal
entity is treated as an instrumentality of
an Indian Tribal government and such
instrumentality (and not the Indian Tribal
government) would make the elective
payment election.
A commenter suggested that, rather
than being treated as a payment of tax,
the elective payment amount should be
treated as a grant and paid prior to the
time a project is placed in service. The
statutory text of section 6417(a) expressly
requires the entity making an elective pay-
ment election with respect to an applica-
ble credit to be treated as making a pay-
ment of tax equal to the amount of such
credit. Furthermore, the statutory text of
section 6417(d)(4) controls the timing of
an elective payment and provides that the
payment is treated as being made by the
applicable entity on the later of the due
date for the return or the date the return
is actually filed. As this comment could
only be adopted if statutory revisions were
made, these final regulations do not adopt
the commenter’s suggestions.
Several commenters recommended
that Tribes be given the option to mone-
tize credits through transferability under
section 6418 of the Code, rather than only
being able to make elective payment elec-
tions under section 6417. The commenters
also suggested additional changes to the
section 6418 rules if Tribes were allowed
to make transfers. Tribal governments
(and their instrumentalities, pursuant to
§1.6417-1(c)(7)) are listed as applicable
entities under section 6417(d)(1)(A)(iv)
and section 6418(f)(2) expressly pro-
vides that an eligible taxpayer for section
6418 is any taxpayer not listed in section
6417(d)(1)(A). Thus, Tribal governments
(and their instrumentalities) are only
allowed to make elective payment elec-
tions under section 6417. As the comment
requesting the option to use section 6418
and the other comments suggesting addi-
tional section 6418 changes would require
statutory revisions, these final regulations
do not adopt the commenters’ suggestions.
Applicability Dates
The final regulations apply to taxable
periods, or taxable years for purposes of
section 6417, beginning on or after Jan-
uary 1, 2026. The final regulations pro-
vide that section 17 corporations, section
3 corporations, and wholly owned Tribal
entities are treated as instrumentalities
for purposes of making a section 6417
election, and as entities separate from
their owners for the Federal employment
and excise tax purposes identified in
§ 301.7701-2(c)(2)(iv) and (v). Accord-
ingly, each such entity must have its own
employer identification number (EIN)
for these purposes. Each such entity must
separately calculate, report, and pay all
employment tax obligations identified in
§ 301.7701-2(c)(2)(iv) with respect to
its employees under its own name and
EIN for wages paid on or after January
1, 2026. With respect to taxable periods
beginning on or after January 1, 2026,
each such entity must separately report,
calculate, and pay taxes for any purpose
identified in § 301.7701-2(c)(2)(v) under
its own name and EIN. To ensure that
taxpayers have sufficient time to make
any necessary changes to their systems
in response to these final regulations, the
final regulations apply only to taxable
periods beginning on or after January 1,
2026.
For Federal income tax purposes only,
an entity may choose to apply § 301.7701-
1(a)(4) to taxable periods beginning before
January 1, 2026, for which the applicable
period of limitations is open.
For section 6417 purposes, an entity
described in § 301.7701-1(a)(4)(i) may
choose to apply § 1.6417-1(c)(7) and (f)
to taxable years beginning before January
1, 2026, but only if the Indian Tribal gov-
ernment(s) that own the entity also apply
§ 1.6417-1(c)(7) and (f) consistently with
such entity for all such taxable years.
Special Analyses
I. Executive Order 13175: Consultation
and Coordination With Indian Tribal
Governments
Executive Order 13175 (Consulta-
tion and Coordination With Indian Tribal
Governments) prohibits an agency from
publishing any rule that has Tribal impli-
cations if the rule either imposes substan-
tial, direct compliance costs on Indian
Tribal governments and is not required
by statute, or preempts Tribal law, unless
the agency meets the consultation and
funding requirements of section 5 of the
Executive order. This final rule would nei-
ther impose substantial, direct compliance
costs on Indian Tribal governments nor
preempt Tribal law within the meaning of
the Executive order.
II. Regulatory Planning and Review
The Office of Management and Bud-
get’s Office of Information and Regula-
tory Analysis has determined that this reg-
ulation is not significant and is not subject
to review under section 6(b) of Executive
Order 12866. Therefore, a regulatory
impact assessment is not required.
The Executive Order 14192 designa-
tion for this final rule is anticipated to be
deregulatory.
III. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501-3520) (PRA) generally
requires that a Federal agency obtain the
approval of the Office of Management and
Budget (OMB) before collecting infor-
mation from the public, whether such
collection of information is mandatory,
voluntary, or required to obtain or retain
a benefit. An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information dis-
plays a valid control number.

Bulletin No. 2026–5 413 January 26, 2026
The collection of information in these
regulations contain reporting and record-
keeping requirements. The recordkeep-
ing requirements mentioned within these
final regulations are considered general
tax records under § 1.6001-1(e). These
records are required for the IRS to vali-
date that taxpayers have met the regula-
tory requirements and are entitled to make
an elective payment election and to verify
the Federal tax classification of entities
described in these final regulations. For
PRA purposes, general tax records are
already approved by OMB under 1545-
0047 for tax-exempt organizations and
government entities.
These regulations also mention report-
ing requirements related to making elec-
tions under section 6417. These elections
will be made by taxpayers on Forms 990-
T, and credit calculations will be made on
Form 3800 and supporting forms. These
forms are approved under 1545-0047 for
tax-exempt organizations and government
entities.
IV. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility
Act (5 U.S.C. chapter 6), the Secretary of
the Treasury hereby certifies that the final
regulations will not have a significant
economic impact on a substantial number
of small entities pursuant to the Regula-
tory Flexibility Act. These final regula-
tions would affect entities that are wholly
owned by Tribes. Additionally, no added
burden is created through these final reg-
ulations; rather, these final regulations
would expand the definition of an eligi-
ble entity for section 6417 of the Code
but does not expand the requirements for
entities to make the elective payment elec-
tion. Although data is not readily available
about the number of small entities that are
potentially affected by this rule, it is pos-
sible that a substantial number of small
entities may be affected.
To the extent the entities described in
these regulations make elections under
section 6417, the Treasury Department
and the IRS certify the final regulatory
flexibility analysis undertaken in TD 9988
(89 FR 17584, March 11, 2024).
For the reasons stated, a regulatory
flexibility analysis under the Regulatory
Flexibility Act is not required.
Pursuant to section 7805(f) of the Code,
the notice of proposed rulemaking preced-
ing this Treasury decision was submitted to
the Chief Counsel for the Office of Advo-
cacy of the Small Business Administration
for comment on its impact on small busi-
ness, and no comments were received.
V. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandate
Reform Act of 1995 requires that agencies
assess anticipated costs and benefits and
take certain other actions before issuing a
final rule that includes any Federal man-
date that may result in expenditures in any
one year by a State, local, or Indian Tribal
government, in the aggregate, or by the
private sector, of $100 million (updated
annually for inflation). These final regula-
tions do not include any Federal mandate
that may result in expenditures by State,
local, or Indian Tribal governments or by
the private sector in excess of that thresh-
old.
VI. Executive Order 13132: Federalism
Executive Order 13132 (Federalism)
prohibits an agency from publishing any
rule that has federalism implications if
the rule either imposes substantial, direct
compliance costs on State and local gov-
ernments, and is not required by statute,
or preempts State law, unless the agency
meets the consultation and funding
requirements of section 6 of the Executive
order. These final regulations do not have
federalism implications and do not impose
substantial, direct compliance costs on
State and local governments or preempt
State law within the meaning of the Exec-
utive order.
VII. Congressional Review Act
Pursuant to the Congressional Review
Act (5 U.S.C. 801 et seq.), the Office of
Information and Regulatory Affairs des-
ignated this rule as not a major rule, as
defined by 5 U.S.C. 804(2).
Statement of Availability of IRS
Documents
The Revenue Rulings and Revenue
Procedure cited in this preamble are pub-
lished in the Internal Revenue Bulletin
and are available from the Superintendent
of Documents, U.S. Government Publish-
ing Office, Washington, DC 20402, or by
visiting the IRS website at https://www.
irs.gov.
Drafting Information
The principal author of these final
regulations is the Office of Associate
Chief Counsel (Passthroughs, Trusts, and
Estates). However, other personnel from
the Treasury Department and the IRS par-
ticipated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes,
Excise taxes, Gift taxes, Income taxes,
Penalties, Reporting and recordkeeping
requirements.
Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 301
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Par. 2. Section 1.6417-1 is amended
by:
1. Revising paragraph (c) introductory
text;
2. Removing the semicolons from the
end of paragraphs (c)(1)(ii) and (c)(2)
through (5) and adding periods in their
places;
3. Removing the language “; and” from
the end of paragraph (c)(6) and adding a
period in its place; and
4. Revising paragraphs (c)(7), (f), and
(q).
The revisions read as follows:

January 26, 2026 414 Bulletin No. 2026–5
§ 1.6417-1 Elective payment election of
applicable credits.
* * * * *
(c) Applicable entity. The term appli-
cable entity means any entity described in
paragraphs (c)(1) through (7) of this section.
* * * * *
(7) An agency or instrumentality of any
applicable entity described in paragraph
(c)(1)(ii) or (c)(2) or (3) of this section.
For purposes of making an elective pay-
ment election under section 6417 (includ-
ing determining eligibility for and the
consequences of such election), an entity
described in § 301.7701-1(a)(4)(i) of this
chapter is treated as an instrumentality of
the Indian Tribal government(s) or subdi-
vision(s) thereof that own(s) it.
* * * * *
(f) Disregarded entity. The term dis-
regarded entity means an entity that is
disregarded as, or not recognized as, an
entity separate from its owner for Federal
income tax purposes under § 301.7701-
1(a)(3) or §§ 301.7701-2 and 301.7701-3
of this chapter. See paragraph (c)(7) of
this section regarding entities described in
§ 301.7701-1(a)(4)(i) of this chapter.
* * * * *
(q) Applicability dates—(1) In general.
Except as provided in paragraph (q)(2) of
this section, this section applies to taxable
years ending on or after March 11, 2024.
For taxable years ending before March
11, 2024, taxpayers may choose to apply
the rules of this section and §§ 1.6417-2
through 1.6417-4 and 1.6417-6, provided
the taxpayers apply the rules in their
entirety and in a consistent manner.
(2) Paragraphs (c)(7) and (f) of this
section. Paragraphs (c)(7) and (f) of this
section apply to taxable years beginning
on or after January 1, 2026. For taxable
years beginning before January 1, 2026,
an entity described in § 301.7701-1(a)(4)
(i) of this chapter may choose to apply
paragraphs (c)(7) and (f) of this section,
but only if the Indian Tribal government(s)
that own the entity also apply paragraphs
(c)(7) and (f) of this section consistently
with such entity for all such taxable years.
For the rules that apply to entities that
do not choose to apply paragraphs (c)(7)
and (f) of this section in accordance with
the preceding sentence for taxable years
beginning before January 1, 2026, see
§ 1.6417-1 as contained in 26 CFR part 1,
revised April 1, 2025.
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 3. The authority citation for part
301 is amended by adding an entry for
§ 301.7701-1(a)(4) in numerical order to
read in part as follows:
Authority: 26 U.S.C. 7805.
* * * * *
Section 301.7701-1(a)(4) also issued
under 26 U.S.C. 7701(a)(40).
* * * * *
Par. 4. Section 301.7701-1 is amended
by:
1. Revising paragraph (a)(3);
2. Redesignating paragraph (a)(4) as
paragraph (a)(5);
3. Adding a new paragraph (a)(4); and
4. Revising paragraph (f).
The revisions and addition read as fol-
lows:
§ 301.7701-1 Classification of
organizations for federal tax purposes.
(a) * * *
(3) Certain State and local law entities
not recognized. An entity formed under
State or local law is not always recog-
nized as a separate entity for Federal tax
purposes. For example, an organization
wholly owned by a State is not recognized
as a separate entity for Federal tax pur-
poses if it is an integral part of the State.
(4) Certain Tribal entities—(i) In gen-
eral—(A) Rule. Except as provided in
paragraphs (a)(4)(ii) and (iii) of this sec-
tion, section 17 corporations, section 3 cor-
porations, and wholly owned Tribal entities
(as defined, respectively, in paragraphs (a)
(4)(i)(B) through (D) of this section) are
not recognized as separate entities for Fed-
eral tax purposes and, therefore, are not
subject to Federal income tax.
(B) Definition of section 17 corpo-
ration. The term section 17 corporation
means a federally chartered corporation
incorporated under section 17 of the
Indian Reorganization Act of 1934, as
amended (25 U.S.C. 5124), by the Bureau
of Indian Affairs, as the authorized dele-
gate of the Secretary of the Interior.
(C) Definition of section 3 corpo-
ration. The term section 3 corporation
means a federally chartered corporation
incorporated under section 3 of the Okla-
homa Indian Welfare Act, as amended (25
U.S.C. 5203), by the Bureau of Indian
Affairs, as the authorized delegate of the
Secretary of the Interior.
(D) Definition of wholly owned Tribal
entity. The term wholly owned Tribal entity
means an entity wholly owned by one or
more Indian Tribal governments (within
the meaning of section 7701(a)(40) of the
Code), directly or through other entities
that are not recognized as separate enti-
ties for Federal income tax purposes, that
is organized or incorporated exclusively
under the laws of one or more of the own-
ing Indian Tribal governments. Whether an
entity is organized or incorporated under
the laws of one or more Indian Tribal gov-
ernment(s) is determined without regard to
any specified choice of law or forum.
(ii) Elections under section 6417. See
§ 1.6417-1(c)(7) of this chapter for the
treatment of section 17 corporations, sec-
tion 3 corporations, and wholly owned
Tribal entities described in paragraph (a)
(4)(i) of this section for the purposes of
making an elective payment election under
section 6417 of the Code (section 6417
election), including determining eligibility
for and the consequences of such election.
(iii) Federal employment taxes and
excise taxes. Section 17 corporations,
section 3 corporations, and wholly owned
Tribal entities are treated as separate enti-
ties for Federal employment and certain
Federal excise tax purposes in a manner
identical to the treatment described in
§ 301.7701-2(c)(2)(iv) and (v).
(iv) Examples. The following examples
illustrate the application of paragraphs (a)
(4)(i) through (iii) of this section. For pur-
poses of these examples, all references to
a Tribe are references to an Indian Tribal
government within the meaning of section
7701(a)(40).
(A) Example 1. Tribe B incorporates Corpora-
tion X pursuant to Tribe B’s Corporations Ordinance,
which governs the purpose, formation, and operation
of commercial entities. Tribe B owns all the shares
of Corporation X. Corporation X is therefore wholly
owned by Tribe B and organized or incorporated under
the laws of Tribe B. As a result, Corporation X is not
recognized as a separate entity from Tribe B for Fed-
eral tax purposes, except for the purposes described
in § 1.6417-1(c)(7) of this chapter and paragraph (a)
(4)(iii) of this section. Accordingly, Corporation X is
not subject to Federal income tax. Under § 1.6417-
1(c)(7) of this chapter, Corporation X is treated as an

Bulletin No. 2026–5 415 January 26, 2026
instrumentality of Tribe B for purposes of making a
section 6417 election (including determining eligi-
bility for and the consequences of such election).
Thus, Corporation X, rather than Tribe B, would be
the applicable entity for purposes of making a section
6417 election for any applicable credit (as defined in
section 6417(b)) relating to property held or activities
conducted by Corporation X. Corporation X is treated
as a corporation separate from its owner for Federal
employment tax purposes governed under subtitle C
of the Internal Revenue Code, and as separate from its
owner for the Federal excise tax purposes identified in
§ 301.7701-2(c)(2)(v)(A). The analysis would be the
same if Tribe B had organized its business as a single
member limited liability company (LLC) pursuant
to the Tribe’s business code instead of incorporating
Corporation X.
(B) Example 2. The facts are the same as in
paragraph (a)(4)(iv)(A) of this section (Example
1), except that the board of Corporation X, pursu-
ant to Tribe B’s Corporations Ordinance, organizes
a subsidiary, Corporation Z, to pursue a limited line
of new business. Corporation X owns all the shares
of Corporation Z. Corporation Z is therefore wholly
owned by Tribe B and organized or incorporated
under the laws of Tribe B. As a result, neither Corpo-
ration X nor Corporation Z is recognized as an entity
separate from Tribe B for Federal tax purposes,
except for the purposes described in § 1.6417-1(c)
(7) of this chapter and paragraph (a)(4)(iii) of this
section. Accordingly, Corporation Z is not subject
to Federal income tax. Under § 1.6417-1(c)(7) of
this chapter, Corporation X and Corporation Z are
each treated as an instrumentality of Tribe B for the
purposes of making a section 6417 election (includ-
ing determining eligibility for and the consequences
of such election). Thus, Corporation Z, rather than
Corporation X or Tribe B, is the applicable entity for
purposes of making a section 6417 election for any
applicable credit relating to property held or activ-
ities conducted by Corporation Z. As in paragraph
(a)(4)(iv)(A) of this section (Example 1), Corpora-
tion X would continue to be the applicable entity for
purposes of making a section 6417 election for any
applicable credit relating to property held or activi-
ties conducted by Corporation X. Both Corporation
X and Corporation Z are treated as corporations sep-
arate from their owner for Federal employment tax
purposes governed under subtitle C of the Internal
Revenue Code, and as separate from their owner
for the Federal excise tax purposes identified in
§ 301.7701-2(c)(2)(v)(A). The analysis would be the
same if Tribe B had organized its businesses as sin-
gle member LLCs pursuant to the Tribe’s business
code instead of incorporating Corporations X and Z.
(C) Example 3. Tribe B incorporates a section 17
corporation. The section 17 corporation subsequently
incorporates Corporation J pursuant to Tribe B’s
Corporations Ordinance, which governs the purpose,
formation, and operation of commercial entities. The
section 17 corporation owns all the shares of Corpo-
ration J. Corporation J is therefore treated as wholly
owned by Tribe B and organized or incorporated under
the laws of Tribe B. As a result, Corporation J is not
recognized as a separate entity from Tribe B for Fed-
eral tax purposes, except for the purposes described in
§ 1.6417-1(c)(7) of this chapter and paragraph (a)(4)
(iii) of this section. Accordingly, neither the section
17 corporation nor Corporation J is subject to Fed-
eral income tax. Under § 1.6417-1(c)(7) of this chap-
ter, the section 17 corporation and Corporation J are
each treated as an instrumentality of Tribe B for the
purposes of making a section 6417 election (includ-
ing determining eligibility for and the consequences
of such election). Thus, the section 17 corporation,
rather than Tribe B, would be the applicable entity for
purposes of making a section 6417 election for any
applicable credit relating to property held or activities
conducted by the section 17 corporation. In addition,
Corporation J, rather than Tribe B or the section 17 cor-
poration, would be the applicable entity for purposes
of making a section 6417 election for any applicable
credit relating to property held or activities conducted
by Corporation J. Both the section 17 corporation and
Corporation J are treated as corporations separate from
their owner for Federal employment tax purposes gov-
erned under subtitle C of the Internal Revenue Code,
and as separate from their owner for the Federal excise
tax purposes identified in § 301.7701-2(c)(2)(v)(A).
The analysis would be the same if the section 17 cor-
poration had organized its business as a single member
LLC pursuant to the Tribe’s business code instead of
incorporating Corporation J.
(D) Example 4. Tribe A, Tribe B, Tribe C, and
Tribe D through resolutions approved by their
respective Indian Tribal governments incorporate
Corporation K which is chartered under the Corpora-
tions Ordinance of Tribe A. Each Tribe owns 25% of
the shares of Corporation K. Corporation K is incor-
porated under the laws of one of its owners, Tribe A.
As a result, Corporation K is a wholly owned Tribal
entity and is not recognized as a separate entity from
the Tribes for Federal tax purposes, except for the
purposes described in § 1.6417-1(c)(7) of this chap-
ter and paragraph (a)(4)(iii) of this section. Accord-
ingly, Corporation K is not subject to Federal income
tax. Under § 1.6417-1(c)(7) of this chapter, Corpo-
ration K is treated as an instrumentality of Tribe A,
Tribe B, Tribe C, and Tribe D for the purposes of
making a section 6417 election (including deter-
mining eligibility for and the consequences of such
election). Thus, Corporation K, rather than Tribe A,
Tribe B, Tribe C, or Tribe D, would be the applicable
entity for purposes of making a section 6417 election
for any applicable credit relating to property held or
activities conducted by Corporation K. Corporation
K is treated as a corporation separate from its own-
ers for Federal employment tax purposes governed
under subtitle C of the Internal Revenue Code, and
as separate from its owners for the Federal excise tax
purposes identified in § 301.7701-2(c)(2)(v)(A). The
analysis would be the same if Tribe A, Tribe B, Tribe
C, and Tribe D had organized their business as an
LLC pursuant to Tribe A’s business code instead of
incorporating Corporation K.
(E) Example 5. Tribe A incorporates Corpo-
ration L pursuant to Tribe A’s Corporations Ordi-
nance, which governs the purpose, formation, and
operation of commercial entities. Corporation L
subsequently incorporates Corporation M pursuant
to Tribe A’s Corporations Ordinance. Tribe A owns
all the shares of Corporation L, and Corporation L
owns all the shares of Corporation M. Corporations
L and M are therefore wholly owned by Tribe A and
organized or incorporated under the laws of Tribe
A. In a later year, Tribe B, in agreement with Tribe
A, acquires some, but not all, shares of Corporation
M. Corporations L and M continue to be considered
as wholly owned by Indian Tribal governments and
were incorporated under the laws of an Indian Tribal
government that owns them. As a result, neither Cor-
poration L nor Corporation M is recognized as a sep-
arate entity from the Tribes that own them for Fed-
eral tax purposes, except for the purposes described
in § 1.6417-1(c)(7) of this chapter and paragraph (a)
(4)(iii) of this section. Accordingly, Corporations L
and M are not subject to Federal income tax. Under
§ 1.6417-1(c)(7) of this chapter, Corporation L is
treated as an instrumentality of Tribe A, and Corpo-
ration M is treated as an instrumentality of Tribe A
and Tribe B, for the purposes of making a section
6417 election (including determining eligibility for
and the consequences of such election). Thus, Cor-
porations L and M, rather than Tribe A or Tribe B,
would be the applicable entities for purposes of mak-
ing a section 6417 election for any applicable credit
relating to property held or activities conducted by
Corporations L and M, respectively. Both Corpora-
tion L and Corporation M are treated as corporations
separate from their owners for Federal employment
tax purposes governed under subtitle C of the Inter-
nal Revenue Code, and as separate from their own-
ers for the Federal excise tax purposes identified in
§ 301.7701-2(c)(2)(v)(A). The analysis would be
the same if Tribe A had organized its businesses as
LLCs pursuant to Tribe A’s business code instead of
incorporating Corporations L and M, and had Tribe
B acquired a membership interest instead of stock.
* * * * *
(f) Applicability dates—(1) In general.
Except as provided in paragraph (f)(2) of
this section, the rules of this section are
applicable as of January 1, 1997.
(2) Exceptions—(i) Paragraph (a)(4)
of this section. The rules of paragraph (a)
(4) of this section apply to taxable periods
beginning on or after January 1, 2026. An
entity may choose to apply paragraph (a)
(4) of this section to taxable periods begin-
ning before January 1, 2026, for which the
applicable period of limitations is open.
(ii) Paragraph (c) of this section. The
rules of paragraph (c) of this section are
applicable on January 5, 2009.
Frank J. Bisignano,
Chief Executive Officer.
Approved: November 12, 2025.
Kenneth J. Kies,
Assistant Secretary of the Treasury
(Tax Policy).
(Filed by the Office of the Federal Register Decem-
ber 15, 2025, 8:45 a.m., and published in the issue
of the Federal Register for December 16, 2025, 90
FR 58151)

January 26, 2026 416 Bulletin No. 2026–5
26 CFR 1.139E-1: Tribal General Welfare Benefits
T.D. 10040
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Tribal General Welfare
Benefits
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final rule.
SUMMARY: This document contains
final regulations regarding the exclu-
sion from gross income of certain Tribal
general welfare benefits. The regulations
address the requirements that apply to
determine whether the benefits an Indian
Tribal government program provides
qualify as Tribal general welfare bene-
fits. These regulations affect Indian Tribal
governments, agencies or instrumentali-
ties of such governments, Federally rec-
ognized Tribes, members of such Tribes,
such members’ spouses and dependents,
and other Tribal program participants.
DATES: Effective date: These final reg-
ulations are effective on December 16,
2025.
Applicability date: These final regu-
lations apply for taxable years beginning
after December 16, 2025.
FOR FURTHER INFORMATION
CONTACT: Jonathan A. Dunlap at (202)
317-4718 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Authority
This document contains amendments
to the Income Tax Regulations (26 CFR
part 1) under sections 139E and 7872 of
the Internal Revenue Code (Code).
Section 139E(c)(3) provides an express
delegation of authority for the Secretary
of the Treasury or the Secretary’s dele-
gate (Secretary), “in consultation with
the Tribal Advisory Committee (as estab-
lished under section 3(a) of the Tribal
General Welfare Exclusion Act of 2014),
[to] establish guidelines for what consti-
tutes lavish or extravagant benefits with
respect to Indian tribal government pro-
grams.”
The regulations are also issued under
the express delegations of authority under
sections 7805(a) and 7872(i) of the Code.
Section 7805(a) authorizes the Secretary
to “prescribe all needful rules and regula-
tions for the enforcement of [the Code],
including all rules and regulations as may
be necessary by reason of any alteration
of law in relation to internal revenue.”
Section 7872(i) authorizes the Secretary
to “prescribe such regulations as may be
necessary or appropriate to carry out the
purposes of this section, including...regu-
lations exempting from the application of
this section any class of transactions the
interest arrangements of which have no
significant effect on any Federal tax liabil-
ity of the lender or the borrower.”
Background
I. The Tribal General Welfare Exclusion
Act of 2014
The Tribal General Welfare Exclusion
Act of 2014 (Act), Public Law 113-168,
128 Stat. 1883 (2014), as enacted on Sep-
tember 26, 2014, among other things,
amended the Code by adding section
139E. Under section 139E, gross income
of an individual does not include the value
of any “Indian general welfare benefit.”
Section 139E(b) defines an Indian gen-
eral welfare benefit as any payment made
or services provided to or on behalf of
a member of a Tribe (or any spouse or
dependent of such a member) pursuant
to an Indian Tribal government program,
but only if: (1) the program is adminis-
tered under specified guidelines and does
not discriminate in favor of members of
the governing body of the Tribe, and (2)
the benefits provided under such program
are (A) are available to any Tribal member
who meets such guidelines, (B) for the pro-
motion of general welfare, (C) not lavish
or extravagant, and (D) not compensation
for services. Further, section 139E(c)(5)
provides that any items of cultural signif-
icance, reimbursement of costs, or cash
honorarium for participation in cultural or
ceremonial activities for the transmission
of Tribal culture “shall not be treated as
compensation for services” for purposes
of section 139E. This preamble and the
final regulations refer to an Indian general
welfare benefit as a “Tribal General Wel-
fare Benefit.”
Section 2(c) of the Act provides that
ambiguities in section 139E are to be
resolved in favor of Indian Tribal gov-
ernments. Section 2(c) of the Act also
requires that deference be given to Indian
Tribal governments for the programs
administered and authorized by the Tribe
to benefit the general welfare of the Tribal
community.
Section 2(d)(1) of the Act provides that
section 139E applies to taxable years for
which the period of limitation on refund
or credit under section 6511 of the Code
has not expired. Section 2(d)(2) of the Act
provides that if the period of limitation on
a credit or refund resulting from the enact-
ment of section 139E expires before the
end of the 1-year period beginning on the
date of the enactment of the Act, refund or
credit of such overpayment (to the extent
attributable to such amendments) may,
nevertheless, be made or allowed if claim
therefor is filed before the close of such
1-year period.
Section 3 of the Act requires the Sec-
retary of the Treasury to establish a Tribal
Advisory Committee. The Department of
the Treasury Tribal Advisory Commit-
tee (TTAC) held its inaugural meeting
on June 20, 2019. Under section 3(b) of
the Act, the TTAC’s mandate is to advise
the Secretary of the Treasury on matters
relating to the taxation of Indians, and
the Secretary of the Treasury is required
to consult with the TTAC to establish and
require training and education for inter-
nal revenue field agents who administer
and enforce internal revenue laws. This
includes (A) training and education with
respect to Federal Indian law and the Fed-
eral Government’s unique legal treaty and
trust relationship with Indian Tribal gov-
ernments, and (B) training of such inter-
nal revenue field agents, and provision of
training and technical assistance to Tribal
financial officers, about implementation of
the Act and the amendments made by the
Act.

Bulletin No. 2026–5 417 January 26, 2026
Section 4(a) of the Act requires the
Secretary of the Treasury to temporarily
suspend “all audits and examinations of
Indian tribal governments and members of
Tribes (or any spouse or dependent of such
a member), to the extent such an audit or
examination relates to the exclusion of a
payment or benefit from an Indian tribal
government under the general welfare
exclusion” until the training and educa-
tion previously described is completed.
Section 4(a) further provides that the
running of the period of limitation under
section 6501 of the Code with respect to
Indian Tribal governments and members
of Indian Tribes is suspended during the
period in which such audits and examina-
tions are suspended.
II. Prior Guidance
Revenue Procedure 2014-35 (2014-
26 I.R.B. 1110), which was issued before
section 139E was enacted, provided safe
harbors under which the IRS conclusively
presumed the individual need require-
ment of the administrative general wel-
fare exclusion is met for benefits provided
under Indian Tribal government programs
that meet the safe harbor requirements. In
addition, the revenue procedure provided
that the IRS will not assert that recipi-
ents of benefits under a safe harbor must
include the value of those benefits in gross
income or that the benefits are subject to
the information reporting requirements of
section 6041 of the Code.
Following the enactment of section
139E, the Department of Treasury (Trea-
sury Department) and the IRS published
Notice 2015-34 (2015-18 I.R.B. 942),
providing guidance to taxpayers regard-
ing the effect of section 139E on Revenue
Procedure 2014-35. Notice 2015-34 pro-
vides that taxpayers can rely on Revenue
Procedure 2014-35 for the safe harbors
under which certain benefits provided by
Indian Tribal government programs may
be excluded from gross income under the
administrative general welfare exclusion.
Additionally, Notice 2015-34 requested
comments on issues that future guidance
might address regarding the implementa-
tion of section 139E and other parts of the
Act.
On June 16, 2021, the TTAC’s General
Welfare Exclusion Subcommittee (TTAC
GWE Subcommittee) submitted to the
TTAC a report (TTAC Report) containing
the TTAC GWE Subcommittee’s interpre-
tation of the core principles underlying
section 139E, and an Appendix contain-
ing draft proposed regulations interpreting
section 139E (TTAC draft proposed reg-
ulations), consistent with those core prin-
ciples. On October 26, 2022, the TTAC
formally recommended and approved
the TTAC Report to be submitted for the
record and published for Tribal comment.
The Treasury Department sent a Tribal
consultation letter, dated October 27, 2022
(2022 Dear Tribal Leader Letter), to Tribal
leaders to request consultation on the Act
and the TTAC Report. The 2022 Dear
Tribal Leader Letter announced consulta-
tion meetings to be held on December 14,
15, and 16, 2022 (December 2022 Consul-
tations), to discuss the Act and the TTAC
Report. In response to the 2022 Dear Tribal
Leader Letter, and after the December
2022 Consultations, the Treasury Depart-
ment received 65 written comments from
Tribes and two Tribal organizations (col-
lectively, 2022 Tribal Comments).
On September 17, 2024, following
extensive consultation with TTAC, the
Treasury Department and the IRS pub-
lished a notice of proposed rulemaking
(REG-106851-21) in the Federal Register
(89 FR 75990) under section 139E (pro-
posed regulations). The proposed regula-
tions reflect consideration of the TTAC
Report, December 2022 Consultations,
2022 Tribal Comments, and consultation
with the TTAC and the TTAC GWE Sub-
committee.
The Treasury Department sent a Tribal
consultation letter, dated September 13,
2024 (2024 Dear Tribal Leader Letter), to
Tribal leaders to request consultation on
the proposed regulations. The 2024 Dear
Tribal Leader Letter announced consulta-
tion meetings to be held on November 18,
19, and 20, 2024 (November 2024 Con-
sultations), to discuss the proposed regula-
tions. In response to the 2024 Dear Tribal
Leader Letter and after the November
2024 Consultations, the Treasury Depart-
ment received 103 written comments from
Tribes and Tribal organizations (collec-
tively, 2024 Tribal Comments).
A public hearing on the proposed reg-
ulations was held on January 13, 2025, at
which five speakers provided testimony.
The Treasury Department and the IRS
received 41 public comments in response
to the notice of proposed rulemaking.
Copies of the comments are available for
public inspection at http://www.regula-
tions.gov or upon request.
After considering all of the public com-
ments, 2024 Tribal Comments, speaker
outlines, and testimony (collectively,
comments) received in response to the
proposed regulations, and extensive con-
sultation with the TTAC GWE Subcom-
mittee, the Treasury Department and the
IRS adopt the proposed regulations, as
revised in response to such comments, as
final regulations. The comments and the
revisions are discussed in the following
Summary of Comments and Explanation
of Revisions section of this preamble.
The Treasury Department and the IRS
emphasize that the scope of tribal gen-
eral welfare under section 139E and these
regulations is broader than the scope of
general welfare under the administrative
general welfare doctrine, which is gen-
erally limited to governmental programs
providing benefits based on need. This
broader scope is due both to specific lan-
guage in section 139E itself, such as the
language in section 139E(c)(5) providing
that certain benefits for participating in
certain cultural or ceremonial activities
shall not be treated as compensation, and
to the language in section 2(c) of the Act
providing that ambiguities in the Act are
to be resolved in favor of Indian Tribal
governments and that deference must be
given to Indian Tribal governments with
respect to the programs they determine are
to benefit the general welfare of the tribal
community. Accordingly, section 139E
and these final regulations do not provide
any basis for analyzing the applicability
of the administrative general welfare doc-
trine to any benefit.
Summary of Comments and
Explanation of Revisions
I. Overview
This Summary of Comments and
Explanation of Revisions summarizes
the formal written public comments sub-
mitted in response to the proposed reg-
ulations; comments made at the public
hearing announced in the preamble to the

January 26, 2026 418 Bulletin No. 2026–5
proposed regulations and held on January
13, 2025; written Tribal comments pro-
vided in connection with Treasury Tribal
consultations; and comments made in
connection with the TTAC GWE Sub-
committee consultations addressing the
proposed regulations. Comments merely
summarizing or interpreting the proposed
regulations generally are not discussed in
this preamble.
Most of the commenters expressed gen-
eral approval of the proposed regulations
and support for the deference provided
for Tribal sovereignty; Tribal self-deter-
mination; Tribal self-governance; and the
diverse traditions, governance structures,
cultures, geographies, and economic con-
ditions of Tribal Nations and their citi-
zens. Several commenters appreciated
the clarity provided in the proposed reg-
ulations, noting that the lack of guidance
on this topic has hampered Tribal general
welfare programs and that the regulations
will enable Tribes to review and update
existing Tribal general welfare programs
to meet the requirements of section
139E. One commenter underscored the
importance of excluding benefit amounts
for housing and education, which are
designed to address the negative impacts
of prior policies, from tax.
A few commenters expressed oppo-
sition to all Federal taxation of Tribes;
opposition to what a commenter describes
as the proposed regulations’ “racist, pater-
nalistic, ethnocentric, contrary to inter-
national law, and contrary to self-deter-
mination” character and the proposed
regulations’ purported failure to put Tribal
general welfare issues under the sole juris-
diction of Tribes; opposition to purported
interference with Congressional intent
regarding the taxation, self-determination,
and self-governance of Tribes; opposition
to changes to current regulations; and
opposition to the placement of arbitrary
barriers on Tribal general welfare.
The Treasury Department and the IRS
have engaged in extensive consultation
with the TTAC and Tribal leaders, prior to
and following the issuance of the proposed
regulations. The Treasury Department and
the IRS have worked to address all con-
cerns expressed in public comments and
consultation to the extent permitted by
the Act and section 139E. The comments
received are addressed in more detail in
parts II through X of this Summary of
Comments and Explanation of Revisions.
Many commenters supported the def-
erence provided to Indian Tribal govern-
ments in the proposed regulations and the
acknowledgment that Tribal governments
are best positioned to define, establish,
and administer general welfare programs
for their citizens, particularly with regard
to Tribal determinations of the promo-
tion of the general welfare and the iden-
tification of activities as having cultural
significance. These commenters further
appreciated that this approach recognizes
the Indian Tribal governments’ inherent
sovereignty, right to self-determination,
and right to self-governance.
A few commenters referred to section
2(c) of the Act as evincing Congressional
intent for deference to be given to Indian
Tribal governments in the design and
implementation of their general welfare
programs without undue interference from
the Federal government. Some comment-
ers recommended that section 2(c) of the
Act be specifically included in the final
regulations because it is a key founda-
tion of the Act and would be important to
understanding section 139E and the regu-
lations in the future.
The Treasury Department and the
IRS agree with commenters that section
2(c) of the Act is central to the interpre-
tation of section 139E and that ambigu-
ities in section 139E must be resolved
in favor of Indian Tribal governments
and deference to Indian Tribal govern-
ments must be provided for the programs
that are administered and authorized by
the Tribe to benefit the general welfare
of the Tribal community. The Treasury
Department and the IRS applied section
2(c) of the Act when drafting these reg-
ulations in a manner that provides def-
erence to Indian Tribal governments and
interprets ambiguities in section 139E in
favor of the Indian Tribal governments.
Notwithstanding that section 2(c) of the
Act supplied these central principles that
were used when drafting these final reg-
ulations, the Treasury Department and
the IRS agree with commenters that it is
helpful to include the language from sec-
tion 2(c) of the Act in new §1.139E-1(f)
and remaining paragraphs are renum-
bered accordingly. Section 1.139E-1(f)
thus ensures the Congressional intent of
deference to Tribes for programs admin-
istered and authorized under the Act
is preserved when interpreting section
139E.
II. Section 139E Definitions
A. Definition of Indian Tribal
Government
Under section 7701(a)(40)(A) of the
Code, the term “Indian Tribal govern-
ment” when used in the Code and “where
not otherwise distinctly expressed or
manifestly incompatible with the intent
thereof,”
1
means “the governing body of
any tribe, band, community, village, or
group of Indians, or (if applicable) Alaska
Natives, which is determined by the Secre-
tary, after consultation with the Secretary
of the Interior, to exercise governmen-
tal functions.” Section 7701(a)(40)(B)
further provides that “[n]o determination
under subparagraph (A) with respect to
Alaska Natives shall grant or defer any
status or powers other than those enumer-
ated in section 7871 [of the Code]. Noth-
ing in the Indian Tribal Governmental Tax
Status Act of 1982, or in the amendments
made thereby, shall validate or invalidate
any claim by Alaska Natives of sovereign
authority over lands or people.”
Section 139E(c)(1) of the Code
expressly provides a broader meaning of
the term “Indian Tribal government” for
purposes of section 139E. The broader
meaning is arrived at by adding two addi-
tional sets of entities to the Code’s gen-
eral definition of “Indian Tribal govern-
ment.” The first set of additional entities
includes “any agencies or instrumentali-
ties of an Indian Tribal government.” The
second set of additional entities includes
“any Alaska Native regional or village
corporation, as defined in, or established
pursuant to, the Alaska Native Claims
Settlement Act (43 U.S.C. 1601 et seq.).”
An entity described in this second set of
1
Per the flush language of section 7701(a), each definition provided therein is generally applicable under provisions of the Code “where not otherwise distinctly expressed or manifestly
incompatible with the intent thereof.”

Bulletin No. 2026–5 419 January 26, 2026
additional entities is referred to in this
preamble as an “Alaska Native regional
or village corporation.”
Proposed §1.139E-1(b)(4) addressed
only the first set of entities included in
the definition of Indian Tribal government
in section 139E(c)(1) and clarified that
for purposes of proposed §1.139E-1, the
term “Indian Tribal Government” has the
meaning provided in section 7701(a)(40)
of the Code, and, as provided in section
139E(c)(1), also includes agencies and
instrumentalities of such Indian Tribal
governments. The proposed regulations
did not address Alaska Native regional
or village corporations in the definition
of Indian Tribal government for purposes
of the rules in §1.139E-1. Instead, the
proposed regulations reserved proposed
§1.139E-2 for future rules to clarify the
application of section 139E to benefits
provided by Alaska Native regional or vil-
lage corporations.
While one commenter expressed sup-
port for the application of the proposed
regulations to “Alaska Native Americans,”
several commenters objected to the omis-
sion of Alaska Native regional or village
corporations from the definition of Indian
Tribal government and from consultation
prior to the issuance of the proposed reg-
ulations. These commenters argued that
Alaska Native regional or village corpo-
rations should have been included in the
definition in proposed §1.139E-1 and
invited to participate in the Tribal consul-
tation, and that their omission is contrary
to Congressional intent, the statutory lan-
guage of section 139E, the holding in Ye l-
len v. Confederated Tribes of the Cheha-
lis Reservation, 594 U.S. 338 (2021), the
Indian Self-Determination and Education
Assistance Act (ISDEAA), Public Law
93-638, 88 Stat. 2203 (1975), and Execu-
tive Order 13175, Consultation and Coor-
dination with Indian Tribal Governments
(November 9, 2000).
These commenters expressed con-
cern that the omission of Alaska Native
regional or village corporations from this
definition may suggest section 139E is not
applicable to Alaska Native regional or
village corporations, with one commenter
suggesting shareholders of Alaska Native
regional or village corporations who are
not otherwise members of Tribes could be
disproportionately impacted.
One commenter requested consulta-
tion with Alaska Native regional or vil-
lage corporations be held immediately
and that the Treasury Department and the
IRS publish a proposed regulation under
§1.139E-2 with notice and comment on
such regulation prior to issuing final regu-
lations under §1.139E-1.
The Treasury Department and the IRS
understand the concerns raised by these
comments and agree with commenters
that section 139E(c)(1) includes Alaska
Native regional or village corporations in
the definition of Indian Tribal government
for purposes of section 139E. The omis-
sion of Alaska Native regional or village
corporations from the definition of Indian
Tribal government in proposed §1.139E-1
was never intended to suggest Indian gen-
eral welfare benefits cannot be provided
by an Alaska Native regional or village
corporation to or on behalf of its members
(or any spouse or dependent of such mem-
bers). Thus, the Treasury Department and
the IRS agree that section 139E permits
Alaska Native regional or village corpo-
rations to provide Indian general welfare
benefits, and that other provisions of the
Act also apply to Alaska Native regional
or village corporations.
The Treasury Department and the IRS
therefore held consultation with Alaska
Native regional or village corporations
on section 139E on July 29, 2025. The
feedback received during this consulta-
tion will help the Treasury Department
and the IRS determine what customiza-
tions of the rules in §1.139E-1 may be
useful in promulgating regulations under
§1.139E-2 that will apply specifically to
Alaska Native regional or village corpo-
rations and make more clear their ability
to provide benefits under section 139E.
As part of this consultation, the Treasury
Department and the IRS asked ques-
tions of Alaska Native regional or vil-
lage corporations, the answers to which
will inform the drafting of regulations
tailored to the needs of Alaska Native
regional or village corporations to imple-
ment section 139E more effectively. The
Treasury Department and the IRS expect
the process of promulgating additional
final regulations under §1.139E-2 will be
similar to the process used to promulgate
§1.139E-1 applicable to Federally recog-
nized Tribes.
Accordingly, these final regulations
under §1.139E-1 do not include Alaska
Native regional or village corporations in
the definition of Indian Tribal government
found in §1.139E-1(b)(4). However, see
part X.B. of this Summary of Comments
and Explanation of Revisions for a dis-
cussion of the consultation and the abil-
ity of Alaska Native regional or village
corporations to choose to apply the rules
of §1.139E-1 as included in this Treasury
decision pending the promulgation of
additional regulations under §1.139E-2.
B. Definition of Tribe
Proposed §1.139E-1(b)(7) would
define “Tribe” as any Indian Tribe, band,
nation, pueblo, or other organized group
or community, including any Alaska
Native village as defined in 43 U.S.C.
1602(c), that is recognized as eligible
for the special programs and services
provided by the United States to Indians
because of their status as Indians. Alaska
Native regional or village corporations are
excluded from this definition of Tribe.
Two commenters requested Alaska
Native regional or village corporations
be included in the definition of Tribe in
§1.139E-1(b)(7) of the final regulations.
The Treasury Department and the IRS
decline to modify the definition of Tribe in
§1.139E-1(b)(7) of these final regulations
because subsequent guidance promulgated
at §1.139E-2 will specifically address the
application of the requirements of section
139E to Alaska Native regional or village
corporations. The Treasury Department
and the IRS acknowledge that Alaska
Native regional or village corporations
can have programs that qualify to provide
general welfare benefits that are exclu-
dible from gross income under section
139E. However, the Treasury Department
and the IRS intend to issue future guid-
ance specific to the unique circumstances
of Alaska Native regional or village cor-
porations. See, however, part X.B. of this
Summary of Comments and Explana-
tion of Revisions for further discussion
of the consultation with Alaska Native
regional or village corporations and the
ability of an Alaska Native regional or
village corporation to choose to apply
the rules of §1.139E-1 as included in this
Treasury decision pending the promulga-

January 26, 2026 420 Bulletin No. 2026–5
tion of additional final regulations under
§1.139E-2.
C. Definition of Tribal Program
Participant
1. In General
Proposed §1.139E-1(b)(8) would pro-
vide that the term “Tribal program par-
ticipant” means a Tribal member, spouse
of a Tribal member within the meaning
of §301.7701-18 of the Procedure and
Administration Regulations (26 CFR part
301), spouse of a Tribal member under
applicable Tribal law, dependent of a
Tribal member, or other individual who
has been determined by the Indian Tribal
government to be eligible for a Tribal gen-
eral welfare benefit because such individ-
ual is, with respect to a Tribal member,
an ancestor, descendant, former spouse,
widow or widower, legally recognized
domestic partner or former domestic part-
ner.
Most commenters supported the
breadth of, and deference provided by, the
definition of Tribal program participant in
proposed §1.139E-1(b)(8) and supported
the use of Tribal law to determine eligible
program participants. Some commenters
requested that Indian Tribal government
programs be able to cover additional cat-
egories of recipients, including unenrolled
individuals in the community; step-par-
ents, custodians, guardians, and foster
parents of an Indian child; and other mem-
bers of the same household. Commenters
broadly requested Tribes be able to define
the categories listed in the Tribal program
participant definition in the proposed reg-
ulations.
The Treasury Department and the IRS
generally decline to expand the definition
of Tribal program participant in these final
regulations to individuals that are unen-
rolled members of the Tribal community.
These individuals are neither members of
an Indian Tribe (or any spouse or depen-
dent of such a member) as described under
section 139E(b), nor “qualified nonmem-
bers” under Revenue Procedure 2014-35.
The Treasury Department and the IRS
have determined the statutory language
and legislative history generally do not
support an extension of section 139E
beyond the individuals provided in the
definition of Tribal program participant
under proposed §1.139E-1(b)(8).
However, the Treasury Department and
the IRS have determined the definition of
Tribal program participant should be clar-
ified to include an individual for whom a
Tribal member is a caregiver authorized
under Tribal or State law. The Treasury
Department and the IRS understand a
Tribal member may be legally authorized
or required to be a caregiver for an indi-
vidual even though such individual is not
otherwise eligible to receive payments
under the Indian Tribal government pro-
gram. This definitional change from the
proposed regulations is a clarification of
the deference given to Indian Tribal gov-
ernment programs to determine whether
providing benefits to a Tribal member to
care for such individuals is for the promo-
tion of general welfare.
2. Special rule for Ceremonial or Cultural
Activities
Proposed §1.139E-1(b)(8)(ii) would
provide that, solely for purposes of pro-
posed §1.139E-1(e), the definition of
Tribal program participant may include
a member or citizen of a Tribe other than
the Tribe that establishes or maintains the
Indian Tribal government program that
provides the Tribal general welfare ben-
efit.
One commenter recommended that
proposed §1.139E-1(b)(8)(ii) should be
revised to include benefits provided by
an Indian Tribal government program,
according to the custom of certain Tribes,
to the spouse of a member or citizen of
a different Tribe. Other commenters
requested that final §1.139E-1(b)(8)(ii)
apply to indigenous people from outside
the United States, including Canada, Mex-
ico, and South America, if these individu-
als participate in a Tribe’s ceremonial and
cultural activities for the transmission of
Tribal culture.
Accordingly, §1.139E-1(b)(8)(ii) of
these final regulations provides that,
solely for purposes of §1.139E-1(e), relat-
ing to cultural or ceremonial activities, the
definition of “Tribal program participant”
includes, in addition to a member or citi-
zen of a different Tribe, other individuals
described in §1.139E-1(b)(8)(i). For pur-
poses of this addition, in applying para-
graph §1.139E-1(b)(8)(i), such member
or citizen of another Tribe will be treated
as a Tribal Member. The Treasury Depart-
ment and the IRS understand that a mem-
ber or citizen of another Tribe, the spouse
and certain other family members of the
member or citizen of another Tribe, may
also participate in another Tribe’s cultural
or ceremonial activities. As such, these
final regulations broaden the special rule
of §1.139E-1(b)(8)(ii), which continues to
apply solely for purposes of §1.139E-1(e).
However, the Treasury Department
and the IRS have determined that the ben-
efits that section 139E refers to are those
provided to or on behalf of members of a
Tribe (or any spouse or dependent of such
a member). “Tribe” is defined by reference
to section 45A(c)(6) of the Code, which
generally refers to Federally recognized
Tribes. Accordingly, §1.139E-1(b)(8)(ii)
of these final regulations does not expand
the reference to members or citizens of a
different Tribe to include members or cit-
izens of non-Federally recognized Tribes
whether located in or outside of the United
States.
D. Definition of Dependent
Proposed §1.139E-1(b)(10) would
define the term “dependent” in accordance
with section 139E(c)(2). However, for
ease of readability, the proposed regula-
tions would not cite the specific Code sec-
tions but instead would describe the rules
for determining who is a dependent under
section 152(a) of the Code without regard
to section 152(b)(1), (b)(2), and (d)(1)(B).
Several commenters recommended that
Tribes should be given broad deference,
or “sole discretion,” to define the term
dependent under Tribal law for purposes
of section 139E and the final regulations,
or otherwise provide a presumption that
the Indian Tribal government’s definition
of dependent is valid. These comment-
ers highlighted that dependent may be
defined differently under the law of each
Indian Tribal government, or that a Tribe
may lack sufficient information to deter-
mine whether a general welfare program
recipient, including a non-member child,
is eligible for benefits under section 139E
and the proposed regulations.
The Treasury Department and the IRS
decline to change the definition of depen-

Bulletin No. 2026–5 421 January 26, 2026
dent in these final regulations, as this term
is expressly defined in section 139E(c)(2).
The statute unambiguously defines depen-
dent, as provided in section 152 as mod-
ified by section 139E(c)(2). However,
these final regulations clarify that for
purposes of section 139E the term depen-
dent has the meaning provided in section
152 determined without regard to section
152(b)(1), (b)(2), and (d)(1)(B).
III. Indian Tribal Government Program
Proposed §1.139E-1(c) would provide
certain requirements that a program must
meet to constitute an “Indian Tribal gov-
ernment program” for purposes of section
139E and the proposed regulations. These
requirements are: (1) the program must be
established by an Indian Tribal govern-
ment, (2) the program must be adminis-
tered under specified guidelines, and (3)
the program cannot discriminate in favor
of members of the governing body. Each
requirement is discussed in more detail in
this part III.
A. Program Must be Established
Proposed §1.139E-1(c)(2) would pro-
vide that a program must be established
by an Indian Tribal government. The
program may be established by Tribal
custom, government practice, or formal
action of the Indian Tribal government
under applicable Tribal law. The proposed
regulations also would provide that, to the
extent permitted by applicable Tribal law,
an Indian Tribal government may delegate
authority to establish general welfare pro-
grams to a designated individual or entity
of the Indian Tribal government. More-
over, the proposed regulations would pro-
vide that an Indian Tribal government is
not required to set forth the program in a
written document unless applicable Tribal
law requires a writing as part of the formal
actions of the Indian Tribal government.
Many commenters approved of the
flexible program documentation require-
ments, noting that this flexibility reflects
respect for the diverse traditions and
governance structures of Tribal nations
by allowing programs to be established
through Tribal customs, practices, or
formal written policies. These comment-
ers noted that such respect is essential to
meaningful self-determination. However,
one commenter recommended that the
final regulations include guidance on what
documentation is necessary for programs
established before the documentation
standards provided in the proposed reg-
ulations, and recommended that Indian
Tribal governments be permitted to affirm
or establish multiple existing programs
with a single, blanket action. The com-
menter also requested the final regulations
recognize Tribal laws that provide a less
formal path to establish programs.
The Treasury Department and the IRS
have determined that no modifications
are needed in these final regulations to
the text used in proposed §1.139E-1(c)
(2). Section 139E(c)(4) and §1.139E-1(c)
(2) allow a program to be established by
Tribal custom or government practice,
and defer to Tribal law to determine what
formal action, if any, of the Indian Tribal
government is necessary to establish a
program. Section 1.139E-1(c)(2) provides
deference to the Indian Tribal government
to determine whether a program is to be
established by Tribal custom or govern-
ment practice, or by formal action of the
Indian Tribal government. Thus, in gen-
eral, the Treasury Department and the IRS
would respect an Indian Tribal govern-
ment’s action of affirming or establishing
multiple existing programs with a single
formal action as satisfying §1.139E-1(c)
(2) if such action is permitted by Tribal
law.
The Treasury Department and the IRS
also decline to depart from the language
of the proposed regulation to provide
examples of less formal ways that may
be used to establish a program because
§1.139E-1(c)(2) already provides that
“formal action” means authorization of
the program pursuant to Tribal law. The
Treasury Department and the IRS intend
that §1.139E-1(c)(2) provides deference
to the Indian Tribal government, subject
to the application of its Tribal laws, to
determine the process required to estab-
lish programs.
B. Program Must be Administered Under
Specified Guidelines
Proposed §1.139E-1(c)(3) would pro-
vide the requirements for the administra-
tion of the program under specified guide-
lines. In general, the specified guidelines
of the program represent the framework
for the program’s operations. Under pro-
posed §1.139E-1(c)(3), the specified
guidelines of the program must include, at
a minimum, a description of the program
to provide Tribal general welfare bene-
fits, the benefits provided by the program
(including how the benefits are deter-
mined), the eligibility requirements for
the program, and the process for receiving
benefits under the program. While Indian
Tribal governments may choose to set
forth the specified guidelines in writing,
an Indian Tribal government program is
not required to memorialize the specified
guidelines in a writing.
Many commenters approved of the
flexibility in the proposed regulations
to develop program guidelines, which
is essential to meaningful self-determi-
nation, and recommended that the final
regulations not add additional require-
ments that could negatively impact the
deference to Tribes and the recognition of
their varied and unique governance struc-
tures. To that end, one commenter recom-
mended that the final regulations provide
that Indian Tribal governments have the
sole discretion to determine the form and
content of specified guidelines, consistent
with Tribal law.
Section 139E(b)(1) provides that an
Indian Tribal government program must
be administered under specified guide-
lines. However, the Treasury Department
and the IRS acknowledge that Indian
Tribal governments are entitled to def-
erence for the programs they establish
and administer. Proposed §1.139E-1(c)
(3) would also provide that in addition to
the minimum details described above, the
Indian Tribal government may provide
additional details in the program’s speci-
fied guidelines and choose to memorialize
this information in a writing. However,
proposed §1.139E-1(c)(3) would not
require the specified guidelines to be in
writing.
Several commenters requested clarifi-
cation or removal of one of the minimum
requirements for specified guidelines in
proposed §1.139E-1(c)(3). Specifically,
these commenters considered the paren-
thetical phrase, “(including how bene-
fits are determined),” to be ambiguous.
The commenters suggested the phrase is

January 26, 2026 422 Bulletin No. 2026–5
either redundant with the requirement for
a description of the “eligibility require-
ments,” or alternatively requires an Indian
Tribal government to provide detailed
justification of any benefits provided, con-
trary to the general deference provided to
Indian Tribal governments in the proposed
regulations.
The parenthetical phrase in proposed
§1.139E-1(c)(3), “(including how ben-
efits are determined),” was intended by
the Treasury Department and the IRS to
require the specified guidelines of a pro-
gram to include information as to how the
type of benefit provided under the program
would promote the Indian Tribal govern-
ment’s general welfare goal. The Treasury
Department and the IRS acknowledge
many commenters found the language to
be unclear and have determined that the
language is unnecessary because its intent
is adequately addressed by the other spec-
ified guidelines. Thus, §1.139E-1(c)(3)
of the final regulations states in relevant
part that the “specified guidelines must
include, at a minimum, a description of the
program to provide Tribal General Wel-
fare Benefits, the eligibility requirements
for the program, a description of the type
of benefits authorized by the program, and
the process for receiving benefits under
the program.”
One commenter expressed further
concern that proposed §1.139E-1(c)(3) is
ambiguous in its application or applicabil-
ity to programs created prior to the issu-
ance of proposed or final regulations under
section 139E, or programs for which the
requirements are set forth in several doc-
uments or actions, as may be required to
meet the acute needs of the community.
The specified guidelines provided in
§1.139E-1(c)(3) are minimum program
guidelines that are fundamental to the
operation of a Tribal general welfare pro-
gram under section 139E. The Treasury
Department and the IRS understand that
some transition time may be necessary
to ensure Indian Tribal government pro-
grams meet both the establishment and
the administration requirements (includ-
ing the specified guidelines requirement).
Section 1.139E-1(c)(3) does not pro-
vide guidance on transition for existing
programs because transitional rules are
more broadly provided elsewhere in these
regulations. Specifically, §1.139E-1(h)
provides that Indian Tribal governments
and Tribal program participants will be
required to apply the final regulations to
taxable years of Tribal program partic-
ipants that begin on or after January 1,
2027, while also allowing Indian Tribal
governments the ability to choose to apply
the rules of §1.139E-1, in their entirety, to
benefits provided to Tribal program par-
ticipants in prior taxable years. The Trea-
sury Department and the IRS believe this
applicability date provides Indian Tribal
governments a reasonable transition
period to make any program adjustments
or updates that may be necessary for their
programs to satisfy the requirements of
§1.139E-1.
The Treasury Department and the IRS
emphasize that §1.139E-1(c)(3) does not
require the specified guidelines to be in
writing or otherwise prescribe how the
Indian Tribal government program retains
its specified guidelines. Thus, the pro-
gram may satisfy the specified guidelines
requirement in §1.139E-1(c)(3) with a
single written document, several docu-
ments, or non-written guidelines. Section
1.139E-1(c)(3) is intended to provide
broad deference to Indian Tribal govern-
ments to determine how such specified
guidelines are created, maintained, or
modified.
C. Program Cannot Discriminate in
Favor of Members of the Governing Body
of the Tribe
Proposed §1.139E-1(c)(4) would pro-
vide that an Indian Tribal government
program may not discriminate in favor
of members of the governing body of the
Tribe (non-discrimination requirement). A
governing body is generally the legislative
body of the Tribe, such as the Tribal coun-
cil, or the representative equivalent of the
legislative body of the Tribe. However,
proposed §1.139E-1(c)(4)(ii) would treat
a program as being in compliance with
the non-discrimination requirement if the
governing body of the Tribe consists of
the entire adult membership of the Tribe,
referred to as a “general council Tribe.”
Proposed §1.139E-1(c)(4)(iii) would
provide a facts and circumstances test to
determine whether a program, either by
its terms or in its administration, discrim-
inates in favor of members of the gov-
erning body of the Tribe. For example,
the administration of a program would
discriminate in favor of members of the
governing body if, based on the facts
and circumstances, the benefits provided
during the taxable year disproportionately
favor members of the governing body of
the Tribe. Thus, for example, a program
established to provide benefits solely to
the children of members of the govern-
ing body of the Tribe (unless the Tribe is
a general council Tribe) and thus defrays
costs otherwise borne by the members of
the governing body would fail to satisfy
the non-discrimination requirement.
Commenters indicated that it is unlikely
that an Indian Tribal government would
differentiate benefits or establish a general
welfare program solely for its governing
body because it contradicts the intent of a
general welfare program to provide for the
well-being of Tribal members. In addition,
commenters recommended changes from
the language of proposed §1.139E-1(c)
(4) to prevent potential unintended con-
sequences for situations where a program
benefit would be available to any eligible
Tribal member but, in a particular point
of time, the only eligible beneficiaries of
a particular Tribal general welfare benefit
are members of the Indian Tribal govern-
ment or their family members. The com-
menters provided an example of a tuition
assistance program in which one individ-
ual beneficiary may qualify for benefits
in the taxable year, and such individual is
a family member of a Tribal government
official. Commenters requested clarifi-
cation on the application of proposed
§1.139E-1(c)(4) where benefit distribu-
tions vary annually but may have the
appearance in any given year that distri-
butions disproportionately benefit cer-
tain Tribal members. These commenters
emphasized that §1.139E-1(c)(4) should
evaluate an Indian Tribal government
program based on its structure and his-
torical administration, and whether such
program is designed and administered to
avoid discrimination in favor of a Tribe’s
governing body. Finally, one commenter
requested clarification that benefits pro-
vided to former members of Tribal gov-
erning bodies to compensate for sacrific-
ing Social Security benefit credits during
their terms of service are not considered
either compensation for current services

Bulletin No. 2026–5 423 January 26, 2026
or discriminatory in favor of such recip-
ients such that they would fail to satisfy
section 139E under the final regulations.
The Treasury Department and the IRS
agree with commenters that clarification
would be helpful on how the facts and
circumstances test in proposed §1.139E-
1(c)(4) applies in certain situations. The
Treasury Department and the IRS under-
stand that there may be instances when, in
a given year, a program distributes benefit
payments disproportionately to members
of the governing body or their families
even though the program does not by its
terms disproportionately favor members
of the governing body and, in most other
years, does not disproportionately favor
members of the governing body. The facts
and circumstances test provides flexibility
to account for an anomalous year where
a program otherwise does not dispropor-
tionately favor members of the governing
body. Nevertheless, the Treasury Depart-
ment and the IRS agree that clarifying
language in §1.139E-1(c)(4) would be
helpful. Accordingly, these final regula-
tions revise §1.139E-1(c)(4)(iii) to pro-
vide that a program discriminates in favor
of members of the governing body of the
Tribe if, based on the totality of the facts
and circumstances, the benefits provided
during the year disproportionately favor
members of the governing body of the
Tribe because of their status as members
of the governing body.
The Treasury Department and the IRS
do not provide any clarification in response
to the comment regarding a specific fact
pattern involving benefits provided to for-
mer members of Tribal governing bodies
because there are not sufficient facts to
address the comment. However, the Trea-
sury Department and the IRS affirm that
section 139E(b)(1) and §1.139E-1(c)(4)
provide that an Indian Tribal government
program cannot discriminate in favor of
members of the governing body.
D. No Limitation on Source of Funds
Proposed §1.139E-1(c)(5) would pro-
vide that benefits under the Indian Tribal
government program may be funded by
any source of revenue or funds, includ-
ing funds derived from levies, taxes, and
service fees; settlements; revenues from
Tribally-owned businesses, including
casino revenues; funds from Federal,
State, or local governments; and funds
from other sources, including grants and
loans, to provide benefits under an Indian
Tribal government program. Proposed
§1.139E-1(c)(5)(ii) also specifically
would permit the funding of Indian Tribal
government programs with net gaming
revenues. However, the preamble to the
proposed regulations noted that an Indian
Tribal government is permitted to restrict
the source and amount of funds available
to provide benefits under the Indian Tribal
government program.
Several commenters appreciated that
the enumeration of permissible sources in
proposed §1.139E-1(c)(5) was not all-in-
clusive or limiting but recommended that
the list explicitly include “grantor trusts”
and deferred benefit accounts as permis-
sible sources of funding. See part III.D.2.
of this Summary of Comments and Expla-
nation of Revisions for a discussion of the
use of trusts in Tribal general welfare pro-
grams.
1. Benefits Funded by Net Gaming
Revenues
Proposed §1.139E-1(c)(5)(ii) would
provide that benefits under the Indian
Tribal government program may be
funded by net gaming revenues as per-
mitted under the Indian Gaming Regula-
tory Act (25 U.S.C. 2701-2721) (IGRA).
However, per capita payments, as defined
under IGRA, are subject to Federal taxa-
tion under IGRA and are not excludable
from gross income under section 139E or
the regulations. Proposed §1.139E-1(c)
(5)(ii) further would provide that, for pur-
poses of section 139E, a payment is a per
capita payment if it is identified by the
Indian Tribal government as a per capita
payment in a Revenue Allocation Plan
(RAP) that is approved by the Department
of the Interior (DOI).
Several commenters approved of pro-
posed §1.139E-1(c)(5) providing that
Tribes may use any revenue source for
general welfare programs, including gam-
ing revenue, because the rule supports
Tribal sovereignty regarding the use of
a Tribe’s financial resources. However,
several commenters requested that the
final regulations confirm the Treasury
Department and the IRS will defer to, or
give sole discretion to, Indian Tribal gov-
ernments with respect to allocations under
an approved RAP as between per capita
payments and Tribal general welfare pro-
grams. Conversely, some commenters
expressed concern that DOI may evalu-
ate a program’s compliance under section
139E and urged the Treasury Department
and the IRS to communicate these con-
cerns with DOI and the National Indian
Gaming Commission (NIGC).
In response to the comments received,
these final regulations differ from pro-
posed §1.139E-1(c)(5)(ii) in providing
that for purposes of section 139E and
these regulations, the determination of
whether a payment is a per capita pay-
ment is based on the RAP that is in effect
(that is, approved by DOI) at the time the
per capita payment is made to the recip-
ient. The clarification is made because
the Treasury Department and the IRS are
aware that Indian Tribal governments
may modify a RAP and IGRA trusts over
the years. As discussed in part III.D.2. of
this Summary of Comments and Expla-
nation of Revisions, for purposes of sec-
tion 139E, whether a distribution from a
grantor trust owned by the Indian Tribal
government is a general welfare payment
is determined when the payment is distrib-
uted to the Tribal program participant.
In the view of the Treasury Department
and the IRS, the language in proposed
§1.139E-1(c)(5)(ii) would provide def-
erence to an Indian Tribal government’s
determinations of how net gaming revenue
is allocated. Specifically, §1.139E-1(c)(5)
(ii) provides that, for purposes of section
139E and these regulations, a payment is a
per capita payment if it is identified by the
Indian Tribal government as a per capita
payment in a RAP that is approved by the
DOI. Similarly, for an Indian Tribal gov-
ernment without a RAP, the determination
of the Indian Tribal government that the
payment is not a per capita payment is
controlling for Federal income tax pur-
poses. Thus, for purposes of section 139E
and §1.139E-1(c)(5)(ii), the IRS will defer
to the Indian Tribal government’s deter-
mination that the allocation of net gaming
revenues is classified as general welfare,
or conversely a per capita payment made
pursuant to a RAP.
The Treasury Department and the
IRS confirm that DOI and NIGC do not

January 26, 2026 424 Bulletin No. 2026–5
have jurisdiction over the determination
of whether a program satisfies section
139E and these regulations. The Treasury
Department and the IRS have jurisdic-
tion over interpretation of the Internal
Revenue Code (26 U.S.C. 1 et seq.), and
the IRS is the agency responsible for
determining whether a program satisfies
the requirements of section 139E and
these regulations. The Treasury Depart-
ment and the IRS plan to communicate
the commenters’ concerns with DOI and
NIGC and ensure open dialogue will
continue in the future over jurisdictional
responsibilities of the respective agen-
cies.
2. Benefits Paid as Distributions from a
Grantor Trust
The proposed regulations would not
provide guidance on distributions from
grantor trusts. In part V.C. of the Explana-
tion of Provisions section of the preamble
to the proposed regulations, the Treasury
Department and the IRS requested com-
ments on whether additional guidance
under section 139E or other Code sections
is needed to address the tax treatment of
deferred benefits or benefits paid from
trust arrangements, and, if so, what spe-
cific fact patterns should be addressed.
Most commenters requested that
the final regulations include guidance
on grantor trusts because many Tribes
use grantor trusts and deferred benefit
arrangements for flexibility and for the
ability to leverage the principal amount
of general welfare benefits over a longer
period of time, such as with elder care,
mortgage, and education benefits. Com-
menters generally disagreed that Revenue
Procedure 2011-56 (2011-49 I.R.B. 834)
adequately addresses the use of grantor
trusts for excluded Tribal general welfare
benefits because that guidance refers to
taxable, but tax-deferred, per capita pay-
ments under IGRA.
Several commenters recommended
that, for purposes of section 139E,
amounts held in grantor trusts owned
by the Indian Tribal government should
be treated like any other Tribal accounts
because the Tribe is the owner of the
Tribal general welfare benefits until they
are disbursed. Commenters note grantor
trusts are a tool that may be used to deliver
Tribal general welfare benefits if the trust
distributions are administered pursuant to
the Indian Tribal government program.
Many commenters requested that the final
regulations confirm that Tribes may use
grantor trusts to fund Indian Tribal gov-
ernment programs, and that any interest
and capital gains earned by the trust also
are treated as Tribal general welfare pay-
ments at the time the program distributes
a payment from the grantor trust to the
Tribal program participant. For exam-
ple, one commenter requested clarity on
whether distributions from grantor trust
accounts that are paid out at the age of
majority are Tribal general welfare ben-
efits under section 139E such that distri-
butions of the grantor trust’s interest and
earnings are also excludable from income
at the time of distribution.
Some commenters discussed grantor
trusts and IGRA. For example, some com-
menters suggested that grantor trust distri-
butions should be excluded under section
139E if the grantor trust distributions are
Tribal general welfare benefits under sec-
tion 139E and not otherwise treated as
per capita distributions under the Tribe’s
RAP. The commenter requested that final
regulations provide that Tribes may place
funds in a grantor trust, identified to spe-
cific member subaccounts, that generally
conform to existing guidance for IGRA
minors’ trusts, for future use for general
welfare purposes, without Federal income
tax consequence to the beneficiary. One
commenter also requested guidance on
whether a distribution from such a trust
could be excluded under section 139E
if made pursuant to a plan under section
529, a medical savings plan, a plan under
an Indian Tribal government program, or
other similar plan.
One commenter recommended that
Revenue Procedure 2011-56 be modi-
fied to expand the safe harbor to provide
additional provisions that can satisfy the
safe harbors for trust programs that pro-
vide taxable benefits to minors and cer-
tain other individuals. Additionally, many
commenters requested guidance on how
trusts involving taxable income can be
restructured to provide Tribal general wel-
fare benefits.
Finally, some commenters requested
that the language of proposed §1.139E-
1(c)(5) be expanded to include grantor
trusts as a permissible funding source for
an Indian Tribal government program.
Commenters noted grantor trusts are an
important tool used to care for Tribal
members, and it is a glaring omission
to not include grantor trusts in proposed
§1.139E-1(c)(5) that could lead to pos-
sible negative inferences. Several com-
menters described using gaming revenues
to fund grantor trusts for minors and mem-
bers with legal disabilities and being per-
mitted under IGRA to make distributions
to their parents or legal guardians to pay
health, education, and welfare benefits for
the benefits of such minors and certain
other individuals. One of these comment-
ers noted that this use of trusts indicates
Tribes are free to use trust funds to pro-
vide Tribal general welfare benefits just
as they are free to use any other revenue
source.
The Treasury Department and the IRS
agree with commenters that a benefit dis-
tributed from certain grantor trusts can
be a Tribal general welfare benefit under
section 139E if the benefit otherwise sat-
isfies the requirements of §1.139E-1(d),
and that additional guidance on the use of
grantor trusts would be helpful. Accord-
ingly, these final regulations include
express language regarding distributions
from grantor trusts in new §1.139E-1(c)
(5)(iii). New §1.139E-1(c)(5)(iii), which
applies to a trust or the portion of a trust
of which the Indian Tribal government is
treated as the owner under sections 671
through 677 of the Code, provides that a
benefit distributed by a trust that otherwise
satisfies the requirements of §1.139E-1(d)
is a Tribal General Welfare Benefit under
section 139E. Conversely, a distribution
from a grantor trust, or portion thereof,
will not be considered a Tribal general
welfare benefit to the extent the distri-
bution, or portion thereof, fails to satisfy
section 139E and the regulations. Section
1.139E-1(c)(5)(iii) further provides that
the determination of whether a benefit
distributed by a grantor trust is a Tribal
general welfare benefit is made at the time
the benefit is distributed from the grantor
trust to the Tribal program participant.
Thus, for example, a distribution from the
grantor trust that is paid to an individual
as compensation (determined at the time
of distribution) would not be excludible
under section 139E (unless the exception

Bulletin No. 2026–5 425 January 26, 2026
relating to cultural or ceremonial activities
applies).
The Treasury Department and the IRS
have determined that providing additional
safe harbors under Revenue Procedure
2011-56 is outside the scope of this reg-
ulation. Revenue Procedure 2011-56 pro-
vides a safe harbor under which the IRS
treats a Tribe as the grantor and owner
of a trust for the receipt of Tribal gaming
revenues under IGRA for the benefit of
minors and certain other individuals. That
guidance provides rules addressing trusts
under IGRA that are not affected by these
final regulations.
Commenters requested clarification
on the Federal income tax treatment of
grantor trust distributions when the Indian
Tribal government has previously set up
a minor’s trust under IGRA for per cap-
ita payments but subsequently distributes
general welfare payments from such trust
to the Tribal program participant. The
Treasury Department and the IRS have
generally determined that where an IGRA
trust satisfies Revenue Procedure 2011-
56 and is treated as owned by the Indian
Tribal government, the Indian Tribal gov-
ernment may subsequently determine dis-
tributions from the trust are for general
welfare purposes under section 139E to
the extent that DOI approval is otherwise
received to modify a RAP or IGRA trust,
as applicable. In general, the date of distri-
bution from the IGRA trust is the relevant
time at which to determine whether the
payment is a Tribal general welfare benefit
or a per capita payment. The Indian Tribal
government, subject to DOI approvals of
RAPs or IGRA trusts, has sole discretion
to determine whether a payment is a per
capita payment for purposes of section
139E and these regulations.
3. Deferred Benefits
Some commenters requested that the
final regulations provide that Tribal mem-
bers have the right to defer or disclaim
current, smaller, general welfare benefits
in exchange for the Tribe funding future,
larger general welfare benefits for more-
costly needs. One of these commenters
noted the importance of flexibility to allow
Tribal members to prioritize assistance
that meets their specific needs. Some com-
menters noted they agree with the TTAC
proposal that complex IRS deferred com-
pensation rules, like constructive receipt,
should not apply to deferred general wel-
fare benefits.
The Treasury Department and the IRS
do not agree with the suggestion that Fed-
eral income tax principles, such as the
constructive receipt doctrine, should be
inapplicable to deferred general welfare
benefits. The language of section 139E
does not provide an exception for treat-
ing amounts that, under ordinary Federal
income tax principles (such as principles
of constructive receipt), are actually or
constructively transferred to or for the
benefit of a Tribal program participant in
one taxable year as being transferred in a
later taxable year. The Treasury Depart-
ment and the IRS note that, as a general
matter, a Tribal program participant’s
election to defer a Tribal general welfare
benefit that is made before the Tribal pro-
gram participant would have rights to the
Tribal general welfare benefit under Tribal
law would not be treated as constructively
received by the Tribal program participant
for Federal income tax purposes.
E. Recordkeeping Requirements of the
Tribal Program Participant
The preamble to the proposed regula-
tions stated, under the general recordkeep-
ing requirements of section 6001, that
Tribal program participants are required
to maintain records sufficient to show that
the value of a Tribal general welfare ben-
efit received from an Indian Tribal gov-
ernment program is excludible from gross
income. Under section 6001 and §1.6001-
1(a), taxpayers are required to maintain
records sufficient to establish the amount
of gross income or other matters required
to be shown by them in any return of
income tax.
Many commenters expressed confu-
sion regarding substantiation requirements
that Tribal program participants may have
for benefits received from Indian Tribal
government programs. One commenter
expressed appreciation that Tribes and
Tribal program participants, in the com-
menter’s interpretation of the proposed
regulations, were not required to keep
receipts to substantiate benefits. How-
ever, other commenters recommended
that the final regulations expressly pro-
vide that Tribal program participants will
not be subject to additional substantiation
requirements such as maintaining receipts
or other proof not otherwise required by
the Indian Tribal government program.
Further, some of these commenters pointed
out that the Treasury Department stated at
Tribal consultations that receipts were not
needed to substantiate the benefit. In gen-
eral, commenters explained that imposing
additional substantiation requirements
on Indian Tribal governments and Tribal
program participants would create admin-
istrative burdens and contradict the Act’s
objective of streamlining Tribal program
administration.
Some commenters referred to the TTAC
Report, which proposes that individual
members should not be required to submit
receipts to prove general welfare expenses
if there is sufficient documentation of an
Indian Tribal government’s general wel-
fare program, including written program
guidelines, and that compliance should be
presumed for Tribal program participants
where the Indian Tribal government can
show benefit amounts are reasonably cal-
culated to meet general welfare needs and
the method of distribution to members is
reasonably expected to achieve program
goals. Other commenters proposed that
the IRS should use an Indian Tribal gov-
ernment’s year-end compliance certifi-
cates confirming general welfare expenses
at or above program benefit levels and
any corroborating program documenta-
tion as sufficient substantiation of a Tribal
program participant’s benefits. Finally, a
commenter recommended that complete
deference be given to Indian Tribal gov-
ernment determinations for the adminis-
tration of program benefits such that the
Tribal program participant’s substantia-
tion of Tribal general welfare benefits for
Federal income tax purposes is satisfied.
Many commenters requested that the
Treasury Department and the IRS main-
tain the deference to Indian Tribal gov-
ernment program methods for substantia-
tion of general welfare program benefits
so long as an Indian Tribal government
implements its general welfare program
consistent with written program guide-
lines that meet the criteria of section 139E.
These commenters suggested addressing
only situations where additional substanti-
ation may be required. Some commenters

January 26, 2026 426 Bulletin No. 2026–5
noted that substantiation requirements for
benefits add administrative costs to Indian
Tribal governments.
These final regulations do not impose
additional recordkeeping requirements
on Tribal program participants. However,
section 6001 and §1.6001-1 generally
require a taxpayer to maintain records
to establish the amount of gross income
reported on the taxpayer’s tax return. This
requirement is independent of the exclu-
sion provided under section 139E. Not-
withstanding the previous sentence, the
Treasury Department and the IRS confirm
that individuals are not required to main-
tain personal receipts to substantiate that
a benefit provided under an Indian Tribal
government program was used by the
recipient for the purpose for which it was
provided. Deference is given to the Indian
Tribal government with regard to the gen-
eral welfare programs it administers and,
accordingly, what requirements a Tribal
program participant may need to satisfy in
order to receive program benefits.
Accordingly, the Treasury Department
and the IRS do not prescribe any spe-
cific types of documentation that a Tribal
program participant would be required
to retain to substantiate that a particular
benefit is a Tribal general welfare bene-
fit excludable from gross income under
section 139E. Nonetheless, corroborat-
ing program documentation, such as a
written description of the Indian Tribal
government program, an application or
acceptance letter into the program, or any
year-end compliance certificates of the
Indian Tribal government may satisfy the
requirements of section 6001 and §1.6001-
1. Moreover, Tribal program participants
may choose to ask the Indian Tribal gov-
ernment for clarification on whether the
benefit is intended to be a Tribal general
welfare benefit under section 139E.
IV. Tribal General Welfare Benefits
A. Benefits Must be for the Promotion of
General Welfare within the Meaning of
Section 139E
1. Deference to Tribes in Determining
Promotion of General Welfare
Proposed §1.139E-1(d)(2)(i) would
provide that a benefit provided under an
Indian Tribal government program must
be for the promotion of general welfare,
and that the Indian Tribal government
determines that a benefit is for the promo-
tion of general welfare at the time it estab-
lishes the program. Proposed §1.139E-
1(d)(2)(i) would provide that an Indian
Tribal government has sole discretion
to determine whether a benefit is for the
promotion of general welfare and that the
IRS will defer to the Indian Tribal gov-
ernment’s determination that a benefit is
for the promotion of general welfare. Pro-
posed §1.139E-1(d)(2)(i) would provide
that Tribal general welfare benefits may
be provided without regard to financial or
other need of Tribal program participants
and may be provided on a uniform or pro-
rata basis.
Commenters generally appreciated the
deference provided to Indian Tribal gov-
ernments for establishing programs to
promote the general welfare. Commenters
noted that Indian Tribal governments are
uniquely positioned to assess the distinct
cultural, social, and economic needs of
their Tribes and Tribal program partici-
pants, and structure their general welfare
programs accordingly. Several comment-
ers also appreciated that Indian Tribal
governments have sole discretion to deter-
mine whether a benefit is for the promo-
tion of general welfare.
One commenter requested the Trea-
sury Department and the IRS to clarify
in the final regulations that the following
additional activities are considered to be
for the promotion of the general welfare:
recovery from cultural or lifeway losses
experienced due to non-Tribal policies,
such as termination or forced reloca-
tion (as determined by the administering
Tribe); the advancement of Tribal self-de-
termination (as determined by the admin-
istering Tribe); and the promotion of indi-
vidual and collective self-sufficiency (as
determined by the administering Tribe).
Some commenters requested the final
regulations confirm that Tribal general
welfare benefits may include student loan
debt repayment programs.
In response to these suggestions for
clarification, the Treasury Department
and the IRS reiterate the sole discretion
standard is consistent with the deference
required under section 2(c) of the Act. The
examples in §1.139E-1(d)(2) merely pro-
vide illustrative examples of benefits an
Indian Tribal government may provide.
Accordingly, the Treasury Department
and the IRS affirm the types of programs
described in the preceding paragraph are
not contrary to the standard provided in
§1.139E-1(d)(2), if an Indian Tribal gov-
ernment has determined such benefit is for
the promotion of the general welfare and
the program satisfies the other require-
ments in section 139E.
2. Examples of Promotion of General
Welfare
Proposed §1.139E-1(d)(2)(ii) would
provide non-exhaustive examples of pro-
grams that an Indian Tribal government
may determine, in its sole discretion, dis-
tribute benefits that are for the promotion
of the general welfare, as required under
proposed §1.139E-1(d)(2).
One commenter recommended addi-
tional clarification to proposed §1.139E-
1(d)(2)(ii) to make clear that the exam-
ples provided are not an exhaustive list of
types of programs that would be for the
promotion of general welfare. Other com-
menters pointed out a typographical error
in proposed §1.139E-1(d)(2)(ii)(B) and
requested clarification on additional spe-
cific types of permissible program pay-
ments.
The Treasury Department and the IRS
agree with commenters that the exam-
ples in proposed §1.139E-1(d)(2)(ii)
are intended to be non-exhaustive. The
Treasury Department and the IRS clarify
that the programs described in §1.139E-
1(d)(2)(ii) of these final regulations are a
non-exhaustive list of examples of pro-
grams that an Indian Tribal government
may determine are for the promotion of
general welfare for purposes of section
139E. Thus, these regulations reaffirm
that the Indian Tribal government has the
sole discretion to determine what program
benefits are for the promotion of general
welfare of Tribal program participants.
In addition, the Treasury Department
and the IRS have changed the language
used in some of the examples in pro-
posed §1.139E-1(d)(2)(ii) to respond to
comments. For example, §1.139E-1(d)
(2)(ii)(B) (education programs) corrects
a typographical error in the proposed
regulations and includes textbooks as an

Bulletin No. 2026–5 427 January 26, 2026
example of school supplies. In response to
comments, §1.139E-1(d)(2)(ii)(D) (trans-
portation programs) of these final regu-
lations does not include the word “sub-
stantiated” before “mileage,” and lacks
the language that would limit fares for
public transportation to specific origins
and destinations. In addition, §1.139E-
1(d)(2)(ii)(A) (housing programs) of these
final regulations removes the reference
to benefits that may not be used for any
trade or business because of the changes
provided in §1.139E-1(d)(2) for business
grants. See part IV.A.5. of this Summary
of Comments and Explanation of Revi-
sions. Finally, §1.139E-1(d)(2)(ii)(G) of
these final regulations (cultural and reli-
gious programs) removes the reference to
section 168(j) as providing the definition
of “Indian reservations.” These final reg-
ulations remove this reference because
Indian reservations are subject to vary-
ing definitions under Federal law, and it
is unnecessary to prescribe a definition in
this rule. In sum, the changes to the lan-
guage in §1.139E-1(d)(2)(ii) are intended
to remove limiting language that could be
viewed by an Indian Tribal government
as constraining its discretion to determine
that program benefits are for the promo-
tion of general welfare.
Some commenters requested that ben-
efits or assistance provided after a Trib-
ally declared disaster be included as an
example of a promotion of general wel-
fare purpose in proposed §1.139E-1(d)(2).
For example, an Indian Tribal government
may declare a disaster that may not qual-
ify as a Federally declared disaster. One
commenter recommended clarifying that
“assistance in an emergency” is intended
to include events that are not otherwise
qualified disasters.
The Treasury Department and the IRS
have determined no changes are necessary
in these final regulations to the language of
proposed §1.139E-1(d)(2) to include ref-
erences to Tribally declared disasters. The
Treasury Department and the IRS agree
with commenters that benefits provided
to Tribal program participants as a result
of a Tribally declared disaster are benefits
that would be described in §1.139E-1(d)
(2). However, a governmentally declared
disaster is not a requirement of §1.139E-
1(d)(2). Indian Tribal governments have
the sole discretion to determine whether
a benefit is for the promotion of general
welfare for purposes of section 139E.
Section 1.139E-1(d)(2) broadly describes
“assistance for disasters or other emer-
gency situations” and does not limit an
Indian Tribal government’s determination
of what benefits are needed to be provided
to Tribal program participants in the event
of emergency situations. The Treasury
Department and the IRS decline to include
a reference to Tribally declared disasters
because it may be viewed as a limitation
on the types of disasters that could satisfy
§1.139E-1(d)(2).
3. Prizes and Awards
Many commenters requested clarifica-
tion that section 139E can apply to prizes
and awards provided pursuant to Indian
Tribal government programs at powwows
or similar ceremonial activities. Com-
menters argued that powwow prizes and
awards constitute Tribal general welfare
benefits because they are designed to
encourage participation at ceremonial and
cultural events and foster the exchange of
Tribal culture and traditions. One com-
menter shared an example of a cultural
event to promote cultural and traditional
practices in which awards are given to only
some of the dancers who are performing
dances traditional to their Tribe. Similarly,
the commenter provided an example of a
Tribe holding a social event in which door
prizes are provided to a few individuals
in order to promote participation at social
activities among Tribal members.
Some commenters explained that the
IRS has, in the past, treated powwow
prizes for cultural or ceremonial activities
as taxable under section 74 of the Code.
These commenters expressed concern that
the IRS may continue to treat these pay-
ments as taxable prizes and awards under
section 74.
The Treasury Department and the
IRS agree with commenters that prizes
and awards provided by an Indian Tribal
government program as part of a cultural
or ceremonial program or activity could
be a Tribal general welfare benefit if the
benefit otherwise satisfies section 139E
and these regulations. These final regu-
lations differ from proposed §1.139E-
1(d)(2)(ii)(G) by including examples
of prizes or awards provided as part of
cultural or ceremonial activities that an
Indian Tribal government may determine
are for the promotion of general welfare
for purposes of section 139E. Specifi-
cally, the final regulations provide that an
Indian Tribal government program may
provide cash or property as a prize or
award in connection with cultural, social,
religious, or community activities, and
such prize or award could be a Tribal
general welfare benefit if it is determined
by the Indian Tribal government to be for
the promotion of general welfare and the
other requirements of section 139E and
these regulations are otherwise satisfied.
In addition, §1.139E-1(e)(2) pro-
vides that a prize or award that would
otherwise be compensation for services
may qualify for the exception in section
139E(c)(5) and §1.139E-1(e) if the prize
or award is provided as a benefit to, or
on behalf of, a Tribal program partici-
pant for the Tribal program participant’s
participation in cultural or ceremonial
activities for the transmission of Tribal
culture. For example, if an Indian Tribal
government program that supports cul-
tural or ceremonial activities, including
powwows, provides a prize or award to
a Tribal program participant of such pro-
gram who performs dances as part of a
powwow, the prize or award would be a
Tribal general welfare benefit if the other
requirements of §1.139E-1(d) are met.
4. Indian Tribal Government’s Discretion
to Provide Benefits in Equal Amounts
Proposed §1.139E-1(d)(2)(i) would
provide that an Indian Tribal government
has sole discretion to determine whether
a benefit is for the promotion of general
welfare and that the IRS will defer to
the Indian Tribal government’s determi-
nation that a benefit is for the promotion
of general welfare. Consistent with this
approach, proposed §1.139E-1(d)(2)(i)
would provide that an Indian Tribal gov-
ernment program may provide Tribal gen-
eral welfare benefits on a uniform or pro-
rata basis to Tribal program participants.
One commenter urged clarification that
an Indian Tribal government program may
also provide benefits based on a schedule
that authorizes unequal payment amounts
based on reasonable criteria applicable to
all qualifying Tribal members. For exam-

January 26, 2026 428 Bulletin No. 2026–5
ple, a program may provide different
benefit amounts to larger families than
smaller families.
The Treasury Department and the IRS
decline to adopt the comments to change
proposed §1.139E-1(d)(2)(i) because the
Treasury Department and the IRS have
determined that the language of proposed
§1.139E-1(d)(2)(i) provides broad defer-
ence to an Indian Tribal government to
determine whether a benefit is for the pro-
motion of the general welfare for purposes
section 139E and is given the discretion
to determine whether benefits should be
paid. In sum, proposed §1.139E-1(d)(2)
(i) provides flexibility to an Indian Tribal
government to determine whether pro-
gram benefits are best allocated to Tribal
program participants on an equal basis or
in in varying amounts. Because an Indian
Tribal government has sole discretion to
determine whether a benefit is for the pro-
motion of general welfare for purposes of
section 139E, a program that provides a
benefit in an unequal amount, such as pro-
viding different benefit amounts to larger
families than smaller families, would be
permitted under proposed §1.139E-1(d)
(2)(i). Accordingly, proposed §1.139E-
1(d)(2)(i) is finalized without modifica-
tion.
5. Economic Development Benefits
The proposed regulations would not
address payments provided in connection
with business ventures of Tribal program
participants. Part V.B. of the Explanation
of Provisions in the preamble to the pro-
posed regulations stated that the admin-
istrative general welfare exclusion and
Revenue Procedure 2014-35 generally
do not apply to payments made to busi-
nesses. Similarly, the preamble to the
proposed regulations stated that section
139E applies only to individuals and not
businesses. However, the preamble to the
proposed regulations stated that Revenue
Ruling 77-77 (1977-1 C.B. 11) holds there
is a limited exception to the rule that the
administrative general welfare doctrine
does not apply to businesses. Revenue
Ruling 77-77 provides that a grant made
by an Indian Tribal government to a Tribal
member to expand an Indian-owned busi-
ness on or near a reservation is excluded
from the Tribal member’s gross income
under the administrative general welfare
exclusion.
(a) Revenue Ruling 77-77
Many commenters disagreed with
the characterization by the Treasury
Department and the IRS of Revenue Ruling
77-77 as constituting a narrow exception
to the administrative general welfare
exclusion. Several commenters similarly
disagreed with the assertion that the
administrative general welfare exclusion
does not apply to economic development
assistance or payments to businesses,
including sole proprietors, because such
payments are not based on individual
or family need. Many commenters also
refer to other situations where the IRS has
applied the administrative general welfare
exclusion to Tribal general welfare benefits
for the purpose of economic development
assistance. See PLR 199924026 and
COVID-19 FAQs on the IRS website at
https://www.irs.gov/newsroom/faqs-for-
payments-by-indian-tribal-governments-
and-alaska-native-corporations-to-
individuals-under-covid-relief-legislation.
The Treasury Department and the IRS
have determined that the preamble to the
proposed regulations accurately described
the administrative general welfare exclu-
sion (not section 139E) and its inappli-
cability to payments made to businesses.
However, the Treasury Department and the
IRS are aware that Revenue Ruling 77-77
and recent COVID-19 FAQs refer to the
administrative general welfare exclusion
applying to certain business grants made
by an Indian Tribal government to expand
an Indian-owned business on or near a
reservation. The Treasury Department and
the IRS have determined this guidance
remains applicable when applying the
administrative general welfare exclusion
specific to Indian Tribal governments.
(b) Business Grants under Section 139E
Commenters requested that the Trea-
sury Department and the IRS specify that
benefits provided by the Indian Tribal
government to Tribal members to start,
operate, develop, or expand businesses
constitute Tribal general welfare benefits
provided to promote the general welfare
of the community. Commenters generally
argued section 139E should be viewed
broadly to include promotion of general
welfare of individuals and needs of the
Tribal community. Similarly, some com-
menters pointed to the Act to support
this broad interpretation of section 139E.
Commenters also argued such economic
development promotes the general wel-
fare of Tribes and their Tribal commu-
nities by promoting self-sufficiency in
light of the difficulties faced by Tribes in
generating revenue and attracting capi-
tal and businesses onto reservations, and
Tribal goals of promoting stable employ-
ment and economic opportunities. Finally,
commenters requested clarification on
whether an Indian Tribal government pro-
gram could provide benefits to encourage
business activity on or near a reservation
by providing Tribal-member-owned busi-
nesses with grants, interest-free or other
below-market loans, or reimbursements
for employment taxes.
Commenters also argued the scope of
program eligibility for grants to businesses
should not be limited to Tribal citizens.
Rather, a commenter suggested that the
Tribe should be able to provide general wel-
fare benefits to any persons consistent with
Tribal law. Similarly, commenters requested
that the term “Indian-owned enterprise”
should not be defined by the IRS.
The Treasury Department and the
IRS have reconsidered the issue of
Tribal general welfare payments made
to Tribal program participants to sup-
port businesses and agree that it would
be helpful to clarify in §1.139E-1(d)(2)
of these final regulations that an Indian
Tribal government program may provide
benefits to support, develop, operate,
expand, or start certain trades or busi-
nesses. Consistent with the proposed
regulations, §1.139E-1(d)(2)(i) broadly
provides that the Indian Tribal govern-
ment has sole discretion to determine
that a benefit is for the promotion of gen-
eral welfare at the time it establishes the
Indian Tribal government program. The
Treasury Department and the IRS agree
with commenters that section 2(c) of the
Act provides broad deference to Indian
Tribal governments for the Indian Tribal
government programs administered and
authorized by the Tribes to determine the
general welfare programs that are pro-
vided in their communities.

Bulletin No. 2026–5 429 January 26, 2026
The Treasury Department and the
IRS agree with commenters that the term
“Indian-owned enterprise” should not be
defined in these regulations. Moreover,
these regulations do not restrict Indian
Tribal government programs to support
or expand Indian-owned businesses on or
near a reservation. Section 1.139E-1(d)
(2) provides broad deference to Indian
Tribal governments to determine whether
benefits are for the promotion of general
welfare.
However, section 139E is an exclusion
from the gross income of individuals and
therefore is limited to benefits provided to,
or on behalf of, the individuals described
in section 139E(b) and §1.139E-1(b)(8).
See discussion of Tribal program par-
ticipant in part II.C. of this Summary of
Comments and Explanation of Revisions.
Accordingly, these final regulations pro-
vide that any Tribal general welfare ben-
efit provided to support, develop, operate,
expand, or start a trade or business must be
provided to, or on behalf of, an individual
that is a Tribal program participant. Thus,
an Indian Tribal government program may
not provide benefits under the program to
an entity, regardless of whether it is owned
by a Tribal program participant.
Similarly, the Treasury Department and
the IRS have determined that the language
“on behalf of” is not intended to apply to
program benefits provided by an Indian
Tribal government program to non-indi-
viduals, such as a business entity owned
by a Tribal program participant. Rather,
the Treasury Department and the IRS
interpret the statutory language “on behalf
of” to address situations such as where an
Indian Tribal government program pays
rent directly to a landlord on behalf of
a Tribal member tenant who operates a
trade or business as a sole proprietorship.
The final regulations also provide an
example of general welfare programs to
support businesses. The Treasury Depart-
ment and the IRS agree with commenters
that program benefits to Tribal program
participants, as individuals, in the form
of non-reimbursable grants, interest-free
or other below-market loans, or amounts
paid to a Tribal program participant that
are equivalent to the employment taxes
imposed on the Tribal program participant
as an employer, may qualify for section
139E.
In addition, the final regulations pro-
vide that section 7872 of the Code gen-
erally does not apply to a loan from an
Indian Tribal government to a Tribal pro-
gram participant pursuant to an Indian
Tribal government program. The Treasury
Department and the IRS believe that such
loans are a class of transactions the inter-
est arrangements of which have no signif-
icant effect on any Federal tax liability of
the lender or the borrower. The Treasury
Department and the IRS have expanded
the proposed regulations by adding
§§1.139E-1(d)(6) and 1.7872-5(b)(17) to
these final regulations.
B. Benefits Cannot Be Lavish or
Extravagant
Proposed §1.139E-1(d)(4) would pro-
vide a facts and circumstances test to
determine whether a Tribal program ben-
efit is lavish or extravagant under section
139E. Relevant facts and circumstances
include a Tribe’s culture and cultural prac-
tices, history, geographic area, traditions,
resources, and economic conditions or
factors. Proposed §1.139E-1(d)(4) would
also provide a presumption that a benefit is
not lavish or extravagant if it is described
in, and provided in accordance with, the
written specified guidelines of the Indian
Tribal government program.
1. Facts and Circumstances Standard
Some commenters expressed support
for the general approach of a facts and
circumstances test in proposed §1.139E-
1(d)(4). Commenters noted Tribal gov-
ernments are uniquely qualified to assess
what constitutes lavish or extravagant
within their cultural and economic con-
text, and factors such as geographic loca-
tion, cost-of-living variations, and the
cultural significance of certain expendi-
tures are best understood by Tribal lead-
ers. Commenters noted that the proposed
regulations would recognize Tribal sov-
ereignty by considering a Tribe’s cultural
practices and economic condition and
would be consistent with the Act’s explicit
mandate for deference to Indian Tribal
governments.
Some commenters suggested changes
to proposed §1.139E-1(d)(4) to ensure
that the enumerated factors for the facts
and circumstances test are not treated as
exhaustive factors. Also, commenters
requested that the regulations provide
Indian Tribal governments with the flex-
ibility to adapt the definition of lavish or
extravagant as economic and cultural con-
ditions evolve. Moreover, some comment-
ers requested that the determination of
whether a benefit is lavish or extravagant
be made at the time a program is imple-
mented, authorized, or modified, rather
than at the time a benefit is provided.
Other commenters recommended that
the Treasury Department and the IRS
defer entirely to Indian Tribal govern-
ments on whether a Tribal general welfare
benefit is lavish or extravagant regardless
of whether a program is in writing. These
commenters expressed concern that the
evaluation by the IRS of a Tribe’s cul-
ture and cultural practices, history, geo-
graphic area, traditions, resources, and
economic conditions or factors would
result in an intrusion on an Indian Tribal
government’s sovereignty. Some com-
menters recommended express language
in §1.139E-1(d)(4) providing that the IRS
will accept and defer to any attestations of
the Indian Tribal government regarding
the facts and circumstances at the time the
benefit is provided. Another commenter
stated that the lavish or extravagant stan-
dard in section 139E(c)(3) is offensive in
the context of the commenter’s Tribe’s
historical oppression at the hands of the
Federal government and long-standing
and severe poverty.
The test in proposed §1.139E-1(d)(4)
is intended to be a test that considers the
totality of the facts and circumstances.
Relevant facts and circumstances include
a Tribe’s culture and cultural practices,
history, geographic area, traditions,
resources, and economic conditions or fac-
tors. However, the Treasury Department
and the IRS agree with commenters that
an Indian Tribal government is uniquely
qualified to evaluate its culture and cultural
practices, history, geographic area, tradi-
tions, resources, and economic conditions
and that deference should be provided to
an Indian Tribal government’s attestation
of the facts and circumstances at the time
the benefit is provided to a Tribal program
participant. Accordingly, newly renum-
bered §1.139E-1(d)(4)(i) of the final reg-
ulations provides that the IRS will defer

January 26, 2026 430 Bulletin No. 2026–5
to an Indian Tribal government’s attesta-
tions of facts and circumstances, regard-
less of whether the program is in writing,
at the time the benefit is provided to the
Tribal program participant. However, the
deference provided in §1.139E-1(d)(4)(i)
to the Indian Tribal government’s attesta-
tion of facts and circumstances does not
preclude the IRS from determining that a
benefit is lavish or extravagant under the
Indian Tribal government’s attestations of
the facts and circumstances at the time the
benefit was provided. In addition, while
the IRS would respect the Indian Tribal
government’s attestations of fact and cir-
cumstances, the Treasury Department and
the IRS are clarifying that the IRS may
also consider facts and circumstances
not included in the Indian Tribal govern-
ment’s attestations in ascertaining whether
a benefit is lavish or extravagant.
The Treasury Department and the IRS
continue to be of the view that the proper
time to test whether a benefit is lavish or
extravagant is at the time the benefit is
provided. Section 139E and §1.139E-1(a)
provide that the gross income of the Tribal
program participant does not include the
value of any Tribal general welfare benefit
provided during the year to or on behalf of
the Tribal program participant. The value
of the benefit, including for purposes of
whether it is lavish or extravagant, is deter-
mined during the taxable year it is pro-
vided. The fact that the lavish or extrava-
gant determination is made at the time the
benefit is provided does not mean that facts
and circumstances involving prior years,
including facts and circumstances present
at the time at which a program was imple-
mented, authorized, or modified, cannot
be taken into account in the determination
made at the time the benefit is provided.
One commenter disagreed with the
requirement that a benefit not be lav-
ish or extravagant. However, section
139E(b)(2)(C) provides that a benefit,
among other requirements, cannot be
lavish or extravagant. Moreover, pursu-
ant to section 139E(c)(3), the Treasury
Department and the IRS consulted with
TTAC regarding the lavish or extravagant
standard under section 139E(b)(2)(C).
Accordingly, these final regulations retain
the requirement in §1.139E-1(d)(4) that a
benefit cannot be lavish or extravagant as
required by law.
2. Presumption
Some commenters supported the
addition of the presumption in proposed
§1.139E-1(d)(4) that a benefit is not lav-
ish or extravagant if it is described in, and
provided in accordance with, the written
specified guidelines of the Indian Tribal
government program. Some commenters
noted that the presumption respects Tribal
cultural practices and the various factors
that inform a Tribe’s general welfare pro-
gram. These commenters mentioned that
the presumption provides deference to
Tribes, helps administrative flexibility,
Tribal sovereignty, self-determination,
and self-governance, which will enable
Indian Tribal governments to maximize
the benefit to the Tribe. Many comment-
ers requested clarification on how the IRS
would be able to rebut the presumption
and what a written program should con-
tain to benefit from the presumption.
Some commenters recommended the
TTAC Report’s approach to lavish or
extravagant. The TTAC Report recom-
mended that the term “lavish or extrav-
agant” be defined as a relative term that
depends on the unique circumstances of
the Tribe, and also depends on the type
of benefit being provided (such as, one-
time payment or monthly assistance).
The TTAC Report sets forth a non-exclu-
sive list of circumstances that should be
considered when determining if a benefit
is lavish or extravagant: an Indian Tribal
government’s economic circumstances
or factors, culture and cultural practices,
history, geographic area, traditions, and
resources. The TTAC Report recommends
deference to Indian Tribal governments
and proposes a rebuttable presumption
that the benefit is not lavish or extravagant
if the Indian Tribal government program
meets general welfare needs or purposes,
and the method of distribution is expected
to achieve program goals.
Some commenters requested that the
final regulations provide that a Tribe’s
attestation of the relevant facts and cir-
cumstances would meet any burden that
may arise in connection with the presump-
tion. These commenters stated that the
IRS should not define facts and circum-
stances, including a Tribe’s own culture,
history, or tradition, in an attempt to rebut
the presumption.
Some commenters requested that the
frequency of payments under a program
should be irrelevant in applying the pre-
sumption provided to written programs.
Similarly, many commenters requested
that the final regulations provide a conclu-
sive presumption that a benefit based on
the facts and circumstances provided in
proposed §1.139E-1(d)(4) and adminis-
tered in good faith is not lavish or extrav-
agant. Commenters suggested that a con-
clusive presumption is a natural extension
of the presumption provided in the pro-
posed regulations.
The Treasury Department and the IRS
decline to provide a conclusive presump-
tion on the issue of whether a benefit is lav-
ish or extravagant. However, the Treasury
Department and the IRS have clarified the
proposed regulations by providing in these
final regulations that an Indian Tribal gov-
ernment program is afforded deference
on the attestations of the facts and cir-
cumstances. This deference is afforded
whether or not the specified guidelines are
in writing. This deference is intended to
reflect that the Tribe is in the best position
to determine which factors and attesta-
tions of fact were considered when deter-
mining benefits. In particular the Tribe is
in the best position to determine which
facts and circumstances are specific to
its culture and cultural practices, history,
geographic area, traditions, resources,
and economic conditions. Similarly, the
presumption in the proposed regulations
has been clarified. Newly renumbered
§1.139E-1(d)(4)(ii) clarifies that the pre-
sumption is based on the written specified
guidelines of an Indian Tribal government
program that exist at the time that the ben-
efit is provided to the Tribal program par-
ticipant. This change acknowledges that
the specified guidelines in Indian Tribal
government programs may be modified
from time to time.
C. Benefits Cannot Be Compensation for
Services.
Section 139E(b)(2)(D) provides that
benefits provided under a Tribal general
welfare benefit paid under an Indian Tribal
government program cannot be compen-
sation for services, subject to exceptions
discussed in part V of this Summary of
Comments and Explanation of Revisions.

Bulletin No. 2026–5 431 January 26, 2026
Proposed §1.139E-1(d)(5) would provide
a reference to section 61(a) of the Code
to define compensation for services and is
intended to include existing law and guid-
ance under section 61.
Several commenters argued the broad
reliance on section 61 to define compensa-
tion for services lacks practical clarity for
Tribal situations. Some commenters also
recommended that the final regulations
include the recommendations of the TTAC
Report, which provide specific examples
of activities that should be excluded from
compensation for services. For example,
the TTAC Report refers to the following
as not compensation for services: (1) a
benefit in connection with Tribal custom
or tradition regarding community service;
(2) cultural or ceremonial gifts and pay-
ments as determined by the Tribe; and (3)
payments as part of training programs.
Many commenters stated that the
proposed regulations lack clarity on
work-training programs, and some com-
menters expressed concern that mean-
ingful input from Tribes and the TTAC
on this issue was not incorporated into
the rules. Some commenters noted that
Indian Tribal governments often consider
work-training payments to participants as
honorarium payments to assist their Tribal
community.
One commenter requested clarity
on whether support of educational and
Native-language recovery is considered
practical work-training and not compen-
sation for services. The commenter noted
that the IRS has previously determined
this activity does not constitute compen-
sation for services.
Some commenters argued that the final
regulations should clarify that “benefits
provided for cultural or ceremonial pur-
poses, as explicitly allowed under section
139E, are not compensation for services.”
Several commenters also requested clari-
fication that community service require-
ments will not be compensation for ser-
vices because the programs are designed
to foster kinship and encourage commu-
nity involvement. Another commenter
requested that the final regulations pro-
vide clarification that benefits provided
with legitimate service ties for Tribal cul-
ture and tradition are not compensation for
services. The commenter gave examples
of payments (i) for neighborhood cleanup
costs, (ii) for teaching the Tribal language,
and (iii) to Tribal youths to cut and gather
wood for elders.
One commenter argued that section
139E(b)(2)(D) is intended to prevent
potential abuse by converting employee
wages and vendor payments into tax-
free remuneration. The commenter also
requested that an Indian Tribal govern-
ment be able to use a facts and circum-
stances test to show the benefits provided
under its program are consistent with the
intent of section 139E in order to rebut
any interpretation by the IRS that a pay-
ment is compensation for services.
The Treasury Department and the IRS
continue to be of the view that the term
“compensation for services” in section
139E(b)(2)(D) is appropriately defined
by reference to section 61, which gener-
ally defines “gross income” for purposes
of subtitle A of the Code. Section 139E(a)
provides an exclusion from gross income
for the value of any Indian general welfare
benefit. The Treasury Department and the
IRS have determined that the general defi-
nition of gross income under section 61 is
the starting point to ascertain the exclu-
sion under section 139E. In addition, the
Treasury Department and the IRS affirm
that the term “compensation for services”
in section 61(a)(1) is broader than services
that are traditionally provided under an
employment or contracted-vendor rela-
tionship. Section 1.61-2(a)(1) provides
that compensation for services includes
amounts that are not paid in an employ-
ment or contracted-vendor relationship.
However, the Treasury Department and
the IRS are aware of the need for clarity
on benefits provided that relate to cultural
or ceremonial activities. For example,
commenters referred to certain program
benefits for community service, language
preservation, and work training that are
provided as part of cultural or ceremonial
activities. The Treasury Department and
the IRS have determined that to the extent
that these specific situations constitute
compensation for services, they are bet-
ter addressed within the exclusion under
section 139E(c)(5) and §1.139E-1(e) for
activities relating to cultural or ceremonial
activities.
These final regulations do not provide
a facts and circumstances test to rebut
an interpretation by the IRS that a pay-
ment is compensation for services. The
Treasury Department and the IRS have
concluded that whether a payment consti-
tutes compensation for services is gener-
ally determined using existing guidance,
and examination of all the facts. More-
over, the Treasury Department and the
IRS also affirm that section 139E(c)(5)
and §1.139E-1(e) are an exception to the
general prohibition that prevents treating
compensation for services as Tribal gen-
eral welfare benefits. Facts may be pre-
sented to support the argument that the
payment is not compensation for services
under section 139E(b)(2)(D) or to support
the payment is subject to the exception to
compensation for services under section
139E(c)(5).
V. Exception to Prohibition on
Compensation for Services
Proposed §1.139E-1(e) would provide
that a benefit is not compensation for ser-
vices if the benefit is provided to a Tribal
program participant for the Tribal pro-
gram participant’s participation in cultural
or ceremonial activities for the transmis-
sion of Tribal culture as determined by
the Indian Tribal government, and such
benefit consists of an item of cultural sig-
nificance, reimbursement of costs, or cash
honorarium. Proposed §1.139E-1(e)(1)
(i) would provide a non-exhaustive list of
examples of cultural or ceremonial activ-
ities, including powwows, rite of passage
ceremonies, funerals, wakes, burials, other
bereavement events, and honoring events.
Proposed §1.139E-1(e)(2) also would pro-
vide that, in general, an Indian Tribal gov-
ernment has sole discretion to determine
whether a benefit consists of an item of
cultural significance and whether an activ-
ity is a cultural or ceremonial activity,
and the IRS will defer to this determina-
tion. However, proposed §1.139E-1(e)(2)
would further provide that cash, gift cards,
and vehicles generally are not considered
items of cultural significance.
A. In General
Commenters generally expressed sup-
port for the deference provided to Tribal
determinations in proposed §1.139E-
1(e) regarding cultural and ceremonial
activities. These commenters noted the

January 26, 2026 432 Bulletin No. 2026–5
deference provided to Tribes supports
Tribal self-determination and adminis-
trative flexibility and provides clarity
regarding cultural and ceremonial activ-
ities. Other commenters expressed sup-
port for the exclusion of items of cultural
significance, cash honoraria, and “cere-
monial costs,” consistent with section
139E(c)(5). Commenters supported the
omission of the “de minimis” limitation
on cash honorarium payments that was
present in Revenue Procedure 2014-35.
One commenter recommended finaliz-
ing proposed §1.139E-1(e) regardless
of how the final regulations address the
“lavish or extravagant” standard. One
commenter was critical of the use of the
terms “shamans, medicine men, or medi-
cine women,” in the preamble to the pro-
posed regulations, and further described
the regulation as mischaracterizing
Tribal culture by confining it to the 18th
and 19th century.
Similarly, some commenters requested
clarification on specific benefits provided
in connection with participation in cul-
tural or ceremonial activities that may not
be clearly described in proposed §1.139E-
1(e). For example, commenters mentioned
efforts to recover, preserve, and promote
(among Tribal members) cultural prac-
tices, resources, or historic languages,
efforts to teach Native languages, and
efforts to create, recover, protect, and pre-
serve cultural places or spaces. Another
commenter suggested that the final reg-
ulations provide clarity that honoraria
given to Tribal members who assist with
setting up before or closing after a cultural
or ceremonial event are included in activ-
ities described in proposed §1.139E-1(e).
One commenter pointed out that cultural
activities, such as singing songs, are not
recognized as such by the IRS. As dis-
cussed in part IV.C. of this Summary of
Comments and Explanation of Revisions,
some commenters requested that certain
benefits that have the legitimate purpose
of promoting Tribal culture and tradition,
such as community service or work-train-
ing programs that are connected to Tribal
culture and tradition, should not be com-
pensation for services.
One commenter urged that IRS agents
not be able to second guess Tribal culture
or traditions, and that IRS agents should
be restricted from issuing requests for
documents, including books and records
relating to Tribal culture and traditions.
Section 1.139E-1(e) provides that
Indian Tribal governments are in the best
position to determine what it means to
participate in cultural or ceremonial activ-
ities for the transmission of Tribal culture.
Thus, under §1.139E-1(e), Indian Tribal
governments determine what it means to
participate in cultural or ceremonial activ-
ities for the transmission of Tribal culture.
The IRS would defer to determinations by
the Indian Tribal government that activi-
ties undertaken in connection with a cul-
tural or ceremonial activity, as determined
by the Indian Tribal government, consti-
tute participation in that cultural or cere-
monial activity.
Section 1.139E-1(e) of the final regula-
tions includes additional, non-exhaustive
examples of cultural or ceremonial activ-
ities. In general, the Treasury Department
and the IRS have determined that benefits
provided to Tribal program participants
for community service or work-training
programs connected to Tribal culture and
tradition would be activities described
in §1.139E-1(e). Accordingly, the addi-
tional examples of cultural or ceremonial
activities in §1.139E-1(e)(1)(i) of these
final regulations include: Tribal commu-
nity service events, such as neighborhood
clean-ups or youth woodcutting programs
to benefit elders; participation in training
in traditional construction techniques; and
Tribal language education.
As noted previously, one commenter
expressed the view that the preamble to
the proposed regulations used inappro-
priate terminology to describe Tribal cul-
tural or ceremonial activities, and other-
wise mischaracterized Tribal culture. The
Treasury Department and the IRS affirm
that there was no intention in drafting the
proposed regulations to express any char-
acterizations or generalizations regarding
the culture and traditions of any Tribe or
Tribes. The terminology in the proposed
regulations was included in the context of
a quotation from the provision of Revenue
Procedure 2014-35 that excepts certain
culturally significant payments from being
treated as compensation for services but
limits such exception to benefits received
by certain religious or spiritual officials
or leaders. The quotation was included in
order to clarify that the proposed regula-
tion would not contain a comparable lim-
itation on the scope of section 139E(c)(5),
and these final regulations similarly con-
tain no such limitation.
These final regulations are intended to
provide broad deference to Indian Tribal
governments. To that end, the Treasury
Department and the IRS affirm that the
IRS will defer to an Indian Tribal gov-
ernment’s determinations of whether an
activity is a cultural or ceremonial activity
for the transmission of Tribal culture, and
to the definitions of whether an item is an
item of cultural significance.
B. Employment or Contracted-Vendor
Relationship
Some commenters expressed confu-
sion regarding the discussion of employ-
ment or contracted vendor relationships in
part IV.A. of the Explanation of Provisions
in the preamble to the proposed regula-
tions. The discussion included examples
illustrating that payments to corporations
owned by Tribal members for services
provided during cultural or ceremonial
activities are not excluded under section
139E, but payments made directly to the
Tribal members for such services would
be excludible under section 139E. These
commenters requested clarification that an
Indian Tribal government’s formal agree-
ment, such as a contract, with persons
participating in cultural or ceremonial
activities, such as with spiritual leaders,
and fluent Native speakers would not pre-
vent the application of proposed §1.139E-
1(e). In addition, one commenter recom-
mended that the regulations provide that
section 139E applies to payments made in
connection with participation in cultural
or ceremonial activities to a pass-through
entity that is wholly owned by a Tribal
member.
Several commenters requested clarity
on the taxability of payments made from
a Tribe to its members for volunteer ser-
vices that these members normally pro-
vide professionally. Some commenters
argued that services provided during cul-
tural or ceremonial gatherings should be
excluded under section 139E(c)(5) even
though the Tribal member may separately
provide similar services in a professional
capacity for compensation. Finally, one
commenter recommended that activities

Bulletin No. 2026–5 433 January 26, 2026
of an advisory group also be considered a
cultural activity because some Tribal cul-
tures use these groups to distribute Tribal
decision-making power.
The mere existence of a contract
between a Tribal program participant and
an Indian Tribal government does not pre-
vent the application of §1.139E-1(e). For
example, a program benefit provided to a
spiritual leader to perform a blessing at a
ceremonial or cultural activity of the Tribe
may qualify under §1.139E-1(e) if paid
directly to the spiritual leader even with-
out regard to whether the spiritual leader
had a verbal or written agreement with the
Indian Tribal government to perform such
services.
However, the Treasury Department
and the IRS continue to be of the view that
the exception in section 139E(c)(5) does
not broadly apply to services that are tra-
ditionally provided in an employment or
contracted-vendor relationship because
section 139E is an exclusion from gross
income for individuals and families. How-
ever, in response to comments, the Trea-
sury Department and the IRS clarify that
the example in part IV.A. of the Explana-
tion of Provisions in the preamble to the
proposed regulations was not intended
to suggest that an individual who owns
a catering business is unable to receive a
cash honorarium in the individual’s capac-
ity as an individual when volunteering to
assist in food preparation for a cultural
or ceremonial activity of the Tribe. How-
ever, the exception in section 139E(c)(5)
would not apply if the individual’s cater-
ing corporation received compensation
in exchange for providing services to the
Tribe for a cultural or ceremonial activity
of the Tribe.
VI. Examples
A. New Examples
The Treasury Department and the IRS
requested comments on whether addi-
tional examples should be included in the
final regulations, and if so, what specific
fact patterns or rules should be addressed
by the additional examples. In general,
comments were mixed on this issue.
Many commenters favored additional
examples but did not want examples to
have the unintended effect of limiting the
rules or the deference provided to Indian
Tribal governments or their programs.
Most commenters requested that the reg-
ulations clearly confirm that examples
do not limit or curtail Tribal flexibility
to design Indian Tribal government pro-
grams, and many commenters suggest
adding “without limitation” in all exam-
ples or stating that the examples are nei-
ther exclusive nor exhaustive. Some com-
menters requested that any new examples
be discussed with the TTAC.
Conversely, many commenters rec-
ommended no new examples be added to
the final regulations. Some commenters
were concerned that additional examples
could be viewed as setting limits on Tribal
general welfare benefits and may not be
viewed as an illustration of possible ben-
efits.
Some commenters requested new
examples in specific areas. For example,
one commenter recommended that new
examples would be helpful for rules that
do not explicitly provide deference to
Indian Tribal governments. A few com-
menters requested examples relating to
the rules for lavish or extravagant, such
as: how the facts-and-circumstances test
applies particularly in relation to different
geographical or economic areas (such as
high-cost or low-cost areas); how the pre-
sumption could be rebutted by IRS; and
examples of how “level” cash benefits
interact with the “promotion of the gen-
eral welfare” standard. One commenter
requested an example on the interactions
of a general welfare benefit under section
139E with other Federal benefits pro-
grams, such as Supplemental Security
Income (SSI) and Medicaid. Finally, this
commenter also requested an example on
general welfare payments distributed from
a trust on a pro-rata basis.
In general, the Treasury Department
and the IRS have concluded it would be
best to refrain from adding many new
examples to these final regulations, and
have added new examples only after con-
sulting with the TTAC GWE Subcom-
mittee. Specifically, after careful consid-
eration, the Treasury Department and the
IRS decline to add examples regarding
the lavish or extravagant rules because
examples may create a negative inference
that limits an Indian Tribal government
program. The test to determine whether
a benefit is lavish or extravagant depends
on the facts and circumstances, some of
which are factors that would be specific to
a Tribe. Finally, the Treasury Department
and the IRS also decline to add an example
to describe the interaction of Tribal gen-
eral welfare benefits and SSI or Medicaid
benefits because the definition of income
for SSI or Medicaid benefits is outside the
scope of these regulations.
B. Existing Examples
Some commenters observed that the
examples in proposed §1.139E-1(d)(2)
(ii) are directly from Revenue Proce-
dure 2014-35. These commenters recom-
mended refining these examples to help
guide Tribal governments and the IRS.
In addition, several commenters recom-
mended using consistent language when
referring to the examples not being an
exhaustive list. For instance, commenters
suggested using the words “including but
not limited to” to denote the example is a
non-exhaustive list.
The Treasury Department and the
IRS have revised the examples in these
final regulations to clarify that they are
not intended to be exhaustive, and to
make clear that items following the word
“including” are similarly not intended to
be exhaustive. The examples in §1.139E-
1(d)(2)(ii) of these final regulations have
also been revised to assist with readability.
VII. Obsoletion of Revenue Procedure
2014-35
The Treasury Department and the IRS
proposed to obsolete Revenue Procedure
2014-35 after the final regulations are
applicable. Comments were requested on
whether the revenue procedure should
be obsoleted when the final regulations
become applicable, and if not, why there
is a continuing need for it after the publi-
cation of final regulations.
Most commenters argued that Revenue
Procedure 2014-35 is outdated and should
be obsoleted when the final regulations
are applicable. Some commenters noted
confusion may occur if the revenue proce-
dure is retained because some provisions
of Revenue Procedure 2014-35 conflict
with the Act. In particular, one commenter
noted there is no need for safe harbors if

January 26, 2026 434 Bulletin No. 2026–5
Indian Tribal governments are provided
broad deference and the IRS defers to
Tribal determinations under the proposed
regulations. Similarly, other commenters
argued that the Act, section 139E, and the
proposed regulations are more flexible and
provide more comprehensive guidance to
Indian Tribal governments than the reve-
nue procedure. Commenters also argued
that the safe harbors are no longer needed
because section 139E and the proposed
regulations, unlike the administrative
general welfare exclusion, do not require
a showing of individual need. However,
these commenters recommended a transi-
tion period to allow continued use of the
revenue procedure for at least one year
after the final regulations are applicable
in order to give Indian Tribal governments
time to comply with the final regulations.
Similarly, a few commenters noted that
some Federal agencies interpret the reve-
nue procedure’s safe harbors narrowly to
the detriment of benefit recipients who
rely on Federal assistance. Another com-
menter supported obsoletion of Revenue
Procedure 2014-35 but detailed the chal-
lenges the commenter has experienced
with the Social Security Administration
and requested that the Treasury Depart-
ment confirm that Tribal general welfare
benefits are needs-based assistance for
purposes of eligibility standards under
Social Security Administration programs.
One commenter argued that the Trea-
sury Department and the IRS should not
obsolete Revenue Procedure 2014-35 so
that it remains as fallback guidance in
case the final regulations are ever invali-
dated by a court or otherwise scaled back.
Another commenter requested that lan-
guage be added to the final regulations
that, in addition to section 139E and these
final regulations, provide that the adminis-
trative general welfare exclusion may also
be available to exclude an amount from
gross income.
Revenue Procedure 2014-35 will
become obsolete for taxable years begin-
ning on or after January 1, 2027, the
applicability date of the final regulations,
which will provide Indian Tribal govern-
ments with additional transition time to
adjust or update their programs. See the
“Effect on Other Documents” section of
this preamble. The Treasury Department
and the IRS agree with commenters that it
would be confusing to retain the revenue
procedure because these final regulations
are intended to be broader than the needs-
based safe harbors provided in the reve-
nue procedure. The Treasury Department
and the IRS also affirm that section 139E
and these regulations do not supplant the
administrative general welfare exclusion.
However, the Treasury Department and
the IRS disagree that Tribal general wel-
fare benefits are always needs-based assis-
tance. Section 1.139E-1(d)(2)(i) expressly
provides that Tribal general welfare ben-
efits may be provided without regard to
financial or other need of Tribal program
participants. Nevertheless, an Indian
Tribal government has broad discretion
to establish and administer Indian Tribal
government programs and may choose to
limit a program or its benefits to Tribal
program participants based on a showing
of individual need.
VIII. Audit Suspension and
Administration
The responses of the Treasury Depart-
ment and the IRS to the comments dis-
cussed in parts VIII.A. and VIII.B. of this
Summary of Comments and Explanation
of Revisions are set forth in part VIII.C. of
this Summary of Comments and Explana-
tion of Revisions.
A. Audit Suspension and the Education
and Training Requirement
Section 4 of the Act provides a tem-
porary suspension of audits and exam-
inations of Indian Tribal governments
and Tribal members (or any spouse or
dependent of such member) to the extent
that the audit or examination relates to the
exclusion of a payment or benefit from an
Indian Tribal government under the gen-
eral welfare exclusion until the education
and training prescribed by section 3(b)
(2) of the Act is completed. Section 3(b)
(2) of the Act directs the Secretary of the
Treasury, in consultation with the TTAC,
to establish and require (A) training and
education or internal revenue field agents
who administer and enforce internal reve-
nue laws with respect to Tribes on Federal
Indian law and the Federal Government’s
unique legal treaty and trust relationship
with Indian Tribal governments, and (B)
training of such internal revenue field
agents, and provision of training and tech-
nical assistance to Tribal financial officers,
about implementation of the Act and the
amendments made thereby.
Many commenters noted that section
4 of the Act expressly provides that the
lifting of audit suspension is contingent
on the completion of education and train-
ing. Many commenters requested that
meaningful coordination and consultation
with the TTAC occur on the education and
training. Several commenters requested
that the Treasury Department and the IRS
use the same TTAC and Tribal consulta-
tion and coordination process to satisfy
the required education and training as was
used for the development of the regula-
tions. Some of these commenters noted
that consultation with the TTAC ensures
that training and education materials will
be drafted to focus on both the substan-
tive rules and the sovereignty principles
underlying these regulations.
Several commenters outlined a specific
process for developing a training program
under section 3 of the Act, which they
urged the Treasury Department to adopt.
Under their recommendation, the process
would begin with a report prepared by the
TTAC in coordination with Tribes that
would be formally presented to the Trea-
sury Department. The Treasury Depart-
ment and the IRS would then work with
the TTAC or an appropriate TTAC sub-
committee to develop a Treasury Depart-
ment and IRS proposal for the education
and training program which would be the
subject of Tribal consultation. The Trea-
sury Department and the IRS would then
review the comments from the Tribes and
publish proposed and final regulations
describing the training program, follow-
ing the same process used in issuing these
final regulations.
Commenters also provided general
recommendations for what should be
included in the required training and edu-
cation of internal revenue field agents and
Tribal financial officers. Some comment-
ers requested that the training materials be
made publicly available and that internal
revenue field agents receive training on
such topics as how to defer to Tribal deter-
minations on whether an item is a Tribal
general welfare benefit, a Tribe’s customs
and programmatic guidelines, and that

Bulletin No. 2026–5 435 January 26, 2026
examples in the regulations are not exclu-
sive examples.
Some commenters also requested that
the final guidance and training materials
require IRS agents to consult with the IRS
Office of Indian Tribal Governments on
audits involving general welfare issues due
to that office’s expertise with the Federal
trust and treaty relationships with Feder-
ally recognized Tribes. Some commenters
recommended in-person trainings for all
individuals required to complete the Act’s
education and training requirements to
foster a better understanding of the mate-
rials on Federal Indian law and Tribal-spe-
cific issues. Other commenters requested
in-person audit training with Tribal rep-
resentatives because not all Tribes have
access to virtual training, or do not attend
national or regional Tribal conferences.
Another commenter requested that any
IRS training manual require the IRS to
consult with a Tribe during an audit and to
focus on program compliance by allowing
for a program to be amended rather than
focusing on imposing penalties.
Commenters noted that the statutory
language of section 3(b) of the Act describ-
ing the categories of persons covered by
the audit suspension is narrower than the
definition of Tribal program participant in
the proposed regulations. Some comment-
ers requested the audit suspension apply
to any individual eligible for the exclusion
of benefits under the proposed regula-
tions. Commenters noted a lack of parity
puts families of Tribal members at risk of
audit. One commenter provided a personal
experience in which the audit suspension
was not applied to an individual’s Tribal-
ly-recognized spouse who would qualify
as a Tribal Program participant under the
proposed regulations. Another commenter
asserted that the IRS should seek input
from the Tribal government that provided
a general welfare benefit before penal-
izing an individual recipient. One com-
menter requested the audit suspension be
extended to Alaska Native regional or vil-
lage corporations.
B. Transition Relief
In the Comments and Public Hearing
section of the preamble to the proposed
regulations, the Treasury Department and
the IRS requested comments on whether
Tribes would need time to transition exist-
ing general welfare programs to satisfy
the proposed regulations before the regu-
lations are finalized. In addition, if tran-
sition relief would be helpful, comments
were also requested on the nature of the
transition relief needed and any recom-
mendations as to what relief would be
helpful to Indian Tribal governments.
Many commenters favored transition
relief to allow Indian Tribal governments
to adopt changes to their programs after
the final regulations are applicable. Com-
menters noted that program changes may
require extensive time to implement due
to changes to Tribal ordinances, and RAPs
under IGRA. Commenters also noted that
Tribal members and Tribal staff need train-
ing and education on program changes
before such changes are implemented.
One commenter requested transition relief
due to the legal and financial costs asso-
ciated with transitioning to a new policy.
Some commenters supported the TTAC
proposal of a minimum one-year transi-
tion period after the required training and
education under section 3(b) of the Act is
complete. Many commenters requested
specific language be added to proposed
§1.139E-1(f) providing that no audits or
examinations will begin prior to one year
after the effective date of the regulations.
Other commenters stated that a one-year
transition period is a reasonable starting
point but recommended that a transition
period for changes to Tribal programs be
provided through the end of the calendar
year beginning after the final regulations
are issued and education and training
requirements under section 3(b) of the
Act are complete. Many commenters
requested relief extending the transition
period on a case-by-case basis for Tribes
that have initiated Tribal approval pro-
cesses in a timely manner but where the
Tribe cannot reasonably complete such
processes within the one-year period, as
well as for delays in approvals for changes
to a RAP.
Another commenter requested that
transition relief be provided that allows
an Indian Tribal government program that
is in effect during the period between the
effective date of the Act and the effec-
tive date of the final regulations, and that
qualifies as an Indian Tribal government
program under the final regulations, be
treated as satisfying the requirements of
the Act. The commenter also requested
that a Tribal government program adopted
in good faith based on a reasonable inter-
pretation of the Act be treated as satisfy-
ing the requirements of the Act if such
program is adopted between the effective
date of the Act and the effective date of the
final regulations. The commenter noted
that this transitional approach was taken
in Notice 2006-89 (2006-43 I.R.B. 772).
Some commenters requested the reg-
ulations provide that for the first year in
which audits are performed, they be con-
ducted solely for the purpose of helping
Tribes comply with the final regulations.
These commenters explained that this
would help focus on educating Tribes
about requirements for Indian Tribal gov-
ernment programs and Tribal general wel-
fare benefits, in order to support compli-
ance rather than impose penalties.
Most commenters recommended that
audits and examinations be prospective
and described it as unfair to audit Tribes
and Tribal members retroactively in tax-
able years for which there were no clear
rules. Commenters requested that IRS
audit and examination efforts focus on
future compliance rather than penalizing
past actions and urged that audits should
apply only to programs and actions imple-
mented after the regulations are finalized.
Commenters argued the Act was enacted
as a result of excessive IRS audits which
stifled Tribes’ ability to provide assistance
to Tribal members. Some commenters
also requested that the Treasury Depart-
ment and the IRS provide formal notice
providing a transition period and when
audits and examinations will resume.
C. Treasury Department and IRS
Response
Pursuant to section 4(a) of the Act, the
suspension of audits and examinations of
Indian Tribal governments and members
of Tribes (or any spouse or dependent of
such a member) by the IRS relating to the
exclusion of a payment or benefit from
an Indian Tribal government under the
general welfare exclusion will be lifted
once the education and training required
by section 3(b)(2) of the Act is completed.
As also provided by section 4(a) of the
Act, the running of any period of limita-

January 26, 2026 436 Bulletin No. 2026–5
tions under section 6501 with respect to
Indian Tribal governments and members
of Tribes is also suspended until the edu-
cation and training required by section
3(b)(2) of the Act is completed.
The Treasury Department and the IRS
expect to begin development of education
and training materials in consultation with
Tribes and the TTAC soon after the effec-
tive date of this Treasury decision.
The Treasury Department and the IRS
agree with the TTAC, Tribal leaders, and
commenters generally that it would be
in the interest of sound tax administra-
tion for IRS audits and examinations (see
sections 7602 and 7605 of the Code) of
issues under section 139E and these final
regulations to be prospective in nature. In
addition, the Treasury Department and the
IRS agree with the TTAC, Tribal leaders,
and commenters generally that it would
be counterproductive for IRS audit and
examinations of issues under section 139E
and these final regulations to apply to tax-
able years for which there was no guid-
ance interpreting section 139E. The Trea-
sury Department and the IRS also agree
that during the period beginning after the
effective date of this Treasury decision and
while the education and training required
by section 3(b)(2) of the Act is ongoing, it
would be most productive to allow Indian
Tribal governments time to adopt changes
to the general welfare programs they
administer such that the programs comply
with these final regulations. In addition,
until such education and training are com-
plete, the Treasury Department and the
IRS intend to apply the temporary suspen-
sion of audits and examinations to Indian
Tribal governments and Tribal program
participants as defined in the final regu-
lations, which, based on the comments
received, is not limited to the individuals
described in section 4(a) of the Act. How-
ever, the IRS may inquire as to whether
a taxpayer qualifies for the audit suspen-
sion. For example, the IRS may ask ques-
tions to determine whether an individual is
a Tribal program participant. Accordingly,
§1.139E-1(g) also provides for the ability
of the IRS to inquire into a taxpayer’s eli-
gibility for the audit suspension.
Accordingly, the Treasury Department
and the IRS have determined that although
these final regulations will be effective
after December 16, 2025, the rules of
§1.139E-1 will not be applicable to any
taxable years of Tribal program partici-
pants that begin before January 1, 2027.
Once the education and training required
by section 3(b)(2) of the Act is com-
plete, the Treasury Department and the
IRS will publish a formal notice that the
required education and training has been
completed at least 30 days in advance of
lifting the suspension of audits and exam-
inations. The tolling of the period of lim-
itations under section 6501 pursuant to
section 4(a) of the Act will also end once
the suspension of audits and examinations
is lifted. However, in the interest of sound
tax administration, once the suspension of
audits and examination is lifted, the IRS
does not intend to open audits or exam-
inations (except in certain circumstances
such as, for example, in the case of fraud)
with respect to the exclusion of a payment
or benefit under section 139E for taxable
years ending before December 16, 2025.
In addition, once the suspension of
audits and examinations is lifted, the IRS
will apply section 139E to taxable years
ending on or after December 16, 2025,
and beginning before January 1, 2027, by
taking into account the good faith efforts
of an Indian Tribal government or Tribal
program participant to comply with the
requirements of section 139E in advance
of the January 1, 2027, applicability date
of §1.139E-1. Indian Tribal governments
may also choose to apply the provisions
of §1.139E-1, in their entirety, for benefits
provided to Tribal program participants in
taxable years that begin before January 1,
2027. In addition, Indian Tribal govern-
ments may continue to apply Revenue
Procedure 2014-35 for benefits provided
to Tribal program participants in taxable
years that begin before January 1, 2027, as
Indian Tribal governments transition any
programs to comply with the final regula-
tions in advance of January 1, 2027. How-
ever, once the final regulations become
applicable for taxable years beginning on
or after January 1, 2027, Revenue Proce-
dure 2014-35 will become obsolete, and
no person may rely on Revenue Procedure
2014-35 for any taxable year beginning on
or after January 1, 2027.
Finally, the Treasury Department and
the IRS remind Indian Tribal governments
and administrators of Indian Tribal gov-
ernment programs that satisfy the require-
ments of §1.139E-1(d) that no amount of
any Tribal general welfare benefit satisfy-
ing the requirements of §1.139E-1(d) that
is provided by such an Indian Tribal gov-
ernment program to a Tribal program par-
ticipant (as defined in §1.139E-1(b)(8))
should be reported on any information
return (for example, Form 1099-MISC,
Miscellaneous Information) or statement
otherwise required to be filed with the
IRS or furnished to an individual under
the Code. If a Tribal program participant
believes that he or she has received an
information return in error, the Tribal pro-
gram participant should contact the issuer
for a corrected information return.
With regard to the comments on the
audit suspension program and the edu-
cation and training, the Treasury Depart-
ment and the IRS confirm that the audit
suspension described in section 4(a) of the
Act continues until all the requirements
of section 3(b)(2) of the Act are satisfied.
Once these final regulations under section
139E are published in the Federal Regis-
ter, the Treasury Department and the IRS,
in consultation with Tribes and the TTAC,
will develop the training curriculum and
conduct the required education and train-
ing under section 3(b)(2) of the Act. Only
after that required education and training
is complete will the audit suspension be
lifted.
The Treasury Department and the IRS
intend to work closely with the TTAC and
consult with the TTAC GWE Subcommit-
tee in designing and preparing the train-
ing and education program required under
section 3(b)(2) of the Act. However, the
Treasury Department and the IRS have
determined that a notice and comment
period similar to that used for regulations
is not required by section 3 of the Act and
would delay the implementation of these
final regulations for Tribal officers and
IRS agents. The Treasury Department
and the IRS are aware of Executive Order
13175 and intend to hold consultations
with Tribal leaders on training and educa-
tion programs.
The Treasury Department and the IRS
decline to adopt the recommendations in
the comments related to what the required
education and training may provide
because the specifics of this education and
training are outside the scope of these reg-
ulations. As noted in the preamble to the

Bulletin No. 2026–5 437 January 26, 2026
proposed regulations, these regulations
“do not address the education and training
that will be required to be complete before
the audit suspension is lifted.” The Trea-
sury Department and the IRS will con-
tinue to consult with the TTAC as required
under section 3(b)(2) of the Act.
IX. Other Issues
A. Coordination with other Federal
Agencies/Social Welfare Programs
Several commenters expressed con-
cern that Tribal general welfare benefits
are considered in income-based eligibil-
ity determinations for Federal assistance
programs administered by other agen-
cies, such as the Social Security Admin-
istration for Medicaid, Department of
Agriculture, Housing and Urban Devel-
opment, and the Department of Veteran
Affairs. Most commenters requested that
the Treasury Department and the IRS
engage with other Federal agencies to
address this issue and ensure that bene-
fits excluded under section 139E do not
affect eligibility for other Federal assis-
tance programs. This issue is important
to Tribes because it results in hardships
for vulnerable Tribal citizens. Some of
these commenters recommended that the
Treasury Department and the IRS collab-
orate with the TTAC on the issue of the
interaction of Tribal general welfare ben-
efits under section 139E and eligibility
requirements for other Federal assistance
programs. Several commenters noted that
other Federal programs should consider
the Tribal canon of construction when
determining eligibility based on income.
The Treasury Department and the IRS
have authority to interpret and provide
rules under section 139E to determine
whether a benefit is excludible from gross
income for Federal income tax purposes.
However, the issue of whether a Tribal
general welfare benefit is taken into
account for purposes of other Federal
benefit programs administered by other
Federal agencies is outside the author-
ity of the Treasury Department and the
IRS. As such, these final regulations do
not provide guidance on the treatment of
Tribal general welfare benefits outside of
the Internal Revenue Code (26 U.S.C. et
seq.). The Treasury Department and the
IRS understand the importance of this
issue for Tribes and will continue to work
with the TTAC and Tribes to confer with
other Federal agencies to provide advice
on how the Federal tax law applies to
Tribal general welfare benefits.
B. Advance Rulings
Some commenters requested an
advance ruling process be established by
the IRS for Tribes to have access to an
optional advance ruling program or pro-
cedures to address program design and
compliance issues not directly or fully
answered in the final regulations.
The Treasury Department and the IRS
appreciate that Tribes want certainty on
the Indian Tribal government programs to
ensure the programs comply with section
139E and these final regulations. How-
ever, these final regulations do not provide
a new advance ruling process for Tribes
to request review of the general welfare
programs for the reasons discussed below.
The IRS has a general process already
in place for entities and individuals to
request a letter ruling on the tax treatment
of a particular transaction or program. If
an Indian Tribal government receives a
letter ruling from the IRS, the ruling gen-
erally is binding on the IRS. However, a
letter ruling would address the Federal tax
law and would not be binding in any way
on other Federal or State agencies. The
IRS expects the letter ruling process to
be available to Indian Tribal governments
after the final regulations are effective
(that is, after December 16, 2025).
In addition, section 3(b)(2) of the Act
requires the Treasury Department, in con-
sultation with the TTAC, to establish train-
ing and education, with specific require-
ments to provide assistance to Tribal
financial officers on the implementation of
section 139E. The Treasury Department
and the IRS expect such training and edu-
cation to support Tribes in understanding
the flexibility and deference provided to
Indian Tribal governments in develop-
ing general welfare programs to satisfy
the program and benefit requirements of
section 139E and these final regulations.
Moreover, the IRS Office of Indian Tribal
Governments is also a resource for infor-
mal advice on issues that affect Indian
Tribal governments.
C. Appeal Process
Some commenters requested an
appeals process be provided to Tribes and
Tribal members to appeal IRS field agent
decisions to a team of Tribal specialists at
the top of the IRS structure without waiv-
ing existing legal rights. These comment-
ers asserted that such an appeals process
would acknowledge the unique Tribal
relationship with the Federal government
and would help Tribes and their Tribal
members avoid litigation expenses. These
commenters requested that Tribal court
decisions be given full faith and credit by
the IRS.
The Treasury Department and the IRS
do not include a separate appeals pro-
cess in these final regulations because it
is outside the scope of section 139E. The
IRS expects that the existing appeals pro-
cesses in place for entities and individuals
to request the review of Federal income
tax controversies would apply, includ-
ing through the Independent Office of
Appeals (Appeals). The IRS expects that
the required education and training under
section 3(b)(2) of the Act will also help
IRS field agents and Tribal financial offi-
cers understand the requirements of these
final regulations and the unique govern-
ment-to-government relationship with the
Federal government.
D. Section 139D
In part III.A.4. of the Explanation of
Provisions in the preamble to the proposed
regulations, the Treasury Department and
the IRS discussed wellness and health-re-
lated programs and explained that section
139D of the Code and section 139E are
independent provisions, and that section
139D does not limit the application of sec-
tion 139E. The preamble discussed quali-
fied Indian health care benefits generally
and provided an example of medical care
under section 213(d) of the Code. More-
over, the example described certain well-
ness and health-related programs, as well
as care by an unlicensed spouse or rela-
tive, that are not considered medical care
under section 213(d), and concludes these
are not excludible under section 139D.
Commenters expressed concern that
the Treasury Department and the IRS’s
description of section 139D in the pro-

January 26, 2026 438 Bulletin No. 2026–5
posed regulations is inaccurate and too
narrow. Commenters requested that the
Treasury Department and the IRS revise
the description of section 139D to accu-
rately reflect the exclusion from gross
income for qualified Indian health care
benefits. Several commenters stated
that Tribes provide more than medical
care under their Indian Self Determi-
nation and Education Assistance Act
(ISDEAA) agreements and in the health
coverage they purchase and/or provide to
their members. The commenters further
explained that Tribes routinely provide
general health, wellness, and other pre-
ventative and health promotion services
to their members through the community
health representative programs, home and
community-based services, community
health education, and other services.
The Treasury Department and the IRS
agree with commenters that the descrip-
tion of section 139D in the proposed reg-
ulations was too narrow and inaccurate in
describing a qualified Indian health care
benefit. The Treasury Department and the
IRS intended for the discussion in the pro-
posed regulations to explain that section
139E applies to a benefit independent of
section 139D such that a benefit from cer-
tain wellness and health-related programs
may qualify for exclusion from gross
income under section 139E whether or not
it also qualifies for exclusion from gross
income under section 139D.
Section 139D generally provides an
exclusion from gross income for any qual-
ified Indian health care benefit. The term
“qualified Indian health care benefit” is
defined in section 139D(b) and some ben-
efits may not be limited by the definition
of medical care under section 213. For
example, section 139D(b)(1) provides
that a qualified Indian health care benefit
includes any health service or benefit pro-
vided or purchased, directly or indirectly,
by the Indian Health Service through
a grant to or a contract or compact with
an Indian Tribe or Tribal organization, or
through a third-party program funded by
the Indian Health Service.
Amounts paid for benefits that are
merely beneficial to the general health of
an individual, such as certain wellness and
health-related programs, as well as care
by an unlicensed spouse or relative, are
not amounts paid for medical care. How-
ever, even if such benefit is not a qualified
Indian health care benefit under section
139D, an Indian Tribal government may
determine, under §1.139E-1(d)(2), that
wellness and health-related programs
are for the promotion of general welfare
under section 139E. Thus, amounts paid
for benefits that are merely beneficial to
the general health of an individual, such
as certain wellness and health-related
programs, as well as care by a spouse or
relative, may be amounts which qualify as
Tribal general welfare benefits.
X. Ongoing Consultation
A. Future TTAC Coordination
Many commenters requested that
the Treasury Department and the IRS
continue to coordinate all changes and
future guidance with the TTAC to ensure
Tribal input remains at the forefront of
future efforts to develop and implement
the Act. Many commenters requested
that the Treasury Department and the
IRS maintain an open dialogue with
TTAC on guidance proposals, and not
mere listening sessions, so that Tribes
have a meaningful role in the develop-
ment of all rules that impact the Tribal
general welfare exclusion both directly
and through TTAC. For example, one
commenter requested that the Treasury
Department and the IRS meet with TTAC
to jointly consider and address the com-
ments received on the proposed regula-
tions, and, in turn, that the TTAC share
this progress with Tribes to ensure Tribal
input in the guidance process. Moreover,
commenters requested that the Treasury
Department and the IRS maintain ongo-
ing consultation with Tribal leaders and
the TTAC as new issues arise to ensure
the regulations protect Tribal sovereignty
and support effective Tribal governance.
One commenter objected generally to
the composition of Tribal representation
on the TTAC. Conversely, some com-
menters shared appreciation for the Trea-
sury Department and the IRS’s collabora-
tive approach with the TTAC and Tribes
on the development of the proposed reg-
ulations. Commenters also expressed sup-
port for the work of Treasury’s Office of
Tribal and Native Affairs and requested
permanency for the office.
The Treasury Department and the IRS
agree with commenters that ongoing con-
sultation with the TTAC is beneficial to the
implementation of the Act. The Treasury
Department and the IRS have engaged
in extensive consultation with the TTAC
GWE Subcommittee during the drafting
of these final regulations with meaning-
ful discussion of the comments received
on the proposed regulation. These final
regulations incorporate the recommenda-
tions of the TTAC GWE Subcommittee
on these issues. Moreover, the Treasury
Department and the IRS intend to con-
tinue meaningful consultation with the
TTAC GWE Subcommittee to develop the
training and education required by section
3(b) of the Act.
B. Alaska Native Regional or Village
Corporations
Several commenters expressed concern
that the proposed regulations do not pro-
vide guidance for Alaska Native regional
or village corporations, even though
Alaska Native regional or village corpo-
rations are included in section 139E(c)(1).
Commenters stated the Treasury Depart-
ment and the IRS are required to consult
with Alaska Native regional or village
corporations on the same basis as Feder-
ally recognized Tribes under Executive
Order 13175. Some commenters pointed
to Dear Tribal Leader Letters sent to lead-
ers of Federally recognized Tribes and
those letters were not sent to leadership
of Alaska Native regional or village cor-
porations and did not specifically address
Alaska Native regional or village corpora-
tions. These commenters argued that the
promise to issue guidance in the future
is inadequate to satisfy the requirements
of the Act and leaves out Alaska Native
regional or village corporations, and
Alaska Native regional or village corpora-
tions have no information when consulta-
tion will be held on section 139E and the
Act. These commenters asserted that the
IRS should have consulted with Alaska
Native regional or village corporations to
provide their leadership and other inter-
ested parties an opportunity to engage in
the commenting process before deciding
to omit Alaska Native regional or village
corporations from the proposed regula-
tions.

Bulletin No. 2026–5 439 January 26, 2026
Some commenters argued that provid-
ing guidance for Alaska Native regional or
village corporations in later regulations is
harmful and has negative effects on Alaska
Native regional or village corporations
because it creates confusion and uncer-
tainty for Alaska Native regional or vil-
lage corporations and may have the poten-
tial to obscure their place in the regulatory
framework, contrary to their inclusion in
section 139E. One commenter notes the
omission of Alaska Native regional or vil-
lage corporations from the proposed reg-
ulations creates confusion as to whether
section 139E applies to Alaska Native
regional or village corporations and that
eliminating this uncertainty should be a
top priority of the Treasury Department
and the IRS.
Some commenters recommended that
the final regulations include Alaska Native
regional or village corporations in the defi-
nitions of Indian Tribal government and
Tribe in §1.139E-1. Other commenters
recommended that the Treasury Depart-
ment and the IRS finalize the regulations
only after consultation with Alaska Native
regional or village corporations on section
139E, publishing a proposed regulation
applicable to Alaska Native regional or
village corporations, providing notice and
comment on such regulation, and solici-
tating specific questions of Alaska Native
regional or village corporations. A com-
menter stated that Alaska Native regional
or village corporations also provide vital
general welfare benefits and services to
their shareholders, such as scholarships,
funding for cultural programs, improve-
ments to healthcare access, and other
essential services. Another commenter
recommended that the Treasury Depart-
ment and the IRS quickly promulgate
proposed §1.139E-2 to address Alaska
Native regional or village corporations.
Several commenters mentioned that rules
provided for Alaska Native regional or
village corporations should be similar to
those for Federally recognized Tribes in
the proposed regulation, possibly with
minor customizations.
One commenter acknowledged the
decision of the Treasury Department and
the IRS to issue separate guidance for
Alaska Native regional or village corpo-
rations and Federally recognized Tribes.
However, the commenter requested that
the Treasury Department and the IRS
include section 139E guidance for Alaska
Native regional or village corporations as
a priority on the Priority Guidance Plan
(PGP) for the 2025-2026 plan year and
that the guidance provided be similar to
the guidance provided to Federally recog-
nized Tribes under the proposed regula-
tions. The commenter also recommended
that interim guidance allow Alaska Native
regional or village corporations to apply
any or all of the provisions of the pro-
posed regulation on a case-by-case basis.
In the interest of sound tax administra-
tion, the Treasury Department and the IRS
have decided to continue to limit the rules
of §1.139E-1 to Federally recognized
Tribes. However, the Treasury Depart-
ment and the IRS agree with commenters
that, as provided in section 139E(c)(1),
an Alaska Native regional or village cor-
poration may provide Tribal general wel-
fare benefits excluded from gross income
under section 139E.
The Treasury Department and the IRS
held a consultation with Alaska Native
regional and village corporations on July
29, 2025, in order to gather input before
promulgating proposed regulations under
section 139E customized to the specific
circumstances of Alaska Native regional
or village corporations. Discussion at this
consultation focused on the application of
section 139E to Alaska Native regional or
village corporations and what guidance
specific to Alaska Native regional or village
corporations’ distinct Federal income tax
characteristics and circumstances would
be helpful. Additionally, the Treasury
Department and the IRS included section
139E guidance for Alaska Native regional
or village corporations as a priority on the
Priority Guidance Plan for the 2025-2026
plan year, released on September 30, 2025.
The current Priority Guidance Plan is
available at https://www.irs.gov/privacy-
disclosure/priority-guidance-plan.
The Treasury Department and IRS
are aware that Alaska Native regional
or village corporations may want more
certainty regarding their general welfare
programs prior to the promulgation of
additional final regulations under section
139E. Accordingly, the Treasury Depart-
ment and the IRS have determined that
Alaska Native regional or village corpo-
rations may choose to apply the final rules
in §1.139E-1 until proposed regulations
that specifically address the application
of the requirements of section 139E to
Alaska Native regional or village corpo-
rations are published under §1.139E-2.
However, an Alaska Native regional or
village corporation that chooses to apply
the rules in §1.139E-1 must consistently
apply the rules of §1.139E-1 with respect
to any general welfare benefits provided
to a shareholder of the Alaska Native
regional or village corporation (and the
shareholder’s spouse and dependents) and
other Tribal program participants from
general welfare programs of the Alaska
Native regional or village corporation
that satisfy §1.139E-1(c). These final
regulations set forth the substance of the
preceding two sentences at §1.139E-2.
Moreover, the Treasury Department and
the IRS acknowledge that section 3(b) of
the Act requires education and training
specific to Alaska Native regional or vil-
lage corporations.
Special Analyses
I. Executive Order 13175: Consultation
and Coordination With Indian Tribal
Governments
Executive Order 13175 (Consultation
and Coordination With Indian Tribal Gov-
ernments) prohibits an agency from pub-
lishing any rule that has Tribal implica-
tions if the rule either imposes substantial,
direct compliance costs on Indian Tribal
governments and is not required by stat-
ute, or preempts Tribal law, unless the
agency meets the consultation and fund-
ing requirements of section 5 of the Exec-
utive order. These final regulations have
a substantial direct effect on one or more
Federally recognized Indian Tribes and
do impose substantial direct compliance
costs on Indian Tribal governments within
the meaning of the Executive order. As a
result, the Treasury Department complied
with section 5(b)(2)(A) and (B) of Execu-
tive Order 13175. In compliance with sec-
tion 5(b)(2)(A) of Executive Order 13175
and in response to Tribal leader requests
for these final regulations, the Treasury
Department and the IRS held consulta-
tions with Tribal leaders on November 18,
19, and 20, 2024, requesting assistance in
addressing questions related to the Act and

January 26, 2026 440 Bulletin No. 2026–5
the proposed regulations, which informed
the development of these final regulations.
The Treasury Department and the IRS
also intend to conduct Tribal consultation
on the required training described in sec-
tion 3(b)(2) of the Act.
II. Regulatory Planning and Review
The Office of Information and Reg-
ulatory Analysis of the Office of Man-
agement and Budget (OMB) has deter-
mined that this regulation is not subject
to review under section 6(b) of Execu-
tive Order 12866 pursuant to the Mem-
orandum of Agreement (July 4, 2025)
between the Treasury Department and the
OMB regarding review of tax regulations.
Therefore, a regulatory impact assessment
is not required.
The Executive Order 14192 designa-
tion for this rule is anticipated to be dereg-
ulatory.
III. Paperwork Reduction Act
The collection of information contained
in these regulations has been reviewed and
approved by the OMB in accordance with
the Paperwork Reduction Act of 1995 (44
U.S.C. 3501–3520) under control number
1545-2328.
These regulations include third-party
disclosures and recordkeeping require-
ments that are required to substantiate that
the value of a Tribal General Welfare Ben-
efit is excluded from a recipient’s gross
income.
The recordkeeping requirements in
§1.139E-1(c)(3) provide that Indian Tribal
government programs must be adminis-
tered under specified guidelines and pro-
vide general requirements on the content
of those guidelines. Written specified
guidelines are not required. Additionally,
Indian Tribal governments should keep
records they deem appropriate to substan-
tiate that the Tribal general welfare ben-
efits are distributed without discriminat-
ing in favor of the governing body of the
Tribe, as described in §1.139E-1(c)(4), are
not lavish or extravagant, as described in
§1.139E-1(d)(4), and are not compensa-
tion for services, as described in §1.139E-
1(d)(5). This information will generally be
used by the IRS for tax compliance pur-
poses to ensure Indian Tribal governments
are distributing Tribal general welfare
benefits in accordance with §1.139E-1.
A disclosure requirement may apply to
Indian Tribal governments that choose to
provide notification to Tribal program par-
ticipants that an Indian Tribal government
program exists for which Tribal program
participants may apply for benefits. These
final regulations do not prescribe a specific
method Indian Tribal governments must
use to announce the existence of a pro-
gram. An Indian Tribal government may
announce Indian Tribal government pro-
grams in any manner it deems appropriate.
These final regulations do not change
the general recordkeeping requirement
under section 6001 or create any new
recordkeeping requirements for Tribal
program participants that receive a Tribal
general welfare benefit.
The estimated total reporting burden
for Indian Tribal governments (third-party
disclosure and recordkeeping burden for
Tribal entities) is as follows:
Estimated Number of Respondents:
2,296
Estimated Time per Response: 2 hours
Estimated Frequency of Response:
Once or on occasion
Estimated Total Burden Hours: 4,592
hours
The Paperwork Reduction Act of
1995 (44 U.S.C. 3501-3520) (PRA) gen-
erally requires a Federal agency obtain
the approval of OMB before collecting
information from the public, whether such
collection of information is mandatory,
voluntary, or required to obtain or retain
a benefit. An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information dis-
plays a valid control number assigned by
the OMB.
IV. Regulatory Flexibility Act
The Secretary of the Treasury hereby
certifies these final regulations will not
have a significant economic impact on a
substantial number of small entities pur-
suant to the Regulatory Flexibility Act
(5 U.S.C. chapter 6). These final regula-
tions affect Indian Tribal governments
that establish and administer Tribal gen-
eral welfare programs and that distribute
Tribal general welfare benefits to certain
individuals. The Treasury Department and
the IRS have no reliable data to determine
whether Tribal general welfare programs
may be established and administered
through small entities, such as not-for-
profit entities. Although data is not read-
ily available about the number of small
entities that will potentially be affected by
these final regulations, it is possible that a
substantial number of small entities may
be affected. However, any impact on those
entities will not be economically signifi-
cant and therefore a regulatory flexibility
analysis under the Regulatory Flexibility
Act is not required.
The impact of these final regulations
can be described in the following catego-
ries. First, §1.139E-1(c) provides guidance
on what criteria a program must meet in
order to be an “Indian Tribal Government
Program.” Specifically, §1.139E-1(c) pro-
vides that the program must be established
by the Indian Tribal government; adminis-
tered under specified guidelines; and not
discriminate in favor of members of the
governing body of the Tribe. Even assum-
ing these provisions affect a substantial
number of small entities, they will not
have a significant economic impact. Sec-
tion 139E(b) imposes the burden of what
is needed to create an Indian Tribal gov-
ernment program. These final regulations
will provide deference to Indian Tribal
governments on the types of general wel-
fare programs established and generally
defer to Indian Tribal governments on the
form of the program’s specified guidelines
and the specific records they should main-
tain. As such, it is expected that the final
regulations will have a minimal economic
impact on Indian Tribal governments.
Second, §1.139E-1(d) will provide
guidance on whether a benefit is a “Tribal
General Welfare Benefit” that is excluded
from an individual’s gross income. Spe-
cifically, §1.139E-1(d) will require the
benefit be provided pursuant to an Indian
Tribal government program; be for the
promotion of general welfare; be avail-
able to any eligible Tribal program par-
ticipant; not be lavish or extravagant; and,
except as provided in section 139E(c)(5),
not be for compensation for services. Sec-
tion 1.139E-1(d) will provide deference to
Indian Tribal governments on the types of
benefits that promote the general welfare,
the individuals who are eligible for ben-

Bulletin No. 2026–5 441 January 26, 2026
efits, and whether benefits are provided
in exchange for participation in certain
cultural or ceremonial activities under
section 139E(c)(5) and these final regu-
lations. It also provides that deference is
given to the attestations of the facts and
circumstances at the time that a benefit is
provided to the Tribal program participant,
and that the benefit is presumed to not be
lavish or extravagant if it is described
in, and provided in accordance with, the
written specified guidelines of an Indian
Tribal government program that exist at
the time that the benefit is provided to
the Tribal program participant. As such,
it is expected that the final regulations
will have a minimal economic impact on
Indian Tribal governments.
Third, an Indian Tribal government
program may provide benefits to a Tribal
program participant that are items of
cultural significance, reimbursement of
costs, or cash honoraria for the Tribal
program participant’s participation in
certain cultural or ceremonial activities.
See §1.139E-1(e). Indian Tribal govern-
ments have broad discretion to determine
whether or not these benefits are provided.
Even assuming this provision affects a
substantial number of small entities, it will
not have a significant economic impact
because benefits that are items of cultural
significance, reimbursement of costs, and
cash honoraria are only a few types of the
benefits that are permitted to be provided
under section 139E and §1.139E-1. An
Indian Tribal government is not required
to provide these types of benefits.
For the reasons stated, a regulatory
flexibility analysis under the Regulatory
Flexibility Act is not required.
V. Section 7805(f)
Pursuant to section 7805(f) of the
Code, the proposed regulations (REG-
106851-21) preceding this final regula-
tion were submitted to the Chief Counsel
for the Office of Advocacy of the Small
Business Administration for comment on
its impact on small business, and no com-
ments were received.
VI. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 (UMRA) requires
that agencies assess anticipated costs and
benefits and take certain other actions
before issuing a final rule that includes
any Federal mandate that may result in
expenditures in any one year by a State,
local, or Indian Tribal government, in the
aggregate, or by the private sector, of $100
million (updated annually for inflation).
These final regulations do not include any
Federal mandate that may result in expen-
ditures by State, local, or Indian Tribal
governments, or by the private sector in
excess of that threshold.
VII. Executive Order 13132: Federalism
Executive Order 13132 (Federalism)
prohibits an agency from publishing any
rule that has federalism implications if
the rule either imposes substantial, direct
compliance costs on State and local gov-
ernments, and is not required by statute,
or preempts State law, unless the agency
meets the consultation and funding
requirements of section 6 of the Executive
order. These final regulations do not have
federalism implications and do not impose
substantial direct compliance costs on
State and local governments or preempt
State law within the meaning of the Exec-
utive order.
Effect on Other Documents
Revenue Procedure 2014-35 (2014-26
I.R.B. 1110) and Notice 2015-34 (2015-18
I.R.B. 942) are obsolete for taxable years
beginning on or after January 1, 2027.
Statement of Availability of IRS
Documents
Guidance cited in this preamble is pub-
lished in the Internal Revenue Bulletin
and is available from the Superintendent
of Documents, U.S. Government Publish-
ing Office, Washington, DC 20402, or by
visiting the IRS website at https://www.
irs.gov.
Drafting Information
The principal authors of these regula-
tions are Mon Lam, Jonathan Dunlap, and
Thomas Brown of the Office of Associate
Chief Counsel (Income Tax and Account-
ing). However, other personnel from the
Treasury Department and the IRS partic-
ipated in the development of the regula-
tions.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding entries for
§§1.139E-1, 1.139E-1(d)(6), 1.139E-2,
and 1.7872-5(b)(17), in numerical order,
to read in part, as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.139E-1 also issued under 26
U.S.C. 139E.
Section 1.139E-1(d)(6) also issued
under 26 U.S.C. 7872.
Section 1.139E-2 also issued under 26
U.S.C. 139E.
* * * * *
Section 1.7872-5(b)(17) also issued
under 26 U.S.C. 7872.
* * * * *
Par. 2. Sections 1.139E-0 through
1.139E-2 are added to read as follows:
* * * * *
Sec.
1.139E-0 Table of contents.
1.139E-1 Tribal general welfare benefits.
1.139E-2 Alaska Native regional or vil-
lage corporations.
* * * * *
§1.139E-0 Table of contents.
This section lists the major captions for
§§1.139E-1 and 1.139E-2.
§1.139E-1 Tribal general welfare
benefits.
(a) Overview.
(b) Definitions.
(1) Act.
(2) Benefit.
(3) Code.

January 26, 2026 442 Bulletin No. 2026–5
(4) Indian Tribal Government.
(5) Indian Tribal Government Program.
(6) Tribal General Welfare Benefit.
(7) Tribe.
(8) Tribal Program Participant.
(9) Tribal Member.
(10) Dependent.
(c) Indian Tribal Government Program.
(1) In general.
(2) Program must be established.
(3) Program must be administered
under specified guidelines.
(4) Program cannot discriminate in
favor of members of the governing body
of the Tribe.
(5) No limitation on source of funds.
(d) Tribal General Welfare Benefits.
(1) In general.
(2) Benefits must be for the promotion
of general welfare.
(3) Benefits must be available.
(4) Benefits cannot be lavish or extrav-
agant.
(5) Benefits cannot be compensation
for services.
(6) Loans from an Indian Tribal Gov-
ernment to a Tribal Program Participant.
(e) Cultural or ceremonial activities.
(1) In general.
(2) Application.
(3) Examples.
(f) Section 2(c) of the Act.
(g) Audit suspension.
(h) Applicability date.
§1.139E-2 Alaska Native regional or
village corporations.
§1.139E-1 Tribal general welfare
benefits.
(a) Overview. Under section 139E
of the Code and this section, the gross
income of a Tribal Program Participant
for the taxable year does not include the
value of any Tribal General Welfare Ben-
efit provided by an Indian Tribal Govern-
ment Program during the year to or on
behalf of the Tribal Program Participant.
Paragraph (b) of this section provides
definitions that apply for purposes of this
section. Paragraph (c) of this section pro-
vides the requirements that any program
must satisfy to qualify as an Indian Tribal
Government Program for purposes of this
section. Paragraph (d) of this section pro-
vides the requirements that any benefit
provided to or on behalf of a Tribal Pro-
gram Participant must satisfy to qualify
as a Tribal General Welfare Benefit for
purposes of this section. Paragraph (e) of
this section provides special rules related
to cultural or ceremonial activities solely
for purposes of this section. Paragraph (f)
of this section restates the deference pro-
vided to Indian Tribal governments under
section 2(c) of the Act. Paragraph (g) of
this section describes the audit suspension
provisions in section 4(a) of the Act. Para-
graph (h) of this section provides the date
of applicability of this section.
(b) Definitions. The following defini-
tions apply for purposes of this section:
(1) Act. The term Act means the Tribal
General Welfare Exclusion Act of 2014,
Public Law 113–168, 128 Stat. 1883
(2014).
(2) Benefit. The term benefit means any
money, property, services, or other item of
value provided to or on behalf of an indi-
vidual.
(3) Code. The term Code means the
Internal Revenue Code.
(4) Indian Tribal Government. The
term Indian Tribal Government means
an Indian Tribal Government as defined
by section 7701(a)(40) of the Code and
includes any agencies or instrumentalities
of such an Indian Tribal Government.
(5) Indian Tribal Government Pro-
gram. The term Indian Tribal Government
Program means a program that satisfies
the requirements of paragraph (c) of this
section.
(6) Tribal General Welfare Benefit.
The term Tribal General Welfare Ben-
efit means any benefit provided to or on
behalf of a Tribal Program Participant that
satisfies the requirements of paragraph (d)
of this section for exclusion from gross
income as an “Indian general welfare ben-
efit” under section 139E of the Code.
(7) Tribe. The term Tribe means any
Indian Tribe, band, nation, pueblo, or other
organized group or community, including
any Alaska Native village as defined in 43
U.S.C. 1602(c), that is recognized as eligi-
ble for the special programs and services
provided by the United States to Indians
because of their status as Indians.
(8) Tribal Program Participant—(i) In
general. The term Tribal Program Par-
ticipant means a Tribal Member, spouse
of a Tribal Member within the meaning
of §301.7701-18 of this chapter, spouse
of a Tribal Member under applicable
Tribal law, dependent of a Tribal Mem-
ber, or other individual who has been
determined by the Indian Tribal Govern-
ment to be eligible for a Tribal General
Welfare Benefit because such individual
is, with respect to a Tribal Member, an
ancestor, descendant, former spouse,
widow or widower, legally recognized
domestic partner or former domestic
partner, or an individual for whom a
Tribal Member is a caregiver authorized
under Tribal or State law.
(ii) Special rule for ceremonial or
cultural activities. Solely for purposes
of paragraph (e) of this section, the term
Tribal Program Participant may include
a member or citizen of a Tribe that is dif-
ferent from the Tribe that establishes or
maintains the Indian Tribal Government
Program that provides the Tribal General
Welfare Benefit, and other individuals
described in paragraph (b)(8)(i) of this
section. For purposes of this paragraph
(b)(8)(ii), in applying paragraph (b)(8)(i)
of this section, such member or citizen of
another Tribe will be treated as a Tribal
Member.
(9) Tribal Member. The term Tribal
Member means an individual who is a
member or citizen of the Tribe that estab-
lishes or maintains the Indian Tribal Gov-
ernment Program because the individual
meets the requirements established by
applicable Tribal law for enrollment in the
Tribe, and:
(i) Is listed on the Tribal rolls of the
Tribe if such rolls are kept;
(ii) Is recognized as a member by the
Tribe if Tribal rolls are not kept; or
(iii) Is an Indian child as defined in 25
U.S.C. 1903.
(10) Dependent. The term dependent
means an individual who is a qualifying
child or a qualifying relative, as defined in
section 152 of the Code, of a Tribal Mem-
ber for the taxable year determined:
(i) Without regard to whether the Tribal
Member was a qualifying child or quali-
fying relative, each as defined in section
152, of another taxpayer for a taxable year
of the other taxpayer beginning in that cal-
endar year.
(ii) Without regard to whether the indi-
vidual filed a joint return with the individ-
ual’s spouse (as defined in section 6013 of

Bulletin No. 2026–5 443 January 26, 2026
the Code) for the taxable year beginning
in that calendar year; and
(iii) Without regard to the individu-
al’s gross income for the calendar year in
which the individual’s taxable year begins.
(c) Indian Tribal Government Pro-
gram—(1) In general. A program is an
Indian Tribal Government Program only
if the program:
(i) Is established by the Indian Tribal
Government, as described in paragraph (c)
(2) of this section;
(ii) Is administered under specified
guidelines, as described in paragraph (c)
(3) of this section; and
(iii) Does not discriminate in favor of
members of the governing body of the
Tribe, as described in paragraph (c)(4) of
this section.
(2) Program must be established—(i)
In general. A program must be estab-
lished by an Indian Tribal Government. A
program established by Tribal custom or
government practice, or by formal action
of the Indian Tribal Government, is a
program established by the Indian Tribal
Government. Formal action means autho-
rization of the program pursuant to appli-
cable Tribal law. The formal action must
be in writing to the extent such writing
is required under applicable Tribal law.
For example, written documentation that
evidences the formal action of the Indian
Tribal Government to establish the pro-
gram is required if such written documen-
tation is required under applicable Tribal
law. Similarly, no written documentation
of the formal action of the Indian Tribal
Government to establish the program is
required if, under applicable Tribal law,
no written documentation of such action is
required. As an additional example, a pro-
gram may be established by a voice vote
if such voice vote would otherwise con-
stitute formal action of the Indian Tribal
Government under applicable Tribal law.
To the extent permitted under applicable
Tribal law, an Indian Tribal Government
may delegate the authority for establish-
ing a program to a designated individual
or entity of the Indian Tribal Government.
(ii) Examples. The requirements of this
paragraph (c)(2) are illustrated by the fol-
lowing examples, which are not intended
to be an exhaustive or exclusive illustra-
tion of the rules provided in this paragraph
(c)(2):
(A) Example 1. A, a Tribe, operates under the
direction of its Indian Tribal Government (the Coun-
cil). According to the laws of A, all expenditures of A
must be approved by a majority of the Council at the
Council’s annual meeting or by written unanimous
consent if the action is taken without a meeting.
During the annual meeting of A’s Council, a majority
of the Council vote to approve establishing a pro-
gram. A’s Council has established the program under
paragraph (c)(2)(i) of this section.
(B) Example 2—(1) Facts. The facts are the same
as in paragraph (c)(2)(ii)(A) of this section (Exam-
ple 1), except that, based on a recommendation from
the Tribal Education office, A’s Council determines
to provide funding for a scholarship program to pay
100% of education related expenses for any Tribal
Member who graduates from high school or receives
a GED during the calendar year. Because the next
Council meeting is scheduled in December 2024,
and to avoid potential impact on eligible students, in
February 2024, Council adopts by unanimous writ-
ten consent the following education program:
(i) Approving $X of funding for the 2024 year for
the scholarship program; and
(ii) Authorizing the director of the Tribal Educa-
tion office to use the approved funds for the scholar-
ship program.
(2) Analysis. A’s Council has established the
education program under paragraph (c)(2)(i) of this
section.
(C) Example 3. The facts are the same as in para-
graph (c)(2)(ii)(B) of this section (Example 2) except
that A’s Council approves $X of annual funding to be
provided for the education program, and delegates
to the Tribal Education office authority to establish
a scholarship program. A’s Council has established
the education program under paragraph (c)(2)(i) of
this section.
(3) Program must be administered
under specified guidelines. A program
must be administered under specified
guidelines. The specified guidelines must
include, at a minimum, a description of the
program to provide Tribal General Wel-
fare Benefits, the eligibility requirements
for the program, a description of the type
of benefits authorized by the program, and
the process for receiving benefits under
the program. A program is administered
under specified guidelines if the program
is operated in accordance with such guide-
lines. Indian Tribal Governments may
choose to, but are not required to, set forth
the specified guidelines of the program in
writing.
(4) Program cannot discriminate in
favor of members of the governing body
of the Tribe—(i) In general. Except in the
case of a program described in paragraph
(c)(4)(ii) of this section, a program cannot
discriminate in favor of members of the
governing body of the Tribe. For the pur-
poses of this paragraph (c)(4), a governing
body means the legislative body of the
Tribe, such as the Tribal Council, or the
representative equivalent of the legislative
body of the Tribe.
(ii) General council Tribes. A program
is treated as being in compliance with this
paragraph (c)(4) if the governing body of
a Tribe consists of the entire adult mem-
bership of the Tribe.
(iii) Facts and circumstances test.
Except in the case of a program described
in paragraph (c)(4)(ii) of this section, a
program fails to satisfy the requirements
of this paragraph (c)(4) if, based on all
the facts and circumstances, the program,
either by its terms or in its administration,
discriminates in favor of members of the
governing body of the Tribe. A program
discriminates in favor of the members
of the governing body of the Tribe if the
program by its terms is available only to
members of the governing body. Thus, for
example, a program established to provide
benefits solely to the children of members
of the governing body of the Tribe (unless
the Tribe is a general council Tribe) and
thus defrays costs otherwise borne by
members of the governing body fails to
satisfy the requirements of this paragraph
(c)(4). Additionally, the administration of
a program discriminates in favor of mem-
bers of the governing body of the Tribe if,
based on the totality of the facts and cir-
cumstances, the benefits provided during
the year disproportionately favor mem-
bers of the governing body of the Tribe
because of their status as members of the
governing body.
(5) No limitation on source of funds—
(i) In general. Benefits under the Indian
Tribal Government Program may be
funded by any source of revenue or funds.
For example, an Indian Tribal Govern-
ment may use funds derived from levies,
taxes, and service fees; settlements; rev-
enues from Tribally-owned businesses,
including casino revenues; funds from
Federal, State, or local governments; and
funds from other sources, including grants
and loans, to provide benefits under an
Indian Tribal Government Program.
(ii) Benefits funded by net gaming rev-
enues. Benefits 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). However,

January 26, 2026 444 Bulletin No. 2026–5
per capita payments, as defined under
IGRA, are subject to Federal taxation
under IGRA and are not excludable from
gross income under section 139E or this
section. For purposes of section 139E and
this section, a payment is a per capita pay-
ment if it is identified by the Indian Tribal
Government as a per capita payment in a
Revenue Allocation Plan that is approved
by the Department of the Interior (see 25
U.S.C. 2710(b)(3) and 25 CFR 290.11)
and in effect at the time of the payment.
(iii) Benefits paid as distributions from
certain trusts. Benefits under the Indian
Tribal Government Program may be pro-
vided to Tribal Program Participants as
distributions from the portion of a trust
of which the Indian Tribal Government
is treated as owner under sections 671
through 677. For purposes of section
139E and this section, the determination
of whether a benefit is a Tribal General
Welfare Benefit is made at the time the
benefit is distributed from the trust to the
Tribal Program Participant. A benefit, or
a portion thereof, that an Indian Tribal
Government Program distributes from a
trust is a Tribal General Welfare Benefit
under section 139E if it otherwise satisfies
the requirements of section 139E and this
section.
(d) Tribal General Welfare Benefits—
(1) In general. A benefit does not qualify
as a Tribal General Welfare Benefit unless
the benefit is:
(i) Provided pursuant to an Indian
Tribal Government Program, as described
in paragraph (c) of this section;
(ii) Provided for the promotion of gen-
eral welfare, as described in paragraph (d)
(2) of this section;
(iii) Available to any eligible Tribal
Program Participant, as described in para-
graph (d)(3) of this section;
(iv) Not lavish or extravagant, as
described in paragraph (d)(4) of this sec-
tion; and
(v) Not compensation for services, as
described in paragraph (d)(5) of this sec-
tion.
(2) Benefits must be for the promo-
tion of general welfare—(i) In general.
Tribal General Welfare Benefits must be
for the promotion of general welfare. For
purposes of section 139E and this para-
graph (d)(2), the Indian Tribal Govern-
ment determines that a benefit is for the
promotion of general welfare at the time
it establishes the Tribal General Welfare
Program meeting the requirements of
paragraph (c) of this section. An Indian
Tribal Government has sole discretion
to determine whether a benefit is for the
promotion of general welfare and the
Internal Revenue Service will defer to
the Indian Tribal Government’s deter-
mination that a benefit is for the promo-
tion of general welfare. Benefits may be
provided without regard to the financial
or other need of Tribal Program Partici-
pants and may be provided on a uniform
or pro-rata basis to Tribal Program Par-
ticipants. Thus, for example, an Indian
Tribal Government determines whether
benefits are for the promotion of general
welfare under programs such as cultural
programs, housing assistance programs,
programs to provide education bene-
fits, programs for training or retraining
to acquire new skills or to obtain better
employment opportunities, programs
to provide assistance for disasters or
emergency situations, funeral or burial
assistance programs, legal aid programs,
wellness and health-related programs,
or any programs that provide benefits to
specific categories of individuals, such
as elderly individuals or minors. More-
over, an Indian Tribal Government may
also determine that providing a benefit to
a Tribal Program Participant to support,
develop, operate, expand or start a trade
or business is a benefit for the promotion
of general welfare. However, a benefit
paid to or on behalf of a Tribal Program
Participant for a trade or business must
be paid to or on behalf of the Tribal Pro-
gram Participant in the Tribal Program
Participant’s capacity as an individual
(for example, the benefit cannot be paid
to or on behalf of the Tribal Program Par-
ticipant’s corporation or partnership).
(ii) Examples. The requirements of
paragraph (d)(2)(i) of this section are
illustrated by the following examples.
Items listed in these examples following
the term “including” are not intended to
be an exhaustive or exclusive illustration
of the application of the rules in paragraph
(d)(2)(i) of this section. For the examples
in this paragraph (d)(2)(ii), assume the
Indian Tribal Government has determined
that the benefits provided are for the pro-
motion of general welfare.
(A) Example 1: Housing programs. Indian Tribal
Government A administers a program, B, pursu-
ant to which the following benefits are provided in
connection with A’s Tribal Members’ principal resi-
dences and ancillary structures: payments for Tribal
Members to use to make mortgage payments, down
payments, and rent payments (including security
deposits); payments for Tribal Members to enhance
habitability of housing, such as by remedying water,
sewage, sanitation service, safety (including mold
remediation), and heating or cooling issues; pay-
ments for Tribal Members to provide for basic hous-
ing repairs or rehabilitation (including roof repair
and replacement); and payments to Tribal Members
to pay utility bills and charges (including water, elec-
tricity, gas, and basic communications services such
as phone, internet, and cable). The payments made
by A under B are for the promotion of general wel-
fare as described in paragraph (d)(2)(i) of this sec-
tion.
(B) Example 2: Educational programs. Indian
Tribal Government C administers a program, D,
pursuant to which the following benefits are pro-
vided: provision to students (including post-second-
ary students) of transportation to and from school,
tutors, and supplies (including clothing, backpacks,
laptop computers, textbooks, musical instruments,
and sports equipment) for use in school activities
and extracurricular activities; tuition payments for
students (as well as allowances for room and board
on or off campus for the student, spouse, domestic
partner, and dependents) to attend preschool, school,
college or university, online school, educational
seminars, vocational education, technical education,
adult education, continuing education, or alternative
education; provision of care of children away from
their homes to help their parents or other relatives
responsible for their care to be gainfully employed
or to pursue education; and provision of job coun-
seling and programs for which the primary objective
is job placement or training, including allowances
for expenses for interviewing or training away from
home (including travel, auto expenses, lodging, and
food), tutoring, and appropriate clothing for a job
interview or training (including an interview suit or
a uniform required during a period of training). The
payments made by C under D are for the promotion
of general welfare as described in paragraph (d)(2)
(i) of this section.
(C) Example 3: Elder and disabled programs.
Indian Tribal Government E administers a program,
F, pursuant to which the following benefits are pro-
vided to Tribal Members who have attained age 55 or
are mentally or physically disabled (as defined under
applicable law, including an Indian Tribal Govern-
ment’s disability laws): meals through home-deliv-
ered meals programs or at a community center or
similar facility; home care such as assistance with
preparing meals or doing chores, or day care out-
side the home; local transportation assistance; and
improvements to adapt housing to special needs
(including but not limited to grab bars and ramps).
The payments made by E under F are for the promo-
tion of general welfare as described in paragraph (d)
(2)(i) of this section.
(D) Example 4: Transportation programs. Indian
Tribal Government G administers a program, H, pur-
suant to which the following benefits are provided:

Bulletin No. 2026–5 445 January 26, 2026
payment of transportation costs, including for rental
cars, mileage, and fares for taxis, ride-sharing or
ride-hailing services, buses, and other public trans-
portation. The payments made by G under H are for
the promotion of general welfare as described in
paragraph (d)(2)(i) of this section.
(E) Example 5: Medical programs. Indian Tribal
Government J administers a program, K, pursuant to
which the following benefits are provided: payments
for the cost of transportation, temporary meals,
and lodging of a Tribal Program Participant while
the individual is receiving medical care away from
home, or to pay the cost of nonprescription drugs
(including traditional Tribal medicines). The pay-
ments made by J under K are for the promotion of
general welfare as described in paragraph (d)(2)(i)
of this section.
(F) Example 6: Emergency programs. Indian
Tribal Government L administers a program, M, pur-
suant to which the following benefits are provided to
individuals in exigent circumstances (including vic-
tims of abuse): assistance to cover costs, including
the costs of food, clothing, shelter, transportation,
auto repair bills, and similar expenses; payment of
costs for temporary relocation and shelter for indi-
viduals involuntarily displaced from their homes
(including situations in which a home is destroyed
by a fire or natural disaster); and assistance for trans-
portation emergencies (for example, when stranded
away from home) in the form of transportation costs,
a hotel room, and meals. The payments made by L
under M are for the promotion of general welfare as
described in paragraph (d)(2)(i) of this section.
(G) Example 7: Cultural and religious programs.
Indian Tribal Government N administers a program,
P, pursuant to which the following benefits are pro-
vided: payment of expenses (including admission
fees, transportation, food, and lodging) to attend or
participate in a Tribe’s cultural, social, religious,
or community activities, including powwows, pot-
latches, ceremonies, and traditional dances; payment
of expenses (including admission fees, transporta-
tion, food, and lodging) to visit sites that are cultur-
ally or historically significant for the Tribe, including
other Indian reservations; payment of the costs of
receiving instruction about a Tribe’s culture, history,
and traditions (including traditional language, music,
and dances); payment of funeral and burial expenses
and expenses of hosting or attending wakes, funer-
als, burials, other bereavement events, and subse-
quent honoring events; payment of transportation
costs and admission fees to attend educational,
social, or cultural programs offered or supported by
the Tribe or another Tribe; and cash or property pro-
vided as prizes or awards in connection with cultural,
social, religious, or community activities (including
powwows, potlatches, ceremonies, and traditional
dances). In addition, the benefits provided by pro-
gram P include the payment of expenses to assist
in the preparation and clean-up activities related to
the Tribe’s cultural, social, religious, or community
activities. The payments made by N under P are for
the promotion of general welfare as described in
paragraph (d)(2)(i) of this section.
(H) Example 8: Economic development benefits.
Indian Tribal Government Q administers a program,
R, pursuant to which Q provides benefits to Tribal
Program Participants to support, develop, operate,
expand or start a trade or business. Q provides bene-
fits under program R, which include: a nonreimburs-
able grant paid directly to a Tribal Program Partici-
pant; an interest-free or other below-market loan to
a Tribal Program Participant; and a cash benefit to
a Tribal Program Participant to pay rent on a com-
mercial lease. The benefits provided by Q to Tribal
Program Participants under R, are for the promotion
of general welfare as described in paragraph (d)(2)
(i) of this section.
(3) Benefits must be available. The
benefits provided under an Indian Tribal
Government Program must be available to
any Tribal Program Participant who meets
the specified guidelines of the program
required under paragraph (c)(3) of this
section, subject to budgetary constraints.
However, the Indian Tribal Government
has discretion to determine the category of
individuals who are Tribal Program Par-
ticipants under the Indian Tribal Govern-
ment Program, provided that such deter-
mination is consistent with the specified
guidelines described in paragraph (c)(3)
of this section and subject to the prohibi-
tion on discrimination under paragraph (c)
(4) of this section. Thus, for example, an
Indian Tribal Government is permitted to
limit eligibility for an Indian Tribal Gov-
ernment Program to dependents of Tribal
Members who have attained a specified
age, or, as another example, to a Tribal
Member’s household.
(4) Benefits cannot be lavish or extrav-
agant—(i) Facts and circumstances test.
The benefit provided by an Indian Tribal
Government Program cannot be lavish or
extravagant. Whether a benefit is lavish or
extravagant for purposes of this section is
based on the facts and circumstances at
the time the benefit is provided. Relevant
facts and circumstances include a Tribe’s
culture and cultural practices, history,
geographic area, traditions, resources,
and economic conditions or factors. For
purposes of this paragraph (d)(4)(i), the
Internal Revenue Service will defer to an
Indian Tribal Government’s attestations of
the fact and circumstances but may also
consider other facts and circumstances
that are not attested to by the Indian Tribal
government at the time that the benefit is
provided to the Tribal Program Partici-
pant.
(ii) Presumption for written specified
guidelines. A benefit will be presumed
to not be lavish or extravagant if it is
described in, and provided in accordance
with, the written specified guidelines of an
Indian Tribal Government Program that
exist at the time that the benefit is pro-
vided to the Tribal Program Participant.
(5) Benefits cannot be compensation
for services. Except as provided in para-
graph (e) of this section, a Tribal General
Welfare Benefit does not include benefits
that are provided as compensation for ser-
vices to any person. Under section 61(a)
of the Code, compensation for services
includes fees, commissions, fringe ben-
efits, and similar items, whether paid in
money or property.
(6) Loans from an Indian Tribal Gov-
ernment to a Tribal Program Participant.
Except as provided in §1.7872-5(a)(2),
section 7872 of the Code does not apply to
a loan from an Indian Tribal Government
to a Tribal Program Participant pursuant
to an Indian Tribal Government Program.
(e) Cultural or ceremonial activities—
(1) In general. For purposes of section
139E and paragraph (d)(5) of this section,
a benefit is not compensation for services
if:
(i) The benefit is provided to a Tribal
Program Participant for the Tribal Pro-
gram Participant’s participation in cultural
or ceremonial activities for the transmis-
sion of Tribal culture as determined by
the Indian Tribal Government (includ-
ing but not limited to: powwows; rite of
passage ceremonies; funerals; wakes;
burials; other bereavement events; hon-
oring events; Tribal community service
events, such as a neighborhood clean-up
or a youth woodcutting program to ben-
efit elders; participation in training in tra-
ditional construction techniques; Tribal
language education; and other activities,
including, for example, those described
in paragraph (d)(2)(ii)(G) of this section);
and
(ii) The benefit consists of an item of
cultural significance as determined by the
Indian Tribal Government, the reimburse-
ment of costs, or a cash honorarium.
(2) Application. Except as otherwise
provided in this paragraph (e)(2), an Indian
Tribal Government has sole discretion to
determine whether an item is an item of
cultural significance and whether an activ-
ity is a cultural or ceremonial activity, and
the Internal Revenue Service will defer to
these determinations by the Indian Tribal
Government. A benefit provided under
this paragraph (e) can be a prize or award

January 26, 2026 446 Bulletin No. 2026–5
given to a Tribal Program Participant for
the Tribal Program Participant’s participa-
tion in cultural or ceremonial activities for
the transmission of Tribal culture. How-
ever, cash, gift cards, or vehicles are gen-
erally not items of cultural significance.
(3) Examples. The application of this
paragraph (e) is illustrated by the follow-
ing examples, which are not intended to
be an exhaustive or exclusive illustration
of the rules provided in this paragraph (e):
(i) Example 1: Benefits for cultural or ceremo-
nial activities not compensation for services. Tribe
B regularly holds a gathering during the fall sea-
son to celebrate its cultural traditions. During the
gathering, Tribal Members of B, as well as Tribal
members of other Tribes from around the region,
are invited to participate. The Indian Tribal Gov-
ernment of B (ITG-B) allocates funds for the gath-
ering, some of which are used for the following
payments:
(A) Tribal Member of B. Individual 1, a Tribal
Member of B, provides traditional blessings on the
first and final days of the gathering. ITG-B gives
Individual 1 a cash honorarium in recognition of
providing the blessings. The cash honorarium that
Individual 1 receives from ITG-B is not compensa-
tion for services under this paragraph (e).
(B) Tribal Member of different Tribe. Individ-
ual 2, a Tribal Member of Tribe C, participates as a
drummer for a ceremonial dance on the second day
of the gathering. ITG-B gives Individual 2 a piece of
culturally significant jewelry. Under paragraph (b)(8)
(ii) of this section, Individual 2 is a Tribal Program
Participant solely for purposes of this paragraph (e).
The jewelry that Individual 2 receives from ITG-B is
not compensation for services under this paragraph
(e).
(ii) Example 2: Benefits for cultural or ceremo-
nial activities not compensation for services. Tribe
C operates a language preservation center in which
Individual 3, a Tribal Member of C, who speaks the
traditional language that is common to C and other
regional Tribes, volunteers to come in every Sat-
urday to discuss and teach the traditional language
of C to other Tribal Members of C. The Indian
Tribal Government of C (ITG-C), reimburses Indi-
vidual 3 for travel expenses and teaching supplies
used in Individual 3’s language lessons. The reim-
bursement of costs that Individual 3 receives from
ITG-C is not compensation for services under this
paragraph (e).
(f) Section 2(c) of the Act. Section 2(c)
of the Act provides that ambiguities in sec-
tion 139E of the Internal Revenue Code,
as added by the Act, shall be resolved in
favor of Indian Tribal governments and
deference shall be given to Indian Tribal
governments for the programs adminis-
tered and authorized by the Tribe to ben-
efit the general welfare of the Tribal com-
munity.
(g) Audit suspension. After December
16, 2025, the Department of the Trea-
sury and the Internal Revenue Service
will, in consultation with the Treasury
Tribal Advisory Committee, establish and
require the education and training pre-
scribed in section 3(b)(2) of the Act. The
temporary suspension of audits and exam-
inations (see sections 7602 and 7605 of
the Code) described in section 4(a) of the
Act applies to Indian Tribal governments
and Tribal Program Participants and will
not be lifted until after the education and
training prescribed by section 3(b)(2) of
the Act is completed. An inquiry into a
taxpayer’s eligibility for the audit suspen-
sion does not constitute an audit or exam-
ination for purposes of the audit suspen-
sion described in section 4(a) of the Act.
(h) Applicability date. This section
applies to taxable years of Tribal Program
Participants that begin on or after January
1, 2027. Indian Tribal Governments and
Tribal Program Participants may choose
to apply the provisions of this section, in
their entirety, to taxable years that begin
before January 1, 2027.
§1.139E-2 Alaska Native regional or
village corporations.
An Alaska Native regional or village
corporation, as defined in, or established
pursuant to, the Alaska Native Claims Set-
tlement Act (43 U.S.C. 1601 et seq.), may
choose to apply the rules in §1.139E-1
until rules that specifically address the
application of the requirements of sec-
tion 139E of the Internal Revenue Code
to Alaska Native regional or village cor-
porations are published under this section.
However, an Alaska Native regional or
village corporation that chooses to apply
the rules in §1.139E-1 must apply all of
the rules of §1.139E-1 with respect to
any general welfare benefits provided to a
shareholder of the Alaska Native regional
or village corporation (and the sharehold-
er’s spouse and dependents) and other
Tribal Program Participants (as defined in
§1.139E-1(b)).
Par. 3. Section 1.7872-5 is amended
by adding paragraph (b)(17) to read as
follows:
§1.7872-5 Exempted loans.
* * * * *
(b) * * *
(17) See §1.139E-1(d)(6) for rules for
a loan from an Indian Tribal Government
to a Tribal Program Participant pursuant
to an Indian Tribal Government Program
within the meaning of §1.139E-1(c). See
§1.139E-1(h) for the applicability date of
this paragraph (b)(17).
* * * * *
Frank J. Bisignano,
Chief Executive Officer.
Approved: November 19, 2025.
Kenneth J. Kies
Assistant Secretary of the Treasury
(Tax Policy).
(Filed by the Office of the Federal Register Decem-
ber 15, 2025, 8:45 a.m., and published in the issue
of the Federal Register for December 16, 2025, 90
FR 58378)

Bulletin No. 2026–5 447 January 26, 2026
Part IV
Section 4611 Oil Spill
Liability Trust Fund
Financing Rate Expiration
Announcement 2026-02
This announcement provides important
information for taxpayers who are liable
for the tax on petroleum under § 4611 of
the Internal Revenue Code.
SECTION 1. BACKGROUND
Section 4611(a) generally imposes
a tax on certain crude oil and petroleum
products at the rate specified in § 4611(c).
Section 4611(c)(1) provides that the rate
of the § 4611 tax is the sum of (A) the
Hazardous Substance Superfund financ-
ing rate (Superfund tax rate); and (B) the
Oil Spill Liability Trust Fund financing
rate (OSLTF tax rate). Section 4611(c)
(3) adjusts the Superfund tax rate for
inflation. Section 4611(f)(2) provides that
the OSLTF tax rate shall not apply after
December 31, 2025.
Section 4.45 of Rev. Proc. 2025-32,
2025-45 I.R.B. 695, states that the infla-
tion-adjusted amount for the § 4611 tax
rate for the 2026 calendar year is $0.27
per barrel, which represents the sum of the
$0.18 per barrel inflation-adjusted Super-
fund tax rate and the $0.09 per barrel
OSLTF tax rate.
SECTION 2. SECTION 4611 TAX
RATE AFTER EXPIRATION OF
OSLTF TAX RATE
The OSLTF tax rate expired on Decem-
ber 31, 2025. As a result, the § 4611 tax rate
for calendar year 2026 is $0.18 per barrel,
which represents only the inflation-ad-
justed Superfund tax rate. The $0.18 per
barrel rate will apply for the entirety of
the 2026 calendar year unless § 4611(f)
(2) is amended to extend the OSLTF tax
rate. Accordingly, notwithstanding section
4.45 of Rev. Proc. 2025-32, for any period
in calendar year 2026 to which the OSLTF
tax rate does not apply, the inflation-ad-
justed amount for the § 4611 tax rate is
$0.18 per barrel.
SECTION 3. DRAFTING
INFORMATION
The principal author of this announce-
ment is the Office of Associate Chief
Counsel (Energy, Credits, and Excise
Tax). However, other personnel from the
Treasury Department and the IRS par-
ticipated in its development. For further
information regarding this announcement,
call (202) 317-6855 (not a toll-free num-
ber).
Notice of Proposed
Rulemaking
Statutory Updates to
Branded Prescription Drug
Fee Regulations
REG-103430-24
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing.
SUMMARY: This document proposes
amendments to regulations regarding the
annual fee imposed on covered entities
engaged in the business of manufacturing
or importing certain branded prescription
drugs. In response to the replacement of
the Coverage Gap Discount Program
with the new Manufacturer Discount
Program by the Inflation Reduction Act
of 2022, the proposed regulations would
make updates regarding the discounts,
rebates, and other price concessions used
to determine branded prescription drug
sales under Medicare Part D and would
update for prior statutory changes. These
proposed regulations would affect persons
engaged in the business of manufacturing
or importing certain branded prescription
drugs.
DATES: Written or electronic comments
and requests for a public hearing must be
received by March 3, 2026. Requests for a
public hearing must be submitted as pre-
scribed in the “Comments and Requests
for a Public Hearing” section.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically via the Federal eRulemak-
ing Portal at https://www.regulations.
gov (indicate IRS and REG-103430-24)
by following the online instructions for
submitting comments. Once submitted
to the Federal eRulemaking Portal, com-
ments cannot be edited or withdrawn. The
Department of the Treasury (Treasury
Department) and the IRS will publish for
public availability any comments submit-
ted to the IRS’s public docket. Send paper
submissions to: CC:PA:01:PR (REG-
103430-24), Room 5503, Internal Reve-
nue Service, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044. A plain
language summary of the proposed regu-
lations will be made available at https://
www.regulations.gov.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, contact Julia Barlow at (202)
317-6855 (not a toll-free number); con-
cerning the submission of comments and
requests to participate in the public hear-
ing, contact the Publications and Regula-
tions Section by phone at (202) 317-6901
(not a toll-free number) or by email at
publichearings@irs.gov (preferred).
SUPPLEMENTARY INFORMATION:
Authority
This document contains proposed
amendments to the Branded Prescription
Drug Fee Regulations (26 CFR part 51).
The proposed regulations are issued
under the express delegation of authority
under section 9008(i) of the Patient Pro-
tection and Affordable Care Act, Public
Law 111-148, 124 Stat. 119 (2010), as
amended by section 1404 of the Health
Care and Education Reconciliation Act
of 2010, Public Law 111-152, 124 Stat.
1029 (2010). These acts are collectively
referred to in this preamble as the “ACA.”

January 26, 2026 448 Bulletin No. 2026–5
All references in this preamble to “section
9008” are references to section 9008 of
the ACA. Section 9008(i) provides that
the Secretary of the Treasury or the Secre-
tary’s delegate (Secretary) “shall publish
guidance necessary to carry out the pur-
poses of [section 9008].”
The proposed regulations are also
issued under the express delegation of
authority under section 7805(a) of the
Internal Revenue Code (Code), which
provides that the Secretary “shall pre-
scribe all needful rules and regulations for
the enforcement of [the Code], including
all rules and regulations as may be neces-
sary by reason of any alteration of law in
relation to internal revenue.”
Background
I. Overview
The branded prescription drug fee was
enacted by section 9008. Section 9008 did
not amend the Code but cross-references
specific Code sections.
Under section 9008(a)(1), each cov-
ered entity engaged in the business of
manufacturing or importing branded pre-
scription drugs must pay an annual fee to
the Secretary.
Section 9008(b) provides rules for
determining the amount of the annual fee
for each covered entity. Specifically, sec-
tion 9008(b)(1) provides that the annual
fee for each covered entity for calendar
years 2019 and thereafter shall bear the
same ratio to $2.8 billion as (i) the cov-
ered entity’s branded prescription drug
sales taken into account during the pre-
ceding calendar year to (ii) the aggregate
branded prescription drug sales of all cov-
ered entities taken into account during the
same year.
Section 9008(d)(1) generally defines
the term “covered entity” to mean any
manufacturer or importer with gross
receipts from branded prescription drug
sales. Section 9008(e)(1) defines the term
“branded prescription drug sales” to mean
sales of branded prescription drugs to any
specified government program or pursuant
to coverage under such program. Section
9008(e)(2)(A) generally defines the term
“branded prescription drug” to mean (i)
any prescription drug the application for
which was submitted under section 505(b)
of the Federal Food, Drug, and Cosmetic
Act (21 U.S.C. 355(b)), or (ii) any biolog-
ical product the license for which was sub-
mitted under section 351(a) of the Public
Health Service Act (42 U.S.C. 262(a)).
Section 9008(e)(2)(B) defines the term
“prescription drug” for purposes of sec-
tion 9008(e)(2)(A)(i) to mean any drug
which is subject to section 503(b) of the
Federal Food, Drug, and Cosmetic Act (21
U.S.C. 353(b)).
Section 9008(e)(4) defines the term
“specified government programs” as the
Medicare Part D program, the Medicare
Part B program, the Medicaid program, any
program under which branded prescription
drugs are procured by the Department of
Veterans Affairs (VA), any program under
which branded prescription drugs are
procured by the Department of Defense
(DOD), and the TRICARE retail pharmacy
program, which are collectively referred to
in this preamble as the “Programs.”
Section 9008(g) requires the Secretary
of Health and Human Services (Secretary
of HHS), the Secretary of Veterans Affairs,
and the Secretary of Defense to report to
the Secretary the total branded prescrip-
tion drug sales for each covered entity
with respect to each specified government
program. Section 9008(g)(1) specifies the
information that the Secretary of HHS
shall report for the Medicare Part D pro-
gram. Section 9008(g)(1)(A) specifies that
the costs of prescription drug plans and
Medicare Advantage prescription drug
plans reported by the Secretary of HHS
is reduced by “any per-unit rebate, dis-
count, or other price concession provided
by the covered entity.” Section 9008(b)(3)
requires the Secretary to use the data pro-
vided by the Programs to calculate the fee.
The Branded Prescription Drug Fee
Regulations (TD 9684, 79 FR 43631 (July
28, 2014), as amended by TD 9823, 82
FR 34611 (July 26, 2017)), provide the
method by which each covered entity’s
annual fee is calculated. The regulations
also define terms and provide rules for the
administration of the fee. See 26 CFR 51.1
through 51.11 and 51.6302.
Section 51.2 explains the terms used
in 26 CFR part 51 for purposes of the fee
imposed by section 9008 on branded pre-
scription drugs. Section 51.2(b) defines
the term “Agencies” to mean the Cen-
ters for Medicare & Medicaid Services
of the Department of Health and Human
Services (CMS), the VA, and the DOD.
Section 51.2(i) defines “manufacturer or
importer” as the person identified in the
Labeler Code of the National Drug Code
(NDC) for a branded prescription drug.
Section 51.4 sets forth the methodol-
ogies that the Agencies are required to
use to calculate the drug sales amount for
each specified government program. Sec-
tion 51.4(b)(1) requires CMS to determine
branded prescription drug sales under
Medicare Part D by aggregating the ingre-
dient cost reported in the “Ingredient Cost
Paid” field on the Prescription Drug Event
(PDE) records at the NDC level, reduced
by discounts, rebates, and other price con-
cessions provided by the covered entity,
for each sales year. Under §51.2(m), the
term “sales year” means the second calen-
dar year preceding the fee year.
Section 51.4(b)(2) provides that for
purposes of §51.4(b)(1), “discounts,
rebates, and other price concessions”
means (A) any direct and indirect remu-
neration (DIR) (within the meaning of
§51.4(b)(2)(ii)), which includes any DIR
reported on the PDE records at the point
of sale and any DIR reported on a Detailed
DIR Report (within the meaning of §51.4
b)(2)(iii)); and (B) any coverage gap dis-
count amount (within the meaning of
§51.4(b)(2)(iv)).
Section 51.4(b)(2)(iv) provides that for
purposes of §51.4(b)(2)(i)(B), the term
“coverage gap discount amount” means
a 50-percent manufactured -paid (sic) dis-
count on certain drugs under the Coverage
Gap Discount Program described in sec-
tion 1860D-14A of the Social Security Act
(SSA) (42 U.S.C. 1395w-114a). The Cov-
erage Gap Discount Program described in
section 1860D-14A of the SSA initially
required a 50-percent manufacturer-paid
discount on applicable drugs in certain
instances. In section 53116(b) of the Bipar-
tisan Budget Act of 2018 (BBA), Public
Law 115-123, 132 Stat 64 (February 9,
2018), Congress expanded the discount to
70 percent for plan years after plan year
2018. See 42 U.S.C. 1395w-114a(g)(4)(A).
II. Inflation Reduction Act of 2022
Changes to Medicare Part D Discounts
Section 11201 of Public Law 117-
169, 136 Stat. 1818 (August 16, 2022),

Bulletin No. 2026–5 449 January 26, 2026
commonly known as the Inflation Reduc-
tion Act of 2022 (IRA), redesigned the
Medicare Part D benefit, including sun-
setting the Coverage Gap Discount Pro-
gram described in section 1860D-14A of
the SSA as of January 1, 2025. Section
11201(c)(1) of the IRA amended the
SSA by adding section 1860D-14C (42
U.S.C. 1395w-114c) to establish the new
Manufacturer Discount Program begin-
ning January 1, 2025, which requires
participating manufacturers to provide
discounted prices for applicable drugs
of the manufacturer that are dispensed
to applicable beneficiaries who are in the
initial and catastrophic coverage phases
of the Part D benefit. Under section
1860D-43(a) of the SSA, in order for
coverage to be available under Part D for
covered Part D drugs of a manufacturer
beginning January 1, 2025, the manufac-
turer must participate in the Manufac-
turer Discount Program by entering into
and having in effect a Manufacturer Dis-
count Program agreement under which
the manufacturer agrees to provide dis-
counted prices for applicable drugs of
the manufacturer that are dispensed to
applicable beneficiaries.
Section 11201(c)(2) of the IRA
amended section 1860D-14A of the SSA
to sunset the Coverage Gap Discount Pro-
gram for applicable drugs dispensed on or
after January 1, 2025, but the provisions
(including all responsibilities and duties)
of the Coverage Gap Discount Program
continue to apply with respect to appli-
cable drugs dispensed before January 1,
2025.
Explanation of Provisions
To reflect statutory changes made by
the BBA, the proposed regulations would
update the percentage discount amount
for the Coverage Gap Discount Program
to reflect the statutory change from a 50
percent manufacturer-paid discount to a
70 percent manufacturer-paid discount
(for plan years after plan year 2018). The
proposed regulations would also cor-
rect “manufactured-paid” in the current
§51.4(b)(2)(i)(B) to “manufacturer-paid.”
To reflect statutory changes made by the
IRA, the proposed regulations would add
references to the Manufacturer Discount
Program to the rules regarding the dis-
counts, rebates, and other price conces-
sions that CMS uses to determine branded
prescription drug sales under Medicare
Part D, for purposes of the Branded Pre-
scription Drug Fee.
The proposed regulations would not
remove the Coverage Gap Discount Pro-
gram from the rules regarding the dis-
counts, rebates, and other price conces-
sions because, due to the manner in which
the fee is calculated, the discounts that the
Coverage Gap Discount Program provides
through December 31, 2024, may still be
used to calculate the fee for sales that
occurred while the Coverage Gap Dis-
count Program was effective. Beginning
in the 2027 fee year, it is expected that
there will be no Coverage Gap Discount
Program discounts to take into account.
The Treasury Department and the IRS
are considering whether to include a sun-
set for using the Coverage Gap Discount
Program in the final regulations. The
Treasury Department and the IRS request
comments about whether the final regu-
lations should include a sunset for using
the Coverage Gap Discount Program for
applicable drugs dispensed on or after
January 1, 2025.
Proposed Applicability Date
Because these regulations reflect statu-
tory changes that took effect at the begin-
ning of 2025, these regulations are pro-
posed to apply to fees calculated based on
sales years beginning with calendar year
2025, which will also be sales years end-
ing on or after the date these proposed reg-
ulations are filed in the Federal Register.
Special Analyses
I. Regulatory Planning and Review—
Economic Analysis
Executive Orders 12866 and 13563
direct agencies to assess costs and ben-
efits of available regulatory alternatives
and, if regulation is necessary, to select
regulatory approaches that maximize net
benefits (including potential economic,
environmental, public health and safety
effects, distributive impacts, and equity).
Executive Order 13563 emphasizes the
importance of quantifying both costs and
benefits, reducing costs, harmonizing
rules, and promoting flexibility.
The proposed regulations have been
designated by the Office of Management
and Budget’s (OMB’s) Office of Infor-
mation and Regulatory Affairs (OIRA) as
subject to review under Executive Order
12866 pursuant to the Memorandum of
Agreement (MOA, July 4, 2025) between
the Treasury Department and the OMB
regarding review of tax regulations. OIRA
has determined that the proposed rulemak-
ing is significant and subject to review
under Executive Order 12866 and section
1(b) of the Memorandum of Agreement.
Accordingly, the proposed regulations
have been reviewed by OMB.
A. Need for Regulation
Section 9008 of the Patient Protection
and Affordable Care Act, Public Law 111-
148, 124 Stat. 119 (2010), as amended by
section 1404 of the Health Care and Edu-
cation Reconciliation Act of 2010, Pub-
lic Law 111-152, 124 Stat. 1029 (2010)
(ACA) imposes an annual fee on covered
entities engaged in the business of man-
ufacturing or importing branded prescrip-
tion drugs. The amount of the annual fee
is set by statute. For calendar years 2019
and thereafter, the amount of the annual
fee is $2.8 billion. See section 9008(b)(4).
Each covered entity’s share of the annual
fee is calculated by determining the ratio
of the covered entity’s branded prescrip-
tion drug sales taken into account during
the preceding calendar year to the aggre-
gate branded prescription drug sales of all
covered entities taken into account during
the same year. Under section 9008(e)(1),
branded prescription drug sales are sales
of branded prescription drugs to any spec-
ified government program or pursuant to
coverage under such program. Section
9008(g) requires the Secretary of Health
and Human Services (Secretary of HHS),
the Secretary of Veterans Affairs, and the
Secretary of Defense to report to the Sec-
retary the total branded prescription drug
sales for each covered entity with respect
to each specified government program.
Existing regulations in 26 CFR part 51
specify the method by which each covered
entity’s share of the annual fee is calcu-
lated. Section 51.4(b)(1) specifies the
method by which the Centers for Medicare

January 26, 2026 450 Bulletin No. 2026–5
& Medicaid Services of the Department
of Health and Human Services (CMS) is
required to determine branded prescrip-
tion drug sales under Medicare Part D.
Two subsequent statutes altered inputs that
CMS uses to determine Medicare Part D
sales for this purpose. First, the Bipartisan
Budget Act of 2018 (BBA), Public Law
115-123, 132, Stat. 64 (February 9, 2018),
increased the Coverage Gap Discount Pro-
gram manufacturer discount rate from 50
percent to 70 percent for plan years after
2018. Second, the Inflation Reduction Act
of 2022 (IRA), Public Law 117-169, 136
Stat. 1818 (August 16, 2022), sunsets the
Coverage Gap Discount Program effective
January 1, 2025, and establishes the Man-
ufacturer Discount Program.
The proposed regulations update exist-
ing regulations so that they are consistent
with the statute and with how the cov-
ered entities have been calculating their
share of the annual fee since enactment
of the BBA and the IRA. The proposed
regulations reflect the BBA’s increase to
a 70-percent manufacturer discount (as
applicable) and add the IRA’s Manufac-
turer Discount Program discounts to the
list of reductions CMS uses when com-
puting branded prescription drug sales
under Medicare Part D. Because fees are
calculated using sales from prior years,
Coverage Gap Discount Program dis-
counts provided through December 31,
2024, may still enter fee computations for
several sales years. Beginning in the 2027
fee year, no Coverage Gap Discount Pro-
gram discounts are expected to be taken
into account. The updates are necessary
to align the regulations with statutory
changes so that CMS-reported Medicare
Part D sales accurately incorporate the
discount programs in effect for the rele-
vant sales years.
B. The Statute and the Proposed
Regulations
The proposed regulations update the
existing regulations regarding the dis-
counts, rebates, and other price conces-
sions that CMS uses to determine branded
prescription drug sales, to reflect changes
made by the BBA and IRA and to reflect
how covered entities are currently calcu-
lating their share of the fee. The proposed
regulations add the Manufacturer Discount
Program, which was established by the
IRA, to the list of reductions that CMS
uses to calculate branded prescription drug
sales. The proposed regulations also update
the percentage discount amount used for
the Coverage Gap Discount Program to
reflect the statutory change made by the
BBA for plan years after plan year 2018.
C. Baseline
The Treasury Department and the IRS
have assessed the benefits and costs of the
proposed regulations relative to a no-ac-
tion baseline reflecting anticipated Fed-
eral income tax-related behavior in the
absence of these proposed regulations.
D. Affected Entities and Taxpayers
The Branded Prescription Drug Fee
affects manufacturers and importers of
branded prescription drugs with sales to
specified government programs (Medi-
care Part D, Medicare Part B, Medicaid,
Department of Veterans Affairs programs
that procure branded prescription drugs,
Department of Defense programs that
procure branded prescription drugs, and
TRICARE). Based on records from tax
year 2024, the Treasury Department and
the IRS estimate the fee impacts roughly
300 affected entities. The proposed regu-
lations apply to how other Federal agen-
cies compile and transmit data, not to new
reporting requirements for these affected
entities.
E. Economic Effects of the Proposed
Regulations
The primary effect of the proposed
regulations would be improved adminis-
trative alignment and clarity. Under the
baseline, existing regulations would con-
tinue to reference only the Coverage Gap
Discount Program and a 50-percent dis-
count, which would not reflect post-2018
discount levels or the post-2024 Medicare
Part D discount program. That mismatch
would increase uncertainty about how
agency data should be compiled after
changes made by the IRA and BBA. The
proposal clarifies which Medicare Part
D discounts reduce branded prescription
drug sales for fee computations—ensuring
the regulations mirror the BBA and IRA
changes. Because the rule clarifies infor-
mation-collection procedures that already
occur at other Federal agencies, Treasury
and IRS expect minimal impact on affected
entity compliance costs since the covered
entities are calculating fees according to
the statute. Affected entities are expected
to benefit from clearer rules that reduce
policy uncertainty and the risk of dis-
putes about discount treatment, but, in
aggregate, Treasury and IRS expect these
benefits to be small. The regulations will
also improve administrative efficiency for
CMS and the IRS through consistent data
definitions across years. Minor one-time
administrative costs incurred by CMS to
reflect the updated Manufacturer Discount
Program are already part of CMS’s pro-
gram implementation under the IRA and
are not imposed by this regulation.
F. Alternatives Considered
The Treasury Department and the IRS
considered the alternative option of tak-
ing no action to update the existing reg-
ulations in 26 CFR part 51 to reflect the
changes made by the IRA and BBA. This
alternative would leave uncertainty as to
how CMS data will be reported to the IRS
for purposes of calculating each covered
entity’s share of the Branded Prescrip-
tion Drug Fee. Therefore, the approach to
issue proposed regulations to update the
existing regulations to align with changes
made by the IRA and BBA was selected
over the alternative option of taking no
action.
II. Paperwork Reduction Act
This rulemaking does not contain a
collection of information from the pub-
lic, and therefore it is not required to be
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)). An agency may
not conduct or sponsor, and a person is
not required to respond to, a collection of
information unless it displays a valid con-
trol number.
III. Regulatory Flexibility Act
It is hereby certified that these regula-
tions will not have a significant economic

Bulletin No. 2026–5 451 January 26, 2026
impact on a substantial number of small
entities. These regulations do not affect
small entities because they merely clarify
procedures that already occur at another
Federal agency. Affected entities exclude
the first $5 million in sales and exclude 90
percent of sales that are over $5 million
and not more than $125 million, which
minimizes or completely eliminates any
additional burden these proposed regula-
tions might impose on small businesses.
Entities engaged in pharmaceutical man-
ufacturing or drug wholesaling with
aggregate branded drug sales more than
$5 million may benefit from clearer rules,
but these impacts are not substantial. Enti-
ties with aggregate branded drug sales not
more than $5 million will not be impacted.
IV. Section 7805(f) of the Code
Pursuant to section 7805(f) of the
Code, this notice of proposed rulemaking
will be submitted to the Chief Counsel for
the Office of Advocacy of the Small Busi-
ness Administration for comment on its
impact on small businesses.
V. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 (UMRA) requires that
agencies assess anticipated costs and ben-
efits and take certain other actions before
issuing a final rule that includes any Fed-
eral mandate that may result in expendi-
tures in any one year by a State, local, or
Tribal government, in the aggregate, or by
the private sector, of $100 million in 1995
dollars, updated annually for inflation.
The final regulations do not include any
Federal mandate that may result in expen-
ditures by State, local, or Tribal govern-
ments, or by the private sector in excess of
that threshold.
VI. Executive Order 13132: Federalism
Executive Order 13132 (Federalism)
prohibits an agency from publishing any
rule that has federalism implications if
the rule either imposes substantial, direct
compliance costs on State and local gov-
ernments, and is not required by statute,
or preempts State law, unless the agency
meets the consultation and funding
requirements of section 6 of the Execu-
tive order. These proposed regulations do
not have federalism implications and do
not impose substantial direct compliance
costs on State and local governments or
preempt State law within the meaning of
the Executive order.
Comments and Requests for a Public
Hearing
Before the proposed amendments to
the regulations are adopted as final reg-
ulations, consideration will be given to
comments that are submitted timely to
the IRS as prescribed in the preamble
under the “ADDRESSES” section. The
Treasury Department and the IRS request
comments on all aspects of the proposed
regulations. All commenters are strongly
encouraged to submit comments electron-
ically. The Treasury Department and the
IRS will publish for public availability
any comment submitted electronically or
on paper to its public docket on https://
www.regulations.gov.
A public hearing will be scheduled if
requested in writing by any person who
timely submits electronic or written com-
ments. Requests for a public hearing are
encouraged to be made electronically. If
a public hearing is scheduled, a notice of
the date and time for the public hearing
will be published in the Federal Register.
Announcement 2023-16, 2023-20 I.R.B.
854 (May 15, 2023), provides that pub-
lic hearings will be conducted in person,
although the IRS will continue to provide
a telephonic option for individuals who
wish to attend or testify at a hearing by
telephone. Any telephonic hearing will be
made accessible to people with disabili-
ties.
Statement of Availability of IRS
Documents
Announcement 2023-16 is published
in the Internal Revenue Bulletin and is
available from the Superintendent of Doc-
uments, U.S. Government Publishing
Office, Washington, DC 20402, or by vis-
iting the IRS website at http://www.irs.gov.
Drafting Information
The principal author of these regu-
lations is Julia Barlow of the Office of
the Associate Chief Counsel (Energy,
Credit, and Excise Tax). However, other
personnel from the Treasury Department
and the IRS participated in its develop-
ment.
List of Subjects in 26 CFR Part 51
Drugs, Reporting and recordkeeping
requirements.
Proposed Amendment to the
Regulations
Accordingly, the Treasury Department
and the IRS propose to amend 26 CFR
part 51 as follows:
PART 51— BRANDED
PRESCRIPTION DRUG FEE
Paragraph 1. The authority citation
for part 51 is amended by revising the
general authority to read as follows:
Authority: 26 U.S.C. 7805(a); sec.
9008(i), Pub. L. 111-148, 124 Stat. 119.
* * * * *
Par. 2. Section 51.4 is amended by:
1. Removing the word “and” at the end
of paragraph (b)(2)(i)(A);
2. Removing the period at the end of
paragraph (b)(2)(i)(B);
3. Adding the language “; and” at the
end of paragraph (b)(2)(i)(B);
4. Adding paragraph (b)(2)(i)(C);
5. In paragraph (b)(2)(iv), by remov-
ing the word “manufactured-paid” and
adding the word “manufacturer-paid” in
its place, and adding the language “or 70–
percent (as applicable)” after the language
“50-percent”; and
6. Adding paragraph (b)(2)(v).
The additions read as follows:
§51.4 Information provided by the
agencies.
* * * * *
(b) * * *
(2) * * *
(i) * * *
(C) Any manufacturer discount pro-
gram discount (within the meaning of
paragraph (b)(2)(v) of this section).
* * * * *
(v) Manufacturer discount program
discount. For purposes of paragraph (b)

January 26, 2026 452 Bulletin No. 2026–5
(2)(i)(C) of this section, the term manu-
facturer discount program discount means
a manufacturer-paid discount on certain
drugs under the Manufacturer Discount
Program described in section 1860D-14C
of the Social Security Act.
* * * * *
Par. 3. Section 51.11 is amended by
revising the section heading and adding
paragraph (c) to read as follows:
§51.11 Applicability dates.
* * * * *
(c) Section 51.4(b)(2)(i)(C) and (b)
(2)(v) apply for fees calculated based on
sales years beginning on and after January
1, 2025.
Frank J. Bisignano,
Chief Executive Officer.
(Filed by the Office of the Federal Register Decem-
ber 31, 2025, 8:45 a.m., and published in the issue of
the Federal Register for January 2, 2026, 91 FR 93)
Notice of Proposed
Rulemaking
Backup Withholding on
Third Party Network
Transactions
REG-112829-25
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing.
SUMMARY: This document contains
proposed amendments to the regulations
governing backup withholding. The pro-
posed regulations reflect recent changes
to the statutory law. These changes will
affect third party settlement organizations
who make payments in settlement of third
party network transactions.
DATES: Electronic or written comments
and requests for a public hearing must be
received by March 10, 2026.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically. Submit electronic submis-
sions via the Federal eRulemaking Portal
at https://www.regulations.gov (indicate
IRS and REG-112829-25) by following
the online instructions for submitting com-
ments. Requests for a public hearing must
be submitted as prescribed in the “Com-
ments and Requests for a Public Hearing”
section. Once submitted to the Federal
eRulemaking Portal, comments cannot be
edited or withdrawn. The Department of
the Treasury (Treasury Department) and
the IRS will publish for public availabil-
ity any comment submitted to the IRS’s
public docket. Send paper submissions to:
CC:PA:01:PR (REG-112829-25), Room
5503, Internal Revenue Service, P.O. Box
7604, Ben Franklin Station, Washington,
DC 20044.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Casey Conrad at (202) 317-
6844 (not toll-free number); concerning
submission of comments or requests for a
hearing, the Publications and Regulations
Section at (202) 317-6901 (not toll-free
number) or by email at publichearings@
irs.gov (preferred).
SUPPLEMENTARY INFORMATION:
Authority
This document contains proposed
amendments to the Employment Taxes
and Collection of Income Tax at the
Source Regulations (26 CFR Part 31)
under section 3406 of the Internal Reve-
nue Code (Code). The proposed regula-
tions are issued under the authority con-
ferred by section 3406(i), which provides
the Secretary of the Treasury or the Secre-
tary’s delegate (Secretary) with authority
to “prescribe such regulations as may be
necessary or appropriate to carry out the
purposes of [section 3406].”
The proposed regulations are also
issued pursuant to section 7805(a) of the
Code, which authorizes the Secretary to
“prescribe all needful rules and regula-
tions for the enforcement of [the Code],
including all rules and regulations as may
be necessary by reason of any alteration of
law in relation to internal revenue.”
Background
This document contains proposed
amendments to regulations impacted by
amendments to sections 6050W and 3406
of the Code made by section 70432 of
Public Law 119-21, 139 Stat. 72 (July 4,
2025), commonly known as the One, Big,
Beautiful Bill Act (OBBBA).
I. Section 6050W
Section 6050W requires payment settle-
ment entities, including merchant acquir-
ing entities and third party settlement
organizations (TPSOs), to report certain
payments made to participating payees for
reportable payment transactions. Section
6050W(b) requires TPSOs to file informa-
tion returns reporting the gross amounts of
reportable payments made in settlement of
third party network transactions. As orig-
inally enacted by the Housing Assistance
Tax Act of 2008, Public Law 110-289, 122
Stat. 2908 (July 30, 2008), section 6050W
required TPSOs to file information returns
if payments to a payee exceeded $20,000
and 200 transactions in a calendar year.
In 2021, the American Rescue Plan Act
of 2021 (ARPA), Public Law 117-2, 135
Stat. 4 (March 11, 2021), amended section
6050W(e) to lower the TPSO reporting
threshold, requiring reporting by TPSOs
when payments to a payee exceeded $600
in a calendar year, without regard to the
number of transactions. OBBBA sec-
tion 70432(a) retroactively reverted the
reporting threshold to the pre-ARPA level,
requiring reporting by a TPSO when pay-
ments to a payee exceed $20,000 and 200
transactions in a calendar year. OBBBA
section 70432(a)(2) provides that this
change “shall take effect as if included in
section 9674 of the American Rescue Plan
Act.” These payments are reported on a
Form 1099-K, Payment Card and Third
Party Network Transactions.
II. Section 3406
Section 3406(a) requires backup with-
holding for reportable payments where
certain conditions are met. Pursuant to
section 3406(b)(3)(F), a reportable pay-
ment includes payments required to be
shown on a return required under section
6050W. Generally, under section 3406(b)

Bulletin No. 2026–5 453 January 26, 2026
(4), whether a payment is reportable is
determined without regard to the mini-
mum amount that must be paid before a
return is required.
OBBBA section 70432(b)(1) amended
section 3406(b) by adding a new para-
graph (8) that applies to calendar years
beginning after December 31, 2024.
Section 3406(b)(8)(A) provides that any
payment in settlement of a third party
network transaction required to be shown
on a return required under section 6050W
that is made during any calendar year is
treated as a reportable payment only if (1)
the aggregate number of transactions with
respect to the participating payee during
such calendar year exceeds the number of
transactions specified in section 6050W(e)
(2), and (2) the aggregate dollar amount
of transactions with respect to the partic-
ipating payee during such calendar year
exceeds the dollar amount specified in
section 6050W(e)(1) at the time of such
payment.
Section 3406(b)(8)(B) provides that
section 3406(b)(8)(A) does not apply with
respect to payments to any participating
payee during any calendar year if one
or more payments in settlement of third
party network transactions made by the
payor to the participating payee during the
preceding calendar year were reportable
payments.
Explanation of Provisions
Because the existing regulations under
section 6050W already reflect the report-
ing threshold as codified in the OBBBA,
the proposed regulations would not alter
the existing text of the regulations under
section 6050W.
The proposed regulations would
update the regulations under section 3406
to reflect the statutory changes made to
section 3406(b) by the OBBBA. The
proposed regulations would clarify that
in the case of payments made in settle-
ment of third party network transactions,
the amount subject to withholding under
section 3406 is determined with regard to
the exception for de minimis payments
by TPSOs in section 6050W(e) and the
associated regulations. Thus, under the
proposed regulations, a payment would
be treated as a reportable payment under
§31.3406(b)(3)-5(a) only if (1) the aggre-
gate number of transactions with respect
to the participating payee during the cal-
endar year exceeds the number of trans-
actions specified in section 6050W(e)(2)
(currently 200); and (2) the aggregate
dollar amount of the current transaction
and all previous transactions to the par-
ticipating payee during the calendar year
exceeds the dollar amount specified in
section 6050W(e)(1) at the time of such
payment (currently $20,000).
The proposed regulations would also
clarify that the amount subject to with-
holding is the entire amount of the trans-
action that causes either the total number
of transactions to exceed the number of
transactions specified in section 6050W(e)
(2), or the entire amount of the transaction
that causes the total dollar amount paid
to the payee to exceed the dollar amount
specified in section 6050W(e)(1) at the
time of such payment, whichever occurs
later, and the amount of any subsequent
transactions made to the payee during the
calendar year.
Finally, the proposed regulations
would clarify that the exception in pro-
posed §31.3406(b)(3)-5(b)(2) would not
apply with respect to payments to any par-
ticipating payee during any calendar year
if one or more payments in settlement of
third party network transactions made by
the payor to the participating payee during
the preceding calendar year were report-
able payments.
Proposed Applicability Date
These regulations are proposed to
apply with respect to payments made in
calendar years beginning after December
31, 2024.
Effect on Other Documents
Notice 2023-10, 2023-3 I.R.B. 403,
Notice 2023-74, 2023-51 I.R.B. 1484, and
Notice 2024-85, 2024-51 I.R.B. 1349 are
inconsistent with the statutory revisions
and are obsoleted as of January 9, 2026.
Special Analyses
I. Regulatory Planning and Review
These proposed regulations are not
subject to review under section 6(b) of
Executive Order 12866 pursuant to the
Memorandum of Agreement (July 4,
2025) between the Treasury Department
and the Office of Management and Bud-
get (OMB) regarding review of tax reg-
ulations. Therefore, a regulatory impact
assessment is not required.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501-3520) (PRA) generally
requires that a Federal agency obtain the
approval of the OMB before collecting
information from the public, whether that
collection of information is mandatory,
voluntary, or required to obtain or retain
a benefit. An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a valid control number
assigned by the OMB.
The collection of information in these
proposed regulations relates to record-
keeping and information reporting with
respect to backup withholding in pro-
posed §31.3406(b)(3)-5. The collected
information will be used by the payor
to determine whether payments to the
payee exceed a threshold that would
require backup withholding and the issu-
ance of an information return. The bur-
den for these requirements is included
with the Form and Instructions for Form
945, Annual Return of Withheld Federal
Income Tax. The Form 945 and Instruc-
tions for Form 945 are approved under
OMB control number 1545-0029 and the
associated burden is included in the esti-
mates shown in the Instructions for Form
941. The Form 941 and its instructions
are in the process of being updated, and
any decrease in burden associated with
the statutory changes to section 3406 will
be reflected in those instructions.
III. Regulatory Flexibility Act
It is hereby certified that these pro-
posed regulations would not have a
significant economic impact on a sub-
stantial number of small entities pur-
suant to the Regulatory Flexibility Act
(5 U.S.C. chapter 6). The proposed rule
would affect any entity required to file
information returns reporting payments
of third party network transactions.

January 26, 2026 454 Bulletin No. 2026–5
The proposed regulation could affect
a substantial number of small entities;
however, the economic impact of the
proposed regulations is not likely to
be significant because the proposed
regulations would not impose any new
requirements on small entities. Rather,
the proposed rules would clarify the
threshold at which entities are required
to backup withhold for reportable pay-
ments where certain conditions are met.
Because the threshold to backup with-
hold would increase under the proposed
rules, the proposed rules would reduce
the frequency with which entities must
backup withhold. Thus, the economic
impact of these proposed regulations is
not likely to be significant.
Notwithstanding this certification, the
Treasury Department and the IRS wel-
come comments on the impact of these
proposed regulations on small entities.
IV. Submission to Small Business
Administration
Pursuant to section 7805(f), this notice
of proposed rulemaking has been submit-
ted to the Chief Counsel for the Office of
Advocacy of the Small Business Adminis-
tration for comment on its impact on small
business.
V. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 requires that agencies
assess anticipated costs and benefits and
take certain other actions before issuing a
final rule that includes any Federal man-
date that may result in expenditures in any
one year by a State, local, or Tribal gov-
ernment, in the aggregate, or by the pri-
vate sector, of $100 million in 1995 dol-
lars, updated annually for inflation. These
proposed regulations do not include any
Federal mandate that may result in expen-
ditures by State, local, or Tribal govern-
ments, or by the private sector, in excess
of that threshold.
VI. Executive Order 13132: Federalism
Executive Order 13132 (Federalism)
prohibits an agency from publishing any
rule that has federalism implications if
the rule either imposes substantial, direct
compliance costs on State and local gov-
ernments, and is not required by statute,
or preempts State law, unless the agency
meets the consultation and funding
requirements of section 6 of the Execu-
tive Order. These proposed regulations
do not have federalism implications, do
not impose substantial direct compliance
costs on State and local governments, and
do not preempt State law within the mean-
ing of the Executive Order.
Comments and Requests for Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any comments that are
submitted timely to the Treasury Depart-
ment and the IRS as prescribed in this
preamble under the ADDRESSES head-
ing. The Treasury Department and the IRS
request comments on all aspects of the
proposed rules. Any electronic and paper
comments submitted will be available
at https://www.regulations.gov or upon
request. Once submitted to the Federal
eRulemaking Portal, comments cannot be
edited or withdrawn.
A public hearing will be scheduled if
requested in writing by any person that
timely submits written comments. If a
public hearing is scheduled, notice of the
date, time, and place for the public hearing
will be published in the Federal Register.
Statement of Availability of IRS
Documents
IRS Revenue Rulings, Revenue Proce-
dures, Notices, and other guidance cited in
this document are published in the Inter-
nal Revenue Bulletin (or Cumulative Bul-
letin) and are available from the Superin-
tendent of Documents, U.S. Government
Printing Office, Washington, DC 20402,
or by visiting the IRS website at https://
www.irs.gov.
Drafting Information
The principal author of these proposed
regulations is the Office of Associate Chief
Counsel (Procedure and Administration).
However, other personnel from the Trea-
sury Department and the IRS participated
in their development.
List of Subjects in 26 CFR Part 31
Employment taxes, Income taxes,
Penalties, Pensions, Railroad retirement,
Reporting and recordkeeping, Social
security, Unemployment compensation.
Proposed Amendments to the
Regulations
Accordingly, the Treasury Department
and the IRS propose to amend 26 CFR
part 31 as follows:
PART 31—EMPLOYMENT TAXES
AND COLLECTION OF INCOME
TAX AT SOURCE
Paragraph 1. The authority citation
for part 31 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805.
* * * * *
Sections 31.3406(a)-1 through
31.3406(i)-1 also issued under 26 U.S.C.
3406(i).
* * * * *
Par. 2. Section 31.3406(a)-1 is
amended by revising paragraphs (a) and
(c), and adding paragraph (e) to read as
follows:
§31.3406(a)-1 Backup withholding
requirements on reportable payments.
(a) Overview. Under section 3406 of
the Internal Revenue Code (Code), a payor
must deduct and withhold an amount
equal to the product of the fourth lowest
rate of tax applicable under section 1(c)
of the Code and a reportable payment if a
condition for withholding exists. Report-
able payments mean interest and dividend
payments (as defined in section 3406(b)
(2)) and other reportable payments (as
defined in section 3406(b)(3)). The condi-
tions described in paragraph (b)(1) of this
section apply to all reportable payments,
including reportable interest and dividend
payments. The conditions described in
paragraph (b)(2) of this section apply only
to reportable interest and dividend pay-
ments.
* * * * *
(c) Exceptions. The requirement
to withhold does not apply to certain
de minimis payments as described in

Bulletin No. 2026–5 455 January 26, 2026
§§31.3406(b)(3)-1(a)(3), 31.3406(b)
(3)-5(b)(2), and 31.3406(b)(4)-1 or
to payments exempt from withhold-
ing under §§31.3406(g)-1 through
31.3406(g)-3.
* * * * *
(e) Applicability date. The provisions
of this section apply with respect to pay-
ments made in calendar years beginning
after December 31, 2024.
Par. 3. Section 31.3406(b)(3)-5 is
amended by revising paragraphs (b) and
(e) to read as follows:
§31.3406(b)(3)-5 Reportable payments
of payment card and third party
network transactions.
* * * * *
(b) Amount subject to backup with-
holding—(1) In general. The amount
described in paragraph (a) of this section
that is subject to withholding under sec-
tion 3406 is the amount subject to report-
ing under section 6050W.
(2) Third party network transactions.
In the case of payments made in settle-
ment of third party network transactions,
the amount subject to withholding under
section 3406 is determined with regard
to the exception for de minimis pay-
ments by third party settlement organi-
zations in section 6050W(e). A payment
is treated as a reportable payment under
paragraph (a) of this section only if,
during the calendar year, the aggregate
number of transactions with respect to
the participating payee exceeds the num-
ber of transactions specified in section
6050W(e)(2) and the aggregate amount
of all reportable payment transactions
with respect to such participating payee
exceeds the dollar amount specified in
section 6050W(e)(1). The amount sub-
ject to withholding is the entire amount
of the transaction that causes either the
total number of transactions to exceed
the number of transactions specified
in section 6050W(e)(2), or the entire
amount of the transaction that causes
the total amount paid to the participating
payee to exceed the dollar amount spec-
ified in section 6050W(e)(1) at the time
of such payment, whichever occurs later,
and the amount of any subsequent trans-
actions made to the participating payee
during the calendar year.
(3) Exception. Paragraph (b)(2) of
this section does not apply with respect
to payments to any participating payee
during any calendar year if one or more
payments in settlement of third party net-
work transactions made by the payor to
the participating payee during the pre-
ceding calendar year were reportable
payments.
(4) Examples. The provisions of para-
graph (b) of this section are illustrated by
the following examples:
(i) Example 1. Platform A is a third party settle-
ment organization (as defined in §1.6050W-1(c)(2)
of this chapter) and Y is a participating payee (as
defined in §1.6050W-1(a)(5)(i)(B) of this chapter).
A complies with all the requirements to solicit a
taxpayer identification number (TIN) from Y, but Y
does not provide its TIN to A. During calendar year
2026, A makes 201 payments in settlement of third
party network transactions that total $20,000.01. A
must backup withhold under paragraph (b)(2) of this
section on the entire amount of the 201st transaction
because that transaction caused Y to exceed the de
minimis reporting threshold for calendar year 2026
of 200 transactions and $20,000 in gross payments.
(ii) Example 2. The facts are the same as in para-
graph (b)(4)(i) of this section (Example 1). During
calendar year 2027, A makes 199 payments in set-
tlement of third party network transactions that total
$18,000.00. A must backup withhold on each pay-
ment made to Y in settlement of a third party net-
work transaction during 2027 under paragraph (b)
(3) of this section because one or more payments in
settlement of third party network transactions made
by A to Y during the preceding calendar year (2026)
were reportable payments.
(iii) Example 3. The facts are the same as in para-
graph (b)(4)(ii) of this section (Example 2). During
calendar year 2028, A makes four payments in set-
tlement of third party network transactions that total
$2,000.00. A must backup withhold on each payment
made in settlement of a third party network trans-
action during 2028 under paragraph (b)(3) of this
section because one or more payments in settlement
of third party network transactions made by A to
Y during the preceding calendar year (2027) were
reportable payments.
(iv) Example 4. The facts are the same as in para-
graph (b)(4)(iii) of this section (Example 3). During
calendar year 2029, A made no payments in settle-
ment of third party network transactions, and during
calendar year 2030, A makes 199 payments in set-
tlement of third party network transactions that total
$18,000.00. A is not required to backup withhold on
any payment made in settlement of third party net-
work transactions during calendar year 2030 because
A did not make any reportable payments to Y during
the preceding calendar year (2029), and A did not
make payments in settlement of third party network
transactions that exceed the de minimis reporting
threshold.
* * * * *
(e) Applicability date. The provisions
of this section apply with respect to pay-
ments made in calendar years beginning
after December 31, 2024.
Frank J. Bisignano,
Chief Executive Officer.
(Filed by the Office of the Federal Register January
08, 2026, 8:45 a.m., and published in the issue of
the Federal Register for January 9, 2026, 91 FR 934)
Notice of Proposed
Rulemaking
Car Loan Interest
Deduction
REG-113515-25
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
SUMMARY: This document contains
proposed regulations regarding the deduc-
tion for certain taxpayers for an amount up
to $10,000 of qualified passenger vehicle
loan interest. This document also con-
tains proposed regulations regarding new
information reporting requirements for
certain persons who, in a trade or busi-
ness, receive from any individual interest
aggregating $600 or more for any calendar
year on a specified passenger vehicle loan,
including applicable penalties for failures
to file information returns or furnish payee
statements as required. The proposed reg-
ulations would affect taxpayers that may
deduct qualified passenger vehicle loan
interest, and also persons subject to these
information reporting requirements. This
document also provides notice of a public
hearing on these proposed regulations.
DATES: Written or electronic comments
must be received by February 2, 2026. The
public hearing is being held on February
24, 2026, at 10 a.m. ET. Requests to speak
and outlines of topics to be discussed at the
public hearing must be received by Febru-
ary 2, 2026. If no outlines are received by
February 2, 2026, the public hearing will
be cancelled. Requests to attend the public

January 26, 2026 456 Bulletin No. 2026–5
hearing must be received by 5 p.m. ET on
February 20, 2026.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically. Submit electronic submis-
sions via the Federal eRulemaking Portal
at www.regulations.gov (indicate IRS and
REG-113515-25) by following the online
instructions for submitting comments.
Once submitted to the Federal eRulemak-
ing Portal, comments cannot be edited or
withdrawn. The Department of the Trea-
sury (Treasury Department) and the IRS
will publish for public availability any
comments submitted electronically and
comments submitted on paper to its public
docket. Send hard copy submissions to:
CC:PA:01:PR (REG-113515-25), Room
5503, Internal Revenue Service, P.O. Box
7604, Ben Franklin Station, Washington,
DC 20044.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Riston Escher of the Office of
Associate Chief Counsel (Income Tax &
Accounting) at (202) 317-7003; concern-
ing submissions of comments or the pub-
lic hearing, please contact Publications
and Regulations Section at (202) 317-
6901 (not toll-free numbers) or by email
at publichearings@irs.gov (preferred).
SUPPLEMENTARY INFORMATION:
Authority
This notice of proposed rulemak-
ing contains proposed amendments that
would add new regulations to the Income
Tax Regulations (26 CFR part 1) under
sections 163 and 6050AA of the Internal
Revenue Code (Code), as amended and
enacted, respectively, by section 70203(a)
and (c)(1) of Public Law 119-21, 139 Stat.
72, 176-179 (July 4, 2025), commonly
known as the One, Big, Beautiful Bill Act
(OBBBA), related to the allowance of a
Federal income tax deduction under sec-
tion 163(a) and (h)(4) for qualified passen-
ger vehicle loan interest (QPVLI) and cer-
tain information reporting requirements
under section 6050AA for persons receiv-
ing certain interest on a specified passen-
ger vehicle loan (SPVL). This notice of
proposed rulemaking also contains pro-
posed amendments to the Procedure and
Administration Regulations (26 CFR part
301) relating to electronic filing of returns
under section 6011 of the Code, and pen-
alties under section 6721 of the Code for
failures to file information returns and
under section 6722 of the Code for fail-
ures to furnish payee statements.
The proposed regulations are issued
under the authority of section 7805(a) of
the Code, which authorizes the Secretary
of the Treasury or the Secretary’s dele-
gate (Secretary) to prescribe all needful
rules and regulations for the enforcement
of the Code including all rules and regu-
lations as may be necessary by reason of
any alteration of law in relation to internal
revenue. The proposed regulations under
section 6050AA are also issued under the
authority of section 6050AA(e), which
authorizes the Secretary to issue such
regulations or other guidance as may be
necessary or appropriate to carry out the
purposes of section 6050AA, including
regulations or other guidance to prevent
the duplicate reporting of information
under section 6050AA. The proposed reg-
ulations under section 6011 are also issued
under the authority of section 6011(e),
which authorizes the Secretary to pre-
scribe regulations that require taxpayers to
electronically file returns, including infor-
mation returns, if the taxpayer is required
to file at least 10 returns of any type during
a calendar year.
Background
Section 70203(a) of the OBBBA
amended section 163(h) (relating to the
disallowance of any deduction for per-
sonal interest) by inserting a new para-
graph (4) to provide an exception for
QPVLI. Additionally, section 70203(b)
of the OBBBA amended section 63(b) of
the Code by inserting a new paragraph
(7) to allow this deduction for taxpay-
ers that do not itemize their deductions.
Further, section 70203(c) of the OBBBA
added new section 6050AA to the Code
to require returns relating to applicable
passenger vehicle loan interest received
in a trade or business from individuals.
The amendments made by section 70203
of the OBBBA apply to indebtedness
incurred after December 31, 2024. The
new allowance of a deduction for QPVLI
under section 163(a) and (h)(4) applies
solely to taxable years beginning after
December 31, 2024, and before January 1,
2029. New section 6050AA provides that
no information return is required under
section 6050AA for any period to which
new section 163(h)(4) does not apply.
I. Section 163
Section 163(a) allows a deduction for
all interest paid or accrued within the tax-
able year on indebtedness. Section 163(h)
generally disallows a deduction for per-
sonal interest. Section 163(h)(1) provides
that a taxpayer other than a corporation
cannot take a deduction for personal inter-
est paid or accrued during the taxable
year under chapter 1 of the Code. Sec-
tion 163(h)(2) defines “personal interest”
as any interest deductible under chapter
1 other than (a) interest paid or accrued
on indebtedness properly allocable to
the conduct of a trade or business (other
than the trade or business of performing
services as an employee), (b) investment
interest, (c) interest taken into account
under section 469 of the Code in comput-
ing income or loss from a passive activity,
(d) qualified residence interest, (e) interest
payable under section 6601 of the Code
on any unpaid portion of the tax imposed
by section 2001 of the Code for the period
during which an extension of time for
payment of such tax is in effect under sec-
tion 6163 of the Code, and (f) any interest
allowable as a deduction under section
221 of the Code.
As added by the OBBBA, new section
163(h)(4)(A) provides that in the case of
taxable years beginning after December
31, 2024, and before January 1, 2029, per-
sonal interest does not include QPVLI. As
a result, a deduction for QPVLI is allow-
able under section 163(a) for taxable years
beginning after December 31, 2024, and
before January 1, 2029. Section 163(h)(4)
(B)(i) provides that “QPVLI” means any
interest that is paid or accrued during the
taxable year on indebtedness incurred by
the taxpayer after December 31, 2024,
for the purchase of, and that is secured
by a first lien on, an applicable passenger
vehicle (APV) for personal use, subject
to certain enumerated exceptions in sec-
tion 163(h)(4)(B)(ii). Section 163(h)(4)
(C) provides limitations on the amount of

Bulletin No. 2026–5 457 January 26, 2026
QPVLI that a taxpayer can deduct during
a taxable year. Section 163(h)(4)(D)
defines an “APV” as a vehicle that satis-
fies the requirements of section 163(h)(4)
(D)(i) through (vi) but excludes from the
definition any vehicle the final assembly
of which did not occur within the United
States. Section 163(h)(4)(E) provides the
definition of “final assembly” and special
rules on the treatment of a refinancing and
related party indebtedness.
II. Section 63(b)(7)
Section 63 defines “taxable income”
for purposes of subtitle A of the Code
(subtitle A). Section 63(a) provides the
general rule that, except as provided in
section 63(b), for purposes of subtitle A,
the term “taxable income” means gross
income minus the deductions allowed by
chapter 1 (other than the standard deduc-
tion). Section 63(b) provides that, in the
case of an individual who does not elect to
itemize the individual’s deductions for the
taxable year, for purposes of subtitle A,
the term taxable income means “adjusted
gross income” (as defined in section 62
of the Code), minus the deductions enu-
merated in section 63(b)(1) through (7).
As amended by the OBBBA, new sec-
tion 63(b)(7) provides that so much of
the deduction allowed by section 163(a)
as is attributable to the exception under
section 163(h)(4)(A) is subtracted from
adjusted gross income in computing tax-
able income.
III. Section 6050AA
New section 6050AA(a) provides that
any person engaged in a trade or busi-
ness who, in the course of that trade or
business, receives from any individual
interest aggregating $600 or more for
any calendar year on an SPVL, must
file an information return reporting the
receipt of interest. Section 6050AA(b)
provides that the information return filed
by the recipient of such interest (interest
recipient) must be in the form prescribed
by the Secretary and must contain: (A)
the name and address of the individual
from whom such interest was received,
(B) the amount of such interest received
for the calendar year, (C) the amount of
outstanding principal on the SPVL as of
the beginning of such calendar year, (D)
the date of origination of that loan, (E)
the year, make, model, and vehicle iden-
tification number (VIN) of the APV that
secures that loan (or any other descrip-
tion of that vehicle as the Secretary may
prescribe), and (F) any other information
as the Secretary may prescribe.
Section 6050AA(c) provides that every
person required to make an information
return under section 6050AA(a) must
also furnish to each individual whose
name is required to be included in the
return a written statement showing the
name, address, and phone number of the
information contact of the interest recip-
ient, and the information required to be
included in the information return under
section 6050AA(b)(2)(B) through (F).
Section 6050AA(e) authorizes the Sec-
retary to issue regulations or guidance nec-
essary to carry out the purposes of section
6050AA, including regulations or other
guidance to prevent duplicate reporting.
IV. Section 6011 and Electronic Filing of
Information Returns
Section 6011(e) authorizes the Sec-
retary to prescribe regulations providing
standards for determining which returns
must be filed on magnetic media or in other
machine-readable form. Section 6011(e)
(5) authorizes the Secretary to prescribe
regulations that require taxpayers to elec-
tronically file returns, including informa-
tion returns, if the taxpayer is required to
file at least 10 returns of any type during a
calendar year.
V. Penalties Under Sections 6721 and
6722
Section 6721 imposes a penalty for
any failure to file an information return on
or before the required filing date, and for
any failure to include all the information
required to be shown on a return or the
inclusion of incorrect information. Sec-
tion 6722 imposes a penalty for any failure
to furnish a payee statement on or before
the required furnishing date to the person
to whom such statement is required to be
furnished and for any failure to include all
the information required to be shown on a
payee statement or the inclusion of incor-
rect information.
Section 70203(c)(2)(A) of the OBBBA
amended section 6724(d)(1) to add infor-
mation reporting requirements under sec-
tion 6050AA—regarding returns relating
to QPVLI received in a trade or business
from individuals—to the definition of
“information return.” Section 70203(c)(2)
(B) of the OBBBA similarly amended the
definition of “payee statement” in section
6724(d)(2). As a result of these amend-
ments, penalties under sections 6721 and
6722 may be imposed on interest recipi-
ents that fail to file correct information
returns and payee statements under sec-
tion 6050AA.
On October 21, 2025, the IRS released
Notice 2025-57, 2025-45 I.R.B. 692, to
provide transitional guidance on the infor-
mation reporting requirements under sec-
tion 6050AA. Notice 2025-57 provides
that an interest recipient will be deemed
to have satisfied the reporting obliga-
tions under section 6050AA for interest
on SPVLs received in 2025 if the interest
recipient makes a statement available to
the individual indicating the total amount
of interest received in calendar year 2025
on an SPVL.
Explanation of Provisions
I. Explanation of Proposed §1.163-16
A. QPVLI generally
Section 163(h)(4)(B)(i) provides the
general rule that QPVLI means any inter-
est that is paid or accrued during the tax-
able year on indebtedness incurred by the
taxpayer after December 31, 2024, for
the purchase of, and that is secured by
a first lien on, an APV for personal use.
Proposed §1.163-16(c)(1) would provide
that interest is QPVLI only if the inter-
est is paid or accrued on an SPVL that is
secured by a first lien on the purchased
APV at the time the taxpayer pays or
accrues interest on that SPVL. A lender’s
release of a lien typically occurs follow-
ing the borrower’s final payment on the
related indebtedness. Thus, at the time of
the final payment, an SPVL would typ-
ically still be secured by a lien on the
purchased APV. See parts I.C (Interest
paid or accrued), I.E.1 (SPVLs Gener-
ally), and I.D (QPVLI exceptions) of this
Explanation of Provisions.

January 26, 2026 458 Bulletin No. 2026–5
B. Taxpayers that may deduct QPVLI
Section 163(h)(4)(B)(i) provides that
QPVLI is interest paid or accrued on
indebtedness incurred by the taxpayer for
the purchase of an APV for personal use.
Proposed §1.163-16(a)(2)(i) would
provide that only individuals, decedents’
estates, and non-grantor trusts may deduct
QPVLI. This is because only those taxpay-
ers could be considered to have purchased
an APV for personal use as described in
part I.H.2 of this Explanation of Provi-
sions (Types of Taxpayers that May Satisfy
the Personal Use Requirement).
Under existing rules (for example,
§301.7701-3(b)), an entity may be disre-
garded as an entity separate from its owner
for Federal tax purposes. Accordingly, for
Federal income tax purposes (including
for purposes of section 163(h)(4)), activ-
ities of a disregarded entity are treated as
the activities of the owner. Additionally, a
grantor or other person treated as owning
any portion of a trust under sections 671
through 679 of the Code (a grantor trust)
is treated as the owner of the trust prop-
erty for Federal income tax purposes. See
Revenue Ruling 85-13 (1985-1 C.B. 184).
For example, if a grantor trust acquires an
APV and incurs a secured loan for its pur-
chase, the grantor trust’s deemed owner is
treated as the owner of the APV and the
obligor of the loan, and eligibility of the
grantor trust’s deemed owner to deduct
the interest paid by the grantor trust as
QPVLI is determined by disregarding the
grantor trust and instead looking to the
deemed owner to test whether all of the
requirements for deductible QPVLI have
been satisfied. In this case, the modified
adjusted gross income phaseout (as would
be provided in proposed §1.163-16(h)
(2)) is determined based upon the modi-
fied adjusted gross income of the deemed
owner of the grantor trust, rather than the
modified adjusted gross income of the
grantor trust or any other person.
Thus, similar to the deduction for
qualified residence interest under section
163(h)(3), the proposed regulations would
permit QPVLI to be deducted by an indi-
vidual, decedent’s estate, or non-grantor
trust, including with respect to a grantor
trust or disregarded entity deemed owned
by the individual, decedent’s estate, or
non-grantor trust.
Section 63(b)(7) provides that the
deduction for QPVLI is allowed for tax-
payers who do not itemize deductions.
Proposed §1.163-16(a)(2)(ii) would clar-
ify that the deduction for QPVLI may be
taken by taxpayers who itemize deduc-
tions and taxpayers who take the standard
deduction. For taxpayers who itemize
deductions, the deduction is available
under the general rule of section 63(a). For
taxpayers who take the standard deduc-
tion, the deduction is available under sec-
tion 63(b)(7).
C. Interest paid or accrued
Proposed §1.163-16(c)(2)(i) would
provide that interest on an SPVL accrues
on a daily basis over the term of the SPVL,
consistent with the accrual of interest on
other debt instruments. The amount of
QPVLI that is deductible by a taxpayer
for the taxable year is determined by the
taxpayer’s overall method of accounting
for Federal income tax purposes (either
the cash receipts and disbursements
method or an accrual method) or an appli-
cable special method of accounting. For
purposes of section 163(h)(4), QPVLI
includes all interest payable with respect
to the amount financed under an SPVL.
Proposed §1.163-16(c)(2)(ii) would pro-
vide that a payment on an SPVL is treated
first as a payment of interest to the extent
interest has accrued and remains unpaid on
the SPVL as of the date the payment is due,
and second, to the extent of any excess, as
a payment of principal. Proposed §1.163-
16(c)(2)(ii) would also make clear that, con-
sistent with the foregoing, a simple interest
calculation may be used to determine the
amount of interest that has accrued and
remains unpaid on an SPVL when a pay-
ment is made. Under this simple interest
calculation, interest accrues daily over the
term of the SPVL based on the outstanding
principal balance and the Annual Percentage
Rate (APR) or stated interest rate provided
in the retail installment sales contract or
other contract evidencing the SPVL.
D. QPVLI exceptions
1. In General
As discussed in part I.A of this Expla-
nation of Provisions (QPVLI Generally),
proposed §1.163-16(c)(1) would provide
that interest is QPVLI only if the inter-
est is paid or accrued on an SPVL that is
secured by a first lien on the purchased
APV at the time the taxpayer pays or
accrues interest on that SPVL.
Consistent with section 163(h)(4)(B)
(ii), proposed §1.163-16(c)(4) would
provide that QPVLI does not include
amounts paid or accrued on: (i) a loan to
finance fleet sales; (ii) a loan incurred for
the purchase of a commercial vehicle that
is not used for personal purposes; (iii) any
lease financing; (iv) a loan to finance the
purchase of a vehicle with a salvage title;
or (v) a loan to finance the purchase of a
vehicle intended to be used for scrap or
parts.
2. Non-purchase Transactions
Proposed §1.163-16(b)(6) would pro-
vide that the term “lease financing” means
a transaction that is not a purchase of an
APV, and under which a taxpayer has
usage rights with respect to an APV but
is not considered the owner of the APV
under State or other applicable law. As
stated in part I.F of this Explanation of
Provisions (Purchase of the APV), pro-
posed §1.163-16(b)(11) would provide
that “purchase” means an acquisition that
is both (i) an acquisition of a vehicle for
Federal income tax purposes and (ii) the
acquisition of the title of the vehicle for
purposes of State or other applicable law.
Accordingly, because under proposed
§1.163-16(b)(6) a lease financing does not
involve a purchase of an APV, it would
not be considered an SPVL, and QPVLI
would not include any amounts paid or
accrued with respect to a lease financing,
including any amounts payable under the
lease financing that are attributable to the
time value of money.
A transaction that is a lease financing
under State or other applicable law would
not be a purchase within the meaning of
section 163(h)(4)(B)(i) and proposed
§1.163-16(b)(6) and (11), even if the
transaction is properly viewed as a sale for
Federal income tax purposes. Conversely,
a transaction that is a purchase of an APV
under State or other applicable law that
is properly viewed as a lease for Federal
income tax purposes also would not be a
purchase within the meaning of section

Bulletin No. 2026–5 459 January 26, 2026
163(h)(4)(B)(i) and proposed §1.163-
16(b)(11).
Proposed §1.163-16(c)(6)(i) would
provide an example that illustrates the
application of proposed §1.163-16(c)(1)
and (4) to a non-purchase transaction.
3. Lien on APV Substitutes
Proposed §1.163-16(c)(3)(ii) would pro-
vide an exception to the proposed general
rule in proposed §1.163-16(c)(1) and (c)(3)
(i) that interest is QPVLI only if the inter-
est is paid or accrued on an SPVL that is
secured by a first lien on the purchased APV
at the time the taxpayer pays or accrues
interest on that SPVL. This proposed
exception would permit the substitution of
collateral on the SPVL in limited circum-
stances. Under this proposed exception,
if an SPVL is secured by a first lien on an
APV that is replaced with a substitute APV
due to an unforeseen intervening event, and
the lien is transferred to that substitute APV
under the loan documentation terms, the
indebtedness will continue to be treated as
an SPVL. Unforeseen intervening events
would include a defective APV required to
be replaced under State or other applicable
lemon law or an APV that is required to be
replaced due to an insurance product.
This proposed exception would be lim-
ited to substitute vehicles for which orig-
inal use commences with the taxpayer,
and that otherwise meet the requirements
to be an APV. Furthermore, this proposed
exception would be intended to apply in
situations in which the existing SPVL con-
tinues without change other than the sub-
stitution of the collateral for the SPVL, as
if the unforeseen intervening event did not
occur. If instead the lender in that situation
treats the original SPVL as being satisfied
and new indebtedness as being issued to
the taxpayer for the substitute vehicle, the
generally applicable rules would apply for
determining if this new indebtedness for
the vehicle is an SPVL.
Proposed §1.163-16(c)(6)(ii) would
provide an example that illustrates the
application of proposed §1.163-16(c)(3).
4. Requirement to Report the VIN
Consistent with section 163(h)(4)(B)
(iii), proposed §1.163-16(c)(5) would pro-
vide that interest paid or accrued by a tax-
payer during the taxable year on an SPVL
is not deductible as QPVLI unless the tax-
payer reports the VIN of the purchased
APV on the Schedule 1-A (or successor)
or other relevant form specified by the Sec-
retary. Proposed §1.163-16(b)(16) would
provide that “VIN” means the series of
Arabic numbers and Roman letters that is
assigned to a motor vehicle for identifica-
tion purposes under 49 CFR 565.13.
E. Specified passenger vehicle loan
(SPVL)
1. SPVLs Generally
Section 163(h)(4)(B)(i) provides that
interest is QPVLI only if it is paid or
accrued on indebtedness that is incurred by
the taxpayer after December 31, 2024, for
the purchase of, and that is secured by a first
lien on, an APV for personal use. Because
section 163(h)(4)(B)(i) does not use a spe-
cific term for this indebtedness, proposed
§1.163-16(b)(15) refers to this indebtedness
as a “specified passenger vehicle loan” or an
“SPVL,” the term used in section 6050AA
to reference this indebtedness.
Proposed §1.163-16(b)(14) would pro-
vide that “secured by a first lien” means
a valid and enforceable security interest
in an APV under State or other applicable
law with priority ahead of all other secu-
rity interests, other than tax liens or other
similar security interests that may be given
higher priority at a later date following
the date of purchase and only in limited
circumstances. This exception would be
intended to clarify that so-called spring-
ing liens that result due to the operation of
State or other applicable law and that may
be given a higher priority at a later date
following the date of purchase, such as a
tax lien arising due to the non-payment of
State property taxes, do not prevent the
APV from being secured by a first lien.
Section 163(h)(4)(E)(iii) provides that
indebtedness between the taxpayer and a
related party (within the meaning of sec-
tion 267(b) or 707(b)(1) of the Code) is
not an SPVL.
2. The SPVL Must Be Incurred for the
Purchase of an APV
An APV may be sold under loan docu-
mentation referred to as a “motor vehicle
retail installment sales contract”. A typical
motor vehicle retail installment sales con-
tract indicates the total amount to be paid
as part of the purchase transaction for the
APV, which includes the purchase price of
the vehicle and other fees and charges for
property and services that are part of the
purchase transaction. The total amount to
be paid for the purchase transaction takes
into account the value of any trade-in vehi-
cle and any amounts paid by a taxpayer
at the time of the purchase transaction for
an APV, such as a down payment. In cer-
tain cases, amounts representing debt on
a vehicle traded in as part of the purchase
transaction for the APV in excess of the
value of the vehicle (so-called “negative
equity”) are rolled into the financing for
the purchase of the APV and included in
the total amount to be paid as part of the
purchase transaction for the APV.
The “amount financed” consists of the
total amount to be paid as part of the pur-
chase transaction for the APV, including
any negative equity, reduced by the value
of any trade-in vehicle and any down
payment. Under the typical terms of the
contract, the APR is the cost of the buy-
er’s credit as a yearly rate. The finance
charge stated in the contract, which is the
total dollar amount the credit will cost the
buyer, is determined based on the APR,
the amount financed, and the period over
which the buyer will make payments.
Proposed §1.163-16(d)(2)(i) would
provide that indebtedness qualifies as an
SPVL only to the extent the indebtedness
is incurred for the purchase of an APV as
well as for any other items or amounts
customarily financed in an APV purchase
transaction and that directly relate to the
purchased APV (for example, vehicle
service plans, extended warranties, sales
taxes, and vehicle-related fees). For this
purpose, whether an item or amount is
customarily financed in an APV purchase
transaction would be determined on an
industry-wide basis, and not by refer-
ence to the financing terms of a particular
financing entity.
Proposed §1.163-16(d)(2)(ii) would
provide that to the extent any indebtedness
is not described in proposed §1.163-16(d)
(2)(i), this indebtedness is not incurred by
a taxpayer for the purchase of an APV,
even if it is incurred as part of a purchase
transaction for an APV, and, therefore,

January 26, 2026 460 Bulletin No. 2026–5
this indebtedness is not an SPVL. For
example, an amount representing negative
equity under an existing loan on a trade-in
vehicle is not described in proposed
§1.163-16(d)(2)(i) because such negative
equity is not an item or amount directly
related to the purchased APV.
In addition, indebtedness is not incurred
by a taxpayer for the purchase of an APV
to the extent the indebtedness is incurred to
purchase collision and liability insurance
or to purchase any property or services
not directly related to the purchased APV
(for example, a trailer or a boat). Indebted-
ness is also not incurred by a taxpayer for
the purchase of an APV to the extent the
indebtedness relates to cash proceeds that
the taxpayer receives from the lender.
In general, under proposed §1.163-
16(d)(2)(iii)(A), if a taxpayer incurs
indebtedness attributable to more than
the purchase of an APV and any items
or amounts customarily financed with
the purchase of the APV that are directly
related to the purchased APV, the portion
of the indebtedness attributable to this
excess amount (nonqualifying indebted-
ness) would not be an SPVL. Accordingly,
none of the interest attributable to this por-
tion of the indebtedness would be deduct-
ible as QPVLI. Proposed §1.163-16(d)(2)
(iii)(B) would provide that for purposes of
determining the portion of the indebted-
ness that constitutes nonqualifying indebt-
edness, any down payment or other consid-
eration supplied by the taxpayer is applied
first against any negative equity and any
other amounts that are not incurred for the
purchase of the APV or for other items
customarily financed in an APV purchase
transaction and that directly relate to the
purchase of the APV. This proposed rule
would reduce the amount of indebted-
ness that otherwise would not qualify as
an SPVL to the extent of any down pay-
ment or other consideration supplied by
the taxpayer. For example, if a taxpayer
incurred indebtedness totaling $50,000 to
purchase an APV, made a down payment
of $4,000, and traded in a car with $6,000
of negative equity, and all other amounts
incurred by the taxpayer were for the pur-
chase of the APV or for other items or
amounts customarily financed in an APV
purchase transaction that directly relate to
the purchased APV, then $48,000 of the
indebtedness would qualify as an SPVL
and only $2,000 would not qualify as an
SPVL.
Proposed §1.163-16(d)(6)(i) and (ii)
provide examples that would illustrate the
application of proposed §1.163-16(d)(2)
(i) through (iii).
3. Refinanced SPVLs
Section 163(h)(4)(E)(ii) generally pro-
vides that a new loan resulting from refi-
nancing an SPVL is an SPVL if the new
loan is secured by a first lien on the APV
with respect to which the refinanced SPVL
was incurred, but only to the extent the
amount of the new loan does not exceed
the amount of the refinanced SPVL.
Proposed §1.163-16(d)(4) would pro-
vide this rule and clarify that the amount of
the new loan that is an SPVL is limited to
the outstanding balance of the refinanced
SPVL as of the date of the refinancing.
Consistent with proposed §1.163-16(d)(5)
(i), which would provide that the SPVL
would have to be originally incurred by
the taxpayer, proposed §1.163-16(d)(4)
would provide that, if there is a change
in obligor as part of the refinancing, the
new loan is not an SPVL with regard to
any obligor other than the original obli-
gor unless the refinancing is in connection
with a change in obligor by reason of the
obligor’s death within the meaning of pro-
posed §1.163-16(d)(5)(ii). See part I.E.4
of this Explanation of Provisions (SPVL
Must Be Incurred by the Taxpayer).
Proposed §1.163-16(d)(6)(iii) would
provide an example that illustrates the
application of proposed §1.163-16(d)(4).
4. The SPVL Must Be Incurred by the
Taxpayer
Proposed §1.163-16(d)(5) would pro-
vide additional guidance on the require-
ment in section 163(h)(4)(B)(i) that
indebtedness be “incurred by the tax-
payer” in order to qualify as an SPVL.
Generally, section 163(h)(4) provides an
exception to the disallowance of a deduc-
tion for personal interest in section 163(h)
(1) that applies to certain taxpayers that
incur SPVLs. Section 163(h)(4) does not
provide that indebtedness owed by a tax-
payer other than the taxpayer that origi-
nally incurred the indebtedness may qual-
ify as an SPVL.
Accordingly, proposed §1.163-16(d)
(5)(i) would provide a proposed general
rule that indebtedness is an SPVL only if
that indebtedness was originally incurred
by the taxpayer. For example, if individ-
ual A incurs an SPVL and subsequently is
replaced by individual B as the obligor on
the indebtedness, the indebtedness is no
longer an SPVL.
However, the proposed regulations
would contain an exception to this pro-
posed general rule for a change in obli-
gor by reason of the obligor’s death. In
the limited circumstance of the death of
the original obligor, this rule would treat
the obligor succeeding to the decedent’s
interest as stepping into the shoes of the
original obligor for purposes of section
163(h)(4). Thus, proposed §1.163-16(d)
(5)(ii)(A) would provide that if a change
in obligor on an SPVL occurs by reason of
the death of the obligor, then the indebted-
ness remains an SPVL with respect to the
new obligor.
Proposed §1.163-16(d)(5)(ii)(B) would
provide that a change in obligor by reason
of death as described in proposed §1.163-
16(d)(5)(ii) would include a change in
obligor (whether through a modification
of the existing indebtedness or a refinanc-
ing) by reason of the following: the suc-
cession to ownership of an APV subject to
an SPVL by the deceased obligor’s estate,
a surviving joint owner of the APV, or the
surviving beneficiary designated by con-
tract, a transfer on death provision, or by
operation of law; and a distribution of an
APV subject to an SPVL by a deceased
obligor’s estate to a legatee or heir or by a
trust that is made to a trust beneficiary by
reason of death.
Proposed §1.163-16(d)(5)(ii)(C) would
provide that a change in obligor by reason
of death as described in proposed §1.163-
16(d)(5)(ii) would not include changes in
the obligor resulting from the following:
a sale, exchange, or other disposition of
an APV by a decedent’s estate or trust,
other than certain distributions described
in proposed §1.163-16(d)(5)(ii)(B); or any
disposition of an APV by an individual
who received the APV by reason of death
(unless that individual also dies and the
change in obligor is described in proposed
§1.163-16(d)(5)(ii)(B)).
For example, assume D, an individ-
ual, incurs indebtedness that qualifies as

Bulletin No. 2026–5 461 January 26, 2026
an SPVL. Subsequently, D dies and D’s
APV, subject to the SPVL, then belongs to
D’s estate. Sometime thereafter, D’s estate
distributes the APV, subject to the SPVL,
to H, a residuary legatee under D’s will.
Subsequently, H gifts the APV, subject
to the SPVL, to G, an individual. Under
proposed §1.163-16(d)(5)(ii) the indebt-
edness remains an SPVL with respect to
D, D’s estate, and H, during such time as
each person held the APV subject to the
indebtedness, because each of these par-
ties is the obligor on the indebtedness due
to the death of D (an obligor of an SPVL).
Accordingly, D, D’s estate, and H each
may deduct the amount of interest that
each of D, D’s estate, and H, respectively,
paid or accrued on the SPVL as QPVLI,
subject to the requirements of section
163(h)(4)(C) and proposed §1.163-16(h).
For example, it may be the case that D
and H cannot deduct the interest because
their respective modified adjusted gross
incomes exceed the limits imposed by sec-
tion 163(h)(4)(C)(ii), but that D’s estate is
able to deduct the interest. However, the
indebtedness is not an SPVL with respect
to G because G did not originally incur the
indebtedness or become the obligor on the
indebtedness by reason of D’s death.
F. Purchase of the APV
Section 163(h)(4)(B)(i) requires that
the indebtedness incurred by the taxpayer
be for the purchase of an APV. Proposed
§1.163-16(b)(11) would provide that
“purchase” means an acquisition that is
both an acquisition of a vehicle for Federal
income tax purposes and the acquisition
of the title of the vehicle for purposes of
State or other applicable law. A purchase
results in the taxpayer being listed as the
owner on the title or registration of the
APV under State or other applicable law,
with the lender listed on the title as the
first lienholder. The fact that a lender may
physically hold this title until the indebt-
edness is repaid would not affect whether
the transaction is considered a purchase.
G. Applicable passenger vehicle (APV)
1. In General
Section 163(h)(4)(D) defines APV as
meaning any vehicle: (i) the original use
of which commences with the taxpayer;
(ii) that is manufactured primarily for use
on public streets, roads, and highways
(not including a vehicle operated exclu-
sively on a rail or rails); (iii) that has at
least 2 wheels; (iv) that is a car, minivan,
van, sport utility vehicle, pickup truck, or
motorcycle; (v) that is treated as a motor
vehicle for purposes of title II of the Clean
Air Act; and (vi) that has a gross vehicle
weight rating of less than 14,000 pounds.
Section 163(h)(4)(D) also provides that
the term APV does not include any vehicle
the final assembly of which did not occur
within the United States.
Proposed §1.163-16(e)(1) would pro-
vide that a vehicle is an APV only if it sat-
isfies the requirements set forth in section
163(h)(4)(D). Proposed §1.163-16(b)(13)
would define car, minivan, van, sport util-
ity vehicle, pickup truck, and motorcycle
by reference to existing, well-established
vehicle classification standards used by
the Environmental Protection Agency
(EPA), consistent with the reference in
section 163(h)(4)(D)(v) to the Clean Air
Act that the EPA administers. Proposed
§1.163-16(e)(2) and (3), respectively,
would provide rules for determining
whether original use commences with the
taxpayer and final assembly occurred in
the United States.
2. Original Use
Proposed §1.163-16(e)(2)(i) would
provide that original use commences
with the first person that takes delivery
of a vehicle after the vehicle is sold, reg-
istered, or titled. In the case of a dealer,
proposed §1.163-16(e)(2)(i) would also
provide that original use of a vehicle does
not commence with the dealer unless the
dealer registers or titles the vehicle to
itself (for example, in the case of certain
demonstrator vehicles or loaner vehicles).
Proposed §1.163-16(e)(2)(i) would rec-
ognize that dealers may operate vehicles
prior to the sale to retail purchasers in a
manner that does not require the vehicle
to be registered or titled under State or
other applicable law, and that operation
of the vehicle in this manner would not
result in original use commencing with
the dealer. For example, if a dealer uses a
vehicle for test drives or as a demonstrator
vehicle, and State or other applicable law
does not require the dealer to register or
title the vehicle, original use of that vehi-
cle would not commence with the dealer.
In this case, a subsequent retail purchaser
of that vehicle could satisfy the original
use requirement for the vehicle. On the
other hand, dealer operation that requires
the vehicle to be registered or titled under
State or other applicable law would cause
original use to commence with the dealer.
For example, if a dealer uses a vehicle
as a courtesy car loaned to customers in
connection with servicing or the repair of
vehicles and State or other applicable law
requires the dealer to register or title the
vehicle, original use of that vehicle would
commence with the dealer. In this case, a
subsequent retail purchaser of that vehicle
cannot satisfy the original use requirement
for the vehicle, and therefore the vehicle
would not be an APV when purchased by
the retail purchaser. Although a dealer’s
requirement to register or title vehicles
may vary under State or other applica-
ble law, this proposed standard would be
straightforward for taxpayers to apply and
administrable for the IRS.
The proposed approach to original use
for retail purchasers recognizes that prior
use of a vehicle by the dealer that would
prevent the vehicle from being sold as a
new vehicle under the associated loan doc-
umentation to a retail purchaser generally
would suffice to cause the original use to
commence with the dealer. Accordingly,
under proposed §1.163-16(e)(2)(i), for
retail purchasers that incur indebtedness
to purchase a vehicle, original use would
commence with that purchaser only if the
loan documentation treats the vehicle as a
new vehicle.
Proposed §1.163-16(e)(2)(ii) would
provide an exception to the original use
requirement. Under this exception, if a
retail purchaser returns a vehicle within
30 days after the purchaser took delivery
of that vehicle, the original use of that
vehicle would not be considered to have
commenced with that purchaser. In this
case, the original use of that vehicle may
commence with a subsequent retail pur-
chaser of that vehicle if that subsequent
purchaser’s loan documentation treats
the vehicle as a new vehicle. The Trea-
sury Department and the IRS understand
that dealers may have return policies that
range from several days up to 30 days,

January 26, 2026 462 Bulletin No. 2026–5
and these proposed rules are intended to
reflect industry practice.
Proposed §1.163-16(e)(2)(iii) would
provide examples that illustrate the
application of proposed §1.163-16(e)(2)
(i) and (ii), including the application of
the proposed original use requirement
to dealer demonstrator vehicles, a vehi-
cle that was previously the subject of a
cancelled sale, a vehicle that was previ-
ously leased and was purchased by the
lessee after the lease was terminated, and
a vehicle that was previously returned by
a retail purchaser.
3. Final Assembly
Section 163(h)(4)(D) provides that an
APV does not include any vehicle the final
assembly of which did not occur within
the United States. The final assembly
point is listed on the vehicle information
label attached to each vehicle on a deal-
er’s premises. Proposed §1.163-16(e)
(3) would provide that, to establish that
final assembly occurred within the United
States, the taxpayer may rely on (1) the
vehicle’s plant of manufacture as reported
in the VIN under 49 CFR 565; or (2) the
final assembly point reported on the label
affixed to the vehicle as described in 49
CFR 583.5(a)(3). Taxpayers can deter-
mine whether the vehicle’s plant of man-
ufacture is located in the United States by
following the instructions on the National
Highway Traffic Safety Administration
(NHTSA) VIN Decoder website: https://
www.nhtsa.gov/vin-decoder.
These proposed reliance standards are
intended to allow taxpayers to determine
whether a vehicle meets the final assem-
bly requirement in a straightforward man-
ner, such that a taxpayer may more clearly
make informed purchase decisions that
consider the potential applicability of sec-
tion 163(h)(4) at the time of the purchase
of a vehicle.
H. Personal use of the APV
1. Definition of Personal Use
The definition of QPVLI in section
163(h)(4)(B) requires that the indebted-
ness is incurred by the taxpayer for the
purchase of an APV for personal use, as
contrasted with the purchase of a vehicle
for use in a trade or business, for invest-
ment, or for other non-personal use.
Accordingly, proposed §1.163-16(b)(10)
would define “personal use” to mean use
by an individual other than in any trade
or business (except for use in the trade
or business of performing services as
an employee), or for the production of
income. Costs of commuting between
an individual’s home and the individ-
ual’s main or regular place of work are
personal expenses. See Revenue Ruling
99-7 (1999-1 C.B. 361) and §1.262-1(b)
(5).
2. Types of Taxpayers That May Satisfy
the Personal Use Requirement
Inherent in section 163(h)(4)(B)(i) of
the Code and the proposed definition of
personal use in proposed §1.163-16(b)
(10) is that individuals may satisfy the
personal use requirement. For example,
an individual that incurs indebtedness for
the purchase of an APV may satisfy the
personal use requirement with the individ-
ual’s own use of the car.
Ordinary trusts are generally formed
for the purpose of protecting or conserv-
ing property for one or more beneficiaries,
and this property may be property for the
personal use of one or more individual
beneficiaries. Decedents’ estates are gen-
erally formed to hold a deceased owner’s
property for one or more legatees or heirs
and then distribute that property to one or
more legatees or heirs. Less commonly,
a decedent’s estate may purchase prop-
erty for the personal use of one or more
individual legatees or heirs. Thus, some
decedents’ estates and non-grantor trusts
that incur indebtedness to purchase APVs
may qualify to deduct QPVLI. Other non-
grantor trusts might never be able to sat-
isfy the personal use test (for example,
qualified funeral trusts as defined in sec-
tion 685(b) of the Code) and thus would
not be able to deduct QPVLI.
In contrast to decedents’ estates and
non-grantor trusts, business entities gen-
erally are formed for the purpose of carry-
ing on profit-making activities. Business
entities cannot satisfy the personal use
requirement of section 163(h)(4)(B)(i)
and proposed §1.163-16(f)(1) and there-
fore would not qualify to deduct QPVLI
under proposed §1.163-16(a)(2).
3. Determination of Personal Use Based
on Intent at the Time Indebtedness Is
Incurred
Many taxpayers purchase a vehicle and
expect to use it partially for personal use
and partially for non-personal use. Sec-
tion 163(h)(4)(B) does not require that a
vehicle be purchased exclusively for per-
sonal use. Taxpayers may not be able to
estimate with precision the relative pro-
portions of these different types of uses
at the time of purchase, and requiring tax-
payers to make a determination regarding
the exact amount of expected personal use
and non-personal use is not administrable
and may result in a considerable burden
to taxpayers. Additionally, section 163(h)
(4) does not require that the person incur-
ring indebtedness for the purchase of the
vehicle be the same person that satisfies
the personal use requirement. One mem-
ber of a family may purchase a vehicle for
personal use by another member of the
family, and such purchase would satisfy
the personal use requirement of section
163(h)(4).
Proposed §1.163-16(f)(1) would pro-
vide that a taxpayer is considered to pur-
chase that APV for personal use if, at the
time the indebtedness is incurred, the tax-
payer expects that the APV will be used for
personal use by the taxpayer that incurred
the indebtedness, or by certain members
of that taxpayer’s family and household,
for more than 50 percent of the time. The
proposed 50 percent threshold is intended
to correspond to a vehicle being predom-
inantly used for “personal use” within the
meaning of section 163(h)(4)(B)(i) while
still allowing taxpayers with consider-
able non-personal use to benefit from the
deduction. The Treasury Department and
the IRS understand that automotive retail
installment sales contracts often indicate
whether the purchased vehicle is for per-
sonal use or business use. Therefore, at
the time a vehicle loan is incurred, the
taxpayer financing the vehicle may have
contemplated the intended use of a vehicle
in a way that would facilitate evaluating
this 50 percent personal use standard. In
evaluating whether a taxpayer meets this
personal use standard, it is intended that
the IRS may consider information relating
to the expected usage of the vehicle, such
as information contained in the loan doc-

Bulletin No. 2026–5 463 January 26, 2026
umentation and the type of collision and
liability insurance held with respect to a
vehicle.
Section 163(h)(4)(B)(i) of the Code
could be read to require the personal use
standard to be met only by reference to
use by the taxpayer that incurred indebt-
edness to purchase the APV. However,
the House Budget Report for Public
Law 119-21 states that section 163(h)
(4) was intended to “ease the financial
burden of car ownership for working and
growing families” (H.R. Rep. No. 119-
106, at 1510 (2025)). As a result, such a
narrow standard would appear contrary
to Congressional intent in enacting sec-
tion 163(h)(4) and contrary to common
practices of the purchase and use of vehi-
cles by families. Accordingly, proposed
§1.163-16(f)(1) would adopt a broader
standard to allow usage by the taxpayer
that incurred the indebtedness, that tax-
payer’s spouse, or an individual that is
related to the taxpayer within the mean-
ing of section 152(c)(2) or (d)(2) of the
Code, or any combination of these indi-
viduals to qualify.
Additionally, proposed §1.163-16(f)(2)
would provide that, for purposes of deter-
mining whether a decedent’s estate or non-
grantor trust expects that an APV will be
used for personal use, the determination is
based on the expected personal use of the
vehicle by the legatees or heirs, or bene-
ficiaries, respectively, who have a pres-
ent or future interest in such decedent’s
estate or non-grantor trust; the spouse of
such legatees, heirs, or beneficiaries; or an
individual that is related to such legatees,
heirs, or beneficiaries within the meaning
of section 152(c)(2) or (d)(2), or a combi-
nation of these individuals.
The personal use requirement in section
163(h)(4) is a requirement that must be
satisfied in connection with the incurrence
of indebtedness, as opposed to an ongo-
ing requirement. As a result, a taxpayer
is not required to reevaluate personal and
non-personal use in taxable years after
the indebtedness is incurred. Differences
between expected use and later actual use
do not affect the taxpayer’s eligibility to
deduct QPVLI, nor the amount of the tax-
payer’s QPVLI. The taxpayer must eval-
uate and determine that the personal use
requirement is met at the time the indebt-
edness is incurred.
Under proposed §1.163-16(f)(1), an
individual, decedent’s estate, or non-
grantor trust that receives an APV subject
to an SPVL by reason of an obligor’s death
would not be required to evaluate whether
it satisfies the personal use requirement;
instead, the indebtedness would be an
SPVL if it was an SPVL in the hands
of the decedent (meaning, among other
things, that the decedent satisfied the per-
sonal use requirement).
See part I.I of this Explanation of
Provisions (Non-personal use and inde-
pendently deductible interest) that dis-
cusses certain proposed rules relating to
vehicles used for non-personal use and
independently deductible interest.
Proposed §1.163-16(f)(3) would pro-
vide examples that illustrate the applica-
tion of proposed §1.163-16(f).
I. Non-personal use and independently
deductible interest
Under section 163(a), taxpayers may
deduct interest that is QPVLI as a dif-
ferent type of interest in certain circum-
stances. For example, taxpayers paying
interest attributable to a vehicle used
in a trade or business may be able to
deduct that interest as a business interest
expense. The Treasury Department and
the IRS understand that some taxpayers
may prefer to deduct QPVLI as a dif-
ferent type of interest. Further, section
163(h)(4) does not affect the ability of a
taxpayer to deduct interest that is other-
wise able to be deducted under section
163(a) or a different section of the Code.
Accordingly, the proposed regulations
would provide certain rules with respect
to interest that is both QPVLI and inter-
est otherwise deductible under section
163(a) or a different section of the Code.
These proposed rules are intended to
provide clarity for taxpayers and to pre-
vent taxpayers from claiming duplicative
interest deductions.
Proposed §1.163-16(g)(1) would pro-
vide that independently deductible inter-
est means interest paid or accrued that
is QPVLI (prior to the application of the
dollar limitation in section 163(h)(4)(C)
(i) of the Code and in proposed §1.163-
16(h)(1) and determined without regard
to proposed §1.163-16(g)) and that also
is deductible as a different type of interest
under section 163(a) or a different section
of the Code.
Proposed §1.163-16(g)(2) would pro-
vide that all independently deductible
interest may be deductible as QPVLI or
may be deductible as a different type of
interest described in proposed §1.163-
16(g)(1) (non-QPVLI). In addition,
proposed §1.163-16(g)(2) would pro-
vide that the amount of independently
deductible interest that may be deduct-
ible as QPVLI (before the application of
the $10,000 limitation in section 163(h)
(4)(C)(i)) is reduced dollar for dollar
to the extent the taxpayer deducts that
interest as non-QPVLI. These proposed
provisions are intended to make clear
that taxpayers may take any available
interest deductions permitted under sec-
tion 163(a) or a different section, while
clarifying that a taxpayer may not deduct
more total interest than otherwise is
allowable. To ensure no amount of inter-
est is deducted both as QPVLI and as
some other type of deductible interest,
proposed §1.163-16(g)(3) would provide
that a taxpayer must report any amount of
independently deductible interest that is
deducted in a taxable year as non-QPVLI
on Form 1040 Schedule 1-A (or succes-
sor) or other relevant form.
Non-interest vehicle expenses
deducted by a taxpayer would not affect
the taxpayer’s treatment of independently
deductible interest or require any addi-
tional reporting. For example, non-interest
vehicle expenses deducted by a taxpayer
under section 162(a) as trade or busi-
ness expenses have no effect on interest
deducted as QPVLI for that taxable year.
These amounts would not be subject to
any of the proposed provisions relating to
independently deductible interest.
Proposed §1.163-16(g)(4) would pro-
vide examples that illustrate the applica-
tion of proposed §1.163-16(g), including
examples in which a taxpayer chooses to
deduct independently deductible interest
as QPVLI, and alternatively in which
the taxpayer chooses to deduct inde-
pendently deductible interest as non-
QPVLI.
J. Limitations of QPVLI
Section 163(h)(4)(C)(i) provides that
the deduction allowed for QPVLI by

January 26, 2026 464 Bulletin No. 2026–5
a taxpayer for any taxable year cannot
exceed $10,000. Section 163(h)(4)(C)(i)
does not provide a different amount for
joint filers (in contrast to section 163(h)
(4)(C)(ii), discussed in the immediately
following paragraph). Accordingly, pro-
posed §1.163-16(h)(1) would clarify that
this $10,000 limitation applies per Federal
tax return. Thus, the maximum deduction
allowed on a joint Federal income tax
return is $10,000. If two taxpayers have
a Federal income tax return filing status
of married filing separately, the $10,000
limitation would apply separately to each
taxpayer’s return.
Section 163(h)(4)(C)(ii) provides
that the amount otherwise allowable
as a deduction under section 163(a) as
QPVLI (after the application of the sec-
tion 163(h)(4)(C)(i) dollar limitation) is
reduced (but not below zero) by $200 for
each $1,000 (or portion thereof) by which
the modified adjusted gross income of
the taxpayer for the taxable year exceeds
$100,000. In the case of married tax-
payers filing a joint Federal income tax
return, section 163(h)(4)(C)(ii) provides
that this reduction begins after the tax-
payer’s modified adjusted gross income
exceeds $200,000.
With respect to the deduction of
QPVLI by a decedent’s estate or non-
grantor trust (as would be defined in
proposed §1.163-16(b)(9)), the mod-
ified adjusted gross income threshold
of $100,000 would be applied to the
decedent’s estate or non-grantor trust,
and not with respect to the beneficiaries
of the decedent’s estate or non-grantor
trust. In the case of a decedent’s estate
or non-grantor trust, proposed §1.163-
16(b)(7)(ii) would provide that the term
“modified adjusted gross income” means
adjusted gross income (as defined in sec-
tion 67(e) of the Code).
Proposed §1.163-16(h)(3) would pro-
vide examples that illustrate the applica-
tion of proposed §1.163-16(h).
II. Explanation of Proposed §1.6050AA-1
A. In general
The proposed regulations under section
6050AA would provide the operational,
administrative, and definitional rules for
persons in a trade or business who receive
interest on an SPVL to comply with the
statutory information reporting require-
ments with respect to receipt of interest
to which section 163(h)(4) and proposed
§1.163-16 would apply.
In general, under section 6050AA and
proposed §1.6050AA-1(a), if the interest
recipient receives from any individual at
least $600 of interest on an SPVL for a
calendar year, the interest recipient would
be required to file an information return
with the IRS and furnish a statement to the
payor of record on the SPVL.
B. Definitions
1. Applicable Passenger Vehicle (APV)
Proposed §1.6050AA-1(b)(1) would
provide that the term “applicable pas-
senger vehicle” or “APV” has the mean-
ing provided in section 163(h)(4)(D) and
proposed §1.163-16(b)(1). See part I.G of
this Explanation of Provisions (Applicable
passenger vehicle (APV)).
2. Calendar Year
Proposed §1.6050AA-1(b)(2) would
provide that the calendar year for which
interest is received is the later of the cal-
endar year in which the interest is received
or the calendar year in which the interest
properly accrues. In order to account for
certain payments occurring near year
end, the proposed regulations would also
permit an interest recipient to report in
the current calendar year prepaid interest
accruing shortly after year-end. Proposed
§1.6050AA-1(b)(2)(ii) would permit
an interest recipient to report as interest
received during the current calendar year
prepaid interest properly accruing by the
following January 15. An interest recipi-
ent that reports as interest received during
the current calendar year prepaid interest
properly accruing by the following Janu-
ary 15 would not report that prepaid inter-
est in the following calendar year. These
proposed rules are consistent with the
rules for reporting mortgage interest under
section 6050H.
3. Interest Recipient
Proposed §1.6050AA-1(b)(3) would
provide that the term “interest recipient”
means a person that is engaged in a trade
or business, whether or not the trade or
business of lending money, and that, in the
course of that trade or business, receives
interest on an SPVL.
The Treasury Department and the IRS
understand that, in some situations, a
person collects interest on an SPVL on
behalf of another (for example, the lender
of record). The proposed rules provide
that, in that situation, the person that
first receives the interest generally would
be required to report under proposed
§1.6050AA-1(a), and no reporting would
be required upon the transfer of the inter-
est from the interest recipient to the per-
son on whose behalf the interest recipient
received the interest. However, an initial
recipient would not be required to report
interest received on behalf of the person
on whose behalf the interest recipient
received the interest if the initial recipi-
ent does not possess the reporting infor-
mation for the borrower and the person
on whose behalf the interest recipient
received the interest is engaged in a trade
or business and would receive the inter-
est in the course of its trade or business if
it received the interest directly. In this sit-
uation, proposed §1.6050AA-1(b)(3)(ii)
(A) would require the person on whose
behalf the interest recipient received the
interest, rather than the initial recipient,
to report.
4. Lender of Record
Proposed §1.6050AA-1(b)(4) would
provide that the term “lender of record”
means the person who, at the time the loan
is made, is named as the lender on the loan
documents and whose right to receive pay-
ment from the payor of record is secured
by a lien on the payor of record’s APV. The
proposed regulations would also provide
that an intention by the lender of record
to sell or otherwise transfer the loan to a
third party subsequent to the close of the
transaction would not affect the determi-
nation of who is the lender of record. As a
result of the interaction between proposed
§1.6050AA-1(b)(4) and (a)(2), a lender
of record would be required to file an
information return with the IRS and fur-
nish a statement to the payor of record on
the SPVL if they receive at least $600 of
interest on an SPVL for a calendar year,

Bulletin No. 2026–5 465 January 26, 2026
even if they intend to transfer the loan to
a third party.
5. Payor of Record
The Treasury Department and the IRS
understand that interest recipients main-
tain books and records regarding loans but
do not necessarily track the identity of the
party actually making the payments on a
particular loan. The Treasury Department
and the IRS also understand that some
interest recipients provide SPVLs as well
as home mortgage loans and these inter-
est recipients have an established practice
for determining the payor of record with
respect to such mortgage loans. Accord-
ingly, the Treasury Department and the
IRS are proposing a definition of the term
“payor of record” that is similar to the defi-
nition of payor of record in §1.6050H-1(b)
(3). Proposed §1.6050AA-1(b)(5) would
define a payor of record on an SPVL as any
person carried on the books and records of
the interest recipient as the principal bor-
rower on the SPVL. To prevent the dupli-
cate reporting of information, if the books
and records of the interest recipient do not
indicate which borrower is the principal
borrower, the proposed regulations would
provide the interest recipient must desig-
nate a borrower as the principal borrower.
As a result of the interaction between pro-
posed §1.6050AA-1(b)(5) and (a)(2), only
the payor of record would be furnished a
written statement on the SPVL under pro-
posed §1.6050AA-1(a)(2)(ii).
As described in part I.B of this Expla-
nation of Provisions (Taxpayers that may
deduct QPVLI), proposed §1.163-16(a)(2)
(i) would provide that only individuals,
decedents’ estates, and non-grantor trusts
may deduct interest under section 163(h)
(4). Because only these persons would
need the information reported under sec-
tion 6050AA to complete their income
tax returns, proposed §1.6050AA-1(b)
(5) would also provide the term “person”
means any individual, decedent’s estate,
or non-grantor trust.
6. Secretary
Proposed §1.6050AA-1(b)(6) would
provide that the term “Secretary” has the
meaning provided in section 7701(a)(11)
of the Code.
7. Specified Passenger Vehicle Loan
(SPVL)
Section 6050AA(d)(2) provides that the
term “specified passenger vehicle loan”
means the indebtedness described in sec-
tion 163(h)(4)(B) with respect to any APV.
Proposed §1.6050AA-1(b)(7) would adopt
this definition and would provide that the
term “specified passenger vehicle loan”
or “SPVL” has the meaning provided in
proposed §1.163-16(b)(15). See part I.E of
this Explanation of Provisions (Specified
passenger vehicle loan (SPVL)).
C. Reporting by foreign person
The Treasury Department and the
IRS are aware that some foreign persons
may receive interest on SPVLs. Indi-
vidual borrowers may not be aware that
the interest recipient is a foreign person.
Under proposed §1.6050AA-1(c)(1), an
interest recipient that is a foreign person
would be required to report with respect
to interest received on an SPVL to the
extent such interest is received at a loca-
tion in the United States. For example, a
foreign bank with a branch located in the
United States would be required to report
with respect to interest received on an
SPVL received at their U.S. branch. Under
proposed §1.6050AA-1(c)(2), an inter-
est recipient that is a foreign person and
receives interest at locations outside the
United States would be required to report
only if the foreign person is a controlled
foreign corporation (as defined in section
957(a)) or if 50 percent or more of the
foreign person’s gross income was effec-
tively connected with the conduct of a
trade or business within the United States.
This proposed 50-percent figure would be
calculated based on the three-year period
ending with the close of the taxable year
preceding the receipt of interest. These
rules are similar to the rules applicable to
foreign persons that receive home mort-
gage interest in §1.6050H-1(d)(1).
D. Reporting with respect to a
nonresident alien individual, foreign
decedent’s estate, or foreign non-grantor
trust
Proposed §1.6050AA-1(d)(1) would
provide that the reporting requirement
of section 6050AA would not apply if
the payor of record is a nonresident alien
individual, foreign decedent’s estate,
or foreign non-grantor trust. Proposed
§1.6050AA-1(d)(2) would provide the
documentation rules that the interest
recipient would be required to follow to
determine whether the payor of record
is a nonresident alien individual, foreign
decedent’s estate, or foreign non-grantor
trust. These rules are similar to the rules
applicable to nonresident alien individu-
als that receive home mortgage interest in
§1.6050H-1(d)(2).
E. Determining if a loan is an SPVL
The Treasury Department and the IRS
understand that interest recipients will
often not be the person listed on the loan
documents as the lender of record but that
these interest recipients are instead listed
on subsequent loan documents as assign-
ees whose right to receive payment from
the payor of record is secured by a lien
on the payor of record’s APV. Regarding
the ability of these assignees to determine
whether a loan is an SPVL, the Treasury
Department and the IRS understand that
these assignees typically receive informa-
tion as part of the loan assignment pro-
cess that should largely enable them to
determine whether reporting is required
for the assigned loan. In particular, the
Treasury Department and the IRS under-
stand these assignees typically receive a
copy of the retail installment sales con-
tract, which generally includes relevant
information, including the VIN, which
these interest recipients can use to deter-
mine whether the vehicle’s plant of man-
ufacture is located in the United States,
and information regarding the items and
amounts financed in connection with the
purchase of the vehicle. Accordingly, the
Treasury Department and the IRS expect
that assignees will have most of the infor-
mation needed based on current business
practices.
One piece of relevant information that
assignees may not have as result of receiv-
ing a copy of the retail installment sales
contract is whether the personal use require-
ment is met. The Treasury Department and
the IRS understand that while retail install-
ment sales contracts often include some
indication of whether a vehicle is purchased

January 26, 2026 466 Bulletin No. 2026–5
for personal or business use, this is not true
of all such contracts and, for those that
include some indication, the information
in the contract may not be sufficient for the
assignee to determine if the personal use
requirement is met. If the information in
the contract is sufficient for an assignee of
the loan to determine that the personal use
requirement is met, then, in the absence of
conflicting information, the assignee may
rely on that information for purposes of
satisfying its information reporting obliga-
tions. The assignee may choose to make
arrangements to obtain information regard-
ing personal use from the obligor, from the
lender of record, or by some other means.
F. Amount of interest received on an
SPVL for the calendar year
Section 6050AA(a) provides that
the information return relates to interest
received on an SPVL. Accordingly, under
proposed §1.6050AA-1(e), whether an
interest recipient receives $600 or more of
interest on an SPVL would be determined
on an SPVL-by-SPVL basis. An interest
recipient would not be required to report
interest of less than $600 received on an
SPVL, even if it receives a total of $600
or more of interest on SPVLs from differ-
ent vehicles from the same payor of record
during a calendar year.
The Treasury Department and the IRS
are aware that it might be burdensome
for interest recipients to determine which
SPVLs require reporting under section
6050AA in a given year based on the
amount of interest received. To alleviate
this burden and because the information
may be useful to taxpayers claiming a
deduction for QPVLI of less than $600,
proposed §1.6050AA-1(a)(3) would per-
mit, but not require, an interest recipient
to report its receipt of less than $600 of
interest on an SPVL for a calendar year.
To provide taxpayers with accurate infor-
mation to claim the deduction, an interest
recipient that chooses to file an informa-
tion return under section 6050AA of less
than $600 would be subject to the require-
ments of proposed §1.6050AA-1.
G. Requirement to file information return
Section 6050AA(b) provides that the
information return filed by the interest
recipient must be in the form prescribed
by the Secretary and contain certain infor-
mation. Accordingly, under proposed
§1.6050AA-1(f)(2), the interest recipient
would be required to file a form desig-
nated by the Secretary that contains: (i)
the name, address, and taxpayer identi-
fication number of the payor of record;
(ii) the name, address, and taxpayer iden-
tification number of the interest recipient;
(iii) the amount of interest received for
the calendar year; (iv) the amount of out-
standing principal on the SPVL as of the
beginning of such calendar year; (v) the
date of origination of such loan; (vi) the
year, make, model, and VIN of the APV
that secures such loan; (vii) the date the
SPVL was acquired; and (viii) any other
information required by the form or its
instructions.
These items generally follow the
items prescribed in section 6050AA(f)
(2). In addition, because the Treasury
Department and the IRS understand
SPVLs may be sold or otherwise trans-
ferred to a new lender of record, proposed
§1.6050AA-1(f)(2)(vii) would require
the lender of record to include the date it
acquired the loan on the form.
H. Requirement to furnish written
statement
Proposed §1.6050AA-1(g) would
require the interest recipient that would
be required to file a return under proposed
§1.6050AA-1(a) to furnish a statement
to the payor of record. For rules regard-
ing electronic delivery of these written
statements, see Revenue Procedure 2025-
22 (2025-30 IRB 200) (or its successor),
republished as Publication 1179, “General
Rules and Specifications for Substitute
Forms 1096, 1098, 1099, 5498, and Cer-
tain Other Information Returns).”
For purposes of tax administration, the
proposed requirement to furnish written
statements would require that those with
a reporting obligation must provide state-
ments to certain recipients containing the
information reported to the IRS and, in
some cases, additional information. Under
proposed §1.6050AA-1(g), the recipient
would be the payor of record, and the writ-
ten statement would be required to include
the information that was reported on the
form designated for this purpose. In addi-
tion, the written statement must include a
legend that would identify the statement
as important tax information that is being
furnished to the IRS and would state
that penalties may apply if the payor of
record overstated a deduction for interest
reported on the statement. To minimize
the risk of recipients claiming an interest
deduction that is limited by section 163(h)
(4)(C) or otherwise ineligible, proposed
§1.6050AA-1(g)(2)(ii) would also require
that the written statement include a legend
stating that the payor of record may be
unable to deduct the full amount of inter-
est reported on the statement.
I. Due dates
Section 6050AA(a) provides that the
information return must be filed at such
time as the Secretary may prescribe. Fur-
ther, under section 6050AA(c), the written
statement must be furnished to the recip-
ient on or before January 31 of the year
following the calendar year for which
the information return was required to be
made. Under proposed §1.6050AA-1(f)
(3), the interest recipient would be
required to file the information return on
or before February 28 (March 31 if filed
electronically) of the year following the
calendar year in which it receives the
interest. To ensure the payor of record
has the information necessary to prepare
the payor’s income tax return, and as
directed by section 6050AA(c), proposed
§1.6050AA-1(g)(5) would require the
interest recipient to furnish to the payor of
record the written statement on or before
January 31 of the year following the cal-
endar year for which it receives the inter-
est on the SPVL.
III. Explanation of Proposed Amendments
to §301.6011-2
Section 6011(e)(5) authorizes the Sec-
retary to prescribe regulations that require
taxpayers to electronically file returns,
including information returns, if the tax-
payer is required to file at least 10 returns of
any type during a calendar year. On Febru-
ary 23, 2023, the Secretary published final
regulations implementing this 10-return
threshold. TD 9972, 88 FR 11754 (Febru-
ary 23, 2023). Section 301.6011-2(b) pre-
scribes the information returns that must

Bulletin No. 2026–5 467 January 26, 2026
be filed electronically once the ten-return
threshold set out in §301.6011-2(c)(1) is
met. Consistent with section 6011(e)(5)
and the existing regulations, proposed
§301.6011-2(b)(1) would add the return
required under section 6050AA to the list
of returns that must be filed electronically.
Recipients of interest on SPVLs must file
the information return required by section
6050AA and these regulations electron-
ically if they are required to file at least
10 returns that calendar year. Any interest
recipients required to file fewer than 10
returns during a calendar year may choose
to make the information return reporting
the interest electronically.
IV. Explanation of Proposed Amendments
to §301.6721-1
As amended by the OBBBA, section
6724(d)(1)(B)(xxix) defines an informa-
tion return for purposes of the penalty
imposed by section 6721 as including a
return required by section 6050AA(a).
Consistent with section 6724(d)(1)(B)
(xxix), proposed §301.6721-1(h)(3)
(xxviii) would add returns required by
section 6050AA to the list of information
returns included in §301.6721-1 (Failure
to furnish correct information returns).
V. Explanation of Proposed Amendments
to §301.6722-1
As amended by the OBBBA, section
6724(d)(2)(MM) defines a payee state-
ment for purposes of the penalty imposed
by section 6722 as including a statement
required by section 6050AA(c). Consis-
tent with section 6724(d)(2)(MM), pro-
posed §301.6722-1(e)(2)(xxxix) would
add returns required by section 6050AA
to the list of payee statements included
in §301.6722-1 (Failure to furnish correct
payee statements).
Proposed Applicability Dates
The regulations under section 163
are proposed to apply to taxable years in
which taxpayers may deduct QPVLI pur-
suant to section 163(h)(4). The regulations
under section 6050AA are proposed to
apply to calendar years in which taxpay-
ers may deduct QPVLI pursuant to section
163(h)(4). A taxpayer may rely on the pro-
posed regulations under section 163 with
respect to indebtedness incurred for the
purchase of an APV after December 31,
2024, and on or before the date these reg-
ulations are published as final regulations
in the Federal Register, provided that the
taxpayer follows these proposed regula-
tions in their entirety and in a consistent
manner. Similarly, interest recipients may
rely on the proposed regulations under
section 6050AA with respect to indebted-
ness incurred for the purchase of an APV
after December 31, 2024, and on or before
the date these regulations are published as
final regulations in the Federal Register,
provided that the taxpayer follows these
proposed regulations in their entirety and
in a consistent manner.
Special Analyses
I. Regulatory Planning and Review—
Economic Analysis
Executive Orders 12866 and 13563
direct agencies to assess costs and ben-
efits of available regulatory alternatives
and, if regulation is necessary, to select
regulatory approaches that maximize net
benefits (including potential economic,
environmental, public health and safety
effects, distributive impacts, and equity).
Executive Order 13563 emphasizes the
importance of quantifying both costs and
benefits, reducing costs, harmonizing
rules, and promoting flexibility.
The proposed regulations have been
designated by the Office of Management
and Budget’s (OMB’s) Office of Infor-
mation and Regulatory Affairs (OIRA) as
subject to review under Executive Order
12866 pursuant to the Memorandum of
Agreement (MOA, July 4, 2025) between
the Treasury Department and the Office
of Management and Budget regarding
review of tax regulations. OIRA has deter-
mined that the proposed rulemaking is sig-
nificant under section 3(f)(1) of Executive
Order 12866 and subject to review under
Executive Order 12866 and section 1(b)
of the MOA. Accordingly, the proposed
regulations have been reviewed by OMB.
This proposed rule, if finalized, is
expected to be an Executive Order 14192
regulatory action.
Need for Regulation
Section 70203 of Public Law 119-21,
139 Stat. 72 (July 4, 2025), commonly
known as the One, Big, Beautiful Bill
Act (OBBBA), amends section 163(h) of
the Internal Revenue Code
1
to provide a
newly allowable income tax deduction for
qualified passenger vehicle loan interest
(QPVLI). In the absence of regulations,
taxpayers would face substantial uncer-
tainty about which vehicle loan interest
is eligible for the deduction. The OBBBA
also establishes section 6050AA of the
Code to require interest recipients receiv-
ing at least $600 of interest on a specified
passenger vehicle loan (SPVL) within a
calendar year to file an information return
with the Internal Revenue Service (IRS)
and furnish a statement to the payor of
record. In the absence of guidance, inter-
est recipients would face uncertainty about
how to comply with the requirements.
The proposed regulations would clar-
ify the statute for taxpayers and lenders,
including by: defining “personal use” and
providing a standard for “personal use”
of a vehicle; clarifying the requirements
for interest to be QPVLI; clarifying the
requirements for indebtedness to be a
SPVL; defining “indebtedness incurred
for the purchase of an applicable passen-
ger vehicle” to include the cost of war-
ranties, service plans, and other amounts
customarily financed in a vehicle purchase
transaction and that are directly related to
the purchased vehicle; establishing which
information must be reported by lenders
to comply with the information reporting
requirements; clarifying that the deduc-
tion is limited to $10,000 per return,
regardless of the taxpayer’s filing status;
providing rules for determining whether
“final assembly” of a vehicle occurred
in the United States; and offering further
definitions and clarifications of terms in
1
References to a “section” are to a section of the Internal Revenue Code of 1986, as amended (Code), unless otherwise indicated.

January 26, 2026 468 Bulletin No. 2026–5
section 163(h)(4) and section 6050AA,
such as the vehicle identification number
(VIN).
I. The Statute and Proposed Regulations
Under section 163(h)(1), certain tax-
payers cannot deduct personal interest
paid or accrued during the taxable year.
Section 70203(a) of the OBBBA adds a
new section to the Code, section 163(h)
(4). Section 163(h)(4)(A) provides that,
in the case of taxable years beginning
after December 31, 2024, and before
January 1, 2029, personal interest does
not include QPVLI. This allows taxpay-
ers to deduct QPVLI for taxable years
beginning after December 31, 2024, and
before January 1, 2029. Section 163(h)
(4)(B) defines QPVLI as any interest
that is paid or accrued during the tax-
able year on indebtedness incurred by
the taxpayer after December 31, 2024,
for the purchase of, and that is secured
by a first lien on, an applicable passenger
vehicle (APV) for personal use. Section
163(h)(4)(B) also includes exceptions to
QPVLI, such as financing for commer-
cial vehicles or lease financing, and a
requirement for taxpayers to include the
VIN of the APV on the tax return in order
to claim the deduction.
The proposed regulations would pro-
vide definitions and clarifications of terms
related to QPVLI in section 163(h)(4) and
section 6050AA. The proposed regulations
would clarify that individuals, decedents’
estates, and non-grantor trusts may deduct
QPVLI. The proposed regulations would
provide that interest is only QPVLI if the
interest is paid or accrued during the tax-
able year on indebtedness that is an SPVL
secured by a first lien on an APV and is not
otherwise excluded from the definition of
QPVLI. The proposed regulations would
adopt a standard for personal use that
would provide that a taxpayer is consid-
ered to purchase an APV for personal use
if, at the time the indebtedness is incurred,
the taxpayer expects that the APV will be
used for personal use by the taxpayer that
incurred the indebtedness, that taxpayer’s
spouse, or an individual that is related to
the taxpayer within the meaning of sec-
tions 152(c)(2) or (d)(2) of the Code, or
any combination of these individuals, for
more than 50 percent of the time the tax-
payer expects to own the APV. The pro-
posed 50 percent threshold is intended to
correspond to a vehicle being predomi-
nantly used for “personal use” within the
meaning of section 163(h)(4)(B)(i) while
still allowing taxpayers with consider-
able non-personal use to benefit from the
deduction. If the taxpayer is a decedent’s
estate or non-grantor trust, personal use
is tested based on the use by legatees or
heirs, or beneficiaries, respectively. Fur-
ther, under the proposed regulations, the
taxpayer would not be required to reevalu-
ate compliance with the personal use stan-
dard in taxable years after the indebted-
ness is incurred. The proposed regulations
also would clarify that taxpayers may not
deduct the same interest as both QPVLI
and otherwise deductible interest (such
as a business interest expense) and that
taxpayers must report certain information
relating to vehicle interest deducted inde-
pendent of QPVLI.
Typical auto loan sales contracts
indicate an “amount financed” that may
include property and services in addition
to the amount for the price of the vehicle.
The proposed regulations would provide
that indebtedness incurred for the pur-
chase of an APV as well as for certain
items or amounts customarily financed
in an APV purchase transaction and
that are directly related to the purchased
APV is an SPVL and therefore interest
paid or accrued on such indebtedness is
potentially eligible to be deducted. The
regulations describe certain items and
services that are considered customarily
financed in an APV purchase transac-
tion and that are directly related to the
purchased APV, such as vehicle service
plans, extended warranties, sales taxes,
and vehicle-related fees. Indebtedness
not incurred for the purchase of an APV
nor for any other items or amounts cus-
tomarily financed in an APV purchase
transaction and that are directly related
to the purchased APV, and, therefore,
interest paid or accrued on such indebt-
edness is not QPVLI. For example, to
the extent that a taxpayer incurs indebt-
edness to purchase collision and liability
insurance or to purchase any property
or services unrelated to the vehicle (for
example, a trailer or a boat), that indebt-
edness is not an SPVL, and, therefore,
interest paid or accrued on that indebt-
edness is not QPVLI and may not be
deducted under section 163(h)(4).
Section 163(h)(4)(C) establishes lim-
itations on the amount of QPVLI that a
taxpayer may deduct. The dollar limit is
$10,000 per taxable year. The proposed
regulations would clarify that this limit
applies regardless of the taxpayer’s filing
status for that taxable year. Additionally,
under section 163(h)(4)(C), the deduction
for QPVLI is reduced (but not below zero)
by $200 for each $1,000 (or portion thereof)
by which the taxpayer’s modified adjusted
gross income (MAGI) exceeds $100,000
($200,000 in the case of a married couple
filing a joint return). Section 163(h)(4)(C)
defines “modified adjusted gross income”
for the purposes of this phaseout as adjusted
gross income of the taxpayer for the tax-
able year plus any amount excluded from
gross income under sections 911, 931, or
933. The proposed regulations would clar-
ify that for estates and non-grantor trusts,
the MAGI phaseout is applied to the estate
or trust, not with respect to the beneficia-
ries of the estate or trust; and for estates
and non-grantor trusts, MAGI means AGI
as defined in section 67(e).
Section 163(h)(4)(D) defines the term
“applicable passenger vehicle”. The cri-
teria for an APV include that its original
use must commence with the taxpayer and
that its final assembly must have occurred
in the United States. The proposed regula-
tions would provide rules for determining
whether original use of a vehicle begins
with the taxpayer, rules for whether a vehi-
cle’s final assembly occurred in the United
States, and definitions for other APV-re-
lated terms used in the statute. Original
use commences with the first person that
takes delivery of a vehicle after the vehicle
is sold, registered, or titled. For purchasers
that are not dealers, original use does not
commence with the taxpayer unless the
loan documentation treats the vehicle as a
new vehicle. For dealers, original use does
not commence with the dealer unless the
dealer registers or titles the vehicle. The
proposed regulations would provide that
taxpayers can determine the location of
final assembly by (1) the plant of manu-
facture as reported in the VIN or (2) the
final assembly point reported on the label
affixed to the vehicle.
Section 163(h)(4)(E) provides other
definitions and special rules. These

Bulletin No. 2026–5 469 January 26, 2026
include the treatment of refinancing and of
indebtedness owed to related parties. The
proposed regulations would clarify that
for refinanced loans, the amount of the
new loan on which interest is considered
QPVLI is limited to the outstanding bal-
ance of the refinanced loan as of the date
of the refinancing.
Section 70203(b) of the OBBBA
amends section 63(b) of the Code so that
the deduction for QPVLI is allowed for
taxpayers who do not elect to itemize
their deductions. The proposed regula-
tions would clarify that the deduction is
available to taxpayers who itemize their
deductions and to taxpayers who claim the
standard deduction.
Section 70203(c) of the OBBBA adds
a new section 6050AA to the Code that
establishes information reporting require-
ments for QPVLI. Any person who, in
the course of a trade or business, receives
from any individual more than $600 in a
calendar year on a SPVL must provide
an information return to the IRS and fur-
nish a statement to the payor of record.
The proposed regulations would pro-
vide operational definitions and rules for
complying with the information report-
ing requirements. The regulations clarify
the need to report the date the SPVL was
acquired; require that the statement to the
payor of record includes a legend clari-
fying that the taxpayer may be unable to
deduct the full amount of interest shown
on the statement; and offer guidance on
reporting by and to certain foreign per-
sons. To prevent duplicate reporting, the
proposed regulations also would provide
that if an interest recipient’s records for a
loan do not indicate which borrower is the
principal borrower, the interest recipient
must designate a principal borrower. This
follows established practice with respect
to information reporting requirements for
qualified residence interest.
II. Baseline
The Treasury Department and the IRS
have assessed the benefits and costs of the
proposed regulations relative to a no-ac-
tion baseline reflecting anticipated Fed-
eral income tax-related behavior in the
absence of these proposed regulations.
III. Affected Entities and Taxpayers
The proposed regulations would affect
individuals, decedents’ estates, and non-
grantor trusts that may deduct QPVLI,
and also would affect any person engaged
in a trade or business, who, in the course
of that trade or business, receives interest
aggregating $600 or more for any calendar
year on an SPVL and is therefore subject
to certain information reporting require-
ments. As described in the preamble to the
proposed regulations, interest recipients
receiving less than $600 of interest on an
SPVL would have the option to provide
information returns.
Under section 163(h)(4), the deduction
is limited to interest on loans for vehicles
with final assembly occurring in the U.S.
whose original use commences with the
taxpayer. The Treasury Department and the
IRS estimate that in 2024, roughly 6 mil-
lion loans originated on new, U.S.-assem-
bled vehicles. (See Table A.) Retail sales
of new light vehicles in the U.S. totaled
about 16 million in 2024
2
; roughly 60 per-
cent of new vehicle purchases are financed
with loans
3
; and analysis of vehicle model
sales data suggests that about 60 percent of
vehicles sold in the U.S. undergo U.S. final
assembly. The Treasury Department and
the IRS do not have an estimate of the num-
ber of estates and non-grantor trusts that are
obligors on auto loans.
Table A: Estimated Annual Loans on New, U.S.-assembled Vehicles
1. 2024 U.S. new light vehicle sales16 million
2. Share of new vehicle sales financed with loans60 percent
3. Of new vehicles sold, share with U.S. final assembly 60 percent
4. Estimated annual loans on new vehicles with U.S. final assembly Approximately 6 million
Notes: Row 4 is the rounded product of rows 1, 2, and 3.
Sources: “Light vehicle retail sales in the United States from 1976 to 2024,” Statista, last accessed October 27, 2025, https://
www.statista.com/statistics/199983/us-vehicle-sales-since-1951/; https://www.bts.gov/content/new-and-used-passenger-car-
sales-and-leases-thousands-vehicles; “New and used passenger car and light truck sales and leases,” Bureau of T
ransportation
Statistics, last accessed October 27, 2025, https://www.bts.gov/content/new-and-used-passenger-car-sales-and-leases-thousands-
vehicles; “State of the Automotive Finance Market Report: Q2 2025,” Experian, last accessed October 27, 2025, https://www.
experian.com/automotive/auto-credit-webinar-form; manufacturer vehicle model sales data.
To identify the number of businesses
that the proposed regulations are expected
to affect, the Treasury Department and the
IRS analyzed confidential tax return data.
For tax year 2023, approximately 36,000
businesses filed a tax return with North
American Industry Classification Sys-
tem (NAICS) codes for new car dealers
(code 441110), motorcycle dealers (code
441227), car loan lenders (code 522220),
and consumer lending (code 522291).
(See Table B.) This total does not include
used car dealers because the statue and
regulations only apply to loans for new
vehicles.
2
“Light vehicle retail sales in the United States from 1976 to 2024,” Statista, last accessed October 27, 2025, https://www.statista.com/statistics/199983/us-vehicle-sales-since-1951/; https://
www.bts.gov/content/new-and-used-passenger-car-sales-and-leases-thousands-vehicles; “New and used passenger car and light truck sales and leases,” Bureau of Transportation Statistics,
last accessed October 27, 2025, https://www.bts.gov/content/new-and-used-passenger-car-sales-and-leases-thousands-vehicles. The 16 million total transactions (row 1 of Table A) includes
leases; the share of new vehicle transactions financed with a loan (row 2 of T
able A), used to estimate the number of loans on new, U.S.-assembled vehicles, excludes leases.
3
“State of the Automotive Finance Market Report: Q2 2025,” Experian, last accessed October 27, 2025, https://www.experian.com/automotive/auto-credit-webinar-form; “New and used
passenger car and light truck sales and leases,” Bureau of Transportation Statistics, last accessed October 27, 2025, https://www.bts.gov/content/new-and-used-passenger-car-sales-and-
leases-thousands-vehicles.

January 26, 2026 470 Bulletin No. 2026–5
Table B: Estimated Number of Affected Businesses by NAICS Code
New car dealers (441110)17,800
Motorcycle dealers (441227)4,100
Car loan lenders (522220)5,800
Consumer lending (522291)8,100
Total 35,800
Notes: The table shows counts of tax year 2023 filers of forms 1065, 1120S, or 1120. NAICS codes appear in parentheses.
Source: Treasury Department analysis of confidential tax return data, October 24, 2025.
I V. Economic Effects of the Proposed
Regulations
The proposed regulations would clar-
ify the statute and facilitate taxpayers
claiming the auto loan interest deduction.
Consider, for example, a taxpayer who is
purchasing a vehicle. For most people, a
vehicle is a major purchase, and there are
many elements to be considered along the
way, including choices between a new ver-
sus used vehicle, a U.S.-assembled ver-
sus foreign-assembled vehicle, and a cash
purchase versus a loan or a lease. With the
introduction of the deduction for qualified
vehicle loan interest, the taxpayer now
faces questions about whether and how the
statute interacts with the vehicle and financ-
ing choices they make. For instance, in the
absence of guidance, the taxpayer may
not know whether their intended personal
use of the vehicle is sufficient to claim the
deduction or whether a vehicle meets the
standard for U.S.-final assembly.
The proposed rules would assist the
taxpayer in understanding and claiming
the qualified vehicle loan interest deduc-
tion. For example, the regulations direct
taxpayers to the National Highway Traf-
fic Safety Administration (NHTSA) VIN
Decoder website to determine whether a
vehicle underwent final assembly in the
United States, a necessary condition for
the vehicle to be eligible for the deduc-
tion. By facilitating taxpayers’ under-
standing of which vehicles are Ameri-
can made and eligible for the deduction
under the statute, the proposed regulations
would reduce taxpayer compliance burden
and, as a result, may also increase con-
sumer demand for vehicles and financing
that are eligible for the deduction, namely
loans for new, U.S.-assembled vehicles.
The Treasury Department and the IRS
do not have readily available parameters
and models to quantify the extent of this
increase in demand for U.S. assembled
vehicles or debt financing. The follow-
ing sections describe in further detail the
potential economic impacts of specific
elements of the proposed regulations
a. Personal Use Standard
Section 163(h)(4) limits the deduction
to vehicles purchased for personal use.
The proposed regulations would provide
a standard for personal use. To meet the
standard, the taxpayer must expect at the
time of purchase that the APV will be used
for personal use for more than 50 percent
of the time the taxpayer expects to own
the APV. An alternative standard of per-
sonal use could have required mostly or
exclusively personal use of a vehicle for
loan interest to be considered QPVLI.
The 50 percent personal use stan-
dard benefits taxpayers who debt-finance
mixed-use vehicles who would be dis-
allowed from taking the deduction for
QPVLI under stricter, alternative stan-
dards. Interest on a vehicle loan that is
properly allocable to a trade or business is
generally deductible under section 163(h)
(2)(A). Consider, for example, a taxpayer
who finances the purchase of an APV
expecting for 60 percent of use to be for
personal use and 40 percent for use in a
trade or business. Assume for a given tax
year the taxpayer pays $3,500 in interest
on the vehicle loan, drives the vehicle 55
percent for personal use and 45 percent
for use in a trade or business, and meets
all other requirements to deduct QPVLI
and interest properly allocable to a trade
or business. (Note that 55 percent personal
use for this tax year differs somewhat
from the taxpayer’s expected 60 percent
personal use over the cumulative time
the taxpayer expects to own the vehicle.)
Under a strict personal use standard for
QPVLI, such as exclusive personal use,
the taxpayer would be prohibited from
deducting any interest as QPVLI, and
would only be able to deduct the interest
attributable to use in a trade or business
($1,575, equal to 45 percent of the $3,500
of interest paid during the year), provided
all of the other requirements for deduct-
ing interest properly allocable to a trade
or business are met. Under the 50 percent
personal use standard, the taxpayer can
potentially deduct all $3,500 in interest as
QPVLI. Alternatively, the taxpayer would
have discretion to deduct $1,575 (45 per-
cent of $3,500) as interest properly allo-
cable to a trade or business and $1,925
as QPVLI ($3,500 minus $1,575). The
50 percent personal use standard benefits
taxpayers with mixed-use vehicles who,
under a strict personal use standard, would
be able to deduct only interest properly
allocable to a trade or business.
The Treasury Department and the IRS
examined public survey data and confi-
dential tax records to assess the prevalence
of mixed-use vehicles that may be affected
by the personal use standard. Analysis of
Panel Study of Income Dynamics (PSID)
data suggests that, in 2023, 11 percent of
personally owned vehicles were used for
mixed personal and business purposes.
4

An alternative and narrower definition of
personal use, such as exclusive personal
use, would exclude roughly 700,000 loans
(11 percent of the estimated 6 million
total shown in Table A) from potential
eligibility for the QPVLI deduction. (See
Table C.)

Bulletin No. 2026–5 471 January 26, 2026
Table C: Estimated Annual Loans on New, U.S.-assembled Vehicles for Mixed Personal and Business Use
1. Estimated annual loans on new, U.S.-assembled vehicles6 million
2. Share of personally owned vehicles used for mixed personal and business purposes11 percent
3. Estimated annual loans on new, U.S.-assembled vehicles for mixed personal and
business use
Approximately 700,000
Notes: Row 3 is the rounded product of rows 1 and 2.
Sources: Row 2 is derived from the 2023 Panel Study of Income Dynamics, variable ER82936. Row 1 is derived in T
able A, with
data sourced from: “Light vehicle retail sales in the United States from 1976 to 2024,” Statista, last accessed October 27, 2025,
https://www.statista.com/statistics/199983/us-vehicle-sales-since-1951/; https://www.bts.gov/content/new-and-used-passenger-
car-sales-and-leases-thousands-vehicles; “New and used passenger car and light truck sales and leases,” Bureau of Transportation
Statistics, last accessed October 27, 2025, https://www.bts.gov/content/new-and-used-passenger-car-sales-and-leases-thousands-
vehicles; “State of the Automotive Finance Market Report: Q2 2025,” Experian, last accessed October 27, 2025, https://www.
experian.com/automotive/auto-credit-webinar-form; manufacturer vehicle model sales data.
Tax records also contain information on
mixed personal and business use vehicles.
Sole proprietors file Schedule C to record
business income and expenses, includ-
ing car or truck expenses. On part IV of
Schedule C, certain taxpayers are required
to enter information on their vehicle,
including the date a vehicle was placed in
service for business purposes; the number
of miles driven for business, commuting,
and other purposes; and whether the vehi-
cle was available for personal use during
off-duty hours.
5
Schedule C data has several limitations
for analysis of the personal use standard.
First, Schedule C does not distinguish
between new versus used cars, U.S.-
versus foreign-assembled cars, or cars
financed with loans versus cars that are
leased or purchased with cash. Because
used cars, foreign-assembled cars, and
cars that are leased or purchased with cash
are not eligible for the QPVLI deduction,
totals of mixed-use vehicles from part IV
of Schedule C overstate the number of
sole proprietors’ vehicles that the personal
use standard will affect. Second, the data
available for analysis cover predominantly
electronically filed returns of Schedule C
rather than paper filed returns. Third, the
Schedule C data do not include vehicle
expenses that taxpayers may deduct on
Schedules E and F. Fourth, the Schedule
C data indicate when the car was placed
into service for business use rather than
when the individual first acquired the car.
The available Schedule C data nonethe-
less provide insight on the prevalence of
personal use of sole proprietors’ business
vehicles.
The Treasury Department and the IRS
estimate that in tax year 2023, sole pro-
prietors who filed electronically placed
5 million vehicles in service for business
purposes.
6
See Table D. About 80 percent
of these taxpayers indicated that the vehicle
was also available for personal use during
off-duty hours. Among filers for whom
the vehicle was available for personal
use, roughly 40 percent drove the vehicle
more than 50 percent of its total mileage
for personal use. The typical filer drove
the vehicle for majority business use; the
median share of total miles driven for busi-
ness purposes was about 80 percent. These
estimates suggest that a substantial share
of taxpayers with vehicles for business use
would benefit from the 50 percent personal
use standard, relative to a strict alternative
standard, such as exclusive personal use.
Table D: Statistics on Tax Year 2023 Sole Proprietor Vehicle Use from Schedule C, Part IV
1. Sole proprietors’ vehicles placed in business service in tax year 2023*5 million
2. Of vehicles placed in business service in tax year 2023 (row 1), share reported to be available
for personal use
80 percent
3. Of vehicles placed in business service in 2023 and available for personal use, share reported
with more than 50 percent of mileage for personal use.
40 percent
4. Of vehicles placed in business service in 2023 and available for personal use, median share of
miles driven for business use.
80 percent
* This total does not correspond to vehicles eligible for the QPVLI deduction; it includes used, leased, and foreign-assembled
vehicles, which are not eligible for the QPVLI deduction. See text for further detail on the Schedule C data and its limitations.
Source: Treasury Department analysis of confidential tax return data, October 24, 2025.
4
See variable ER82936 in the 2023 PSID. The survey language is: “Not counting routine use to get to and from work, is this vehicle also used for business purposes?”
5
Taxpayers are required to fill out part IV of Schedule C only if they claim car or truck expenses on Schedule C and are not required to file Form 4562 (Depreciation and Amortization) for the
business in question. Taxpayers who have “listed property,” including automobiles, are required to enter information on such automobiles in Section B of Part V of Form 4562.
6
The 5 million total reflects sole proprietorship-vehicle pairs. A sole proprietor who placed the same vehicle in service for multiple businesses in 2023 would appear more than once in this
total. Because Schedule C does not include a VIN or other unique vehicle identifier, Treasury and the IRS cannot distinguish these cases—the same vehicle placed in service for multiple
businesses—from cases in which a sole proprietor placed multiple vehicles in service for multiple businesses.

January 26, 2026 472 Bulletin No. 2026–5
The proposed personal use rules also
benefit taxpayers by providing clarity. In
the absence of a personal use standard, two
taxpayers with otherwise similar tax situa-
tions would face uncertainty as to whether
this deduction applies to their situation.
Without guidance, these taxpayers might
make different choices as to whether their
auto loan interest qualifies for the deduc-
tion, and, therefore, face different tax lia-
bility. Consider, for example, two taxpay-
ers who each buy an APV expecting for
75 percent of its use to be for personal use
and 25 percent for business use (assume
they meet all other requirements to claim
the deduction). Taxpayer A interprets the
section 163(h)(4) personal use require-
ment to mean that interest on the loan is
not QPVLI, because the vehicle is partly
for business use. In contrast, Taxpayer B
interprets the personal use requirement to
mean that interest on the loan is QPVLI
because a majority of the use of the vehicle
is personal use. The proposed regulations
would ensure that these two taxpayers use
the same standard of personal use and are
subject to the same tax treatment.
The proposed personal use standard,
relative to a stricter alternative standard,
may change vehicle purchase patterns
among taxpayers who use their vehicles
for mixed personal and business purposes
(vehicles on which loan interest would
not be considered QPVLI under a strict
personal use standard). For this popula-
tion, the 50 percent personal use standard
would increase the economic appeal of
financing relative to cash purchases and
would increase the economic appeal of
new, U.S.-assembled vehicles relative to
used or foreign-assembled vehicles. The
extent of consumption changes along
these margins depends on several inter-
acting factors, including: the extent to
which increased demand for new, U.S.-as-
sembled vehicles driven by the deduction
affects the prices of these vehicles; substi-
tution elasticities between new and used
vehicles and between vehicles assembled
in the U.S. and assembled abroad
7
; the
salience of the tax deduction at the time
of purchase
8
; and the extent to which tax-
payers perceive the deduction as tempo-
rary, as prescribed in statute, or likely to
be extended by future policymakers. The
Treasury Department and the IRS do not
have readily available parameters and
models to precisely assess the impact.
House Budget Committee Report 119-106
expects the deduction to promote domes-
tic manufacturing.
b. Personal Use Determined Soley by
Taxpayer Intent at Time Debt is Incurred
The proposed regulations would pro-
vide that personal use is determined only
once, based on taxpayers’ intent at the
time indebtedness is incurred. An alter-
native standard could have required tax-
payers to evaluate their expected use each
year or document personal use each year
to continue to qualify for the deduction. A
repeated certification requirement would
result in considerable compliance burden
to taxpayers, particularly among taxpay-
ers whose vehicles will be exclusively for
personal use. The proposed regulations
would benefit taxpayers by simplifying
the process of claiming the QPVLI deduc-
tion, relative to a requirement for annual
certification of sufficient personal use.
c. Personal and Business Use Allocation
Under the proposed regulations, if a
taxpayer meets the personal use standard
(more than 50 percent of expected use of
an APV for personal use), interest on the
SPVL is considered QPVLI. Alternative
guidance could have required taxpayers to
allocate amounts of loan interest attribut-
able to personal and business uses of the
APV and allowed only interest directly
linked to personal use to be deducted. The
proposed rules streamline the process and
reduce the compliance burden of deduct-
ing QPVLI for taxpayers and administer-
ing the deduction for the IRS. Many tax-
payers with mixed personal and business
use vehicles already track and allocate
personal and business mileage for Federal
income tax purposes. For these taxpayers,
the proposed regulations promote flex-
ibility by allowing taxpayers who meet
the personal use standard and all other
requirements to deduct vehicle interest
solely as QPVLI or, to the extent the tax-
payers have interest properly allocable to
a trade or business, as a business expense.
d. Specified Passenger Vehicle Loan
(SPVL) and Further Definitions
The proposed regulations would clar-
ify what constitutes a SPVL. Specifically,
the proposed rules provide that indebt-
edness qualifies as a SPVL only if the
indebtedness is incurred for the purchase
of an APV and for items and amounts
customarily financed in an APV purchase
transaction and that are directly related to
the purchased APV. These items include
vehicle service plans, extended warran-
ties, and sales taxes and vehicle-related
fees. Indebtedness incurred for collision
and liability insurance or to purchase any
property or services unrelated to the APV
(for example, a trailer or a boat) is not con-
sidered a SPVL. The proposed regulations
strengthen the incentive for debt financ-
ing of the items and amounts included in
the SPVL definition (such as warranties
and sales taxes), relative to a rule that
excluded those items and amounts from
the SPVL definition.
Alternative guidance could have pre-
scribed that only debt directly attributable
to the price of the vehicle is a SPVL and
therefore that only interest on that portion
of a loan is deductible. Such an alternative
standard could result in substantial com-
pliance costs to taxpayers and to lenders
and interest recipients in requiring alloca-
tions of indebtedness and associated inter-
est. For amounts customarily financed
together, such as the price of the vehicle
itself and sales taxes and warranties on the
vehicle, identifying and allocating which
interest is attributable to which portion
of total indebtedness would be difficult
and costly to administer. The proposed
guidance benefits taxpayers by removing
7
There is limited evidence on elasticities relating directly to the country of vehicle assembly. See Grieco et al. (2024) for estimates on consumer responsiveness to prices changes across
vehicle manufacturers. Grieco, Paul L.E., Charles Murry, and Ali Yurukoglu. 2024. “The Evolution of Market Power in the U.S. Automobile Industry.” The Quarterly Journal of Economics
139 (2): 1201-1253, https://academic.oup.com/qje/article-abstract/139/2/1201/7276495?redirectedFrom=fulltext.
8
Chetty, Raj, Adam Looney, and Kory Kroft. 2009. “Salience and Taxation: Theory and Evidence.” American Economic Review 99 (4): 1145-77, https://www.aeaweb.org/articles?id=10.1257/
aer.99.4.1145.

Bulletin No. 2026–5 473 January 26, 2026
uncertainty and reduces burden relating
to what taxpayers may consider a SPVL.
According to Autotrader, for financed
vehicle purchases, “taxes and dealer fees
are almost always included in the pay-
ment.”
9
A substantial share of taxpayers
with QPVLI would therefore benefit from
the proposed SPVL definition, relative
to an alternative definition that would
require taxpayers to identify separately
interest attributable to the price of the
vehicle and items and amounts custom-
arily financed with the vehicle. Relatedly,
an SPVL definition limited strictly to the
price of the vehicle may also require addi-
tional information reporting that burdens
interest recipients and lenders. The pro-
posed SPVL definition benefits entities
subject to information reporting require-
ments because taxpayers can determine
their QPVLI without needing information
on interest amounts related to the price of
the vehicle separate from interest amounts
related to items and amounts customarily
financed with the vehicle.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501-3520) (PRA) generally
requires that a Federal agency obtain the
approval of the Office of Management
and Budget (OMB) before collecting
information from the public, whether that
collection of information is mandatory,
voluntary, or required to obtain or retain
a benefit. An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a valid control number
assigned by the OMB.
The general recordkeeping require-
ments mentioned in these proposed regu-
lations are considered general tax records
under §1.6001-1(e). A taxpayer would
use these records to establish its eligibil-
ity for the section 163(h)(4) deduction
and the amount of the deduction claimed.
The recordkeeping requirements would
include that individuals keep records
about the SPVL, the APV, and the amount
of interest paid or accrued. For PRA pur-
poses, general tax records are already
approved by OMB under 1545-0074 for
individuals and 1545-0092 for trust and
estate filers.
These proposed regulations also men-
tion reporting requirements related to
claiming deductions as set forth in pro-
posed §1.163-16. These collections will
be made by eligible taxpayers as part of
filing a return (such as the appropriate
Form 1040 or 1041), including filling out
the relevant schedules. These forms are
approved by OMB under 1545-0074 for
individuals and 1545-0092 for trust and
estate filers.
These proposed regulations also
include reporting, third-party disclosure
and recordkeeping requirements required
under section 6050AA as set forth in
proposed §1.6050AA-1. The collections
will be used by the IRS for tax compli-
ance purposes and by taxpayers to cal-
culate their deduction. The burden asso-
ciated with these information collections
will be included in Form 1098-VLI and
its instructions and approved with OMB
control number 1545-XXXX in accor-
dance with PRA procedures under 5 CFR
1320.10. The Treasury Department and
the IRS request comments on all aspects
of information collection burdens related
to the proposed regulations. In addition,
when available, drafts of IRS forms are
posted for comment at www.irs.gov/draft-
forms.
The likely respondents are corpora-
tions and partnerships. The estimated bur-
den for these requirements is as follows:
Estimated number of respondents:
35,800 respondents.
Estimated number of responses:
6,000,000 responses.
Estimated frequency of responses:
Annually.
Estimated average time per response:
0.25 hours.
Estimated total annual burden hours:
1,500,000 hours.
Estimated total annual burden cost:
$130,785,000.
The collections of information con-
tained in this notice of proposed rulemak-
ing has been submitted to the OMB for
review in accordance with the PRA. Com-
menters are strongly encouraged to submit
public comments electronically. Written
comments and recommendations for the
proposed information collection should be
sent to www.reginfo.gov/public/do/PRA-
Main, with copies to the Internal Revenue
Service. Find this particular information
collection by selecting “Currently under
Review - Open for Public Comments”
then by using the search function. Sub-
mit electronic submissions for the pro-
posed information collection to the IRS
via email at pra.comments@irs.gov (indi-
cate REG-113515-25 on the Subject line).
Comments on the collection of informa-
tion should be received by March 3, 2026.
Comments are specifically requested
concerning: Whether the proposed col-
lection of information is necessary for the
proper performance of the functions of the
IRS, including whether the information
will have practical utility. The accuracy of
the estimated burden associated with the
proposed collection of information. How
the quality, utility, and clarity of the infor-
mation to be collected may be enhanced.
How the burden of complying with the
proposed collection of information may be
minimized, including through the applica-
tion of automated collection techniques
or other forms of information technology.
Estimates of capital or start-up costs and
costs of operation, maintenance, and pur-
chase of services to provide information.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mate-
rial in the administration of any Internal
Revenue law. Generally, tax returns and
tax return information are confidential, as
required by section 6103.
III. Regulatory Flexibility Act
The Regulatory Flexibility Act (5
U.S.C. 601 et seq.) (RFA) imposes cer-
tain requirements with respect to Federal
rules that are subject to the notice and
comment requirements of section 553(b)
of the Administrative Procedure Act (5
U.S.C. 551 et seq.) and that are likely to
have a significant economic impact on
a substantial number of small entities.
9
“Are taxes and fees included in car financing?”, Autotrader, last accessed October 28, 2025, https://www.autotrader.com/car-shopping/financing-a-car-are-taxes-and-fees-included-in-fi-
nancing-222154.

January 26, 2026 474 Bulletin No. 2026–5
Unless an agency determines that a pro-
posal will not have a significant economic
impact on a substantial number of small
entities, section 603 of the RFA requires
the agency to present an initial regulatory
flexibility analysis (IRFA) of the proposed
regulations. The Treasury Department
and the IRS have not determined whether
the proposed regulations, when finalized,
will have a significant economic impact
on a substantial number of small entities.
This determination requires further study.
However, because there is a possibility of
a significant economic impact on a sub-
stantial number of small entities, these
proposed regulations include an IRFA.
The Treasury Department and the IRS
invite comments on both the number of
entities affected by these proposed regu-
lations and the economic impact of these
proposed regulations on small entities.
A. Need for and objectives of the rule
The proposed regulations would pro-
vide the eligibility rules and key defi-
nitions regarding the section 163(h)(4)
deduction to allow taxpayers to determine
whether their interest is QPVLI eligible
for the section 163(h)(4) deduction. In
addition, the proposed regulations would
provide the operational, administrative,
and definitional rules for persons in a trade
or business to comply with the statutory
information reporting requirements under
section 6050AA with interest received on
a SPVL.
The proposed rules are expected to
clarify the OBBBA provision regarding
the car loan interest deduction, which
Congress intended to ease the financial
burden of car ownership for individuals
and promote domestic manufacturing.
See House Budget Committee report on
the OBBBA, H. Rept. 119-106, at 1510
(2025). The proposed rules are intended to
facilitate the easing of the financial burden
of car ownership by providing the infor-
mation necessary for taxpayers to claim
the deduction. Additionally, the proposed
rules are consistent with the promotion of
domestic manufacturing. The rules direct
taxpayers to the National Highway Traffic
Safety Administration VIN lookup tool to
help taxpayers determine whether a vehi-
cle had final assembly in the United States,
a necessary condition for the vehicle to be
eligible for the deduction. Because the
proposed rules assist taxpayers in claim-
ing the deduction, the rules may also
increase consumer demand for vehicles
with final assembly in the United States.
Over time, this may lead manufacturers
to increase production and assembly of
vehicles in the United States in order to
meet demand for vehicles that are eligi-
ble for the deduction. Thus, the Treasury
Department and the IRS intend and expect
that the proposed rules will deliver ben-
efits across the economy that will favor-
ably impact individuals, vehicle dealers,
and the domestic manufacturing industry,
including vehicle manufacturers.
B. Affected small entities
The Small Business Administration
estimates in its 2023 Small Business Pro-
file that 99.9 percent of United States busi-
nesses meet its definition of a small busi-
ness. The applicability of these proposed
regulations does not depend on the size
of the business, as defined by the Small
Business Administration. As described
more fully in the preamble to these pro-
posed regulations and in this IRFA, these
rules may affect a variety of different busi-
nesses across several different industries
but will primarily affect dealers of new
vehicles and financial entities that would
be required to file and furnish information
returns under section 6050AA.
The Treasury Department and the IRS
currently estimate 35,800 businesses may
be impacted by these proposed regula-
tions because they are car and motorcycle
loan lenders. Of the estimated 35,800 car
and motorcycle loan lenders that may be
impacted by these proposed regulations,
the Treasury Department and the IRS
expect 24,600 would likely be considered
a small business entity. To prepare these
estimates, the Treasury Department and
IRS reviewed tax return filings for rele-
vant industry codes for prior taxable years.
1. Impact of the Rules
The recordkeeping and reporting
requirements would increase for busi-
nesses that provide loans on new cars
and motorcycles. Although the Treasury
Department and the IRS do not have suffi-
cient data to precisely determine the likely
extent of the increased costs of compli-
ance, the estimated burden of comply-
ing with the recordkeeping and reporting
requirements are described in the Paper-
work Reduction Act section of the pre-
amble. Based on the estimated number
of responses (6,000,000) and an estimate
time to respond of 0.25 hours, the esti-
mated burden is 1,500,000 total burden
hours.
2. Alternatives Considered
The Treasury Department and the IRS
considered alternatives to the proposed
regulations. For example, the Treasury
Department and the IRS considered a
delay to reporting for small businesses.
Although this would ease the burden on
small businesses, it would increase the
burden on individuals who need the infor-
mation reported under section 6050AA to
accurately claim the deduction for QPVLI
on their Federal income tax returns.
Accordingly, the Treasury Department
and the IRS decided not to delay reporting
for small businesses.
The Treasury Department and the IRS
also considered whether reporting should
be required for each person from whom
interest was received. However, the Trea-
sury Department and the IRS understand
that interest recipients do not necessarily
track the identity of the person making
payments. Therefore, in order to reduce
the reporting burden for small businesses
that may find this additional tracking
burdensome, these proposed regulations
would define a payor of record on an
SPVL as any person carried on the books
and records of the interest recipient as the
principal borrower of the SPVL.
Another alternative considered was
whether reporting under section 6050AA
should be limited to QPVLI. However, the
Treasury Department and the IRS under-
stand that interest recipients do not nec-
essarily have the information necessary to
determine whether interest on a SPVL is
QPVLI for an individual. Accordingly, to
reduce the reporting burden for small busi-
nesses that do not routinely ask individu-
als for information such as the expected
amount of personal use of the vehicle,
these proposed regulations propose that
interest recipients report receipt of interest
received on a SPVL.

Bulletin No. 2026–5 475 January 26, 2026
3. Duplicative, Overlapping, or
Conflicting Federal Rules
The proposed regulations would not
duplicate, overlap, or conflict with any
relevant Federal rules. As discussed in the
Explanation of Provisions, the proposed
regulations would merely provide require-
ments, procedures, and definitions related
to the section 163(a) deduction for QPVLI
and section 6050AA. The Treasury
Department and the IRS invite input from
interested members of the public about
identifying and avoiding overlapping,
duplicative, or conflicting requirements.
IV. Section 7805(f)
Pursuant to section 7805(f) of the
Code, these proposed regulations will be
submitted to the Chief Counsel for the
Office of Advocacy of the Small Business
Administration for comment on its impact
on small business.
V. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 (UMRA) requires
that agencies assess anticipated costs and
benefits and take certain other actions
before issuing a final rule that includes
any Federal mandate that may result in
expenditures in any one year by a State,
local, or Tribal government, in the aggre-
gate, or by the private sector, of $100
million in 1995 dollars, updated annually
for inflation. These proposed regulations
do not include any Federal mandate that
may result in expenditures by State, local,
or Tribal governments, or by the private
sector, in excess of that threshold.
VI. Executive Order 13132: Federalism
Executive Order 13132 (entitled
“Federalism”) prohibits an agency from
publishing any rule that has federalism
implications if the rule either imposes
substantial, direct compliance costs on
State and local governments, and is not
required by statute, or preempts State law,
unless the agency meets the consultation
and funding requirements of section 6 of
the Executive order. This proposed rule
does not have federalism implications and
does not impose substantial direct compli-
ance costs on State and local governments
or preempt State law within the meaning
of the Executive order.
Comments and Public Hearing
Before the proposed regulations are
adopted as final regulations, consideration
will be given to comments regarding this
notice of proposed rulemaking that are
submitted timely to the IRS as prescribed
in this preamble under the ADDRESSES
section. The Treasury Department and the
IRS request comments on all aspects of
the proposed regulations. All comments
submitted will be available at www.regu-
lations.gov. Once submitted to the Federal
eRulemaking Portal, comments cannot be
edited or withdrawn.
A public hearing has been scheduled
for February 24, 2026, beginning at 10
a.m. ET, in the Auditorium at the Internal
Revenue Building, 1111 Constitution Ave-
nue, NW., Washington, DC. Due to build-
ing security procedures, visitors must
enter at the Constitution Avenue entrance.
In addition, all visitors must present
photo identification to enter the building.
Because of access restrictions, visitors
will not be admitted beyond the imme-
diate entrance area more than 30 minutes
before the hearing starts. Participants may
alternatively attend the public hearing by
telephone.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing. Persons who wish to
present oral comments at the hearing must
submit an outline of the topics to be dis-
cussed and the time to be devoted to each
topic by February 2, 2026. A period of 10
minutes will be allotted to each person for
making comments. An agenda showing
the scheduling of the speakers will be pre-
pared after the deadline for receiving out-
lines has passed. Copies of the agenda will
be available free of charge at the hearing.
If no outline of the topics to be discussed
at the hearing is received by February 2,
2026, the public hearing will be cancelled.
If the public hearing is cancelled, a notice
of cancellation of the public hearing will
be published in the Federal Register.
Individuals who want to testify in per-
son at the public hearing must send an
email to publichearings@irs.gov to have
your name added to the building access
list. The subject line of the email must
contain the regulation number REG-
113515-25 and the language TESTIFY
In Person. For example, the subject line
may say: Request to TESTIFY in Person
at Hearing for REG-113515-25.
Individuals who want to testify by tele-
phone at the public hearing must send an
email to publichearings@irs.gov to receive
the telephone number and access code for
the hearing. The subject line of the email
must contain the regulation number REG-
113515-25 and the language TESTIFY
Telephonically. For example, the subject
line may say: Request to TESTIFY Tele-
phonically at Hearing for REG-113515-25.
Individuals who want to attend the pub-
lic hearing in person without testifying must
also send an email to publichearings@irs.
gov to have your name added to the build-
ing access list. The subject line of the email
must contain the regulation number REG-
113515-25 and the language ATTEND In
Person. For example, the subject line may
say: Request to ATTEND Hearing In Per-
son for REG-113515-25. Requests to attend
the public hearing must be received by 5:00
p.m. ET on February 20, 2026.
Individuals who want to attend the pub-
lic hearing by telephone without testifying
must also send an email to publichear-
ings@irs.gov to receive the telephone
number and access code for the hearing.
The subject line of the email must con-
tain the regulation number REG-113515-
25 and the language ATTEND Hearing
Telephonically. For example, the subject
line may say: Request to ATTEND Hear-
ing Telephonically for REG-113515-25.
Requests to attend the public hearing must
be received by 5:00 p.m. ET on February
20, 2026.
Hearings will be made accessible to
people with disabilities. To request special
assistance during a hearing, please contact
the Publications and Regulations Section
of the Office of Associate Chief Counsel
(Procedure and Administration) by send-
ing an email to publichearings@irs.gov
(preferred) or by telephone at (202) 317-
6901 (not a toll-free number) by February
19, 2026.
Statement of Availability of IRS
Documents
Guidance cited in this preamble is pub-
lished in the Internal Revenue Bulletin

January 26, 2026 476 Bulletin No. 2026–5
and is available from the Superintendent
of Documents, U.S. Government Publish-
ing Office, Washington, DC 20402, or by
visiting the IRS website at https://www.
irs.gov.
Drafting Information
The principal author of these proposed
regulations is Riston Escher, Office of the
Associate Chief Counsel (Income Tax &
Accounting), IRS. However, other person-
nel from the Treasury Department and the
IRS participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
26 CFR Part 301
Employment taxes, Excise taxes,
Income taxes, Penalties, Reporting and
recordkeeping requirements.
Proposed Amendments to the
Regulations
Accordingly, the Treasury Department
and the IRS propose to amend 26 CFR
parts 1 and 301 as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding an entry in
numerical order for §1.6050AA-1 to read
in part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.6050AA-1 is also issued
under 26 U.S.C. 6050AA(e).
* * * * *
Par. 2. Section 1.163-16 is added to
read as follows:
§1.163-16 Qualified passenger vehicle
loan interest.
(a) Overview—(1) In general. In com-
puting the taxable income for a taxable
year beginning after December 31, 2024,
and before January 1, 2029, of a taxpayer
described in paragraph (a)(2) of this sec-
tion, for purposes of the deduction allow-
able under section 163(a) of the Internal
Revenue Code (Code) for interest paid
or accrued within the taxable year on
indebtedness, section 163(h)(4) excludes
qualified passenger vehicle loan interest
(QPVLI) (as defined in section 163(h)(4)
(B) and paragraph (b)(12) of this section)
from the definition of “personal interest”
paid or accrued during the taxable year
for which a deduction would be disal-
lowed under section 163(h)(1). See para-
graph (b) of this section for definitions of
terms used in section 163(h)(4) and this
section.
(2) Taxpayers that may deduct
QPVLI—(i) In general. Only a taxpayer
that is an individual, decedent’s estate, or
non-grantor trust may deduct QPVLI in
computing the taxpayer’s taxable income.
(ii) Deduction available without regard
to whether taxpayer itemizes deductions.
Under section 63(b)(7) of the Code, the
deduction for QPVLI allowable under
section 163(h)(4) may be taken by a tax-
payer without regard to whether the tax-
payer itemizes deductions or takes the
standard deduction.
(b) Definitions. The following defini-
tions apply for purposes of section 163(h)
(4) and this section:
(1) Applicable passenger vehicle
(APV). The term applicable passenger
vehicle or APV means a vehicle that sat-
isfies the requirements of paragraph (e)(1)
of this section.
(2) Dealer. The term dealer means a
person licensed by a State, the District of
Columbia, the Commonwealth of Puerto
Rico, any other territory or possession of
the United States, an Indian Tribal govern-
ment (as defined in section 7701(a)(40) of
the Code), or an Alaska Native Corpora-
tion (as defined in section 3 of the Alaska
Native Claims Settlement Act (43 U.S.C.
1602(m)) to engage in the sale of vehicles.
This term includes a dealer licensed by
any jurisdiction that makes sales at sites
outside of the jurisdiction in which it is
licensed.
(3) Final assembly. The term final
assembly means the process by which
a manufacturer produces a vehicle at, or
through the use of, a plant, factory, or other
place from which the vehicle is delivered
to a dealer with all component parts nec-
essary for the mechanical operation of the
vehicle included with the vehicle, whether
or not the component parts are perma-
nently installed in or on the vehicle.
(4) Grantor trust. A grantor trust is any
portion of a trust that is treated as being
owned by one or more persons under sec-
tions 671 through 679 of the Code.
(5) Independently deductible inter-
est. The term independently deductible
interest means interest that satisfies the
requirements of paragraph (g)(1) of this
section.
(6) Lease financing. The term lease
financing means a transaction that is not
a purchase of an APV, and under which a
taxpayer has usage rights with respect to
an APV but is not considered the owner
of the APV under State or other applicable
law.
(7) Modified adjusted gross income—
(i) Individuals. The term modified adjusted
gross income, in the case of an individual,
means adjusted gross income (as defined
in section 62 of the Code) increased by
any amount excluded from gross income
under sections 911, 931, or 933 of the
Code.
(ii) Decedents’ estates and non-grantor
trusts. The term modified adjusted gross
income, in the case of a decedent’s estate
or non-grantor trust, means adjusted gross
income as defined in section 67(e) of the
Code.
(8) Negative equity. The term negative
equity means existing indebtedness on
a vehicle traded in as part of a purchase
transaction for an APV, to the extent
such indebtedness exceeds the vehicle’s
trade-in value specified by the contract for
the purchase of the APV.
(9) Non-grantor trust. The term non-
grantor trust means a trust (or the portion
of a trust) that is not a grantor trust.
(10) Personal use. The term personal
use means use by an individual other than
in any trade or business (except for the use
in the trade or business of performing ser-
vices as an employee), or for the produc-
tion of income.
(11) Purchase. The term purchase
means an acquisition that is both an acqui-
sition of a vehicle for Federal income tax
purposes and the acquisition of the title of
the vehicle for purposes of State or other
applicable law.
(12) Qualified passenger vehicle loan
interest (QPVLI). The term qualified pas-

Bulletin No. 2026–5 477 January 26, 2026
senger vehicle loan interest or QPVLI
means any interest that satisfies the
requirements of paragraph (c)(1) of this
section.
(13) Qualified vehicle classification—
(i) In general. The term qualified vehicle
classification means one of the following
vehicle classifications:
(ii) Car. The term car means a vehicle
classified in one of the classes of passen-
ger vehicles listed in 40 CFR 600.315-
08(a)(1), or otherwise so classified by the
Administrator of the EPA under 40 CFR
600.315-08(a).
(iii) Minivan. The term minivan means
a vehicle classified as a minivan under 40
CFR 600.315-08(a)(2)(iv), or otherwise
so classified by the Administrator of the
EPA under 40 CFR 600.315-08(a).
(iv) Va n. The term van means a vehicle
classified as a van under 40 CFR 600.315-
08(a)(2)(iii), or otherwise so classified by
the Administrator of the EPA under 40
CFR 600.315-08(a).
(v) Sport utility vehicle. The term sport
utility vehicle means a vehicle classified
as a small sport utility vehicle or stan-
dard sport utility vehicle under 40 CFR
600.315-08(a)(2)(v) and (vi), or otherwise
so classified by the Administrator of the
EPA under 40 CFR 600.315-08(a).
(vi) Pickup truck. The term pickup
truck means a vehicle classified as a small
pickup truck or standard pickup truck
under 40 CFR 600.315-08(a)(2)(i) and
(ii), or otherwise so classified by the
Administrator of the EPA under 40 CFR
600.315-08(a).
(vii) Motorcycle. The term motorcycle
means a vehicle classified as a motorcycle
under 40 CFR 86.402-78, or otherwise so
classified by the Administrator of the EPA.
(14) Secured by a first lien. The term
secured by a first lien means a valid and
enforceable security interest under State
or other applicable law in an APV with
status ahead of all other security inter-
ests, other than tax liens or other similar
security interests that may be given higher
priority at a later date following the date
of purchase and only in limited circum-
stances.
(15) Specified passenger vehicle loan
(SPVL). The term specified passenger
vehicle loan or SPVL means indebtedness
that satisfies the requirements of para-
graph (d)(1) of this section.
(16) Vehicle identification number
(VIN). The term vehicle identification
number or VIN means a series of Ara-
bic numbers and Roman letters that is
assigned to a motor vehicle for identifica-
tion purposes under 49 CFR 565.13.
(c) Qualified passenger vehicle loan
interest (QPVLI)—(1) In general. Inter-
est is QPVLI only if the interest is paid
or accrued during the taxable year on
indebtedness that is an SPVL secured
by a first lien on an APV and is not
excluded from the definition of QPVLI
(as described in paragraphs (c)(4) and
(5) of this section).
(2) Determining the amount of inter-
est paid or accrued during a taxable
year—(i) In general. Interest on an SPVL
accrues on a daily basis over the term of
the SPVL. The amount of QPVLI that is
deductible by a taxpayer for the taxable
year is determined under the taxpayer’s
overall method of accounting for Fed-
eral income tax purposes (either the cash
receipts and disbursements method or an
accrual method) or an applicable special
method of accounting. For purposes of
section 163(h)(4), the amount of QPVLI
includes all interest payable with respect
to the amount financed under an SPVL
(that is, the amount of indebtedness that
qualifies for purposes of determining
whether indebtedness is an SPVL under
paragraph (d)(2) of this section).
(ii) Allocation of payments. In general,
a payment on an SPVL is treated first as
a payment of interest to the extent inter-
est has accrued and remains unpaid on the
SPVL as of the date the payment is due,
and second, to the extent of any excess, as
a payment of principal. See §§1.446-2(e)
and 1.1275-2(a) for rules on allocating
payments between interest and principal.
For purposes of this paragraph (c)(2)(ii), a
simple interest calculation may be used to
determine the amount of interest that has
accrued and remains unpaid on an SPVL
when a payment on the SPVL is made.
Under this simple interest calculation,
interest accrues daily over the term of the
SPVL based on its outstanding principal
balance and the annual percentage rate or
interest rate provided in the retail install-
ment sales contract or other contract evi-
dencing the SPVL.
(3) Determining whether the SPVL
is secured by a first lien on an APV—(i)
In general. In order for interest paid or
accrued on an SPVL to be QPVLI, the
SPVL must be secured by a first lien (as
defined in paragraph (b)(14) of this sec-
tion) on the APV financed by the SPVL
at the time the interest is paid or accrued.
(ii) Exception for substitute vehicle due
to unforeseen intervening event. In the
case of an SPVL secured by a first lien
on an APV that is replaced at a later time
with a substitute vehicle that is an APV
due to an unforeseen intervening event
(for example, a defective APV is required
to be replaced under State or other appli-
cable law or an APV is required to be
replaced under an insurance product), and
as a result the SPVL is secured by a first
lien on that substitute vehicle, the sub-
stitute vehicle is considered the initially
purchased APV for purposes of this para-
graph (c)(3) and for purposes of paragraph
(c)(5) of this section.
(4) Interest that is not QPVLI. QPVLI
does not include any amount paid or
accrued on any of the following:
(i) A loan to finance fleet sales.
(ii) A loan incurred for the purchase of
a commercial vehicle that is not used for
personal purposes.
(iii) Any lease financing.
(iv) A loan to finance the purchase of a
vehicle with a salvage title.
(v) A loan to finance the purchase of a
vehicle intended to be used for scrap or
parts.
(5) VIN requirement. Interest paid or
accrued by the taxpayer during the taxable
year on an SPVL is not treated as QPVLI
and may not be deducted under section
163(h)(4) unless the taxpayer reports the
VIN of the purchased APV on the Fed-
eral tax return for the taxable year in the
manner prescribed by the Internal Reve-
nue Service in guidance published in the
Internal Revenue Bulletin or in forms and
instructions.
(6) Examples. The rules of paragraphs
(c)(1), (c)(3) and (c)(4)(iii) of this section
are illustrated by the following examples:
(i) Example 1: Lease financing—(A) Facts.
Dealer is located in State Y. Dealer purchases an
APV from the manufacturer and sells the car to Leas-
ing Company. Leasing Company leases the car to A
for a 120-month period in a transaction that is a lease
for State Y purposes. At the end of the lease term,
A has the option to purchase the car for a nominal
amount. For Federal income tax purposes, the lease
agreement is properly viewed as a sale. A makes
lease payments during the taxable year.

January 26, 2026 478 Bulletin No. 2026–5
(B) Analysis. A’s lease payments are made under
a lease financing transaction and do not qualify as
QPVLI. Additionally, notwithstanding that the lease
agreement is properly viewed as a sale for Federal
income tax purposes, the transaction is not a pur-
chase (as defined in paragraph (b)(11) of this section)
and therefore the lease is not an SPVL. Accordingly,
no amounts paid under the lease are QPVLI.
(ii) Example 2: Defective vehicle replaced—(A)
Facts. A, a resident of State X, incurs an SPVL to
purchase Vehicle 1. The SPVL is secured by a first
lien on Vehicle 1. After purchase, A discovers Vehi-
cle 1 is defective. Under State X law that requires
the replacement of new vehicles with serious defects,
the manufacturer replaces defective Vehicle 1 with
Vehicle 2. As a result, the SPVL is secured by a first
lien on Vehicle 2. Vehicle 2 is an APV with respect to
A, as the original use of Vehicle 2 commences with
A, and the vehicle meets all other requirements of an
APV as described in paragraph (e) of this section.
The SPVL continues to be in effect with no changes
other than the substitution of Vehicle 1 for Vehicle
2 occurring under State X law. A continues making
payments under the terms of the SPVL.
(B) Analysis. The interest paid or accrued on the
SPVL that is now secured by Vehicle 2 is QPVLI.
The SPVL is secured by a first lien on the APV that
was purchased as a result of the incurred SPVL at the
time that interest is paid or accrued. As Vehicle 1 was
replaced with Vehicle 2, an APV, due to an unfore-
seen intervening event and the SPVL is secured by
a first lien on Vehicle 2, Vehicle 2 is considered the
initially purchased APV.
(d) Specified passenger vehicle loan
(SPVL)—(1) In general. Indebtedness
is an SPVL only if the indebtedness is
incurred by the taxpayer after December
31, 2024, for the purchase of an APV for
personal use, and is secured by a first lien
on that APV.
(2) Indebtedness incurred for the pur-
chase of an APV—(i) In general. For
purposes of paragraph (d)(1) of this sec-
tion, indebtedness is an SPVL only to the
extent the indebtedness is incurred for the
purchase of an APV and, if part of the
same purchase transaction, for any other
items or amounts customarily financed
in an APV purchase transaction and that
are directly related to the purchased APV.
Items or amounts customarily financed
in an APV purchase transaction and that
are directly related to the purchased APV
include, for example, vehicle service
plans, extended warranties, sales taxes,
and vehicle-related fees.
(ii) Indebtedness that is not incurred
for the purchase of an APV. To the
extent any indebtedness is not incurred
by a taxpayer for the purchase of an APV
or for any other items or amounts cus-
tomarily financed in an APV purchase
transaction that are directly related to the
purchased APV, such indebtedness is not
an SPVL even if it is incurred as part of
a purchase transaction for an APV. For
example, indebtedness incurred for the
repayment of negative equity on a loan
secured by a trade-in vehicle, to pur-
chase collision and liability insurance,
or to purchase any property or services
unrelated to an APV (for example, a
trailer or a boat) is not incurred by a tax-
payer for the purchase of an APV or for
any other items or amounts customarily
financed in an APV purchase transaction
that are directly related to the purchased
APV, and as a result is not an SPVL. In
addition, indebtedness is not incurred by
a taxpayer for the purchase of an APV or
for any other items or amounts custom-
arily financed in an APV purchase trans-
action and that are directly related to the
purchased APV to the extent the indebt-
edness relates to cash proceeds that the
taxpayer receives from the lender.
(iii) Allocation of indebtedness—(A)
In general. Except as provided in para-
graph (d)(2)(iii)(B) of this section, if a
taxpayer incurs indebtedness described in
both paragraphs (d)(2)(i) and (ii) of this
section as part of the same transaction, the
indebtedness must be allocated between
the indebtedness described in paragraph
(d)(2)(i) of this section and the indebt-
edness described in paragraph (d)(2)(ii)
of this section. Only the portion of the
indebtedness allocated to the indebtedness
described in paragraph (d)(2)(i) of this sec-
tion is an SPVL. In such cases, payments
of interest and principal are allocated to
the portion of the indebtedness described
in paragraph (d)(2)(i) of this section and
the portion of the indebtedness described
in paragraph (d)(2)(ii) of this section on a
pro rata basis.
(B) Allocation of down payment. For
purposes of determining the portion of the
indebtedness described in paragraph (d)
(2)(ii) of this section, any down payment
(or other consideration provided by the
taxpayer at the time of the purchase trans-
action for an APV) is applied first against
any negative equity and any other amounts
that are not incurred for the purchase of
the APV or for other items customarily
financed in an APV purchase transaction
and that directly relate to the purchase of
the APV.
(3) Related party indebtedness. Any
indebtedness owed to a person who is
related to the taxpayer within the meaning
of section 267(b) or section 707(b)(1) of
the Code is not an SPVL.
(4) Refinancing of an SPVL. If a tax-
payer refinances an SPVL (refinanced
loan), the resulting indebtedness (new
loan) is an SPVL if the new loan is
secured by a first lien on the APV with
respect to which the refinanced loan was
incurred. The amount of the new loan that
is an SPVL is limited to the outstanding
balance of the refinanced loan as of the
date of the refinancing. A taxpayer allo-
cates principal and interest between the
amount of the new loan that is an SPVL
and the remaining portion of the indebt-
edness on a pro rata basis. For purposes of
this paragraph (d)(4), if there is a change
in obligor as part of the refinancing, the
new loan is not an SPVL with regard to
any subsequent obligor unless the refi-
nancing is in connection with a change in
obligor by reason of the obligor’s death
within the meaning of paragraph (d)(5)
(ii) of this section.
(5) Whether the SPVL was incurred
by the taxpayer—(i) In general. Except
as provided in paragraph (d)(5)(ii) of this
section, indebtedness is an SPVL only if
that indebtedness was originally incurred
by the taxpayer. For example, if an indi-
vidual incurs an SPVL and subsequently
ceases to be an obligor and another indi-
vidual becomes the obligor on the indebt-
edness, the indebtedness is not an SPVL
with respect to the other individual.
(ii) Exception for a change in obligor
by reason of the death of an obligor—
(A) In general. If a change in obligor is
by reason of the death of an obligor of an
SPVL, then the indebtedness is treated as
an SPVL with respect to the new obligor.
(B) Change in obligor by reason of
the death of an obligor. For purposes of
paragraph (d)(5)(ii)(A) of this section,
a change in obligor by reason of death
includes the following:
(1) The succession to ownership of an
APV subject to an SPVL by—
(i) The deceased obligor’s estate;
(ii) A surviving joint owner of the APV;
or
(iii) The surviving beneficiary desig-
nated by contract, a transfer on death pro-
vision, or by operation of law.

Bulletin No. 2026–5 479 January 26, 2026
(2) A distribution of an APV subject to
an SPVL by—
(i) A deceased obligor’s estate to a leg-
atee or heir; or
(ii) A trust that is made to a trust bene-
ficiary by reason of death as described in
this paragraph (d)(5)(ii).
(3) Any refinancing of an SPVL in con-
nection with a transfer by reason of death
as described in this paragraph (d)(5)(ii).
(C) Not a change in obligor by reason
of the death of an obligor. A change in
obligor by reason of death as described in
this paragraph (d)(5)(ii) does not include
changes resulting from the following:
(1) A sale, exchange, or other disposi-
tion of an APV by a decedent’s estate or
trust, other than a distribution described in
paragraph (d)(5)(ii)(B)(2) of this section.
(2) Any disposition of an APV by an
individual who received the APV by rea-
son of death (unless that disposition is by
reason of that individual’s death and the
change in obligor is described in para-
graph (d)(5)(ii)(B) of this section).
(6) Examples. The rules of paragraphs
(d)(2) and (4) of this section are illustrated
by the following examples in which A is
an individual who incurs indebtedness to
purchase an APV for personal use:
(i) Example 1: Vehicle-related purchases—(A)
Facts. A finances the purchase of an APV for per-
sonal use by incurring a loan. The loan is secured by
a first lien on the APV. The retail installment sales
contract, which evidences the loan, indicates that the
total amount financed is equal to the sum of the APV
purchase price, the cost for an extended warranty,
sales tax, title and registration fees, and a dealer doc-
ument fee.
(B) Analysis. All of the amount financed under
the loan is incurred for the purchase of an APV and
for other items or amounts customarily financed in
an APV purchase transaction and that directly relate
to the purchased APV within the meaning of para-
graph (d)(2)(i) of this section. Accordingly, the loan
is an SPVL and all of the interest on the loan may be
deductible as QPVLI.
(ii) Example 2: Non-vehicle-related purchase—
(A) Facts. A incurs indebtedness to finance the pur-
chase of both an APV and a trailer. The indebtedness
is secured by a first lien on the APV. The price of
the trailer is added to the amount financed as part of
the retail installment sales contract that includes the
purchase price of the APV.
(B) Analysis. The indebtedness attributable to the
purchase price of the trailer included in the amount
financed under the retail installment sales contract is
not incurred for the purchase of an APV or for any
other items or amounts customarily financed in an
APV purchase transaction and that directly relate to
the purchased APV within the meaning of paragraph
(d)(2)(i) of this section and therefore this indebted-
ness is not included in an SPVL under paragraph (d)
(2)(ii) of this section. In accordance with the allo-
cation rules in paragraph (d)(2)(iii) of this section,
A must allocate the portion of the indebtedness
that is allocable to the purchase price of the trailer
to indebtedness described in paragraph (d)(2)(ii)
of this section that is not an SPVL. Thus, none of
the interest that is attributable to that portion of the
indebtedness is QPVLI. The remaining portion of the
indebtedness is allocated to indebtedness described
in paragraph (d)(2)(i) of this section that is an SPVL.
(iii) Example 3: Vehicle refinanced—(A) Facts.
A incurs indebtedness (Loan 1) to finance the pur-
chase of an APV, and in a subsequent taxable year
in which A is eligible to deduct QPVLI, A refinances
Loan 1 by incurring new indebtedness of $38,000
(Loan 2), which is secured by a first lien on the APV.
At the time of refinancing, the APV has a fair market
value of $38,000 and Loan 1 has an outstanding bal-
ance of $30,000. The Loan 2 proceeds of $38,000 are
used to first repay the $30,000 Loan 1 balance, with
the remaining $8,000 going to A as cash proceeds.
(B) Analysis. Of the $38,000 amount financed by
Loan 2, $8,000 is the amount of the resulting indebt-
edness that exceeds the amount of such refinanced
indebtedness within the meaning of paragraph (d)(4)
of this section. Only $30,000 of the $38,000 balance
of Loan 2 is an SPVL per the rule in paragraph (d)
(4) of this section. Thus, none of the interest attribut-
able to the $8,000 portion of Loan 2 is interest that is
deductible as QPVLI.
(iv) Example 4: Negative equity and down pay-
ment—(A) Facts. A finances the purchase of an APV
that costs $40,000, and trades in a previously owned
vehicle subject to an existing vehicle loan with
$6,000 of negative equity. A makes a down payment
of $4,000 as part of the APV purchase transaction,
incurring indebtedness of $42,000 ($40,000 plus
$6,000 minus $4,000).
(B) Analysis. The $6,000 of negative equity is
not an item or amount customarily financed in an
APV purchase transaction that is directly related to
the purchased APV within the meaning of paragraph
(d)(2)(i) of this section. In accordance with the allo-
cation rules in paragraph (d)(2)(iii) of this section, A
must allocate the $42,000 of indebtedness between
indebtedness described in paragraph (d)(2)(i) of this
section and indebtedness described in paragraph (d)
(2)(ii) of this section. For purposes of determining
the portion of the indebtedness described in para-
graph (d)(2)(ii) of this section, the down payment
of $4,000 is allocated against the $6,000 of negative
equity. As a result, of the $42,000 of indebtedness
incurred by A, $40,000 of the indebtedness incurred
is indebtedness incurred for the purchase of an APV
as described in paragraph (d)(2)(i) of this section and
$2,000 is indebtedness not incurred for the purchase
of an APV as described in paragraph (d)(2)(ii) of this
section.
(e) Applicable passenger vehicle
(APV)—(1) In general. A vehicle is an
APV only if—
(i) The original use of the vehicle com-
mences with the taxpayer (as described in
paragraph (e)(2)(i) of this section);
(ii) The vehicle is manufactured pri-
marily for use on public streets, roads, and
highways (not including a vehicle oper-
ated exclusively on a rail or rails);
(iii) The vehicle has at least 2 wheels;
(iv) The vehicle is in a qualified vehicle
classification (as defined in paragraph (b)
(13) of this section);
(v) The vehicle is treated as a motor
vehicle for purposes of title II of the Clean
Air Act;
(vi) The vehicle has a gross vehicle
weight rating of less than 14,000 pounds;
and
(vii) The final assembly (as defined in
paragraph (b)(3) of this section) of the
vehicle occurs within the United States
(as described in paragraph (e)(3) of this
section).
(2) Determining whether original use
commences with the taxpayer—(i) In gen-
eral. Original use of a vehicle commences
with the first person that takes delivery of
the vehicle after the vehicle is sold, reg-
istered, or titled. In the case of a dealer,
original use of a vehicle does not com-
mence with the dealer unless the dealer
registers or titles the vehicle. In the case
of a purchaser that is not a dealer and that
incurs indebtedness to purchase a vehicle,
original use of the vehicle does not com-
mence with that purchaser unless the vehi-
cle is treated as a new vehicle under the
loan documentation.
(ii) Vehicle return exception. If a pur-
chaser that is not a dealer returns a vehicle
to a seller within 30 days of taking deliv-
ery of the vehicle, then that purchaser will
not be considered the first person that takes
delivery of the vehicle after the vehicle is
sold, registered, or titled for purposes of
paragraph (e)(2)(i) of this section, and,
accordingly, original use of the vehicle
does not commence with that purchaser.
(iii) Examples. The rules of paragraphs
(e)(1)(i) and (e)(2) of this section are illus-
trated by the following examples:
(A) Example 1: Demonstrator vehicles regis-
tered and titled in dealer’s name—(1) Facts. Dealer
operates in State X. Dealer purchases and takes
delivery of a new vehicle from the manufacturer and
designates this vehicle as a demonstrator vehicle.
State X law requires a dealer to title and register the
vehicle in its name. Accordingly, Dealer titles and
registers the vehicle in its name and uses the vehicle
as a demonstrator vehicle.
(2) Analysis. Original use of the vehicle com-
mences with Dealer. Dealer is the first person that
takes delivery of the vehicle after it is sold, regis-
tered, or titled. Accordingly, the vehicle will not be
considered an APV by a subsequent purchaser of the

January 26, 2026 480 Bulletin No. 2026–5
vehicle, and interest paid or accrued by a subsequent
purchaser on indebtedness incurred for the purchase
of the vehicle is not QPVLI.
(B) Example 2: Demonstrator vehicles not reg-
istered and titled in dealer’s name—(1) Facts. The
facts are the same as in paragraph (e)(2)(iii)(A) of
this section (Example 1), except that Dealer operates
in State Y. State Y law does not require a dealer to
title and register a demonstrator vehicle in its name.
Accordingly, Dealer does not title and register the
vehicle in its name and uses the vehicle as a demon-
strator vehicle.
(2) Analysis. Original use of the vehicle does not
commence with Dealer. Dealer is not the first per-
son that takes delivery of the vehicle after it is sold,
registered, or titled. Original use of the vehicle may
commence with a subsequent purchaser of the vehi-
cle if the vehicle is treated as a new vehicle under
the loan documentation for the loan incurred by that
subsequent purchaser to purchase the vehicle.
(C) Example 3: Cancelled sale—(1) Facts. A,
an individual, enters into a contract to purchase a
special-order vehicle from a dealer in State Z that is
estimated to be delivered in one month. State Z law
provides that the vehicle is not required to be titled
and registered until A takes delivery of the vehicle. A
cancels the order under the sales contract prior to the
delivery occurring.
(2) Analysis. Original use of the vehicle does not
commence with A. A is not the first person that takes
delivery of the vehicle after it is sold, registered, or
titled. Original use of the vehicle may commence
with a subsequent purchaser of the vehicle if the
vehicle is treated as a new vehicle under the loan
documentation for the loan incurred by that subse-
quent purchaser to purchase the vehicle.
(D) Example 4: Vehicle purchase following a
lease—(1) Facts. Dealer purchases and takes deliv-
ery of a new vehicle from the manufacturer for
resale. Dealer does not register or title the vehicle
and sells the vehicle to Leasing Company. After tak-
ing delivery of the vehicle, Leasing Company titles
and registers the vehicle in its name. Leasing Com-
pany leases the car to A, an individual. At the end of
the lease term, A exercises its option to purchase the
car under its lease agreement.
(2) Analysis. Original use of the vehicle does not
commence with A. Original use of the vehicle com-
mences with Leasing Company. Leasing Company
is the first person that takes delivery of the vehicle
after it is sold, registered, or titled. Original use does
not commence with Dealer because Dealer did not
register or title the vehicle.
(E) Example 5: Returned vehicle—(1) Facts. A
is a retail purchaser that purchases a vehicle from
Dealer. A returns the car to Dealer 15 days after tak-
ing delivery of the vehicle.
(2) Analysis. Original use of the vehicle does not
commence with A. Because A returned the vehicle
to Dealer within 30 days of taking delivery of the
vehicle, A is not considered to be the first person that
takes delivery of the vehicle after it is sold, regis-
tered, or titled and therefore original use does not
commence with A. Original use of the vehicle may
commence with a subsequent purchaser of the vehi-
cle if the vehicle is treated as a new vehicle under
the loan documentation for the loan incurred by that
subsequent purchaser to purchase the vehicle.
(3) Determining whether final assem-
bly has occurred within the United States.
To determine whether the final assembly
of a vehicle occurred within the United
States, a taxpayer may rely on—
(i) The vehicle’s plant of manufacture
as reported in the VIN; or
(ii) The final assembly point reported
on the label affixed to the vehicle as
described in 49 CFR 583.5(a)(3).
(f) Determination of personal use—(1)
In general. A taxpayer that incurs indebt-
edness to purchase an APV is considered
to purchase that APV for personal use if,
at the time the indebtedness is incurred,
that taxpayer expects that the APV will
be used for personal use by the taxpayer,
the taxpayer’s spouse, or an individual
that is related to the taxpayer within the
meaning of section 152(c)(2) or (d)(2) of
the Code, or any combination of these
individuals, for more than 50 percent of
the time. The taxpayer’s intent is deter-
mined based on the expected use during
the period the taxpayer expects to own
the APV.
(2) Special rules for decedents’ estates
and non-grantor trusts. For purposes of
determining whether a decedent’s estate
or non-grantor trust that incurs indebted-
ness to purchase an APV expects that the
APV will be used for personal use under
paragraph (f)(1) of this section, the deter-
mination is based on the expected personal
use by one or more of the legatees or heirs,
or beneficiaries, respectively, who have a
present or future interest in that decedent’s
estate or non-grantor trust; the spouse of
a legatee, heir, or beneficiary; or an indi-
vidual that is related to a legatee, heir, or
beneficiary within the meaning of section
152(c)(2) or (d)(2).
(3) Examples. The rules of this para-
graph (f) are illustrated by the following
examples in which A is an individual:
(i) Example 1: Predominant personal use—(A)
Facts. At the time A incurs indebtedness to purchase
an APV, A expects to use the APV for A’s personal
use for 85 percent of the time. A expects to use the
APV to earn income as a driver for a rideshare ser-
vice for the remaining 15 percent of the time.
(B) Analysis. A is considered to have purchased
the APV for personal use. At the time A purchases
the APV, A expects that the APV will be used for
personal use more than 50 percent of the time. A’s
intention to use the APV to earn income as a driver
for a rideshare service for 15% of the time does not
preclude A from being considered to have purchased
the APV for personal use.
(ii) Example 2: Predominant business use—(A)
Facts. At the time A incurs indebtedness to purchase
an APV, A expects to use the APV in A’s contracting
business that is a sole proprietorship for 60 percent
of the time. A expects to use the APV for A’s personal
use for the remaining 40% of the time.
(B) Analysis. A is not considered to have pur-
chased the APV for personal use. At the time A pur-
chases an APV, A does not expect that the APV will
be used for personal use more than 50 percent of the
time.
(iii) Example 3: Personal use by an individual
related to taxpayer—(A) Facts. At the time A incurs
indebtedness to purchase an APV, A expects the APV
to be used exclusively for personal use by A’s child
B.
(B) Analysis. A is considered to have purchased
the APV for personal use. At the time A purchases
the APV, A expects that the APV will be used for per-
sonal use more than 50 percent of the time by B, an
individual that is related to A within the meaning of
section 152(c)(2) or (d)(2).
(g) Independently deductible interest—
(1) In general. Independently deduct-
ible interest is limited to interest that is
QPVLI determined under section 163(h)
(4)(B)(i) (prior to the application of the
dollar limitation of section 163(h)(4)(C)
(i) described in paragraph (h)(1) of this
section and determined without regard to
this paragraph (g)) and that is otherwise
deductible by the taxpayer as a different
type of interest under section 163(a) or a
different section of the Code.
(2) Deducting independently deduct-
ible interest. A taxpayer may deduct
independently deductible interest paid or
accrued by the taxpayer during the taxable
year as QPVLI (subject to the application
of the dollar limitation of section 163(h)
(4)(C)(i) described in paragraph (h)(1)
of this section), or alternatively, as a dif-
ferent type of interest described in para-
graph (g)(1) of this section (non-QPVLI),
subject to any applicable limitations. The
amount of independently deductible inter-
est that may be deductible as QPVLI for
a taxable year (before the application of
the dollar limitation of section 163(h)(4)
(C)(i) described in paragraph (h)(1) of
this section) is reduced to the extent that
the taxpayer deducts that independently
deductible interest as non-QPVLI.
(3) Reporting independently deduct-
ible interest. If a taxpayer deducts inde-
pendently deductible interest in a taxable
year as non-QPVLI under paragraph (g)
(2) of this section, the taxpayer must report
information relating to that independently
deductible interest in the manner pre-
scribed by the Internal Revenue Service in

Bulletin No. 2026–5 481 January 26, 2026
guidance published in the Internal Reve-
nue Bulletin or in forms and instructions.
(4) Examples. The rules of this para-
graph (g) regarding independently deduct-
ible interest are illustrated by the follow-
ing examples in which A is an individual:
(i) Example 1: Independently deductible inter-
est—(A) Facts. During the taxable year, A paid
$1,000 of interest on an SPVL that may be deduct-
ible by A as $1,000 of QPVLI. During the taxable
year, 40 percent of the use of the APV is attributable
to A’s trade or business. A may deduct the full $1,000
as QPVLI after considering the application of the
modified adjusted gross income phaseout in para-
graph (h)(2) of this section as A’s modified adjusted
gross income is less than $100,000.
(B) Analysis. $400 (40% of $1,000) is inde-
pendently deductible interest because this amount is
deductible as QPVLI and as business interest under
section 163(a). Assume A may deduct the full $400
as business interest after considering any applicable
limitations. A may deduct the interest paid on the
SPVL in multiple ways including—
(1) A may deduct this $400 of interest as QPVLI.
In this case, A would deduct all $1,000 of interest as
QPVLI; or
(2) A may deduct this $400 as business interest.
In this case, A would deduct $600 as QPVLI and
$400 as business interest, because A must reduce its
$1,000 of QPVLI by the $400 of interest deducted
as business interest to determine the amount A can
deduct as QPVLI. Additionally, A must report infor-
mation relating to that independently deductible
interest in the manner prescribed by the Internal Rev-
enue Service in guidance published in the Internal
Revenue Bulletin or in forms and instructions.
(ii) Example 2: QPVLI limited by dollar limita-
tion —(A) Facts. During the taxable year, A paid
$12,000 of interest on an SPVL. During the taxable
year, 30 percent of the use of the APV is attribut-
able to A’s trade or business. A may deduct up to
$10,000 of the interest as QPVLI after considering
the application of the dollar limitation and the mod-
ified adjusted gross income phaseout in paragraphs
(h)(1) and (2) of this section as A’s modified adjusted
gross income is less than $100,000.
(B) Analysis. $3,600 (30% of $12,000) is inde-
pendently deductible interest because this amount is
deductible as QPVLI and as business interest under
section 163(a). Assume A may deduct the full $3,600
as business interest after considering any applicable
limitations. A may deduct the interest paid on the
SPVL in multiple ways including—
(1) A may maximize QPVLI deducted. A may
deduct $10,000 of interest as QPVLI, and deduct
the remaining $2,000 as business interest. Addi-
tionally, A must report information relating to that
independently deductible interest in the manner
prescribed by the Internal Revenue Service in guid-
ance published in the Internal Revenue Bulletin or in
forms and instructions; or
(2) A may maximize business interest deducted.
A may deduct $3,600 of business interest, and the
remaining $8,400 as QPVLI. A has $12,000 of
interest paid on an SPVL and must reduce that by
the amount of independently deductible interest of
the taxpayer deducts as business interest ($3,600).
Additionally, A must report information relating to
that independently deductible interest in the manner
prescribed by the Internal Revenue Service guidance
published in the Internal Revenue Bulletin or in
forms and instructions.
(iii) Example 3: QPVLI limited by dollar lim-
itation—(A) Facts. During the taxable year, A paid
$15,000 of interest on an SPVL. During the taxable
year, 20 percent of the use of the APV is attribut-
able to A’s trade or business. A may deduct up to
$10,000 of the interest as QPVLI after considering
the application of the dollar limitation and the mod-
ified adjusted gross income phaseout in paragraphs
(h)(1) and (2) of this section as A’s modified adjusted
gross income is less than $100,000.
(B) Analysis. $3,000 (20% of $15,000) is inde-
pendently deductible interest because this amount is
deductible as QPVLI and as business interest under
section 163(a). Assume A may deduct the full $3,000
as business interest after considering any applicable
limitations. Therefore, the $3,000 is deductible as
business interest or as QPVLI. If A were to deduct
the $3,000 of independently deductible interest
as QPVLI, the application of the dollar limitation
in paragraph (h)(1) of this section would limit A’s
deduction to $10,000 of the $15,000 as QPVLI.
Instead, A may deduct $3,000 of interest as business
interest and deduct $10,000 as QPVLI as the modi-
fied adjusted gross income phaseout in paragraph (h)
(2) of this section does not reduce A’s QPVLI deduc-
tion amount. Additionally, A must report information
relating to that independently deductible interest in
the manner prescribed by the Internal Revenue Ser-
vice in guidance published in the Internal Revenue
Bulletin or in forms and instructions.
(h) Limitations—(1) Dollar limitation.
The amount taken into account as QPVLI
by a taxpayer for any taxable year may
not exceed $10,000 per Federal tax return
regardless of filing status.
(2) Modified adjusted gross income
phaseout. The amount taken into account
as QPVLI (after the application of the
dollar limitation in paragraph (h)(1) of
this section) is reduced (but not below
zero) by $200 for each $1,000 (or portion
thereof) by which the modified adjusted
gross income of the taxpayer for the tax-
able year exceeds $100,000 or, in the case
of a joint Federal income tax return, by
which the modified adjusted gross income
exceeds $200,000.
(3) Examples. The rules of this para-
graph (h) are illustrated by the following
examples:
(i) Example 1: Dollar limitation—(A) Facts. A
and B are married and file a joint Federal income tax
return. A incurs an SPVL to purchase Vehicle 1. B
incurs an SPVL to purchase Vehicle 2. During the
taxable year, A paid $6,000 of interest on the SPVL
for Vehicle 1. B paid $5,000 of interest on the SPVL
for Vehicle 2.
(B) Analysis. A and B can deduct no more than
$10,000 as QPVLI on their joint Federal income tax
return because of the dollar limitation described in
paragraph (h)(1) of this section.
(ii) Example 2: Modified adjusted gross income
phaseout—(A) Facts. A is an individual that paid
$7,000 of QPVLI on an SPVL during the taxable
year and files a Federal income tax return with a fil-
ing status as single. A has modified adjusted gross
income of $124,200 for the taxable year.
(B) Analysis. The maximum amount of QPVLI
that A can deduct for the taxable year is $2,000.
A’s modified adjusted gross income is greater than
$100,000. Therefore, the amount of QPVLI that can
be taken into account as QPVLI after the application
of the dollar limitation ($7,000) must be reduced by
$200 for each $1,000 (or portion thereof) that A’s
modified adjusted gross income exceeds $100,000.
A’s modified adjusted gross income exceeds
$100,000 by $24,200. Thus, the $7,000 amount must
be reduced by $5,000, which is equal to $200 x 25
($24,200 / $1,000 = 24.2 (which is then rounded up
to 25)).
(i) Applicability date. This section
applies to taxable years beginning after
December 31, 2024, and before January
1, 2029.
Par. 3. Section 1.6050AA-1 is added to
read as follows:
§1.6050AA-1 Information reporting
of applicable passenger vehicle loan
interest received in a trade or business
from an individual.
(a) Information reporting require-
ment—(1) Overview. The information
reporting requirements of section 6050AA
of the Internal Revenue Code (Code) and
this section apply to an interest recipient
who receives at least $600 of interest on a
specified passenger vehicle loan (SPVL)
from a payor of record for a calendar year.
See paragraph (b) of this section for defi-
nitions of terms used in section 6050AA
and this section.
(2) Reporting requirement. Except
as otherwise provided in this section, an
interest recipient that receives at least
$600 of interest on an SPVL for a calendar
year must—
(i) File an information return, as
described in paragraph (f) of this section,
with the Internal Revenue Service (IRS);
and
(ii) Furnish a statement to the payor of
record, as described in paragraph (g) of
this section, on the SPVL.
(3) Optional reporting. An interest
recipient may, but is not required to, report
its receipt of less than $600 of interest on
an SPVL for a calendar year. An interest

January 26, 2026 482 Bulletin No. 2026–5
recipient that chooses to file a return as
provided in this section and to furnish a
statement as provided in this section is
subject to the requirements of this section.
(b) Definitions. The following defi-
nitions apply for purposes of section
6050AA and this section:
(1) Applicable passenger vehicle
(APV). The term applicable passenger
vehicle or APV has the meaning provided
in §1.163-16(b)(1).
(2) Calendar year for which interest is
received —(i) In general. Except as pro-
vided in paragraph (b)(2)(ii) of this sec-
tion, the calendar year for which interest
is received is the later of the calendar year
in which the interest is received or the cal-
endar year in which the interest properly
accrues.
(ii) De minimis rule. An interest recip-
ient may treat interest received during the
current calendar year that properly accrues
by January 15 of the subsequent calendar
year as interest received for the current
calendar year. For example, if an interest
recipient receives a monthly interest pay-
ment on December 31, Year 1, that includes
interest accruing for the period December
5, Year 1, to January 5, Year 2, the interest
recipient may treat the entire interest pay-
ment as received in Year 1. If a portion of
the interest for which a payment received
in a calendar year accrues after January 15
of the subsequent calendar year, an interest
recipient must report as interest received
for the current calendar year only the por-
tion that properly accrues by the end of the
current calendar year. For example, if an
interest recipient receives a monthly pay-
ment that includes interest accruing for the
period December 20, Year 1, through Jan-
uary 20, Year 2, the interest recipient may
not report as interest received for Year 1
any interest accruing after December 31,
Year 1. The interest recipient must report
the interest accruing after December 31,
Year 1, as received for calendar Year 2.
(3) Interest recipient—(i) Trade or
business requirement. An interest recipi-
ent is a person that is engaged in a trade or
business (whether or not the trade or busi-
ness of lending money) and that, in the
course of that trade or business, receives
interest on an SPVL. For purposes of this
paragraph (b)(3)(i), if a person holds an
SPVL that was originated or acquired
in the course of a trade or business, the
interest on the SPVL is considered to be
received in the course of that trade or busi-
ness. The rules of this paragraph (b)(3)(i)
are illustrated by the following examples:
(A) Example 1: Financing entity—(1) Facts. Car
manufacturer finance subsidiary A lends money to
individual B to enable B to purchase an applicable
passenger vehicle. B makes a payment to A of inter-
est on the SPVL.
(2) Analysis. Under the rules of this paragraph
(b)(3), A is an interest recipient for purposes of sec-
tion 6050AA and must file an information return
reporting the interest received from B.
(B) Example 2: Interest not in the course of the
trade or business—(1) Facts. C, a person engaged
in the trade or business of being a physician, lends
money to individual D to enable D to purchase an
APV from car dealer A. D makes a payment to C of
interest on the SPVL.
(2) Analysis. C is not an interest recipient for pur-
poses of section 6050AA and this paragraph (b)(3)
because C will not receive the interest in the course
of the trade or business of being a physician. C does
not need to file an information return reporting the
interest received from D.
(C) Example 3: Dealer direct lending—(1) Facts.
E, a corporation, operates a car dealership under the
“buy here, pay here” model. E sells vehicles to retail
customers and, as part of its ordinary course of busi-
ness, extends financing directly to the purchasers.
Customer F buys a vehicle from E and enters into a
loan agreement with E for the amount necessary to
buy the vehicle. F pays E $1,200 of stated interest on
the indebtedness during the calendar year.
(2) Analysis. Because E is engaged in the trade or
business of selling automobiles and receives interest
in the course of that trade or business, E is an inter-
est recipient for purposes of section 6050AA and
must file an information return reporting the interest
received from F.
(ii) Interest received on behalf of
another person—(A) In general. A person
that, in the course of its trade or business,
receives or collects interest on an SPVL
on behalf of another person (for exam-
ple, the lender of record) is the interest
recipient (initial recipient) for purposes of
this paragraph (b)(3) with respect to the
SPVL. In this case, the reporting require-
ment of paragraph (a) of this section does
not apply to the transfer of interest from
the initial recipient to the person for which
the initial recipient receives or collects the
interest. For example, if financial institu-
tion A collects interest on behalf of finan-
cial institution B, A is the initial recipient
of interest for the SPVL and is subject
to the reporting requirements of section
6050AA. B is not required to report the
interest received on the SPVL from A.
(B) Exception. Paragraph (b)(3)(ii)
(A) of this section does not apply for any
period for which—
(1) An initial recipient does not possess
the information needed to comply with the
reporting requirement of paragraph (a) of
this section; and
(2) The person for which the interest
is received or collected would receive the
interest in the course of its trade or busi-
ness if the interest were paid directly to
that person.
(C) Application of exception. If the
exception provided by paragraph (b)(3)
(ii)(B) of this section applies, the person
for which the interest is received or col-
lected is the interest recipient with respect
to interest received or collected on the
SPVL.
(D) Presumption. For purposes of this
paragraph (b)(3)(ii), if interest is received
or collected on behalf of a person other
than an individual, that person is pre-
sumed to receive interest in the course of
its trade or business.
(4) Lender of record. The lender of
record is the person who, at the time the
loan is originated, is named as the lender
on the loan documents and whose right to
receive payment from the payor of record
is secured by a lien on the payor of record’s
APV. An intention by the lender of record
to sell or otherwise transfer the loan to a
third party subsequent to the close of the
transaction does not affect the determina-
tion of who is the lender of record.
(5) Payor of record. The payor of
record on an SPVL is the person speci-
fied on the books and records of the inter-
est recipient as the principal borrower on
the SPVL. If the books and records of the
interest recipient do not indicate which
borrower is the principal borrower, the
interest recipient must designate a bor-
rower as the principal borrower. The term
person for purposes of this paragraph (b)
(5) means any individual, decedent’s
estate, or trust that is not a grantor trust
within the meaning of §1.163-16(b)(9)
(non-grantor trust).
(6) Secretary. The term Secretary has
the meaning provided in section 7701(a)
(11) of the Code.
(7) Specified passenger vehicle loan
(SPVL). The term specified passenger
vehicle loan or SPVL has the same mean-
ing given by §1.163-16(b)(15).
(c) Reporting by foreign person. An
interest recipient that is not a United States
person, as defined in section 7701(a)(30),

Bulletin No. 2026–5 483 January 26, 2026
must report interest received on an SPVL
only if it receives the interest—
(1) At a location in the United States;
or
(2) At a location outside the United
States and—
(i) The interest recipient is a controlled
foreign corporation, within the meaning
of section 957(a) of the Code; or
(ii) 50 percent or more of the gross
income of the interest recipient from all
sources for the three-year period ending
with the close of the taxable year preced-
ing the receipt of interest (or for that part
of the period for which the person was in
existence) was effectively connected with
the conduct of a trade or business in the
United States.
(d) Reporting with respect to nonresi-
dent alien individual, foreign decedent’s
estate, or foreign non-grantor trust—(1)
In general. The reporting requirement
of paragraph (a) of this section does not
apply if the payor of record is a nonresi-
dent alien individual, a decedent’s estate
that is a foreign estate within the mean-
ing of section 7701(a)(31)(A), or a non-
grantor trust that is a foreign trust within
the meaning of section 7701(a)(31)(B).
(2) Nonresident alien individual, foreign
decedent’s estate, and foreign non-grantor
trust. For purposes of paragraph (d)(1)
of this section, an interest recipient must
apply the following documentation rules to
determine whether a payor of record is a
nonresident alien individual, foreign dece-
dent’s estate, or foreign non-grantor trust—
(i) If interest is paid outside the United
States, the interest recipient must satisfy
the documentary evidence standard pro-
vided in §1.6049-5(c) with respect to the
payor of record; and
(ii) If interest is paid within the United
States, the interest recipient must secure
from the payor of record an applica-
ble Form W-8 (or a substitute form) that
meets the validity and reliance require-
ments described in §1.1441-1(e)(4).
(3) Place of payment. For purposes of
paragraph (d)(2) of this section, the place
of payment is the place where the payor
of record completes the acts necessary to
effect payment. An amount paid by trans-
fer to an account maintained by an interest
recipient in the United States or by mail to
a United States address is considered to be
paid within the United States.
(e) Amount of interest received on
SPVL for calendar year. Whether an
interest recipient receives $600 or more of
interest on an SPVL for a calendar year is
determined on an SPVL-by-SPVL basis.
An interest recipient need not aggregate
the interest received on all of the SPVLs
of a payor of record held by the interest
recipient to determine whether the $600
threshold is met. Therefore, an interest
recipient need not report interest of less
than $600 received on an SPVL, even
though it receives a total of $600 or more
of interest on all of the SPVLs of the payor
of record for a calendar year.
(f) Requirement to file return—(1) Form
of return. An interest recipient must file a
return required by paragraph (a) of this sec-
tion on the form specified by the Secretary
for this purpose, with Form 1096, Annual
Summary and Transmittal of U.S. Informa-
tion Returns. An interest recipient may use
forms containing provisions substantially
similar to those in the forms specified by
the Secretary for this purpose if it complies
with applicable revenue procedures relat-
ing to those forms. An interest recipient
must file a separate return for each SPVL
for which it receives $600 or more of inter-
est for a calendar year.
(2) Information included on return.
An interest recipient must include on the
form specified by the Secretary for this
purpose—
(i) The name, address, and taxpayer
identification number of the payor of
record;
(ii) The name, address, and taxpayer
identification number of the interest recip-
ient;
(iii) The amount of interest received for
the calendar year;
(iv) The amount of outstanding princi-
pal on the SPVL as of the beginning of the
calendar year;
(v) The date of the origination of the
SPVL;
(vi) The year, make, model, and vehi-
cle identification number of the APV that
secures the SPVL;
(vii) The date the SPVL was acquired;
and
(viii) Any other information required
by the form specified by the Secretary for
this purpose or its instructions.
(3) Time and place for filing return;
cross-references to penalty and elec-
tronic filing requirements. An interest
recipient must file a return required by
paragraph (a) of this section on or before
February 28 (March 31 if filed electron-
ically) of the year following the calen-
dar year for which it receives the inter-
est. An interest recipient must file the
return required by paragraph (a) of this
section with the IRS office designated in
the instructions for the form. For provi-
sions relating to the penalty provided for
the failure to file a correct information
return required by paragraph (a) of this
section, see §301.6721-1 of this chapter.
See §301.6724-1 of this chapter for the
waiver of a penalty if the failure is due to
reasonable cause and not due to willful
neglect. See §301.6011-2(b) of this chap-
ter for requirement to submit the infor-
mation returns required by this section
electronically.
(g) Requirement to furnish statement—
(1) In general. An interest recipient that
must file a return under paragraph (a) of
this section must furnish a statement to the
payor of record.
(2) Information included on statement.
An interest recipient must include on the
statement that it must furnish to the payor
of record—
(i) The information required under
paragraph (f)(2) of this section;
(ii) A legend that—
(A) Identifies the statement as import-
ant tax information that is being furnished
to the IRS; and
(B) Notifies the payor of record that
if the payor of record is required to file
a return, a negligence penalty or other
sanction may be imposed if the IRS deter-
mines that an underpayment of tax results
because the payor of record overstated a
deduction for this interest (if any) on the
payor of record’s return; and
(iii) A legend stating that the payor of
record may be unable to deduct the full
amount of SPVL interest reported on the
statement; that limitations based on the
payor of record’s modified adjusted gross
income may apply; and that the payor of
record may deduct QPVLI only to the
extent the SPVL was incurred by, and
the QPVLI actually paid by, the payor of
record.
(3) Copy of form determined by the
Secretary to payor of record. An interest
recipient will satisfy the requirement of

January 26, 2026 484 Bulletin No. 2026–5
paragraph (g)(2)(i) of this section by fur-
nishing to a payor of record a copy of the
form determined by the Secretary (or sub-
stitute statement that complies with appli-
cable revenue procedures) containing all
the information filed with the IRS and all
the legends required by paragraph (f)(2)
of this section.
(4) Furnishing statement with other
information returns. An interest recipi-
ent may transmit the statement required
by paragraph (g)(1) of this section to the
payor of record with other information,
including other information returns, as
permitted by applicable revenue proce-
dures.
(5) Time and place for furnishing state-
ment. An interest recipient must furnish a
statement required by paragraph (g)(1) of
this section to the payor of record on or
before January 31 of the year following
the calendar year for which it receives the
interest. The interest recipient will be con-
sidered to have furnished the statement to
the payor of record if it mails the state-
ment to the payor of record’s last known
address.
(h) Applicability date. This section
applies to calendar years beginning after
December 31, 2024, and before January 1,
2029.
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 4. The authority citation for part
301 continues to read in part as follows:
Authority: 26 U.S.C. 7805
* * * * *
Par. 5. Section 301.6011-2 is amended
by revising paragraph (b)(1) to read as fol-
lows:
§301.6011-2 Required use of electronic
form.
* * * * *
(b) * * *
(1) If the use of Form 1042–S, Form
1094 series, Form 1095–B, Form 1095–
C, Form 1097–BTC, Form 1098, Form
1098–C, Form 1098–E, Form 1098–Q,
Form 1098–T, a Form to report infor-
mation required under section 6050AA,
Form 1099 series, Form 3921, Form
3922, Form 5498 series, Form 8027, or
Form W–2G is required by the applicable
regulations or revenue procedures for the
purpose of making an information return,
the information required by the form must
be submitted electronically, except as oth-
erwise provided in paragraph (c) of this
section. Returns filed electronically must
be made in accordance with applicable
revenue procedures, publications, forms,
or instructions.
* * * * *
Par. 6. Section 301.6721-1 is amended
by:
1. Revising paragraphs (h)(3)(xxvi)
and (xxvii);
2. Adding paragraph (h)(3)(xxviii); and
3. Revising paragraph (j)(2).
The additions and revision read as fol-
lows:
§301.6721-1 Failure to file correct
information returns.
* * * * *
(h) * * *
(3) * * *
(xxvi) Section 6050Y (relating to
returns relating to certain life insurance
contract transactions);
(xxvii) Section 6050Z (relating to
reports relating to long-term care pre-
mium statements); or
(xxviii) Section 6050AA (relating to
returns relating to QPVLI received in
trade or business from individuals).
* * * * *
(j) * * *
(2) Exceptions.
(i) Paragraph (h)(2)(xii) of this section
applies with respect to information returns
required to be filed after September 17,
2024.
(ii) Paragraph (h)(2)(xxviii) of this sec-
tion applies with respect to information
returns required to be filed for taxable
years beginning after December 31, 2024,
and before January 1, 2029.
Par. 7. Section 301.6722-1 is amended
by:
1. Revising paragraphs (e)(2)(xxxvii)
and (xxxviii);
2. Adding paragraph (e)(2)(xxxix); and
3. Revising paragraph (g)(2).
The additions and revision read as fol-
lows:
§301.6722-1 Failure to furnish correct
payee statements.
* * * * *
(e) * * *
(2) * * *
(xxxvii) Section 6226(a)(2) (regard-
ing statements relating to alternative to
payment of imputed underpayment by a
partnership) or under any other provision
of this title 26 that provides for the appli-
cation of rules similar to section 6226(a)
(2);
(xxxviii) Section 6050Z (relating to
reports relating to long-term care pre-
mium statements); or
(xxxix) Section 6050AA (relating to
returns relating to QPVLI received in
trade or business from individuals).
* * * * *
(g) * * *
(2) Exceptions.
(i) Paragraph (e)(2)(xxxv) of this sec-
tion applies with respect to payee state-
ments required to be furnished after Sep-
tember 17, 2024.
(ii) Paragraph (e)(2)(xxxix) of this sec-
tion applies with respect to payee state-
ments required to be furnished for taxable
years beginning after December 31, 2024,
and before January 1, 2029.
Frank J. Bisignano,
Chief Executive Officer.
(Filed by the Office of the Federal Register Decem-
ber 31, 2025, 8:45 a.m., and published in the issue of
the Federal Register for January 2, 2026, 91 FR 67)

Bulletin No. 2026–5 i January 26, 2026
Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds that
the same principle also applies to B, the
earlier ruling is amplified. (Compare with
modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modified is used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified and clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transactions.
This term is most commonly used in a ruling
that lists previously published rulings that
are obsoleted because of changes in laws or
regulations. A ruling may also be obsoleted
because the substance has been included in
regulations subsequently adopted.
Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a
period of time in separate rulings. If the
new ruling does more than restate the sub-
stance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is
self contained. In this case, the previously
published ruling is first modified and then,
as modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspended is used in rare situations
to show that the previous published rul-
ings will not be applied pending some
future action such as the issuance of new
or amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current
use and formerly used will appear in
material published in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.
—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.

January 26, 2026 ii Bulletin No. 2026–5
Numerical Finding List
1
Bulletin 2026–5
Announcements:
2026-01, 2026-04 I.R.B. 402
2026-02, 2026-05 I.R.B. 447
Notices:
2026-2, 2026-02 I.R.B. 304
2026-3, 2026-02 I.R.B. 307
2026-5, 2026-02 I.R.B. 309
2026-6, 2026-02 I.R.B. 313
2026-1, 2026-04 I.R.B. 365
2026-8, 2026-04 I.R.B. 368
2026-10, 2026-04 I.R.B. 378
Proposed Regulations:
REG-101952-24, 2026-03 I.R.B. 345
REG-110519-25, 2026-03 I.R.B. 353
REG-132251-11; REG-134219-08,
2026-03 I.R.B. 358
REG-103430-24, 2026-05 I.R.B. 447
REG-112829-25, 2026-05 I.R.B. 452
REG-113515-25, 2026-05 I.R.B. 455
Revenue Procedures:
2026-1, 2026-01 I.R.B. 1
2026-2, 2026-01 I.R.B. 119
2026-3, 2026-01 I.R.B. 143
2026-4, 2026-01 I.R.B. 160
2026-5, 2026-01 I.R.B. 258
2026-6, 2026-02 I.R.B. 314
2026-7, 2026-02 I.R.B. 316
2026-8, 2026-04 I.R.B. 380
2026-9, 2026-04 I.R.B. 393
2026-10, 2026-04 I.R.B. 394
Revenue Rulings:
2026-1, 2026-02 I.R.B. 299
2026-2, 2026-03 I.R.B. 342
Treasury Decisions:
10042, 2026-03 I.R.B. 320
10041, 2026-04 I.R.B. 360
10039, 2026-05 I.R.B. 403
10040, 2026-05 I.R.B. 416
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2025–27 through 2025–52 is in Internal Revenue Bulletin
2024–52, dated December 22, 2024.

Bulletin No. 2026–5 iii January 26, 2026
Finding List of Current Actions on
Previously Published Items
1
Bulletin 2026–5
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2025–27 through 2025–52 is in Internal Revenue Bulletin
2024–52, dated December 22, 2024.

Internal Revenue Service
Washington, DC 20224
Official Business
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