1 

Message from the Director 

 ITG News

 Keeping First Nations Informed

 Publication 4267-C 

 Catalog Number 37830C Great Lakes Edition January 2007 

IN THIS ISSUE 

Message from the 1 

What is a Nontaxable 

General Welfare Payment? 

2 

Am I Required to File 

Form 8027? 3 

Guidance on Per Diem 

Reimbursements 4 

How to Avoid an 

Averaged Failure to 

Deposit Penalty 5 

Making Federal Tax 

Deposits on time 

6 

W-2 Preparation tips 

for fishing employees 

6 

Tax Calendar for the 

4th Quarter 

8,9 

 

ITG Area Contacts 7 

Telephone Tax Refund 7 

We recently released our FY 2007 Work Plan, which details the goals and 

objectives of the office of Indian Tribal Governments for the current year. 

In keeping with our mission to raise the level of voluntary compliance, the 

Plan presents a balance of compliance check, outreach, education, and 

examination activity. 

It is important to understand that each of these activities serves a specific 

purpose. For example, Compliance Checks represent an opportunity to 

determine any areas where a tribal entity may be experiencing difficulties, 

and affords them the opportunity to effect remedies at minimal risk. Outreach 

and Education are designed to afford tribal entities the opportunity to receive 

specialized training or information on current areas of concern, so that they 

are better positioned to be fully compliant with relevant areas of federal tax 

law and/or the Bank Secrecy Act. 

Examinations are the final part of our balanced approach to compliance. 

Although Tribes have many unique tax issues, the Internal Revenue Service 

has responsibility and authority to administer the federal tax laws for all types 

of entities, including governments. This includes the examination of books 

and records which affords the opportunity for an in-depth assessment of compliance. If a tribal entity has adhered to the requirements of the law, then an 

examination will likely not result in a tax change. If an error is discovered, 

then the ITG Specialist will propose a change in the entity's tax liability. The 

Specialist may also make recommendations for changes in future practices so 

as to avoid further problems in subsequent tax periods. 

While we attempt to limit our examinations to areas that we believe have a 

likelihood for error, the mere fact that we conduct an examination does not 

mean that an error is present. In fact, approximately 1 in every 6 examinations we conduct does not result in a tax or filing change. 

We know that an examination is often worrisome, but I hope you understand 

the importance it has in ensuring compliance, and helping to identify errors 

before they grow into major problems. Information on the examination process is available on our web site at www.irs.gov/tribes. 

 Christie Jacobs 
2 

What is a Nontaxable General Welfare Payment? 

One of the most common issues we encounter is the question of taxability of support programs offered by 

tribes to their members. This issue has become increasingly common as tribes have developed economic 

enterprises that provide them with funds necessary to create these programs. Common examples are 

housing assistance, scholarships, medical care, transportation, and nutrition. As these programs are developed, it is important to determine the potential tax consequence to the recipients. Unfortunately there is a 

general lack of understanding of what constitutes a nontaxable general welfare payment. 

As a starting point, it is important to realize that there is no statutory exemption of welfare payments from 

federal taxation. The Internal Revenue Service, with tacit approval from Congress and the courts, has administratively created a concept known as the General Welfare Doctrine. This doctrine has been used to exempt 

from federal income taxation any payments made to, or for the benefit, of individuals that are based on 

“need”. This can be financial need, health need, economic need, educational need, etc., but 

the program must define the need and the criteria employed to determine the eligibility of recipients. 

It is insufficient to simply designate a program as being “need-based”, or to fund it from the percentage of 

net gaming revenue designated for general welfare under an approved Revenue Allocation Plan, and assume 

that will make it nontaxable. The Internal Revenue Service is the sole governmental agency that can rule on 

the federal tax consequence of support programs. 

In creating these programs, there are several factors that should be employed to properly determine the 

potential federal tax impact on recipients: 

1. What is the “need” that will be met by the program? 

2. Is the “need” one that routinely would be considered by various levels of government to be a 

necessary item that the public would support for funding from a public source? 

3. Does the program have clear qualifying criteria, as well as screening and evaluative mechanisms 

to ensure that recipients meet the criteria? 

4. Is there an existing ruling from the Internal Revenue Service that addresses the federal tax 

consequence of an essentially similar program? 

5. Has the responsible tribal governing body officially enacted the program? 

Numerous Private Letter Rulings that address various governmental programs are available for review on our 

web site under the Published Guidance page at www.irs.gov/tribes. If so desired, a Tribe can request its own 

Private Letter Ruling on its particular program. 

Remember, the General Welfare Doctrine is an administrative creation of the Internal Revenue Service. In 

order for a support program to qualify for exemption from federal taxation, a Tribe needs to ensure it has 

fully addressed the issue of “need”. Use of the term “general welfare”, or the fact that the program is funded 

by the “general welfare” component of a Revenue Allocation Plan, is insufficient to make the payments nontaxable. 

Questions concerning the tax consequence of an existing or planned program, or the method to secure a 

Private Letter Ruling, should be directed to your ITG Specialist. 
3 

Am I Required to File Form 8027? 

Form 8027 Employer’s Annual Information Return of Tip Income and Allocated Tips is an annual information 

return required to be filed by “large food and beverage establishments.” A “large food and beverage establishment” is defined at IRC Section 6053 as any trade or business, (A) which provides food or beverages, (B) 

where tipping is customary, and (C) where there are more than 10 employees, who work more than 80 hours 

on a typical business day. 

Ten or more employees means the total employees at all of the employer’s establishments who provide services in connection with the provision of food and beverages; not just the directly tipped employees. Therefore, the hostess, wine stewards, cooks, kitchen help, etc. would be considered together with the directly 

tipped employees (waiters, beverage servers, etc.) in determining whether or not you are required to file 

Form 8027. 

A separate Form 8027 is required for each food and beverage establishment operated by the employer. In 

addition, one Form 8027 is required for each venue in the same building where the customers occupy a separate area for the activity and where the gross receipts for the activity are recorded separately for that food 

and beverage activity. For instance, a casino that has a beverage service, a buffet, and two restaurants, 

generally would be required to file four (4) Forms 8027. 

The Form 8027 requires an allocation to tipped employees when the establishment has reported tips of less 

than 8% of gross receipts. The instructions for Form 8027 give detailed information on how to make the allocation. If you are in a tip agreement with the IRS and your reported tips are less than 8%, the allocation is 

reported only on the W-2s of those employees who are not participating (not reporting tips at or above the 

agreed tip rate) in the tip agreement. 

Form 8027 is due the last day of February (by March 31st if filing electronically), for the preceding calendar 

year. Form 8809 Application for Extension of Time to File Information Returns can be used to file for extension but must be filed before the due date for filing Form 8027. See the instructions for Form 8027 and Form 

8809 for where to file. 

If you are an establishment participating in a Gaming Industry Tip Compliance Agreement (GITCA) with the 

IRS, you do not have to file Form 8027 as long as you maintain the data in a comparable format and provide 

the data to the ITG Tip Coordinator by the Form 8027 due date. A suggested format for this purpose is available through your ITG Specialist or the ITG Tip Coordinator. Participants in a Tip Rate Determination Agreement (TRDA) must file the Form 8027 with the IRS, Cincinnati, Ohio 45999, and send a courtesy copy to the 

ITG Tip Coordinator, at IRS—attn: Julia Reese, 12600 West Colfax Avenue - Suite C-300, Lakewood, Colorado 

80215, by the due date. 

Employee Tip Income Program Questions 

 

ITG has a full-time Tip Coordinator to assist you with any questions about tip reporting agreements. 

If you are interested in securing a Tip Agreement, have questions concerning your existing 

agreement, or have received a notice about tip reporting responsibilities that is unclear, 

please contact Julie Reese at (303) 231-5250, ext. 236. 
4 

IRS Provides Guidance on Per Diem Expense 

Reimbursements Paid By Employers

The Internal Revenue Service has issued guidance emphasizing the need for employers to track the amount 

of expense reimbursement allowances paid to employees on a per diem basis. Revenue Ruling 2006-56 tells 

employers that if they routinely pay per diem allowances in excess of the federal per diem rates, but do not 

track the allowances and do not require the employees either to actually substantiate all the expenses or 

pay back the excess amounts, and do not include the excess amounts in the employee’s income and wages, 

then the entire amount of the expense allowances is subject to income tax and employment tax. 

Generally, amounts employers pay employees to reimburse them for substantiated business expenses are not 

subject to income tax or employment tax. For reimbursements for expenses for meals and other incidentals 

associated with business travel, employees get this exclusion for reimbursements for each day of travel up 

to the federal per diem rates without having to actually substantiate the amounts of the expenses. However, 

if an employer pays expense allowances that exceed the federal per diem rates, the excess amounts are 

subject to income tax and employment tax if they are not repaid to the employer, unless the employee 

actually substantiates all of the expenses covered by the per diem allowance. 

The revenue ruling illustrates when a per diem allowance arrangement that fails to track the excess amounts 

and does not include the unsubstantiated, unrepaid excess amounts in the employee’s income and wages 

constitutes a pattern of abuse of the rules for tax-free expense reimbursements. The finding that the arrangement is abusive causes all allowances paid under the arrangement to be subject to income tax and 

employment tax, not just the excess amounts. While the revenue ruling uses a scenario in the trucking 

industry because of the industry’s widespread use of per diem allowances, the analysis in the revenue ruling 

applies to any employer in any industry that uses per diem allowances to reimburse employee expenses. 

Revenue Ruling 2006-56 is effective immediately. However, the IRS recognizes that employers may need 

some time to adjust their systems so they can track excess allowances and account for them correctly. As 

a result, the IRS has instructed agents not to apply the results under the revenue ruling for taxable periods 

ending on or before Dec. 31, 2006, in the absence of intentional noncompliance. 

Update on Customer Satisfaction Survey 

As we prepare for issuance of this edition of ITG News, we are just finalizing our analysis of the feedback 

from the recent survey. We will be posting a summary report on the web site at www.irs.gov/tribes in the near future, 

and will also post a listing of specific actions we will undertake to address any concerns that surfaced. 

Our thanks to everyone who participated in this important annual undertaking. 

 

Reporting Abuses/Schemes 

We continue to work with tribes and tribal officials to address financial abuses and schemes 

being promoted in Indian country. Working together can help ensure the integrity of tribal finances, and eliminate the 

threats posed by individuals with schemes that appear “too good to be true” and often are. 

If you are aware of financial impropriety, or of a promoter advocating a scheme that appears highly suspect, you can 

contact the ITG Abuse Detection and Prevention Team at (716) 686-4860, or via e-mail at 

tege.itg.schemes@irs.gov
5 

Publication 4268—Employment Tax Guide for Tribes 

Our on-line Employment Tax Guide was updated in October 2006. You can download this 

comprehensive guide from a link on our landing page at www.irs.gov/tribes. 

Self-Assess Your Federal Tax Compliance Risks 

Tribal entities can now self-assess their federal tax compliance and work with ITG to address any problems they uncover. Entities electing to participate receive a fillable template from ITG, and are provided with the name of a local ITG 

Specialist who will serve as their resource during the process. 

Information on the program, as well as an on–line request form, is available through the “Enhancing Federal Tax Compliance” link on the right-hand of the ITG web site landing page at www.irs.gov/tribes, 

or you can make a inquiry about the program via e-mail to tege.itg.tefac@irs.gov

How to Avoid an Averaged Failure to Deposit (FTD) Penalty

The best way to avoid an averaged FTD penalty is to provide a complete and valid record of Federal tax liability (ROFT), 

with the return. The ROFT is a record of the dates and dollar amounts of payments or wages that were paid and is used 

to verify the timeliness of deposits. Form 941 semi-weekly schedule depositors report their ROFT information on Schedule B (Form 941), Employer’s Record of Federal Tax Liability. Form 945 semi-weekly schedule depositors report their 

ROFT information on Form 945A, Annual Record of Federal Tax Liability. Where as monthly schedule depositors report 

their monthly ROFT information on the ROFT section of the return. 

The ROFT is not accepted for processing if a negative liability amount is entered or if the total of the liability amounts 

entered on the ROFT does not equal the total amount of tax reported on the return. When the ROFT information is 

deemed invalid it is excluded from the return processing and a CP 207 notice is issued with a blank ROFT that must be 

completed and returned. If the corrected ROFT is not returned on or before the date requested, an averaged FTD penalty is computed by averaging the total tax amount reported on the return and distributing those amounts equally 

throughout the tax period. Your deposits will be considered late when applied to the averaged ROFT amounts, because 

the averaged ROFT amounts and dates figured will differ from your actual tax liability amounts and incurred dates in 

which you made your deposits for. The penalty rate used to calculate the penalty increases according to the number of 

days the tax liability remains unpaid. The averaged liability amounts not properly or timely deposited will be charged at 

the penalty rates shown below: 

 

• 2 percent for deposits made 1 to 5 days late. 

• 5 percent for deposits made 6 to 15 days late. 

• 10 percent for deposits made 16 or more days late, but within 10 days of the date of the first notice we sent 

you asking for the balance of tax due. 

• 10 percent for deposits made at unauthorized financial institutions. 

• 10 percent for amounts subject to electronic deposit requirements but not deposited using EFTPS. 

• 15 percent for amounts still unpaid more than 10 days after the date of the first notice we sent you asking for 

the balance of tax due. 

Remember to follow the steps below when completing the tax liability schedule. 

• Report each tax liability (not your deposits) on the tax liability schedule. 

• Verify that the total amount reported on your tax liability schedule equals your total tax liability shown on your 

return. 
6 

W-2 Preparation Tips for Fishing Rights-Related Employees 

♦ Do not include exempt wages on Form 941, Form 940, or Form W-2.

♦ Wages paid for non-fishing activities are subject to all applicable employment taxes and employment tax reporting, including Form W-2.

♦ If only fishing rights-related income is paid to an individual, no Form 

W-2 is required.

♦ A letter stating the amount and tax-exempt nature of his/her wages 

may be issued to the employee to be used for various non-tax purposes, such as bank loans.

See IRS Publication 4268, Employment Tax Guide for Tribes for additional information, or contact your local ITG Specialist. 

Suggestions... 

Do you have a topic you would like to see covered in a future issue of ITG News? Is there someone you 

know who would like to receive their own copy of ITG News? If so, please contact Sandy King at Sandra.King@irs.gov or (906) 635-9389 

Making Federal Tax Deposits on time 

For deposits made by EFTPS to be on time, you must initiate the transaction 

at least one business day before the date that the deposit is due. 

 Same Day Payment Option. Because ACH is a two-step process (initiate 

the instructions one day, the money actually moves the next), some taxpayers (e.g. $100,000 depositors) have difficulty making timely deposits. If taxpayers miss the 

ACH cutoff time to initiate a timely deposit, they can use the same day settlement feature referred to as the Electronic Tax Application (ETA). 

Under EFTPS, all taxpayers may use ETA as a routine payment option, and as a backup payment method. Enrollment in EFTPS automatically enrolls the taxpayer to use ETA as a backup 

payment method. Instructions on ETA are provided in the EFTPS enrollment package. 

The taxpayer’s financial institution will need to follow guidelines outlined In “Making Sameday Federal Tax Payments, Guidelines for Financial Institutions” at www.frbservices.org/ 

Treasury/pdf/Sameday.pdf. All information about EFTPS can be found by accessing 

www.eftps.gov. 
7 

ITG Area Contacts 

Great Lakes Area

Michigan, Minnesota, Wisconsin 

Telephone, Internet, & Mailing Address

Call: Customer Account Services (Toll free) 877-829-5500 

Visit: Indian Tribal Governments at www.irs.gov/tribes

Write: Internal Revenue Service 

 Indian Tribal Governments SE:T:GE:ITG 

 1111 Constitution Ave., NW 

John Walters, Manager

Fargo, ND

701-239-5400

John.L.Walters@irs.gov

John Walters, Manager

Fargo, ND

701-239-5400

John.L.Walters@irs.gov

Rick Ziton, Specialist

St. Paul, MN

651-312-7734

Richard.J.Ziton@irs.gov

Stan Wiatros, Specialist

St. Paul, MN

651-312-7732

Stanley.J.Wiatros@irs.gov

Sandy King, Specialist

Sault Ste. Marie, MI

906-635-9389

Sandra.King@irs.gov

Telephone Tax Refund 

In May 2006, the IRS announced that individuals, businesses and tax-exempt 

organizations who paid the long-distance telephone excise tax can request a 

refund of those taxes on their 2006 federal income tax returns. This includes 

tribal governments, if taxes have been paid. The federal government stopped collecting the 

federal excise tax on long-distance telephone service beginning August 1, 2006, and refunds 

could be available for taxes billed after February 28, 2003. 

The IRS has developed a formula to use as an alternative to actual costs when computing the 

amount of the refund request. All taxpayers have the option of requesting a refund under either the actual or the formula method. 

Much more information about requesting the refund is available at www.irs.gov. 

Note: Excise taxes are not charged to tribal governments on the cost of local phone service 

used in essential governmental functions. If you are paying these taxes, you will need to file 

an exemption certificate with your local service provider. IRS does not provide an official form 

for this purpose, check with your local service provider-- many have their own version. 
8 

*= Make a Payroll Deposit if you are under the semi-weekly deposit rule. 

** = Make a Monthly Deposit if you qualify under that rule. 

Federal Tax Calendar for First Quarter 2007 

NOTE: Deposits made through EFTPS must be initiated at 

least one day prior to the due dates listed above in order to 

be timely. 

SUN MON TUE WED THU FRI SAT 

1 2 3 4 

*make a deposit for 

12/27-12/29 

5 

* make a deposit for 

12/30-1/2 

6 

7 8 9 10 

* make a deposit for 

1/3-1/5 

Employees report 

December tip income 

to employers if $20 or 

more 

11 12 

* make a deposit for 

1/6-1/9 

13 

14 15 16 

** Make a deposit for 

December if under the 

monthly deposit rule 

17 18 

*make a deposit for 

1/10-1/12 

19 

*make a deposit for 

1/13-1/16 

20 

21 22 23 24 

*make a deposit for 

1/17-1/19 

25 26 

*make a deposit for 

1/20-1/23 

27 

28 29 30 31 

*make a deposit for 

1/24-1/26 

January 2007 

SUN MON TUE WED THU FRI SAT 

1 2 

*make a deposit for 

1/27-1/30 

3 

4 5 6 7 

*make a deposit for 

1/31-2/2 

8 9 

*make a deposit for 

2/3-2/6 

10 

11 12 

Employees report 

January tip income to 

employers if $20 or 

more 

13 14 

*make a deposit for 

2/7-2/9 

15 

** Make a deposit for 

January if under the 

monthly deposit rule 

16 

*make a deposit for 

2/10-2/13 

17 

18 19 20 21 22 

*make a deposit for 

2/14-2/16 

23 

*make a deposit for 

2/17-2/20 

24 

25 26 27 28 

*make a deposit for 

2/21-2/23 

February 2007 
9 

*= Make a Payroll Deposit if you are under the semi-weekly deposit rule. 

**= Make a Monthly Deposit if you qualify under that rule. 

NOTE: Deposits made through EFTPS must be initiated at 

least one day prior to the due dates listed above in order to 

SUN MON TUE WED THU FRI SAT 

1 2 

*make a deposit for 

2/24-2/27 

3 

4 5 6 7 

*make a deposit for 

2/28-3/2 

8 9 

*make a deposit for 

3/3-3/6 

10 

11 12 

Employees report 

February tip income 

to employers if $20 or 

more 

13 14 

*make a deposit for 

3/7-3/9 

15 

** Make a deposit for 

February if under the 

monthly deposit rule 

16 

*make a deposit for 

3/10-3/13 

17 

18 19 20 21 

*make a deposit for 

3/14-3/16 

22 23 

*make a deposit for 

3/17-3/20 

24 

25 26 27 28 

*make a deposit for 

3/21-3/23 

29 30 

*make a deposit for 

3/24-3/27 

31 

March 2007 

Return Filing Dates

 January 2nd

 > File Form 730 and pay the tax on applicable wagers accepted during November 2006. 

 January 31st

 > File Form 941 for the 4th quarter of 2006 If all deposits paid on time and in full, file by February 12th. 

 > File Form 940 for 2006 if liable for Federal Unemployment Tax (not participating or current with state unemployment tax). 

 If all deposits paid on time and in full, file by February 12th. 

 > File Form 730 and pay the tax on applicable wagers accepted during December. 

 > File Form 945 for 2006. If all deposits paid on time and in full, file by February 12th. 

 > File Form 943 for 2006 (agricultural entities). If all deposits paid on time and in full, file by February 12th. 

 February 28th

 > File information returns for all payments reported to recipients on Forms 1099, 1098, 5498, and W-2G, using Form 1096 as 

 a transmittal. If filing these forms electronically, file by March 31st. 

 > File Form W-3, along with copy A of Forms W-2 you issued for 2006. File by March 31st if filng electronically. 

 > File Form 730 and pay the tax on applicable wagers accepted during January. 

 > File Form 8027 if you are a large food and beverage establishment. File by March 31st if filing electronically. 

 March 31st

 > File Form 730 and pay the tax on applicable wagers accepted during February.