15.5 Welfare and Other Assistance

Under the general welfare exclusion doctrine, most welfare payments will be excluded from income.1  The criteria for exclusion under this doctrine are payment from a government general welfare fund, promotion of general welfare (i.e., the payment is based on need), and the payment not made for services.2

Fraudulently obtained public assistance is taxable income. Cancellation of an overpayment of public assistance may create debt cancellation income unless excluded by the Internal Revenue Code or the general welfare exclusion doctrine.3

• 1For a list of revenue rulings and court cases applying or denying exclusion under the general welfare exclusion doctrine, see I.R.M. 4.88.1, Ex. 4.88.11-3.
• 2See Robert W. Wood, Updating General Welfare Exclusion Authorities, 123 Tax Notes (TA) 1443 (June 22, 2009); Bannon v. Comm’r, 99 T.C. 59 (1992).
• 3See, e.g., Waterhouse v. Comm’r, T.C. Memo 1994-467 (waiver of VA overpayment creates debt cancellation income).