Holt v. Comm'r of Internal Revenue

• Decision Date: 30 July 1965
• Docket Number: 93475.,Docket Nos. 86329
• Citation: 44 T.C. 686
• Parties: BENTLEY L. HOLT AND BONNIE J. HOLT, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

44 T.C. 686

BENTLEY L. HOLT AND BONNIE J. HOLT, PETITIONERS,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket Nos. 86329

93475.

Tax Court of the United States.

Filed July 30, 1965.

William Howard Payne, for the petitioners.

Donald W. Wolf, for the respondent.

Petitioner Bentley, a noncompetent ward of the Federal Government and a tribal Indian, raised cattle on tribal lands by authority of a permit issued by the tribe. He had acquired the cattle with a loan obtained pursuant to a ‘rehabilitation’ program operated by the tribe for its members through a grant by the Federal Government. Petitioner disposed of the cattle in 1958 and contended that the income derived therefrom was exempt from Federal income taxation. Held, the absence of any provision in a treaty or Act of Congress exempting from taxation income so derived results in its taxation. Squire v. Capoeman, 351 U.S. 1 (1956), distinguished.

ARUNDELL,^* Judge:

Respondent determined deficiencies in petitioners' income tax for the years 1956, 1957, and 1958 in the amounts of $630.01, $786.38, and $1,204.57, respectively. Subsequently, all issues pertaining to 1956 and 1957 and all but one issue relating to 1958 were settled.

FINDINGS OF FACT

Bentley L. Holt, hereinafter referred to as Bentley or petitioner, and Bonnie J. Holt were husband and wife, residing near Isabel, S. Dak., in 1958. They filed a joint Federal income tax return for that year on the cash basis method of accounting with the district director of internal revenue for the district including South Dakota.

Bentley is of Indian blood and descent. He is a duly enrolled,¹ allotted, ² and recognized member of the Cheyenne River Tribe of Sioux Indians, hereinafter referred to as tribe. He has been designated Allottee No. 3704 on the Cheyenne River Reservation in South Dakota and is classified as a noncompetent³ ward⁴ of the Federal Government.

The constitution of the tribe contains the following provisions:

ARTICLE VIII— LAND

Sec. 1. Alloted lands.— Allotted lands, including heirship lands, within the Cheyenne River Reservation shall continue to be held as heretofore by their present owners. It is recognized that under existing law such lands may be condemned for public purposes, such as roads, public buildings, or other public improvements, upon payment of adequate compensation, by any agency of the State of South Dakota or of the Federal Government, or by the tribe itself. It is further recognized that under existing law such lands may be inherited by the heirs of the present owner, whether or not they are members of the Cheyenne River Sioux Tribe. Likewise it is recognized that under existing law the Secretary of the Interior may, in his discretion, remove restrictions upon such land, upon application by the Indian owner, whereupon the land will become subject to State taxes and may then be mortgaged or sold.

The right of the individual Indian to hold or to part with his land, as under existing law, shall not be abrogated by anything contained in this constitution, but the owner of restricted land may, with the approval of the Secretary of the Interior, voluntarily convey his land to the Cheyenne River Sioux Tribe either in exchange for a money payment or in exchange for an assignment covering the same land or other land, as hereinafter provided.

Sec. 2. Tribal lands.— The unallotted lands of the Cheyenne River Reservation and all lands which may hereafter be acquired by the Cheyenne River Sioux Tribe or by the United States in trust for the Cheyenne River Sioux Tribe shall be held as tribal lands, and no part of such land shall be mortgaged or sold. Tribal lands shall not be allotted to individual Indians but may be assigned to members of the Cheyenne River Sioux Tribe, or leased, or otherwise used by the tribe, as hereinafter provided.

Sec. 3. Leasing of tribal lands.— Tribal lands may be leased by the tribal council, with the approval of the Secretary of the Interior, for such periods of time as are permitted by law.

In the leasing of tribal lands preference shall be given, first to Indian cooperative associations, and, secondly, to individual Indians who are members of the Cheyenne River Sioux Tribe. No lease of tribal land to a non-member shall be made by the tribal council unless it shall appear that no Indian cooperative association or individual member of the tribe is able and willing to use the land and to pay a reasonable fee for such use.

Grazing permits covering tribal land may be issued by the tribal council, with the approval of the Secretary of the Interior, in the same manner and upon the same terms as leases.

Sec. 6. Grant of ‘exchange’ assignment.— Any member of the tribe who owns an allotment or any share of heirship land may voluntarily transfer his interest in such land to the tribe in exchange for any assignment to the same land or other land of equal value. If the assignee prefers, he may receive, in lieu of a specific tract of land, a proportionate share in a large grazing unit.

Assignments made under this section shall be known as ‘exchange’ assignments.

Sec. 10. Exchange of assignments.— Assignments may be exchanged between members of the Cheyenne River Sioux Tribe by common consent in such manner as the tribal council shall designate.

Sec. 11. Use of unassigned tribal land.— Tribal land which is not assigned, including tribal timber reserves, shall be managed by the tribal council for the benefit of the members of the entire tribe, and any cash income derived from such land shall accrue to the benefit of the tribe as a whole.

During 1958 Bentley derived income from ranching and farming operations on 3,520 acres of land. He had obtained 1,440 of the 3,520 acres as allotted lands pursuant to sections 1, 6, and 10 of article VIII of the tribal constitution. Title to 320 acres was held by Bentley in fee. Title to the remaining 1,760 acres was held in trust by the United States for the benefit of the tribe and this acreage was denoted ‘tribal lands.’

In 1954 Congress passed Pub. L. No. 776. The Act's purpose was to provide—

complete rehabilitation for all members of said Tribe who are residents of the Cheyenne River Sioux Reservation * * * and for relocating and reestablishing members of said Tribe * * * to the extent that the economic, social, religious, and community life of all said Indians shall be restored to a condition not less advantageous * * * than the condition that the said Indians now are in: Provided, That said fund provided for in this section shall be expended upon the order and direction of the Tribal Council of said Tribe, * * * (68 Stat. 1192 (1954).)

On February 6, 1956, the Commissioner of the Bureau of Indian Affairs, pursuant to authority delegated by the foregoing Act, approved the tribe's rehabilitation plan, hereinafter called the plan.

One aspect of this plan was the ‘repayment cattle program.’ Under this program, land, bulls, yearling heifers, and production materials were furnished by the tribe to its members interested in ranching, and they subsequently repaid the grants in the form of cattle and cash. Title to all cattle furnished to the member pursuant to the program remained in the tribe until full payment therefor. The cattle could be sold only with the permission of the tribe's governing body.

Pursuant to said plan, on September 24, 1956,Bentley and Bonnie applied for a rehabilitation loan of $10,000. The application incorporated the program's terms previously mentioned. They concurrently executed a note for $10,000 payable to the governing body of the tribe, the tribal council, and, to secure payment thereof, a mortgage on the 1,440 acres of allotted land. Finally, they executed an ‘Assignment of Trust Property and Power to Lease,‘ providing in part:

In consideration of the granting of a loan to the undersigned under the terms of loan agreement No. 182, the undersigned hereby assigns to the lender as security for repayment of such loan, the following: (a) All property, except land, which is now or may in the future be held in trust for the undersigned by the United States; (b) all income from trust land in which the undersigned now has or may in the future acquire an interest; (c) any income from any source and any funds from any source accruing to the individual Indian account of the undersigned. (Also) Any income received from lands held in trust by the United States Government or any income received from sales of personal property.

The undersigned hereby grants to the superintendent of the agency under which the lender is operating, full right, power and authority to demand, collect, sue, or receipt for any property and income of the undersigned, and to apply such income on the indebtedness of the undersigned to the lender. If payment is not made as set forth in the loan agreement of the undersigned, said superintendent or his authorized agent may take possession of any trust property or income of the undersigned, and dispose of the same in accordance with instructions of the Commissioner of Indian Affairs, and apply the proceeds on said indebtedness.

The loan application was approved on October 10, 1956, and the security agreement was approved on October 22 of that year. The proceeds of the loan were deposited in a bank account maintained jointly by petitioner and the tribe's ‘Rehab’ (apparently the tribe's rehabilitation council that administered the plan), and proceeds from the disposition of the cattle in 1958 were deposited in the account.

On December 1, 1956, Bentley obtained from the tribe a ‘Grazing Permit’ on ‘Range Unit No. 124.’ This unit included the 1,760 acres of tribal land. The permit, in part, provided:

By authority of law and under the regulations (25 CFR 71) prescribed by the Secretary of the Interior, Bentley L. Holt * * * is hereby granted permission to hold and graze livestock on the foregoing range unit * * * for a period beginning December 1, 1956, and terminating not later than ...