Hoptowit v. Comm'r of Internal Revenue
| Decision Date | 28 January 1982 |
| Docket Number | 7097-79.,Docket Nos. 7095-79,7096-79 |
| Citation | 78 T.C. 137 |
| Parties | WILLIAM HOPTOWIT and ELAINE A. HOPTOWIT, et al.,1 PETITIONERS v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Petitioner William H. Hoptowit, a “noncompetent Indian,” received income from the operation of a “smokeshop” on the Yakima Indian Reservation during 1975 and 1976. In 1976, he also received per diem payments in return for services performed as a member of the Yakima Tribal Council. Held, no treaty or statute exempts petitioner from taxation on the income that he received from the operation of the smokeshop or in return for services, and he is, therefore, taxable on such income. Robert Wayne Bjur, for the petitioners.
Thomas N. Tomashek, for the respondent.
In these consolidated cases, respondent determined deficiencies in petitioners' Federal income taxes as follows:
+------------------------------------------------------------------+
¦Docket No.¦Petitioner ¦Year¦Deficiency¦
+----------+---------------------------------------+----+----------¦
¦ ¦ ¦ ¦ ¦
+----------+---------------------------------------+----+----------¦
¦7095-79 ¦William Hoptowit and Elaine A. Hoptowit¦1975¦$12,608.40¦
+----------+---------------------------------------+----+----------¦
¦7096-79 ¦Elaine A. Hoptowit ¦1976¦1,216.00 ¦
+----------+---------------------------------------+----+----------¦
¦7097-79 ¦William H. Hoptowit ¦1976¦38,484.38 ¦
+------------------------------------------------------------------+
In an amendment to his answer, respondent alleges an increased deficiency in the income tax of petitioner William H. Hoptowit for 1976 (docket No. 7097-79) resulting from the inclusion of an additional $9,000 in his taxable income for that year. It has been agreed that there is no deficiency in the income tax of petitioner Elaine A. Hoptowit for 1976 (docket No. 7096-79).
The issues for decision are:
(1) Whether income earned by an enrolled member of the Yakima Indian Nation from the sale of tobacco products in a “smokeshop” on the Yakima Reservation is subject to Federal income taxation.
(2) Whether amounts received in return for services performed as a member of the Yakima Tribal Council are subject to Federal income taxation.
Petitioners William H. Hoptowit and Elaine A. Hoptowit, husband and wife, resided in Toppenish, Wash., at the time they filed the petitions herein. They filed a joint Federal income tax return for 1975 and separate (as married individuals filing separately) Federal income tax returns for 1976 with the Internal Revenue Service Center, Ogden, Utah.
Petitioner William H. Hoptowit (hereinafter petitioner) is a noncompetent, enrolled member of the Yakima Indian Nation (the tribe).2 During 1975 and 1976, he owned and operated a business in Mabton, Wash., known as the Mabton Smokeshop (the smokeshop). The smokeshop business was conducted within the boundaries of the Yakima Indian Reservation (sometimes referred to as the reservation) on property held in trust for the benefit of another member of the tribe. The property, known as Allotment No. Odd Tract No. 5076, was held by petitioner under a lease prepared and approved by the U.S. Department of the Interior, Bureau of Indian Affairs, in accordance with applicable regulations. 3
Petitioner was authorized to conduct his smokeshop business by the Yakima Tribal Council (the council), the governing body of the tribe. The council permitted petitioner to operate the business during 1975 and 1976 in accordance with Resolution T-22-75, which had been adopted by the council on September 10, 1974. The resolution provided that only members of the tribe could obtain permits to operate smokeshops and be employed at smokeshops on the reservation. Under the resolution, petitioner was required to purchase all of his cigarette inventory from the tobacco warehouse of the tribe, which he did.
One of the council's purposes in adopting Resolution T-22-75 was to obtain funds through tribal taxation of cigarette sales in order to provide social services for needy members of the tribe. The resolution was approved by the Secretary of the Interior. The Bureau of Indian Affairs administered the distribution of, and payments received for, cigarettes wholesaled by the tribe.
During 1975 and 1976, petitioner derived net profits from his smokeshop business in the respective amounts of $40,308.10 and $70,993.52.4 Petitioner reported these profits from the operation of his business on Schedule C of the joint Federal income tax return that he filed for 1975 and on Schedule C of the separate Federal income tax return that he filed for 1976; however, he excluded the profits from his reported gross income on the ground that they were exempt from taxation pursuant to the treaty with the Yakimas, 12 Stat. 951 (1855) (the treaty).
During 1976, in addition to operating the smokeshop, petitioner served as an elected member of the council. The council, which consists of 14 members who serve 4-year terms,5 was established in its present form by a resolution of the general council adopted in 1944.6
As governing officials, members of the council have the duty to protect and preserve the treaty and to continuously serve the best interests of the people of the tribe. In performing their duties, council members are required to travel a great deal to hearings and meetings concerning the tribe. They receive per diem payments for days on which they actually serve in their official capacity. The per diem amounts are determined by the council in its annual budget resolution, which is subject to the approval of the Bureau of Indian Affairs.
During 1976, petitioner received from the tribe per diem payments totaling $18,000 in return for services performed as a member of the council. The funds from which petitioner's per diem payments were made were originally held in trust by the U.S. Government for the benefit of the tribe.7 These funds were distributed to the tribe in accordance with the council's annual budget resolution. The tribe did not withhold income or FICA taxes from the $18,000 paid to petitioner for his services as a council member, and he did not include that amount in his taxable income for 1976.
The Yakima Indian Reservation comprises 1,367,405 acres. Of this acreage, 842,978 acres are tribally owned, 274,988 acres are allotted to tribal members, 23 acres are Government owned, and 249,416 acres are owned by non-Indians. These lands were reserved from some 10,800,000 acres that were ceded to the United States in the treaty. Article II of the treaty provides that the reservation “shall be set apart * * * for the exclusive use and benefit” of the tribe. The treaty further provides, in pertinent part, as follows:
ARTICLE IV. In consideration of the above cession, the United States agree to pay to the said confederated tribes and bands of Indians, in addition to the goods and provisions distributed to them at the time of signing this treaty, the sum of two hundred thousand dollars, in the following manner, that is to say: sixty thousand, to be expended under the direction of the President of the United States, the first year after the ratification of this treaty, in providing for their removal to the reservation, breaking up and fencing farms, building houses for them, supplying them with provisions and suitable outfit, and for such other objects as he may deem necessary, and the remainder in annuities, as follows: for the first five years after the ratification of the treaty, ten thousand dollars each year, commencing September first, 1856; for the next five years, eight thousand dollars each year; for the next five years, six thousand dollars per year; and for the next five years, four thousand per year.
All which sums of money shall be applied to the use and benefit of said Indians, under the direction of the President of the United States, who may from time to time determine, at his discretion, upon what beneficial objects to expend the same for them. And the superintendent of Indian affairs, or other proper officer, shall each year inform the President of the wishes of the Indians in relation thereto.
ARTICLE V. The United States further agree to establish at suitable points within said reservation, within one year after the ratification hereof, two schools, erecting the necessary buildings, keeping them in repair, and providing them with furniture, books, and stationery, one of which shall be an agricultural and industrial school, to be located at the agency, and to be free to the children of the said confederated tribes and bands of Indians, and to employ one superintendent of teaching and two teachers; to build two blacksmiths' shops, to one of which shall be attached a tin shop, and to the other a gunsmith's shop; one carpenter's shop, one wagon and ploughmaker's shop, and to keep the same in repair and furnished with the necessary tools; to employ one superintendent of farming and two farmers, two blacksmiths, one tinner, one gunsmith, one carpenter, one wagon and ploughmaker, for the instruction of the Indians in trades and to assist them in the same; to erect one saw-mill and one flouring-mill, keeping the same in repair and furnished with the necessary tools and fixtures; to erect a hospital, keeping the same in repair and provided with the necessary medicines and furniture, and to employ a physician; and to erect, keep in repair, and provided with the necessary furniture, the buildings required for the accommodation of the said employees. The said buildings and establishments to be maintained and kept in repair as aforesaid, and the employees to be kept in service for the period of twenty years.
And in view of the fact that the head chief of the said confederated tribes and bands of Indians is expected,...
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