Karmun v. C.I.R.

• Decision Date: 12 December 1984
• Docket Number: No. 84-7308,84-7308
• Citation: 749 F.2d 567
• Parties: -480, 84-2 USTC P 10,003 Harry H. KARMUN and Alice G. Karmun, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 567

749 F.2d 567

55 A.F.T.R.2d 85-480, 84-2 USTC P 10,003

Harry H. KARMUN and Alice G. Karmun, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

No. 84-7308.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Nov. 9, 1984.

Decided Dec. 12, 1984.

Steven C. Moore, Boulder, Colo., for petitioners-appellants.

Nancy Morgan, U.S. Dept. of Justice, Washington, D.C., for respondent-appellee.

Appeal from a Decision of the United States Tax Court.

Before WRIGHT, SNEED, and ALARCON, Circuit Judges.

SNEED, Circuit Judge:

This is an appeal from a judgment of the United States Tax Court, 82 T.C. 201, finding deficiencies in the amounts of $1,931 and $8,688.83 in appellants' federal income taxes for 1977 and 1978. We affirm the Tax Court's judgment.

I. FACTS AND PROCEEDINGS BELOW

Taxpayers Harry and Alice Karmun, who are natives of Alaska, filed federal income tax returns for 1977 and 1978 with the Internal Revenue Service Center in Ogden, Utah. For the same years, appellant Harry Karmun and his father, Alfred Karmun, filed partnership returns for their partnership named Alfred K. Karmun & Son (the partnership). The partnership operates a herd of approximately 2,000 reindeer under the provisions of the Reindeer Industry Act of 1937, 25 U.S.C. Sec. 500 (1982) (the Reindeer Act or the Act). The reindeer were grazed on public land under grazing permits The Reindeer Act was adopted in order to provide a "means of subsistence for the Eskimos and other natives of Alaska." 25 U.S.C. Sec. 500 (1982). To this end, the Act authorized the Secretary of the Interior to acquire for the Eskimos reindeer and other property owned by nonnatives. The Act further authorized the Secretary to distribute, or hold in trust, the reindeer and other property and to organize, manage, and regulate the reindeer industry in such a manner as to establish and maintain for such Alaska natives a self-sustaining business. Id.

issued by the Secretary of the Interior pursuant to the Act. The income here in dispute was appellants' distributive share of the partnership's income, all of which was realized from the sale of reindeer and reindeer products during 1977 and 1978.

On their joint federal income tax returns for 1977 and 1978, appellants did not include as income Harry Karmun's distributive share of the partnership income for those years. On examination of those returns, the Commissioner determined that this share should have been included in gross income for each year, and accordingly, determined income tax deficiencies in the respective amounts of $1,931 and $8,688.83. Appellants thereafter filed a petition with the Tax Court seeking a redetermination of the asserted deficiencies on the ground that the Reindeer Act exempts from taxation income derived from reindeer and reindeer products. The Tax Court rejected that contention. Therefore, the sole question on appeal is whether earnings received by Alaskan natives from the sale of reindeer and reindeer products are exempt from federal income taxation under the Reindeer Act.

II. DISCUSSION

Appellants make five arguments. First, they contend that, although the Reindeer Act does not expressly exempt from taxation income derived from reindeer and reindeer products, this court ought to imply an exemption on the basis of the purposes and policies of the Act. Second, they argue that, under section 500g of the Reindeer Act, reindeer and reindeer products are "restricted property" as that term is used in Indian law, and that, under the principles of Squire v. Capoeman, 351 U.S. 1, 76 S.Ct. 611, 100 L.Ed. 883 (1956), income derived from restricted property is exempt from federal taxation. Third, they claim that the contracts conveying the reindeer to them from the Government evince an intent to exempt from taxation the income derived from operation of the herd. Fourth, appellants argue that this court ought to give great weight to an opinion issued by the Department of the Interior suggesting that a tax exemption is appropriate under the Act. Lastly, they argue that the IRS has conceded, through previous revenue rulings, that the income in dispute here is tax exempt. We shall consider each of these arguments in turn.

A. The Requirement of an Explicit Exemption

This circuit has long held that Indians are subject to federal income taxes, as are other citizens, unless an exemption from taxation can be found in the language of a Treaty or Act of Congress. Hoptowit v. Commissioner, 709 F.2d 564, 565 (9th Cir.1983); United States v. Anderson, 625 F.2d 910, 913 (9th Cir.1980), cert. denied, 450 U.S. 920, 101 S.Ct. 1367, 67 L.Ed.2d 347 (1981); Commissioner v. Walker, 326 F.2d 261, 263 (9th Cir.1964). Notwithstanding the canon of interpretation that resolves ambiguities in statutes and treaties in favor of Indians, we have recognized that the intent to exempt income of Indians from taxation must be clearly expressed. Hoptowit, 709 F.2d at 565; Confederated Tribes of Warm Springs v. Kurtz, 691 F.2d 878, 882 (9th Cir.1982); Anderson, 625 F.2d at 913. Policy considerations by themselves are insufficient to justify the implication of a tax exemption absent express exemptive language. Anderson, 625 F.2d at 916-17; Fry v. United States, 557 F.2d 646, 649 (9th Cir.1977), cert. denied, 434 U.S. 1011, 98 S.Ct. 722, 54 L.Ed.2d 754 (1978).

No clear expression of intent to exempt appears in the Reindeer Act. Appellants argue, nevertheless, that the Act taken as a whole suggests that Congress intended an exemption. In making this argument, appellants rely principally on Stevens v. Commissioner, 452 F.2d 741 (9th Cir.1971). They read Stevens to say that this court will imply an exemption, absent express exemptive language, on the basis of the purposes and policies of a statute.

Appellants misread Stevens. In Stevens, this court held that income derived from lands purchased under the Indian Reorganization Act of 1934 (the IRA) is exempt from federal income taxation. The court reasoned that although the IRA itself does not contain express exemptive language, it has to be construed in pari materia with the General Allotment Act of 1887 (the GAA), which does contain such clear language. Stevens, 452 F.2d at 746; see also Anderson, 625 F.2d at 913 n. 5. Since the Stevens court interpreted the GAA and the IRA to be part of a single statutory scheme, express exemptive language in the GAA provided a basis for implying an exemption under the IRA. Stevens, 452 F.2d at 746. Stevens does not, as appellants contend, stand for the proposition that an exemption will be implied absent express exemptive language.

B. Squire v. Capoeman

In Squire v. Capoeman, 351 U.S. 1, 76 S.Ct. 611, 100 L.Ed. 883 (1956), the Supreme Court reviewed the imposition of capital gains tax on the sale of timber cut from land allotted under the General Allotment Act of 1887. The GAA provided that allotted land was to be held in trust by the United States for the "sole use and benefit" of the Indian allottee, subject to a promise to convey the fee interest to the allottee at the end of the trust period "free of all charge or incumbrance whatsoever." 25 U.S.C. Sec. 348 (1982). Finding this "free-from-incumbrance" language to evince a congressional intent to exempt allotted land from all taxes, the Court held that income derived directly from the land was exempt from federal taxation. Squire, 351 U.S. at 8, 76 S.Ct. at 615. No such language appears in the Reindeer Act. Income is tax exempt under Squire only when the governing treaty or statute contains language which can reasonably be construed to confer an...