Karmun v. Comm'r of Internal Revenue

• Decision Date: 30 January 1984
• Docket Number: Docket No. 21168–82.
• Citation: 82 T.C. 201,82 T.C. No. 18
• Parties: HARRY H. KARMUN AND ALICE G. KARMUN, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

82 T.C. 201

82 T.C. No. 18

HARRY H. KARMUN AND ALICE G. KARMUN, Petitioners

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 21168–82.

United States Tax Court

Filed January 30, 1984.

Held: The Reindeer Industry Act of 1937, 25 U.S.C. sec. 500, (1982) does not provide for the exemption from Federal income taxes of Alaskan native reindeer herd operators who operate under the regulation of the Secretary of the Interior; thus, petitioners are taxable on their share of the income of a partnership engaged in the operation of such a herd. Herbert A. Ross, for the petitioners.

Thomas N. Tomashek and Richard Shipley, for the respondent.

OPINION

FEATHERSTON, Judge:

Respondent determined deficiencies in the amounts of $1,931 and $8,688.83 in petitioners' Federal income taxes for 1977 and 1978, respectively. The issue to be decided is whether petitioners, who are natives of Alaska, are exempt from Federal income taxes by the Reindeer Industry Act of 1937, 25 U.S.C. sec. 500, on income earned from the sale of reindeer and reindeer products.

All of the facts are stipulated.

At the time of filing the petition, petitioners resided in Deering, Alaska. For 1977 and 1978, they filed Federal income tax returns with the Internal Revenue Service Center, Ogden, Utah. For the same years, petitioner Harry H. Karmun and his father, Alfred K. Karmun, filed partnership returns for their partnership named Alfred K. Karmun & Son (the partnership). The income here in dispute was petitioners' distributive share of the partnership's income, all of which was realized from the sale of reindeer and reindeer products during 1977 and 1978.¹ The reindeer were grazed on public land under grazing permits issued by the Secretary of the Interior (Secretary) pursuant to the Reindeer Industry Act of 1937, 25 U.S.C. sec. 500 (hereinafter the Reindeer Act or the Act).

The partnership's reindeer, referred to as the Karmun herd, numbered approximately 2,000 in 1977 and 1978. The Karmun herd is one of the largest of approximately 12 to 15 Alaskan reindeer herds operated under the Reindeer Act.

The Reindeer Act, codified as 25 U.S.C. secs. 500a through 500n, was adopted for the declared purpose, among others, of “providing means of subsistence for the Eskimos and other natives of Alaska.”² To this end, the Act authorized the Secretary to acquire, if necessary by eminent domain, for and on behalf of the Eskimos and other natives of Alaska, reindeer and other property owned by nonnatives and to use the property so acquired for the management and operation of reindeer herds in Alaska. 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 and the grazing of public lands in such manner as to establish and maintain for such Alaska natives a self-sustaining business.

It is stipulated that both petitioners are natives of Alaska as that term in used in the Reindeer Act. They contend that the income that they received from the partnership's ownership and operation of the Karmun herd is exempt from Federal income taxes. Respondent contends that the Reindeer Act does not grant petitioners exemption from Federal income taxes.

Petitioners are correct that natives of Alaska, as defined in the Reindeer Act,³ have essentially the same status in relation to the Federal Government as American Indians. The term Indian as used in laws relating to American Indians includes Eskimos, Aleuts, and other aboriginal tribes insofar as this meaning is suitable to the circumstances of the case. United States v. Native Village of Unalakleet, 188 Ct.Cl. 1, 6–9, 411 F.2d 1255, 1257–1258 (1969); Pence v. Kleppe, 529 F.2d 135, 138, n. 5 (9th Cir. 1976). The Federal Government has recognized its responsibility of maintaining a form of guardianship and providing a degree of protection for Alaska natives. Cf. Alaska Pacific Fisheries v. United States, 248 U.S. 78 (1918). We must, therefore, follow the principles of the decided cases on the tax status of American Indians in weighing the merits of the parties' arguments.

The courts have recognized that sections 1 and 61 of the Internal Revenue Code of 1954 broadly provide that the income, from whatever source derived, of every individual is subject to the Federal income tax. The mere fact that an individual is an Indian does not in itself insulate him from taxation. Superintendent v. Commissioner, 295 U.S. 418 (1935). The income of Indians, Eskimos and other natives of Alaska is thus taxable unless an exemption from taxation can be found in the language of a treaty or act of Congress. Commissioner v. Walker, 326 F.2d 261, 263 (9th Cir. 1964), affg. in part and revg. in part 37 T.C. 962 (1964), and cases cited therein; Jourdain v. Commissioner, 71 T.C. 980, 987 (1979), affd. per curiam 617 F.2d 507 (8th Cir. 1980). The “intent to exclude must be definitely expressed.” Choteau v. Burnet, 283 U.S. 691, 696 (1931). The Court is not free to create by implication a tax exemption for petitioners. Mescalero Apache Tribe v. Jones, 411 U.S. 145, 156 (1973); Fry v. United States, 557 F.2d 646, 649 (9th Cir. 1977); Jourdain v. Commissioner, supra at 990. We can hold for petitioners only if we can find “express exemptive language in some statute or treaty.” United States v. Anderson, 625 F.2d 910, 913 (9th Cir. 1980).

Nothing in the Reindeer Act refers to an exemption from Federal income taxes, and we have not located, nor have petitioners cited, any exemptive language in any other statute or treaty. We must, therefore, hold that petitioners are taxable on their distributive share of the partnership income derived from the operation of the Karmun reindeer herd.

Emphasizing that Eskimos and other natives of Alaska enjoy the same status and are entitled to the same protection as American Indians in the continental United States, petitioners cite the following provision of 25 U.S.C. sec. 1322(b) as a “statute showing Congressional intent regarding nontaxability”:

Nothing in this section shall authorize the alienation, encumbrance, or taxation of any real or personal property, including water rights, belonging to any Indian or any Indian tribe, band or community, that is held in trust by the United States or is subject to a restriction against alienation imposed by the United States; * * *

This provision is not a part of the Reindeer Act. It is part of a statute (P.L. 90–284, Title IV, Apr. 11, 1968, 82 Stat. 78) defining the jurisdiction to be exercised by State courts over causes of action to which Indians are parties. The provision does not refer to Federal income taxes. It is designed to preserve the existing limits on the power of States, not the United States, to impose taxes on property which belongs to Indians or Indian tribes, is held in trust by the United States, or is subject to restrictions or alienations imposed by the United States. See Bryan v. Itasca County, 426 U.S. 373 (1976); Eastern Band of Cherokee Indians v. Lynch, 632 F.2d 373 (4th Cir. 1980). The statute, therefore, does not aid petitioners' cause.

Petitioners next argue that, under the provisions of 25 U.S.C. sec. 500i, ⁴ which is part 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 (1956), income derived from restricted property is exempt from Federal income taxes. We do not agree.

In Squire v. Capoeman, supra, the United States sought to tax an Indian's capital gain resulting from the severance and sale of timber from land allotted to him under the Indian General Allotment Act of 1887, 24 Stat. 388, 25 U.S.C. sec. 331, et seq. (hereinafter the Allotment Act).⁵ The Allotment Act 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 encumbrance whatsoever.” 25 U.S.C. sec. 348. Finding a congressional intent in this specific statutory language to exempt allotted land from all taxes until the fee interest was transferred to the allottee ( 351 U.S. at 8), the Supreme Court held that income derived directly from the land was exempt from tax. The Court went on to say that “[t]he purpose of the allotment system was to protect the Indians' interest and “to prepare the Indians to take their place as independent, qualified members of the modern body politic'.” ( 351 U.S. at 9); Critzer v. United States, 220 Ct.Cl. 43, 49–50, 597 F.2d 708, 712 (1979). Further noting the fact that the cutting of the timber had substantially decreased the value of the land, the Supreme Court stated ( Squire v. Capoeman, 351 U.S. at 10):

Unless the proceeds of the timber sale are preserved for respondent [the Indian taxpayer], he cannot go forward when declared competent with the necessary chance of economic survival in competition with others. This chance is guaranteed by the tax exemption afforded by the General Allotment Act * * *.

There is no language in the Reindeer Act comparable to the free-of-encumbrance language found in the Allotment Act. Moreover, the whole purpose and concept of the Reindeer Act is different from that of the Allotment Act. The legislative history of the Reindeer Act shows that it was not intended to benefit or promote the welfare of the 12 to 15 Alaskan reindeer herd owners but was intended to provide a reliable food supply for the Eskimos of northwestern Alaska. H. Rept. No. 1188, 75th Cong., 1st. Sess., Reindeer Industry in Alaska (1937); S. Rept. No. 474, 75th Cong., 1st. Sess., Alaska Reindeer Industry (1937).

These congressional reports state that the coming of the white man to the western and northwestern parts of Alaska brought disaster to the natives' food supply. To save the natives from starvation, 1,280 reindeer were...