Nash v. Wiseman, Civ. No. 8536.

• Decision Date: 20 December 1963
• Docket Number: Civ. No. 8536.
• Citation: 227 F. Supp. 552
• Court: U.S. District Court — Western District of Oklahoma
• Parties: Juanita D. NASH, Ruby M. Fox, Robert DeWitt, LeRoy DeWitt, Doyle E. DeWitt, Charles DeWitt, Mae Belle K. Dixon, Plaintiffs, v. Earl R. WISEMAN, District Director of Internal Revenue, Defendant.

227 F. Supp. 552

Juanita D. NASH, Ruby M. Fox, Robert DeWitt, LeRoy DeWitt, Doyle E. DeWitt, Charles DeWitt, Mae Belle K. Dixon, Plaintiffs, v. Earl R. WISEMAN, District Director of Internal Revenue, Defendant.

Civ. No. 8536.

United States District Court W. D. Oklahoma, Civil Division.

December 20, 1963.

Houston Bus Hill, Howell & Stinchecum, Oklahoma City, Okla., for plaintiffs.

B. Andrew Potter, U. S. Atty., Leonard L. Ralston, Asst. U. S. Atty., Oklahoma City, Okla., Louis F. Oberdorfer, Asst. Atty. Gen., Tax Div. U. S. Dept. of Justice, Washington, D. C., for defendant.

RIZLEY, District Judge.

The above numbered and styled cause is before this Court on the motions for summary judgment filed by both parties pursuant to a stipulation filed herein. From the stipulation and briefs filed by the respective parties, it is clear that no genuine issue exists between the plaintiffs and the defendant as to any material fact.

This suit arises under the Internal Revenue Code of 1939 and jurisdiction is conferred on this Court by 28 U.S.C. § 1346(a) (1).

The plaintiffs in this action are all noncompetent Pottawatomie Indians who are wards of the United States acting by and through the Secretary of Interior and are under the jurisdiction of the Area Director of the Bureau of Indian Affairs at Anadarko, Oklahoma. The defendant is the District Director of Internal Revenue.

Grace Riordan, a non-competent Pottawatomie Indian, died intestate on June 10, 1952, owning and possessing at the time of her death certain lands and property, all being held under trust patents by the United States. The plaintiffs in this action are heirs of Grace Riordan.

Pursuant to her death, the Area Director of the Bureau of Indian Affairs prepared and filed Federal Estate Tax Returns on behalf of the estate of Grace Riordan on or about January 27, 1953, and on July 19, 1954 paid taxes on the estate in the sum of $74,684.00. The property included in the taxable estate consisted of the following: The allotted land of the decedent; the decedent's inherited portion of the allotted property of her deceased mother; inherited portion of deceased brother's estate; inherited portion of the allotted property of William McLane, deceased; trust fund cash arising from the previously mentioned properties; and a television set purchased from decedent's trust fund account.

In the months of September, October and November of 1956 the plaintiffs, with the exception of Ruby M. Fox and Charles DeWitt, filed claims for refund, claiming that the entire estate of Grace Riordan was exempt from the federal estate tax because the estate was composed of lands allotted to non-competent Indians.

On January 27, 1959, a refund was allowed for the tax paid on the value of the decedent's own allotted property and the refund on the remainder of the tax paid was denied in the sum of $72,845.48.

Following the denial of the refund and the refusal of the Area Director to maintain this action, the plaintiffs brought this suit. The Complaint has been amended to show that the Area Director refused to bring the action and that the plaintiffs were informed that it was their responsibility to institute their own law suit and retain their own attorney.

In disposing of this case we are of the opinion that two major issues must be decided. (1) Are inherited allotted lands and trust fund cash being held in trust by the United States Government under the General Allotment Act of February 8, 1887, as amended, exempt from federal estate taxes when a patent in fee simple had not been issued to the deceased Indian prior to her death or to her restricted non-competent Indian heirs? (2) And even though the property is exempt, is this action barred by the statute of limitations found in the Internal Revenue Code of 1939?

The first issue presented is whether property inherited by the decedent, and funds derived therefrom, are subject, upon her death, to federal estate taxes. The inherited property being allotted property of Indian allottees and wards of the United States Government under the General Allotment Act of February 8, 1887, as amended, at the time of their deaths, and the same inherited property passed from her estate to her heirs, all of whom are wards of the United States Government under said Allotment Act, and none of said inherited property having been conveyed by patent in fee simple by the United States Government, but has at all times been held by the United States Government in trust for future conveyance under said Allotment Act.

The Government's contention is that there is a difference, for federal estate tax purposes, between the allotted estate of a restricted Indian and the inherited estate of a restricted Indian, the whole estate being under the control of the United States Government by virtue of a trust. They base their contention on the following points:

1. No obligation exists since the decedent was not the original allottee of the properties in question, but acquired such properties by inheritance, thusly the rationale of Squire v. Capoeman, 351 U.S. 1, 76 S.Ct. 611, 100 L.Ed. 883, does not apply.

2. The federal estate tax is an "excise tax" on the transfer of property at death and is not a tax on the property itself; thusly the principle of Landman v. Commissioner, 10 Cir., 123 F.2d 787, is applicable.

The Government in Point 1 seems to be contending that if the income in the Squire case had come from the sale of timber from land which had been inherited but still restricted, then the assessment of an income tax would have been appropriate. It will suffice to say that the Service has not taken this view.

"As long as the Indian land is still allotted and restricted and held in trust by the United States, the income directly derived from it is tax-exempt whether held by the patent holder to whom it was directly allotted or by a patent holder who took it by inheritance. * * *" 1 Mertens, Law of Federal Income Taxation, Sec. 6A.16, p. 72.

Neither do we think that a close reading of the opinion justifies such a conclusion. The Government argued that the 1906 amendment to Section 6 of the General Allotment Act, which provided, among other things, that "all restrictions as to sale, incumbrance, or taxation of said land shall be removed", was directed solely at permitting state and local taxation after a transfer in fee. In answer the Supreme Court stated:

"* * *, but there is no indication in the legislative history of the amendment that it was to be so limited. The fact that this amendment antedated the federal income tax by 10 years also seems irrelevant. The literal language of the proviso evinces a congressional intent to subject an Indian allotment to all taxes only after a patent in fee is issued to the allottee. This, in turn, implies that, until such time as the patent is issued, the allotment shall be free from all taxes, both those in being and those which might in the future be enacted."

We, therefore, conclude that the most important factor to be considered is whether or not the fee simple patent has been issued to the particular property involved. In other words, if the patent has been issued, then the allotment is subject to all taxes, and if no patent has been issued, then the allotment is subject to no taxes.

In Big Eagle v. United States, 300 F. 2d 765 (Ct.Cl., 1962), the issue was whether royalty income from Osage tribal mineral deposits credited to the individual trust accounts of noncompetent Osage Indians was exempt from federal income tax. The facts showed that the income came from both allotted and inherited lands. The Court held that the income was not subject to the tax because the Osage Allotment Act said "all royalties and bonuses shall be turned over" to each respective Indian. The Court said in answer to the Government attorney's argument that Squire v. Capoeman, supra, did not help the Osage Indians here because the Osage Allotment Act has no such language as the General Allotment Act:

"This may be the letter but not the spirit of Capoeman which, like Blackbird (Mary Blackbird v. Com'r, 38 F.2d 976 (10th Cir., 1930), holds that the language of the Federal income tax law, broad as it is, does not extend to trust land income of noncompetent Indians even though there is no `definitely expressed' exemption in the tax law. As Justice Murphy said in Oklahoma Tax Commission v. United States, 319 U.S. 598, 623, 63 S.Ct. 1284, 1296, 87 L.Ed. 1612:

"`* * * It is immaterial that the legislative history of the Act is silent with regard to the tax status of Indian funds. We are dealing not with a word, nor with an act, but with a course of history.'"

In conclusion the Court said:

"Since 1906 Congress has

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