Perkins v. Comm'r of Internal Revenue

Decision Date12 August 2020
Docket NumberAugust Term 2019,Docket No. 19-2481
Parties Alice PERKINS, Fredrick Perkins, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
CourtU.S. Court of Appeals — Second Circuit

MARGARET A. MURPHY, Hamburg, NY (Gary D. Borek, Cheektowaga, NY, on the brief), for Petitioners-Appellants.

JACOB CHRISTENSEN, Attorney (Travis A. Greaves, Deputy Assistant Attorney General, Francesca Ugolini, Attorney, on the brief), for Richard E. Zuckerman, Principal Deputy Assistant Attorney General, Tax Division, U.S. Department of Justice, Washington, DC.

Before: Sack, Wesley, Livingston, Circuit Judges.

Wesley, Circuit Judge:

Alice Perkins is an enrolled member of the Seneca Nation of Indians (the "Seneca Nation" or the "Nation") who resides on the Seneca Nation's Allegany Territories with her husband, Fredrick.1 Together they operate A & F Trucking, which was involved in the mining and sale of gravel from land located within the Allegany Territories. The Perkinses filed their income taxes for the 2008 and 2009 years well after the filing due dates, claiming that the income earned from the sale of gravel mined on Seneca land was exempt from federal income tax by operation of a statute and two treaties between the United States and the Seneca Nation. After an audit, the Internal Revenue Service ("IRS") disagreed that the revenue generated from A & F Trucking's gravel sales was exempt from federal taxes and issued a notice of deficiency to the Perkinses assessing penalties for their late filings.

In November of 2014, the Perkinses filed this action in tax court seeking redetermination of their tax liabilities. They initially argued that a federal statute, the General Allotment Act of 1887, 24 Stat. 388 (codified at 25 U.S.C. § 334 et seq. ), created an exemption for income derived from Seneca land. After abandoning that argument, they then claimed that the 1794 Treaty of Canandaigua, 7 Stat. 44 (Nov. 11, 1794), and the 1842 Treaty with the Seneca, 7 Stat. 586 (May 20, 1842), created an exemption from income taxes for income derived from land within the Seneca Nation. The tax court disagreed, finding that neither treaty supported an exemption from federal income taxation.

On appeal, the Perkinses argue that the tax court failed to liberally construe the treaties and that doing so would have shown the treaties supported an exemption to federal income taxes. See, e.g. , Pet'rs’ Br. 13–25, 29–36. They also urge us to endorse language in several cases from other Courts of Appeals suggesting that income derived from Seneca land may be exempt under the Treaty of Canandaigua and the Treaty with the Seneca—which the Perkinses argue must be read together. See id. at 18–29.

We agree with the tax court. To the extent the language of either treaty could be construed to offer an exemption from taxes, those exemptions are constrained by the historical contexts under which they were drafted and therefore neither exemption extends to the Perkinses’ gravel mining revenue. The text and context of the Treaty of Canandaigua demonstrates that it creates no tax exemption applicable to the Perkinses. Dicta in other cases suggesting the opposite are incorrect; they would require the erroneous extension of a Supreme Court case that is inapposite where the land from which the income is derived is not held in trust by the United States for an American Indian taxpayer. While the 1842 Treaty with the Seneca contains an explicit exemption for taxes on Seneca land, we reject that a tax exemption applying to Seneca land must necessarily extend to income derived by individual members from Seneca land.

Because neither treaty exempts the Perkinses’ gravel-mining income from federal income taxation, we affirm the tax court's decision and remand for further proceedings consistent with this opinion.

BACKGROUND
I. Factual Background

The Seneca Nation was the largest of the Six Nations comprising the Iroquois Confederacy, otherwise known as the Haudenosaunee. See generally Lazore v. Comm'r , 11 F.3d 1180, 1182 (3d Cir. 1993) (discussing uncontradicted trial evidence); see also Culture , supra n.1. Historically, the Seneca Nation occupied territory throughout Central and Western New York. See Culture , supra n.1. The Seneca Nation continues to own and occupy land in Western New York, including an area known as the Allegany Indian Territories (the "Allegany Territories") near the border of Pennsylvania. See, e.g. , Seneca Nation of Indians, Territories , https://sni.org/government/territories/ (last visited August 11, 2020).

A. The Seneca Nation's Sand & Gravel Permitting Laws

The Seneca Nation retains ownership of land on its territories, and "allots" to individual members possessory interests in the use of a plot of the Nation's land. J.A. 98 § 102(C). Any land that is unallotted to individual members is retained by the Nation. J.A. 99 § 102(F). The Nation defines any "Nation Land" to mean "any lands" owned in fee simple by the Nation and subject to federal restrictions upon alienation, including the Allegany Territories. J.A. 100 § 102(R).

The Seneca Nation has specific laws governing the extraction and mining of natural resources on its land. "[A]ll minerals, including ... gravel located within any Nation lands shall be and remain the sole and exclusive property of the Nation." J.A. 102 § 301. To lawfully extract gravel from land belonging to the Seneca Nation, the Nation must issue a permit. J.A. 102 § 302(A). A permit requires approval by the Nation's government and the consent of the "owner of record," who is the "Nation member holding an allotment pursuant to Nation law, custom, tradition or usage." See J.A. 100 § 102(T), J.A. 102 § 302.

Individual members of the Seneca Nation do not own land on its territories in fee simple. Instead, the Nation provides to individual members lifetime possessory interests in land. See Statement of Undisputed Facts, Perkins v. United States , No. 16-cv-00495, Dkt. 72-1 at ¶ 8 (W.D.N.Y).2 The Nation retains ownership over the subsurface rights to all land in its territories. See id. at ¶ 9.

B. The Perkinses & A & F Trucking

Petitioner Alice Perkins is an enrolled member of the Seneca Nation and, with her husband Fredrick, operates A & F Trucking ("A & F"). Alice and Fredrick (together, the "Perkinses") live on the Allegany Territories. In 2008, the Seneca Nation issued Alice and A & F a permit to mine gravel from certain land located in the Allegany Territories. In exchange for the right to mine gravel from land belonging to the Seneca Nation, A & F paid the Nation royalties on the proceeds earned from selling that gravel. A & F's permit was valid through June of 2009, when the Nation imposed a moratorium on mining and withdrew A & F's permit. A & F continued selling gravel that had already been mined through 2011.

Alton Jimerson, a member of the Seneca Nation, had a lifetime possessory interest over the 116-Acre plot of land from which A & F mined gravel. See Statement of Undisputed Facts, Perkins v. United States , No. 16-cv-00495, Dkt. 72-1 at ¶¶ 8–9 (W.D.N.Y June 15, 2018). Alice Perkins and A & F obtained permission from Jimerson, pending approval by the Seneca Nation, to mine gravel from the 116-Acre plot. The Perkinses mined gravel from Jimerson's land until A & F's permit was withdrawn by the Seneca Nation in 2009.

C. The Perkinses’ Tax Returns

The Perkinses filed their joint individual income tax returns for the 2008 and 2009 years in October of 2011, well after the filing due dates. The Perkinses attached a "detail sheet" to their returns and claimed that the income generated from A & F's sale of gravel during 2008 and 2009 was exempt from federal income tax under the General Allotment Act of 1887, 24 Stat. 388 (Feb. 8, 1887) (codified at 25 U.S.C. § 334 et seq. ); see also 25 U.S.C. § 348. The Commissioner of Internal Revenue (the "Commissioner") issued a notice of deficiency to the Perkinses for the 20082010 tax years, and adjusted A & F's business income to include revenue generated from the sale of gravel mined from the Allegany Territories. The Commissioner also sought to impose penalties upon the Perkinses for their late and inaccurate filings under I.R.C. §§ 6651(a)(1) and 6662(a).

The Perkinses claimed the same exemption in their 2010 tax return. They paid the tax, interest, and penalties demanded by the IRS; and then, in 2016, filed a claim in the United States District Court for the Western District of New York seeking a refund. The district court in that action denied the Commissioner's motion to dismiss and the partiescross-motions for summary judgment, and the case is currently proceeding towards trial.3

II. Procedural History

In response to the Commissioner's notice of deficiency, the Perkinses filed a tax court petition seeking redetermination of their tax liabilities for the 2008 and 2009 tax years. Initially, they argued that the revenues from A & F's sale of gravel were not subject to federal income taxation because that income was "earned from the depletion" of American Indian land held in trust by the United States under the Indian General Allotment Act of 1887. See J.A. 84–85 (citing Squire v. Capoeman , 351 U.S. 1, 76 S.Ct. 611, 100 L.Ed. 883 (1956) ). The Perkinses later abandoned this argument for the reasons discussed below, and instead claimed that two treaties between the United States and the Seneca Nation created an exemption from federal income taxation for income derived from Seneca land. They argued that the 1794 Treaty of Canandaigua, 7 Stat. 44 (Nov. 11, 1794), and the 1842 Treaty with the Seneca, 7 Stat. 586 (May 20, 1842), exempted "income derived directly from" land belonging to the Seneca Nation from federal income taxation, which would include their gravel sales. J.A. 116–17; see J.A. 104.

The Commissioner moved for summary judgment.4 The tax court found that the Treaty of Canandaigua did not exempt from taxation the...

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