Stevens v. CIR

• Decision Date: 26 November 1971
• Docket Number: No. 26193,26281.,26193
• Citation: 452 F.2d 741
• Parties: Bryan L. STEVENS and Bryan L. Stevens as surviving spouse of Alma Stevens, Deceased, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. Bryan L. STEVENS and Bryan L. Stevens as surviving spouse of Alma Stevens, Deceased, Petitioner-Appellee, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

452 F.2d 741 (1971)

Bryan L. STEVENS and Bryan L. Stevens as surviving spouse of Alma Stevens, Deceased, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

Bryan L. STEVENS and Bryan L. Stevens as surviving spouse of Alma Stevens, Deceased, Petitioner-Appellee, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellant.

Nos. 26193, 26281.

United States Court of Appeals, Ninth Circuit.

November 26, 1971.

Charles A. Hobbs (argued), Jerry C. Straus, Patricia L. Brown, of Wilkinson, Cragun & Barker, Washington, D. C., Stephen Granat, of Granat & Cole, Malta, Mont., for appellant.

Meyer Rothwacks (argued), Bennet N. Hollander, Carolyn R. Just, of Dept. of Justice, Johnnie M. Walters, Asst. Atty. Gen., Tax Div., K. Martin Worthy, Chief Counsel, Washington, D. C., for appellee.

Robert D. Dellwo (argued), Spokane, Wash., amicus curiae.

Before KOELSCH and HUFSTEDLER, Circuit Judges, and JAMESON,^* District Judge.

JAMESON, District Judge:

These cross-appeals involve alleged deficiencies in income tax for the years 1958 and 1959.

The taxpayer, Bryan L. Stevens, is a noncompetent¹ Gros Ventre Indian, enrolled with the Fort Belknap Indian Reservation. All of his income was derived from farming and ranching operations on reservation land, including lands acquired by (1) allotment, (2) gift from his mother to whom the land had been allotted, (3) purchase from other Indian allottees, and (4) purchase of inherited interests in allotted lands from the Regional Director, Bureau of Indian Affairs. Legal title to all of these lands was held by the United States in trust for the taxpayer.² In addition the taxpayer had leased a substantial acreage from the Gros Ventre tribe and from relatives.³

The joint returns filed by the taxpayer and his spouse, Alma Stevens,⁴ for 1958 and 1959 show adjusted gross income in the respective amounts of $13,013.01 and $12,534.08. The taxpayer computed and paid self-employment tax on this sum. He paid no income tax, attaching to each return a statement that he was "a ward of the government, being an enrolled Indian at the Fort Belknap Indian Agency, Harlem, Montana" and claiming exemption from federal income taxes by virtue of Rev.Rul. 56-342, 1956-2 Cum.Bul.20.

In a notice of deficiency the Commissioner made certain adjustments which increased the gross adjusted income for 1958 to $19,582.45 and for 1959 to $13,988.78.⁵ In this notice the Commissioner held that all of the taxpayer's income was taxable except for the pro-rata portion allocable to his original allotment and the land acquired from his mother. Later the Commissioner took the position, and now contends, that only the income from those lands granted to the taxpayer and his mother as "homestead" allotments were exempt.⁶

The taxpayer filed a petition with the Tax Court for redetermination of the deficiency. The Tax Court held that the portions of taxpayer's income derived from leased lands and from the lands purchased from Joseph Shawl and Lillian Werle were taxable, 52 T.C. 330, 54 T.C. 351. The taxpayer does not question the Tax Court's holding that the income from the leased lands is taxable, but appeals from that portion of the judgment holding that the income from the lands purchased from the other Indian allottees, i. e. Shawl and Werle, were not exempt from taxation. (No. 26,193). The Tax Court held that income from all lands acquired by the taxpayer by allotment, gift from his mother, and purchase from the James Shawl estate were exempt. From this portion of the judgment the Commissioner has appealed. (No. 26,281.) The Department of the Interior supports the position of the taxpayer on both appeals.

The determination of both appeals involves primarily the applicability and scope of the decision of the Supreme Court in Squire v. Capoeman, 1956, 351 U.S. 1, 76 S.Ct. 611, 100 L.Ed. 883. In that case the taxpayers' lands had been granted to them under the General Allotment Act of 1887, 24 Stat. 388, 25 U.S.C. § 331 et seq. The Act provides that at the expiration of the trust period the United States will convey the land by patent "in fee, discharged of said trust and free of all charge or incumbrance whatsoever." 25 U.S.C. § 348. An amendment to Section 6 of the Act, 25 U.S.C. § 349, gives the Secretary of the Interior discretionary power to issue a fee patent which would remove "all restrictions as to sale, incumbrance, or taxation of said land * * *." The Court held that under these provisions income derived from the sale of timber from the allotted lands was exempt from capital gains taxes.

The Court recognized that "to be valid, exemptions to tax laws should be clearly expressed" and that the "Government's promise to transfer the fee `free of all charge or incumbrance whatsoever' * * is not expressly couched in terms of non-taxability," but referred to its prior holding in Carpenter v. Shaw, 1930, 280 U. S. 363, 367, 50 S.Ct. 121, 74 L.Ed. 478, that "Doubtful expressions are to be resolved in favor of the weak and defenseless people who are the wards of the nation, dependent upon its protection and good faith," quoting the words of Chief Justice Marshall in Worcester v. State of Georgia, 6 Pet. (31 U.S.) 515, 582, 8 L. Ed. 483, that, "The language used in treaties with the Indians should never be construed to their prejudice." 351 U.S. at 6-7, 76 S.Ct. at 615.

The Court also quoted with approval the opinion of Attorney General Stone in which he stated that he was

"(U)nable, by implication, to impute to Congress under the broad language of our Internal Revenue Acts an intent to impose a tax for the benefit of the Federal Government on income derived from the restricted property of these wards of the nation; property the management and control of which rests largely in the hands of officers of the Government charged by law with the responsibility and duty of protecting the interests and welfare of these dependent people. In other words, it is not lightly to be assumed that Congress intended to tax the ward for the benefit of the guardian." 34 Op.Atty. Gen. 439, 445 (1925) as quoted in Capoeman, 351 U.S. at 8, 76 S.Ct. at 616.

Capoeman is not a technical or narrow decision; nor is its holding limited to capital gains taxes. Rather the Court found implicit in Section 5 and the amendment to Section 6 of the General Allotment Act a "congressional intent to subject an Indian allotment to all taxes only after a patent in fee is issued to the allottee."⁷ 351 U.S. at 8, 76 S.Ct. at 616.

The Commissioner argues that by reason of differences in the provisions of the General Allotment Act of 1887 and the Fort Belknap Allotment Act of March 3, 1921, 41 Stat. 1355, under which the allotted lands were granted, Squire v. Capoeman is not applicable. It is true that the Fort Belknap Allotment Act does not contain the provision that the allotments are granted "free of all charge or incumbrance." Federal policy toward particular Indian tribes is often manifested through a combination of general laws, special acts, treaties, and executive orders. All must be construed in pari materia in ascertaining congressional intent. Kirkwood v. Arenas, 9 Cir. 1957, 243 F.2d 863, 867.

By a Joint Resolution of June 19, 1902, 32 Stat. 744, Congress provided:

"Insofar as not otherwise specially provided, all allotments in severalty to Indians, outside of the Indian Territory, shall be made in conformity to the provisions of the Act approved February eighth, eighteen hundred and eighty-seven, entitled `An Act to provide for the allotment of lands in severalty to Indians on the various reservations, and to extend the protection of the laws of the United States and the Territories over the Indians, and for other purposes,\' and other general Acts amendatory thereof or supplemental thereto, and shall be subject to all the restrictions and carry all the privileges incident to allotments made under said Act and other general Acts amendatory thereof or supplemental thereto."

The provisions of the General Allotment Act were extended to lands purchased for the benefit of Indians by the Act of February 14, 1923, 42 Stat. 1246, 25 U.S.C. § 335. That Act reads:

"That unless otherwise specifically provided, the provisions of the Act of February 8, 1887 (Twenty-fourth Statutes at Large, page 388), as amended, be, and they are hereby, extended to all lands heretofore purchased or which may hereafter be purchased by authority of Congress for the use or benefit of any individual Indian or band or tribe of Indians."⁸

These acts manifest a Congressional intent that the benefits and restrictions of the General Allotment Act are to apply to all Indian allotments in the absence of special legislation indicating a different intent. This construction is of course in accord with long-standing Congressional policy of treating Indians equally except where differences in tribal circumstances justify special legislation.

Does the omission of the provision for a fee patent "free of all charge or incumbrance" in the Act of March 3, 1921 manifest a Congressional intent that allottees under this Act are to be treated differently from Indians who received their allotments under the General Allotment Act of 1887? It is noted first that this Act was passed subsequent to the Joint Resolution of June 19, 1902, supra.⁹ Under the 1921 Act the Secretary of the Interior was "authorized and directed to allot pro rata, under rules and regulations and in such areas and classes of lands as may be prescribed by him, among such enrolled Indians all the unreserved and otherwise undisposed-of lands on the Fort Belknap Reservation, which trust patents shall be issued in the names of the said allottees. * * *" The Secretary included in the trust patents issued under this Act a provision that the United States would hold the land "for the period of twenty-five years, in trust for the sole use and benefit of the said Indian and at the expiration of said period the...