Stevens v. Comm'r of Internal Revenue

• Decision Date: 27 May 1969
• Docket Number: Docket No. 4719-62.
• Citation: 52 T.C. 330
• Parties: BRYAN L. STEVENS AND BRYAN L. STEVENS AS SURVIVING SPOUSE OF ALMA STEVENS, DECEASED, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

52 T.C. 330

BRYAN L. STEVENS AND BRYAN L. STEVENS AS SURVIVING SPOUSE OF ALMA STEVENS, DECEASED, PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 4719-62.

Tax Court of the United States.

Filed May 27, 1969.

Stephen Granat, for the petitioner.

James E. Merritt and Ernest J. Wright, for the respondent.

Petitioner, a noncompetent Indian enrolled wit the Gros Ventre Tribe, during the years 1958 and 1959 conducted farming and ranching operations on 20,547.14 acres of land on the Fort Belknap Indian Reservation. He had acquired part of the land used for this operation by allotment, part by gift from his mother who had received the land by allotment, part under a grazing permit, part by lease, part by purchase from other allottees, and part by a transfer of all the heirs' rights or claims by the Regional Director of the Indian Bureau in an order transferring inherited lands. All the original allotments were to the United States in trust for the allottee and contained a provision that at the expiration of 25 years the land would be transferred to the allottee ‘free from all charge and incumbrance whatsoever.’ Title to all lands allotted to, given to, or purchased by petitioner was taken in the name of the United States as trustee for petitioner. Held: Under the decision in Squire v. Capoeman, 351 U.S. 1 (1956), and respondent's ruling stating his application of the holding in that case, petitioner's income derived from farming and ranching activities on his allotted lands, his lands received by gift from his mother, and his land acquired by order transferring inherited lands is exempt from Federal income tax. Petitioner's income from farming and ranching activities on all the other lands used by him for such activities during 1958 and 1959 is subject to Federal income tax.

OPINION

SCOTT, Judge:

Respondent determined deficiencies in petitioner's income taxes for the calendar years 1958 and 1959 in the amounts of $4,098.49 and $2,365.60, respectively. By amended answer filed February 26, 1965, respondent claimed increased deficiencies in the amounts of $177.74 and $86.65 for the calendar years 1958 and 1959, respectively, making the total deficiencies in controversy $4,276.23 and $2,452.25 for these years.

The issue for decision is whether there should be included in the taxable income of an incompetent Indian income from ranching operations on lands of an Indian reservation acquired by him partially by allotment, partially by gift, partially by purchase, partially by lease, and partially by being granted a grazing permit.

All of the facts have been stipulated and are found accordingly.

Bryan L. Stevens and Alma Stevens were during the years 1958 and 1959 husband and wife, residing in Dodson, Mont. They filed joint Federal income tax returns for the calendar years 1958 and 1959 with the district director of internal revenue at Helena, Mont.

Bryan L. Stevens, who is also known as Benjamin L. Stevens, is a one-quarter blood Gros Ventre Indian and is an enrolled Indian with the Fort Belknap Indian Reservation, Harlem, Mont. His allotment number is 556 and his residence on the date the petition in this case was filed was Dodson, Mont. Petitioner's wife, Alma Stevens, was a white person. On October 5, 1962, the District Court in Phillips County, Mont., entered an order authorizing petitioner and Alma to lives separate and apart from each other. Alma died intestate on April 17, 1965, while residing in California. Under California law her heirs were petitioner, her surviving spouse and her daughter by a prior marriage.

During the years 1958 and 1959 petitioner was engaged in ranching and farming operations consisting primarily of raising and selling beef cattle on 20,547.14 acres of land on the Fort Belknap Indian Reservation. All of his income during these years was derived from these farming and ranching operations. Petitioner had acquired in various ways the land used in his farming and ranching operations as hereinafter detailed.

On May 26, 1941, petitioner was allotted two parcels of land. One which contained approximately 308.83 acres was allotted to him as a homestead under the Act of March 3, 1921 (41 Stat. 1355). The other allotment made to petitioner on May 26, 1941, was also made under the Act of March 3, 1921. This allotment consisted of a parcel containing approximately 210.64 acres. Both allotments were by ‘trust patents' given to petitioner by the United States which contained among others the following provision:

NOW KNOW YE, That the UNITED STATES OF AMERICA, in consideration of the premises, has allotted, and by these presents does allot, unto the said Indian the Land above described, and hereby declares that it does and will hold the Land thus allotted (subject to all statutory provisions and restrictions) 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 United States will convey the same by patent to said Indian in fee, discharged of said trust and free from all charge and incumbrance whatsoever; but in the event said Indian dies before the expiration of said trust period, the Secretary of the Interior shall ascertain the legal heirs of said Indian and either issue to them in their names a patent in fee for said Land, or cause said Land to be sold for the benefit of said heirs as provided by law; and there is reserved from the lands hereby allotted, a right of way thereon for ditches or canals constructed by the authority of the United States.

On December 19, 1947, petitioner purchased with $725.18 of his own funds a parcel of land containing approximately 362.59 acres from Joseph Shawl (Fort Belknap allottee No. 1161) and Melda Black Hoop Shawl. Title to the property was taken in the name of the United States of America in trust for petitioner as an allottee of Fort Belknap. The deed issued to petitioner was on a U.S. Department of the Interior, Office of Indian Affairs, form and was designated, ‘Deed Noncompetent Indian Lands.’ The deed recited that it was made by and between Joseph Shawl with his allotment number and Melda Black Hoop Shawl, his wife, ‘noncompetent Fort Belknap Indian,‘ parties of the first part, and the United States of America in trust for petitioner, party of the second part. Following the description of the land, there was a statement made in the deed with respect to reservation of mineral rights to the tribe and reservation for rights-of-way for ditches or canals constructed by the authority of the United States. The deed further provided that a lien for repayment of irrigation charges, if any, as to the lands above described ‘is reserved to the United States as required by the Act of March 3, 1921 (41 Stat. 1355).’ There followed the statement, ‘This conveyance is made in accordance with the Act of June 18, 1934 (48 Stat. 984).’ The warranty portion of the deed contained the covenant that ‘they will forever warrant and defend the said premises against the claim of all persons, claiming or to claim by, through, or under them only.’ The deed was approved on behalf of the Secretary of the Interior.

On June 1, 1948, petitioner purchased a parcel of land containing approximately 332.40 acres from the Regional Director of the Bureau of Indian Affairs for $747.80. This purchase likewise was made with petitioner's personal funds. This parcel of land was allotted to James Shawl who died on April 29, 1945. Title to the land purchased by petitioner was taken in the name of the United States of America in trust for petitioner. The order transferring this land was entitled, ‘Order Transferring Inherited Interests in Indian Land to an Indian.’ It provided after recitations with respect to a determination of the best interests of the heirs of the deceased Indian being served by selling the land and that one or more of the heirs were noncompetent Indians, that in accordance with the authority conferred upon the regional director ‘all right title, interest, claim or demand of any nature whatsoever of the heirs of the above-named allottee in and to the lands' is transferred to the United States of America in trust for petitioner, giving petitioner's allotment number ‘for use and disposition as other trust allotments on the said reservation. This conveyance so made is subject to all valid existing rights-of-way and liens for repayment of irrigation charges and to reservations in the trust patent, if any.’

On June 30, 1950, petitioner purchased with $900 of his own funds a parcel of land containing approximately 360 acres from Edward Phares (Fort Belknap allottee No. 460). At the time of the sale the property was held in trust by the United States of America for Edward Phares. Title to the property purchased by petitioner was taken in the name of the United States of America in trust for petitioner. The deed transferring this property was on the Department of the Interior form of deed to restricted Indian land and this deed contained substantially the same provision as did the deed whereby petitioner acquired land from Joseph Shawl.

On August 16, 1951, petitioner acquired approximately 360 acres of land from Lillian Adams Werle (Fort Belknap allottee No. 492) and Lewis H. Werle in consideration for the exchange of the parcel of land which petitioner had acquired by the deed dated June 30, 1950, Interior from which was used for deeds to restricted Indian land and contained approximately the same provisions as did the other two deeds petitioner had received upon the purchase from allottees of lands that had been allotted to and held by the United States in trust for noncompetent Indians. The property which petitioner acquired was taken in the name of the United States of America in trust for petitioner, a noncompetent Indian of the Fort Belknap Reservation.

On October 22, 1951, petitioner acquired by gift parcels of land containing approximately 39.40,68.21,11.18, and 44.48...