U.S. v. Anderson

• Decision Date: 21 August 1980
• Docket Number: No. 78-1114,78-1114
• Citation: 625 F.2d 910
• Parties: 80-2 USTC P 9631 UNITED STATES of America, Plaintiff-Appellant, v. George ANDERSON, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 910

625 F.2d 910

80-2 USTC P 9631

UNITED STATES of America, Plaintiff-Appellant, v. George ANDERSON, Defendant-Appellee.

No. 78-1114.

United States Court of Appeals Ninth Circuit.

Argued and Submitted May 22, 1980.

Decided Aug. 21, 1980.

Aaron Phillip Rosenfeld, Washington, D. C., for plaintiff-appellant.

John Sheehy, Billings, Mont., Arthur Lazarus, Jr., Washington, D. C., on brief; Terry Grant, Fried, Frank, Harris, Shriver & Kampelman, Washington, D. C., for defendant-appellee.

Appeal from the United States District Court for the District of Montana.

Before CHOY and FERGUSON, Circuit Judges, and BARTELS, ^* District judge.

CHOY, Circuit Judge:

The Government appeals from the district court's summary judgment holding that the income a noncompetent Indian derives from cattle ranching, under a tribal license, on land held in trust by the United States for other Indians and for the tribe is not subject to federal income taxation. We reverse.

I. Background

Congress enacted the General Allotment Act of 1887, ch. 119, 24 Stat. 388, 25 U.S.C. § 331 et seq., to conform Indian land ownership to the individual property ownership system existing in the United States. The United States divided reservations into uniform parcels and held one such "allotment" in trust for each individual Indian and his heirs. The General Allotment Act failed to assimilate Indians by making them yeomen, as was originally intended. Allotments could not be pledged for credit, and when original allottees died each of their heirs received in trust a parcel so small that it could not be efficiently grazed or farmed.

The General Allotment Act provided that at the end of the statutory trust period (subject to extension), Indian allottees were to receive their lands "in fee, discharged of said trust and free of all charge or incumbrance whatsoever," and that then "all restrictions as to sale, incumbrance, or taxation of said land shall be removed." §§ 5, 6, 25 U.S.C. §§ 348, 349. The courts have construed this language to exempt from federal taxation the land held in trust for an Indian and the income that the Indian derives from it. Squire v. Capoeman, 351 U.S. 1, 76 S.Ct. 611, 100 L.Ed. 883 (1956); Stevens v. Commissioner, 452 F.2d 741 (9th Cir. 1971).

In 1934 Congress abandoned the General Allotment Act's emphasis on individual ownership and passed the Indian Reorganization Act of 1934, ch. 576, 48 Stat. 984, 25 U.S.C. §§ 461-479 (hereafter "IRA"). The Government was authorized and encouraged to acquire land in trust for the tribes, and tribal constitutions, councils and corporations were authorized. IRA §§ 5, 16, 17; 25 U.S.C. §§ 465, 476, 477. The Secretary of the Interior was authorized to make regulations to facilitate optimal use of reservation land. IRA § 6, 25 U.S.C. § 466.

Like many other tribes, the Fort Peck Tribes adopted a land-use program based on the principle of consolidation of parcels for efficient use. The Fort Peck Tribal Executive Board, under the supervision of the Bureau of Indian Affairs, markets the right to graze cattle on the trust land held by the United States for the tribe itself, for Indians unable to use the land themselves (orphaned minors, missing persons, etc.) and for any other allottees willing to participate. The Executive Board, with the Bureau's supervision, establishes grazing regulations and combines these parcels into suitably large grazing "units"; then the Bureau and the Executive Board sell licenses to graze cattle on the units to ranchers for a term of years. ¹ Preference is given to Indian ranchers. The proceeds from the sale of licenses are distributed ratably to the equitable "landowners."

Anderson, a "noncompetent" ² Sioux member of the Fort Peck Tribes, is a cattle rancher. His headquarters are on his own allotted land, but he grazes his cattle, under tribal license, on a land-use program "unit" consisting of parcels held in trust by the United States for several noncompetent Indians (but not for Anderson) and for the Tribes. The Government concedes that Anderson's income, if any, allocable to his own allotted land is tax-free, but seeks to collect taxes on his income, if any, allocable to the grazing unit. ³

The district court below, relying on the regulations under IRA § 6, 25 U.S.C. § 466, held on summary judgment that the federal policies of promoting optimal land use on Indian reservations and eventual Indian economic independence precluded all taxation of the income Anderson derived from the licensed grazing unit. United States v. Anderson, 442 F.Supp. 10, 13 (D.Mont.1977).

II. Analysis

Despite our sympathy for Anderson and similarly situated Indians, we must reverse the district court. Other courts have held, and we are forced to agree, that a noncompetent Indian's income allocable to cattle grazing on others' trust land is taxable. Holt v. Commissioner, 44 T.C. 686 (1965), aff'd, 364 F.2d 38 (8th Cir. 1966), cert. denied, 386 U.S. 931, 87 S.Ct. 952, 17 L.Ed.2d 805 (1967); Stevens v. Commissioner, 52 T.C. 330 (1969); ⁴ see also Strom v. Commissioner, 6 T.C. 621 (1946), aff'd, 158 F.2d 520 (9th Cir. 1947).

A. The Requirement of an Explicit Exemption

By its terms, the federal income tax applies to "every individual" and "all income from whatever source derived." I.R.C. §§ 1, 61. "Indians are subject to payment of federal income taxes, as are other citizens, 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).

The rule that ambiguous statutes and treaties are to be construed in favor of Indians applies to tax exemptions, Choate v. Trapp, 224 U.S. 665, 675, 32 S.Ct. 565, 569, 56 L.Ed. 941 (1912); see, e. g., Squire v. Capoeman, 351 U.S. 1, 76 S.Ct. 611, 100 L.Ed. 883 (1956) (construing General Allotment Act §§ 5-6 to create exemption from not-yet-created federal income tax), but this rule "comes into play only if such statute or treaty contains language which can reasonably be construed to confer income (tax) exemptions." Holt v. Commissioner, 364 F.2d 38, 40 (8th Cir. 1966) (before panel including Blackmun, J.), cert. denied, 386 U.S. 931, 87 S.Ct. 952, 17 L.Ed.2d 805 (1967). "The intent to exclude must be definitely expressed, where, as here, the general language of the Act laying the tax is broad enough to include the subject-matter." Choteau v. Burnet, 283 U.S. 691, 696, 51 S.Ct. 598, 601, 75 L.Ed. 1353 (1931).

We could uphold the district court's summary judgment for Anderson only if we could find express exemptive language in some statute or treaty. Anderson and the amici direct our attention to the General Allotment Act and the IRA, but we find nothing there to support Anderson's position.

1. The General Allotment Act of 1887

The only provisions of the Act ⁵ that could support Anderson are those involved in Capoeman : sections 5 and 6, 25 U.S.C. §§ 348, 349. Section 5 declared that the Secretary of the Interior shall issue patents to allottees saying that the United States will hold the land "in trust for the sole use and benefit" of the named Indian for 25 years (plus any period of extension), "and that at the expiration of said period the United States will convey the same by patent to said Indian, or his heirs as aforesaid, in fee, discharged of said trust and free of all charge or incumbrance whatsoever " (emphasis added).

Section 6 declared that at the expiration of the trust period, or when the Secretary of Interior is sooner satisfied that the Indian is competent, an allottee shall be issued a patent in fee simple, "and thereafter all restrictions as to sale, incumbrance, or taxation of said land shall be removed and said land shall not be liable to the satisfaction of any debt contracted prior to the issuing of such patent" (emphasis added).

In Squire v. Capoeman, 351 U.S. 1, 76 S.Ct. 611, 100 L.Ed. 883 (1956), the Supreme Court construed these sections to create an express tax exemption for an Indian deriving income directly from his own trust allotment. ⁶

What distinguishes Anderson's case from Capoeman is that there "the income which was held to be exempt to the allottee was from operations conducted on his own allotted land." Fry v. United States, 557 F.2d 646, 648 (9th Cir. 1977) (emphasis in original), cert. denied, 434 U.S. 1011, 98 S.Ct. 722, 54 L.Ed.2d 754 (1978). In Fry, we held that a noncompetent Indian engaged, as a subcontractor to a non-Indian company, in logging on tribal trust land was taxable. There, we recognized that Capoeman 's point was that if an Indian's allotted land (or the income directly derived from it) was taxed, and the tax was not paid, the resulting tax lien on the land would make it impossible for him to receive the land free of "incumbrance" at the end of the trust period. The purpose of §§ 5 and 6 was "to provide the allottee with unencumbered land when he became competent. (Citation) It was not to benefit him simply because he was an Indian, or to benefit Indians generally." Id. at 649 (footnotes omitted). By contrast, "taxation of the taxpayer's individual profit derived from his lease of tribal (or other allottees' trust) land cannot possibly represent a burden or encumbrance upon the tribe's (or other allottees') interest in such land." Holt v. Commissioner, 364 F.2d at 41.

Therefore, the General Allotment Act provides no tax exemption for the income a noncompetent Indian derives from other Indians', or his tribe's, trust land.

It is argued that we should give a broader meaning to the word "incumbrance," and recognize that taxation of Anderson "encumbers" the interest of the noncompetent Indians whose land he uses under land-use program licenses. If the use of the land subjects Anderson to federal income tax, the right to use it is worth less to him, and he will probably not be willing to pay as high a license fee as he otherwise would. Therefore, federal taxation of Anderson theoretically reduces...