Walker v. Comm'r of Internal Revenue

Decision Date21 February 1962
Docket NumberDocket No. 84875.
Citation37 T.C. 962
CourtU.S. Tax Court


Z. Simpson Cox, Esq., for the petitioners.

Alfred L. Margolis, Esq., for the respondent.

The petitioners, husband and wife, are ‘noncompetent’ full-blooded American Indians, who were born on and live on an Indian reservation. In 1955, the husband served his tribe as treasurer of the tribal community; and he received a distribution or payment of $4,200 out of the Government-trusteed tribal funds, in connection with such services. Held, that said amount did not constitute taxable income under the Federal income tax laws. Held, further, that since petitioner and his wife had no other income, they were not subject to an addition to tax under section 6651(a) of the 1954 Code, for failure to file a timely income tax return.

PIERCE, Judge:

The respondent determined a deficiency in income tax against the petitioners for the calendar year 1955 in the amount of $521; and also an addition to tax under section 6651(a) of the 1954 Code, in the amount of $130.25, because of the petitioner's delay in filing a return for said year.

The issues to be decided are:

(1) Where a ‘noncompetent’ American Indian, who was born on and lived on an Indian reservation and acted as the elected treasurer of the tribal community, received by reason of his services as such treasurer, a distribution or payment of $4,200 out of the Government-trusteed tribal funds derived directly from the tribal lands of the reservation, did the amount so distributed or paid to said Indian constitute taxable income under the Internal Revenue Code of 1954?

(2) Should an addition to tax be imposed for the delay of said Indian and his wife in the filing of an income tax return, solely with respect to the amount so distributed or paid?


The petitioners, Freeman P. Walker (hereinafter called Walker) and Bernice Walker, are husband and wife. They are full-blooded American Indians who were born on, and now live on, the Gila River Indian Reservation near Tucson, Arizona. They are so-called ‘non-competent’ Indians, because a ‘certificate of competency’ has not been issued to either of them by the Secretary of the Interior of the United States.

The Gila River Indian Reservation includes approximately 371,000 acres of land, located on the Gila River in southwestern Arizona; and more than 5,000 Indians live thereon. Title to all the lands of the reservation is in the United States, which holds the same in trust for the use and benefit of the Indians living thereon. Most of such Indians belong to the Pima Tribe; but others belong to the Maricopa Tribe which is a smaller group. In the operation and administration of the reservation, these two tribes are regarded as a single unit; and accordingly, the term ‘tribe’ as hereinafter used, has reference to both groups as though they were members of a single tribe.

The lands comprising the Gila River Indian Reservation are of two classes: (1) Portions of the lands from which small plots of 10 or more acres have been set aside and made the subject of restricted ‘allotments' for the use and occupancy of individual Indians; and (2)so-called ‘tribal lands' which have not been allotted to particular Indians, but which are held by the Government for the use and benefit of the tribe as a whole. Of the 371,000 acres comprising the reservation, about 27 percent thereof was ‘allotted’ land; and the remaining 73 percent thereof was included in the so-called ‘tribal lands.’ In the instant case, we are concerned only with funds which had their source in receipts and revenues that the tribe as a whole derived directly from said ‘tribal lands,’ and which the Government thereafter held in trust for the use and benefit of the tribe.

The principal activity of most of the Indians on the reservation was farming. Those Indians who had been ‘allotted’ particular parcels, usually worked on such parcels if they were irrigable; and most of the other Indians who either had no allotted parcels or whose parcels were arid, worked on the common ‘tribal lands,‘ where they raised cotton, barley, and other crops.

Ultimate control over the management and operation of the reservation was vested in the Secretary of the Interior; and prior to 1938, these functions were handled directly by agents and representatives of the Bureau of Indian Affairs of the Interior Department. In 1934 however, Congress enacted the so-called Wheeler-Howard Act (Act of June 18, 1934, 48 Stat. 984, 25 U.S.C. 461, et seq.), which made provision for the organization of Indians residing on reservations into membership corporations operating under charters to be issued by the Secretary of the Interior, in order—

to enable tribes and tribal members to become self-sufficient by their own efforts in lines of endeavor congenial to native tastes and talents, and to make possible the transfer to the organized tribes of responsibility for services hitherto performed by the Federal Government.1

In 1936 the Indians residing on the Gila River Indian Reservation, acting pursuant to the provisions of the Wheeler-howard Act, organized themselves into a tribal community, and adopted a proposed constitution and proposed bylaws. Thereafter in 1937, the Secretary of the Interior (after having approved such organizational steps) issued to such Indians a charter for a community corporation, under the name of ‘The Gila River Pima-Maricopa Indian Community of the Gila River Reservation.’ Such charter was to become effective upon ratification by a majority vote of the adult Indians living on the reservation. This ratification was effected in 1938; and at all times since, said tribal community has been operated by the Indians as a means toward their attaining the above-mentioned objectives of the Wheeler-Howard Act.

In the operation of said tribal community, the Gila River Reservation was divided into 7 voting districts. The Indians residing in these districts elected a total of 17 representatives who served as members of the community council; and these council members, in turn, elected the officers thereafter exercised many of the functions of administering the reservation, which had prior to the organization of the community been exercised directly by officials of the Bureau of Indian Affairs.

Following the organization and incorporation of said tribal community, title to all reservation lands (both tribal and allotted) continued as before to be in the United States Government which held the same in trust for the use and advancement of the Indian residents. And, as regards the so-called tribal lands which were used by the Indians in common, substantially all the receipts and revenues produced therefrom were, after the creation of the community as before, covered into the United States Treasury where they were held in trust for subsequent appropriation and disbursement for the benefit of the Indians on the reservation. The community council and officers were, however, given a large measure of responsibility for deciding and recommending how such receipts and revenues from the tribal lands should be disbursed and used.

During the year 1955, the amount of the receipts and revenues derived from the tribal lands on the Gila Indian Reservation— all of which were devoted to the use and benefit of the members of the tribe— was approximately $340,000. This amount consisted principally of proceeds from sales of cotton and barley grown by the Indians on said tribal lands; but it included also smaller amounts received from leases to non-indian farmers, and from such other miscellaneous sources as fees from the granting of rights-of-way for telephone lines, buslines, and pipelines. None of such receipts and revenues arose from reinvestments of the amounts derived directly from the land, except one small item representing repayment with 3-percent interest of a $35 loan made to an Indian student. Of said total revenues of $340,000 for 1955, all except about $17,000 was covered into the United States Treasury for retention in trust until such time as the same was withdrawn for tribal use. As regards the $17,000, this represented an amount which the Secretary of the Interior permitted the tribe to hold in a tribal bank account for its miscellaneous use.

The evidence herein shows that all of the above-mentioned receipts and revenues from the tribal lands were used for the benefit of the tribe; but it does not show precisely how such funds were employed, except that cash distributions or payments were made to the community officers, to the farm manager, and to certain of the tribal members who performed labor as irrigators and cotton choppers. The amount of cash so distributed or paid to petitioner Walker in connection with his services as the elected treasurer of the tribal community, was $4,200. The community charter forbade the making of per capita distributions from the tribal funds to the tribal members.

From the time of the organization and incorporation of the community in 1938 until after the close of the year 1955 which is here involved, none of the tribal members or officers filed any income tax return or paid any income tax with respect to the cash distributions or payments out of the tribal funds which they received as above mentioned. Also, during this same period, no withholdings for income tax with respect to such tribal members and officials were made by the representatives of the Interior Department or the community officials, who handled the disbursements of the tribal funds.

In the spring of 1958, an internal revenue agent came to Walker's office on the reservation, and told Walker that he was subject to income tax on the above-mentioned $4,200 which had been distributed or paid to him in 1955 out of the tribal funds. The agent then presented Walker with a form of income tax return which...

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