Summary
In Landman v. United States, 58 F. Supp. 836, 103 Ct.Cl. 199, 209-210 (1945), this court indicated that property exempt from state estate taxes was also necessarily exempt from the federal estate tax; and in the decision which led to West the Supreme Court of Oklahoma considered that state and federal immunity or lack-of-immunity was correlative.
Summary of this case from Mason v. United StatesOpinion
No. 45348.
February 5, 1945.
Huston Thompson, of Washington, D.C. for plaintiff.
J. W. Hussey, of Washington, D.C. and Samuel O. Clark, Jr., Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, both of Washington, D.C. on the brief), for defendant.
Before WHALEY, Chief Justice, and LITTLETON, WHITAKER, and MADDEN, Judges.
Action by A. M. Landman, Superintendent of the Five Civilized Tribes, for Estate of Jacob Pierce, deceased Creek, Roll No. 3074, against the United States for refund of estate taxes.
Judgment for plaintiff.
This case having been heard by the Court of Claims, the court, upon the agreed statement of facts, entered into between the parties and the evidence, makes the following special findings of fact:
1. Plaintiff is a citizen of the United States and a resident of Muskogee, Oklahoma, and is the duly appointed and acting Superintendent of the Five Civilized Tribes of Indians, and has under his supervision and jurisdiction the affairs of the estate of the decedent herein, including estate tax matters. As such Superintendent, he is the representative of the Secretary of the Interior, who by law is the trustee of the property of restricted Indians of the Five Civilized Tribes.
2. Decedent, who died on January 2, 1933, a resident of Boley, Oklahoma, was a full-blood Creek Indian, being enrolled opposite Creek Roll No. 3074.
3. On or about May 2, 1935, plaintiff filed an estate tax return for decedent's estate with the Collector of Internal Revenue for Oklahoma, which said return disclosed no estate tax liability.
4. During January, 1936, the Commissioner of Internal Revenue notified plaintiff that a deficiency of $88,393.66 in estate tax had been determined against the decedent's estate. Notice of this determination was given plaintiff by a 90-day letter, dated January 31, 1936.
By said letter it was determined that decedent's estate was subject to the Federal estate tax. In arriving at said deficiency, there was included in the gross estate two-fifths of the value of 160 acres of land allotted to decedent, plus the same percentage of his oil and gas royalty interest therein, totalling $51,384.50, an undivided interest in allotted lands inherited by decedent from other full-blood, restricted Indians in the amount of $1,250, cash in the total amount of $806,113.02, and other miscellaneous property, consisting of automobiles and household goods, in the amount of $504.
5. Said deficiency in estate tax of $88,393.66 was paid to the Collector of Internal Revenue for the District of Oklahoma on August 11, 1936.
6. On or about July 13, 1937, plaintiff filed a claim for refund in the amount of $88,393.66 with the Collector of Internal Revenue for the District of Oklahoma.
7. On or about February 25, 1939, the Commissioner of Internal Revenue advised plaintiff by letter of that date of the disallowance of plaintiff's claim for refund in the amount of $88,393.66, and the determination of an additional deficiency of $11,815.51.
8. On or about August 3, 1939, plaintiff filed with the Collector of Internal Revenue for the District of Oklahoma, an amended claim for refund in said sum of $88,393.66 on the same grounds set forth in the original claim filed on or about July 13, 1937, and in addition thereto asserting that the estate was entitled to credit for inheritance taxes paid to the State of Oklahoma of $25,146.25.
9. On or about August 26, 1939, the Commissioner of Internal Revenue issued a certificate of overassessment, allowing a refund of Federal estate tax in the amount of $13,330.74 on account of the claimed credit for inheritance taxes paid to the State of Oklahoma.
The refund of $13,330.74 was arrived at by allowing the full credit claimed for inheritance taxes of $25,146.25, and off-setting against said amount $11,815.51, representing the additional deficiency set forth above. Due to said credit for inheritance taxes the net tax liability of decedent's estate was reduced to $75,062.92.
10. Decedent at the time of his death was possessed of the following properties:
(a) One hundred sixty acres (160) of land in Seminole County, Oklahoma, which had been allotted to him under the provisions of the Act of Congress of March 1, 1901, 31 Stat. 861, as amended by the Act of Congress of June 30, 1902, 32 Stat. 500, ratified by the Creek Nation on May 25, 1901, which said lands are described as
"West Half (W 1/2) of the Southeast Quarter (SE 1/4), and the Southeast Quarter (SE 1/4) of the Southeast Quarter (SE 1/4) of Section 33, Township 11 North, Range 8 East, containing 120 acres, the same being decedent's surplus lands, and
"Northeast Quarter (NE 1/4) of the Southeast Quarter (SE 1/4) of Section 33, Township 11 North, Range 8 East, containing 40 acres, the same being decedent's homestead."
(b) Inherited lands, as follows:
"Undivided 1/2 interest in the Southeast Quarter (SE 1/4) of the Northeast Quarter (NE 1/4) and Lot One (1), Section 6; and Lot One (1) and West Half (W 1/2) of the Northwest Quarter (NW 1/4) of the Northeast Quarter (NE 1/4) and West Half (W 1/2) of the East Half (E 1/2) of the Northeast Quarter (NE 1/4) and North 10 acres of Lot Four (4), Section 18; all in Township 11 North, Range 8 East of I. M. Okfuskee County, Oklahoma,"
allotted to Sallie Pierce, a full-blood Creek Indian, enrolled opposite Roll No. 3075.
"Undivided 1/4th interest in Southwest Quarter (SW 1/4) of the Southwest Quarter (SW 1/4), Section 26, Township 7 North, Range 9 East of the Indian Meridian, Hughes County, Oklahoma,"
allotted to Peter Wallow, a full-blood Creek Indian, enrolled opposite Roll No. 7702.
"Undivided 1/2 interest in the Northwest Quarter (NW 1/4) of the Southwest Quarter (SW 1/4) Section 32, Township 7 North, Range 9 East of the Indian Meridian, Hughes County, Oklahoma."
allotted to Mahala Nelson, full-blood Creek Indian, enrolled opposite Roll No. 3171. All of said inherited lands were allotted to said named Indians under the provisions of the aforesaid Acts of Congress of March 1, 1901, and June 30, 1902, and ratified by the Creek Nation on May 25, 1901.
(c) Cash of $802,567.74, of which $44,168.16 was unrestricted money on deposit in banks of Oklahoma, and of which $758,399.58 was money to be credited to the decedent's account with the Department of the Interior, restricted to the extent that decedent could not use, pledge or dispose of it without approval of the Secretary of the Interior.
(d) Other miscellaneous property, consisting of automobiles and household goods.
11. All of said allotted and inherited lands at the time of decedent's death were fully restricted and could not be sold, leased, or otherwise encumbered without the approval of the Secretary of the Interior, under the Act of Congress of April 26, 1906, 34 Stat. 137, ratified and approved by the Creek Tribe October 2 and 3, 1907, and by the President of the United States on September 17, 1907, and the Act of May 27, 1908, 35 Stat. 312. The certificate of exemption from taxation of said allotted lands, issued under the provisions of the Act of Congress of May 10, 1928, 45 Stat. 495, reads as follows:
"Endorsed: Office of Indian Affairs Received Dec 27 1929 62750.
"Certificate on Designating Lands Exempt From Taxation "Five Civilized Tribes "Okemah, Okla., April 24th, 1929
"Pursuant to Section 4 of the Act of Congress of May 10, 1928 (Public No. 360-70th Congress), the following described restricted Indian lands belonging to Jacob Pierce, a full blood citizen of the Creek Nation, Roll No. 3074, are hereby selected and designated as tax exempt as long as the title thereto remains in the said Jacob Pierce or in any full blood Indian heir or devisee of said lands; such tax exemption, in no event, however, to extend beyond April 26, 1956:
"Subdivision: Sec. Twp. Range Area County
SE4 33 11 N 8 E 160 Seminole
"Witnesses:
"O. L. Burney.
"Samuel Anderson.
[Thumb Mark] "Jacob Pierce his mark
"Department of the Interior "Washington, D.C. "Feb. 3, 1930
"Approved:"Jos. M. Dixon,
"First Assistant Secretary.
"To be signed by the Indian, or by the Superintendent if the Indian is a minor, incompetent adult, or where the Indian fails to designate.
"Indexed Dept. of Interior to Public.
"State of Oklahoma, Seminole County, ss:
"I hereby certify that this instrument was filed for record in my office the 3 day of May, A. D., 1930, at 8 o'clock A. M. and is duly recorded in Record 417 Page 205.
"Ellis Casper, "County Clerk, "By Aubye Bond.
"(Seal)
"Filed for record on the 26 day of June 1931, at 9 o'clock A. M., and recorded in Book 20 Page 74.
"A. M. Landman, "Supt. for the Five Civilized Tribes. "By Gertrude Hooton, "Clerk."
12. Under date of October 27, 1919, an oil and gas mining lease was entered into by decedent covering all of said 160 acres of land allotted to decedent as aforesaid, which said lease was approved by the Secretary of the Interior on March 30, 1920. Production was had under said lease on March 1, 1925, and the lease is still producing in paying quantities, and the royalties therefrom, under the provisions of the lease, are paid to the Superintendent of the Five Civilized Tribes.
13. From March 1, 1925, the date of original production under said oil and gas lease on decedent's allotment, to January 2, 1933, the date of decedent's death, there were paid into the Agency for the Five Civilized Tribes for decedent's account oil and gas royalties in the total sum of $788,872.61. During this period there was also credited to decedent's account interest in the total sum of $130,282.62 and rentals in the total sum of $25.00. Adding these sums together, there is an indicated income of $919,180.23.
Of the moneys received amounting to $919,180.23, there was disbursed during this period to decedent, or for his benefit, a total of $160,774.59.
14. Of the cash possessed by the decedent at the time of his death, $615,854.67 represents oil and gas royalties which accrued to decedent prior to April 26, 1931.
15. The income flowing from decedent's restricted, allotted and inherited lands was credited to his account with the Superintendent of the Five Civilized Tribes and disbursed under the supervision of the Secretary of the Interior. The greater portion of decedent's funds was deposited by the Superintendent of the Five Civilized Tribes with the Treasurer of the United States, and the balance of his funds was deposited with banks in conformity with the general practice of the Secretary of the Interior in managing the financial affairs of members of those tribes. The funds placed with the Treasurer of the United States did not bear interest. The funds deposited in banks did bear interest. No individual Indian's funds were directly placed with banks at interest. Funds from the general balance were placed with banks at interest and when interest was received semi-annually, the amount received was equitably divided and credited to the accounts of all restricted Indians at the Agency in proportion to their cash balances on the interest-paying dates. This procedure resulted in an average yield to the account of the decedent of 2.89 per cent interest per annum. decedent had the use of such funds from his account with the Superintendent of the Five Civilized Tribes as were authorized by the Secretary of the Interior to be paid to him, or were expended by the Superintendent of the Five Civilized Tribes, under departmental supervision, in the purchase of personal property for him. Title to personal property, other than clothing, etc., was taken on a restricted bill of sale in the name of the United States for the use and benefit of the decedent. All investment problems concerning the decedent's restricted funds were handled by the Superintendent of the Five Civilized Tribes under departmental supervision.
16. Decedent left a last will and testament, dated November 22, 1929, by which, after certain small specific bequests, decedent devised two-fifths of his entire estate to John H. Jones, a three-quarter blood Creek Indian, enrolled opposite Creek Roll No. 5869, and three-fifths of his entire estate to his only daughter, Silla Micco, a full-blood Creek Indian, enrolled opposite Creek Roll No. 3077.
17. All of the restricted funds belonging to the decedent at the time of his death, except such amounts thereof as were disbursed under departmental supervision for the support and maintenance of the decedent and his daughter, were then, and have been at all times since then, retained by the Superintendent of the Five Civilized Tribes, under the supervision of the Secretary of the Interior, in trust for the devisees of said decedent. No actual distribution direct to the devisees has been made, as the devisees are fully restricted Indians under Acts of Congress, but their respective interests in the estate have been credited to their restricted accounts at the Five Civilized Tribes Agency, subject to supervision and disbursement by the Superindent under the direction of the Secretary of the Interior for the use and benefit of the devisees.
This is a suit by plaintiff, as the Superintendent of the Five Civilized Tribes, to recover estate taxes assessed against the estate of Jacob Pierce, a full-blood Creek Indian, who died on January 2, 1933.
Upon Pierce's death the plaintiff filed for him an estate tax return showing no estate taxes due. The Commissioner of Internal Revenue, however, determined and assessed a deficiency against his estate of $88,393.66. This was later reduced to $75,062.92. Plaintiff sued to recover this sum on the ground that the Commissioner wrongfully included in the gross estate of Jacob Pierce two-fifths of the value of an allotment to him of 160 acres of land in Oklahoma and certain inherited lands and certain restricted cash, all of which was said to be tax-exempt. However, in his brief plaintiff limits his claim to the alleged wrongful inclusion within Pierce's gross estate of two-fifths of the value of 160 acres of allotted lands. (Decedent by last will and testament devised two-fifths of his entire estate to John H. Jones, a three-quarter blood Creek Indian, and three-fifths of his estate to his daughter, Silla Micco, a full-blood Creek Indian.)
It is agreed that the amount included in the gross estate for the two-fifths of the value of the 160 acres of land was $51,384.50. Plaintiff says that this should not have been included in his estate because of the provisions of the original Creek Agreement of March 1, 1901, c. 676, 31 Stat. 861, and of the Act of April 26, 1906, c. 1876, 34 Stat. 137, and of the Act of May 27, 1908, c. 199, 35 Stat. 312, and of section 4 of the Act of May 10, 1928, c. 517, 45 Stat. 495, 496. Section 4 of the Act of May 10, 1928, provides, in part: "* * * That the Indian owner of restricted land, if an adult and not legally incompetent, shall select from his restricted land a tract or tracts, not exceeding in the aggregate one hundred and sixty acres, to remain exempt from taxation and shall file with the superintendent for the Five Civilized Tribes a certificate designating and describing the tract or tracts so selected. * * *"
The section further provides for the recording of this certificate with the superintendent of the Five Civilized Tribes and in the records of the county in which the land is situated, and then further provides: "* * * and said lands, designated and described in the approved certificates so recorded, shall remain exempt from taxation while the title remains in the Indian designated in such approved and recorded certificate, or in any full-blood Indian heir of devisee of the land. * * *"
The Act of January 27, 1933, 47 Stat. 777, extended the period of tax exemption of such lands until April 26, 1956. Decedent died on January 2, 1933.
The 160 acres of allotted lands, two-fifths of the value of which was included by the Commissioner in the decedent's gross estate, had been designated and described in approved certificates and recorded in full compliance with the provisions of section 4 of the Act of May 10, 1928, supra.
We are of the opinion that the transfer of such land at the death of the decedent was exempt from Federal taxation under the provisions of section 4 of the Act of May 10, 1928, supra, and under the decision of the Supreme Court in Oklahoma Tax Commission v. United States, 319 U.S. 598, 63 S.Ct. 1284, 87 L.Ed. 1612. In that case there was involved the right of the State of Oklahoma to subject to its estate tax certain land exempt from direct taxation, land not exempt from direct taxation, restricted cash and securities held for the Indians by the Secretary of the Interior, and* miscellaneous personal properties and insurance. The court divided 5 to 4 on the propriety of the inclusion within the estate of the Indians of the land not exempt from direct taxation, the restricted cash and securities, and the miscellaneous personal properties and insurance, but it was unanimous in holding that the land exempt from direct taxation under the provisions of section 4 of the Act of May 10, 1928, supra, should not have been included. In the majority opinion (319 U.S. at pages 610, 611 63 S.Ct. at page 1290, 87 L.Ed. 1612) it was said: "The validity of the taxes on the transfer of the land presents a somewhat different problem. Some of these lands are exempt from direct taxation by virtue of explicit congressional command. The Act of May 10, 1928, 45 Stat. 495, for example, provides that Indians of a class which includes the three deceased should select up to 160 acres of his allotted, inherited or devised restricted lands, which `shall remain exempt from taxation while the title remains in the Indian designated * * * or in any full-blood Indian heir of devisee,' while all other restricted lands are made subject to taxation by Oklahoma. The state argues that congressional exemption of the land from direct state taxation does not exempt the land from an estate tax, because of the principles announced in United States Trust Co. v. Helvering, supra [ 307 U.S. 57, 59 S.Ct. 692, 83 L.Ed. 1104]. A majority of the Court concludes that this principle does not apply to Indian lands specifically exempted from direct taxation. We therefore hold that the transfer of those lands which Congress has exempted from direct taxation by the state are also exempted from estate taxes."
Mr. Justice Murphy, in his dissenting opinion, in which the Chief Justice and Mr. Justice Reed and Mr. Justice Frankfurter joined, said: "* * * Most of their allotted lands were expressly exempt from taxation, and, as the opinion of the Court recognizes, this removed them from the operation of Oklahoma's estate tax."
In a note supplementing this statement he further said: "The fact that the exemptions do not mention inheritance or estate taxes is unimportant. As pointed out before, contrary to the general rule Indian tax exemptions are to be liberally construed. See Carpenter v. Shaw, 280 U.S. 363, 366, 367, 50 S.Ct. 121, 122, 74 L.Ed. 478. For that reason decisions, such as United States Trust Co. v. Helvering, 307 U.S. 57, 59 S.Ct. 692, 83 L.Ed. 1104, that statutory exemptions from taxation do not include an exemption from estate taxes, have no application here."
It appears, therefore, that both the majority and the minority were in agreement that the Act of May 10, 1928, was intended not only to cover direct taxes on the lands, but was intended to cover as well a tax on the privilege of transferring the lands at death.
The tax under consideration in Oklahoma Tax Commission v. United States, supra, was a State tax; the tax levied in the case at bar is a Federal tax but this is immaterial, since both taxes are identical in character; both are estate taxes levied upon transfers of property by death. Section 301(a) of the Revenue Act of 1926, c. 27, 44 Stat. 9, 69, 26 U.S.C.A.Int.Rev. Acts, page 225, levies a tax "upon the transfer of the net estate of every decedent * * *." The Oklahoma tax, according to the opinion of the Supreme Court in Oklahoma Tax Commission v. United States, supra, 319 U.S. at page 600, 63 S.Ct. at page 1285, 87 L.Ed. 1612 was levied "upon all transfers made in contemplation of death or intended to take effect after death as well as transfers `by will or the intestate laws of this state.'"
Ch. 162, Sess. Laws of the State of Oklahoma, 1915; Ch. 66, Art. 5, Sess. Laws of the State of Oklahoma 1935.
The taxes are identical in character. Since the lands are exempt from State estate taxes, it necessarily follows they are exempt from Federal estate taxes.
We are of the opinion that the Commissioner of Internal Revenue wrongfully included in the decedent's gross estate any part of the value of the two-fifths of the 160 acres of allotted lands, and, therefore, under the special findings of fact and conclusion of law which have been made by the court in this case, that plaintiff is entitled to recover so much of the taxes assessed as resulted from the inclusion in decedent's gross estate of two-fifths of the value of the allotted lands.
Entry of judgment will be deferred until the filing of a stipulation by the parties, or, in the absence of a stipulation, until the incoming of a report by a commissioner showing the amount of taxes due to be refunded, computed in accordance with the foregoing findings of fact and opinion. It is so ordered.
JONES, Judge, took no part in the decision of this case.