Opinion
Docket No. 6690.
1947-01-23
MADELINE E. MOUNTS SCOTT, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
L. B. Donely, Esq., for the petitioner. Wilford H. Payne, Esq., for the respondent.
Petitioner is three-eights degree Quinaielt Indian and, although married to a white man and residing off the reservation, is a duly enrolled and alloted member of the Quinaielt Indian Tribe. So far as her allotted lands on the reservation are concerned, she is classified as an incompetent ward of the Federal Government. In the taxable year, pursuant to contract between the Government and commercial loggers, approved by petitioner, timber from petitioner's allotted lands was cut and sold, and the loggers paid to the superintendent of the Taholah Indian Agency, Hoquiam, Washington, on behalf of petitioner, the proceeds from the timber sales. Held, the income from the sale of timber is not exempt, Charles Strom, 6 T.C. 621; and petitioner is taxable on the net proceeds received by the superintendent in the taxable year. L. B. Donely, Esq., for the petitioner. Wilford H. Payne, Esq., for the respondent.
Respondent determined against petitioner an income tax deficiency of $262.37 for the calendar year 1941.
The questions presented are, first, whether petitioner is taxable on income from the sale of timber from her allotted lands on the Quinaielt Indian Reservation and, second, if such income is not exempt, whether petitioner is taxable on any amount greater than the $50 actually disbursed to her by the Indian agent in 1941.
The case has been submitted upon oral testimony, documentary evidence, and a stipulation of facts. The stipulated facts are so found and as material here are summarized in our findings.
FINDINGS OF FACT.
Petitioner is a resident of Olympia, Washington. She is three-eights degree Quinaielt Indian blood and descent and a duly enrolled, allotted, and recognized member of the Quinaielt Indian Tribe of the Quinaielt Indian Reservation in the counties of Grays Harbor and Jefferson in the State of Washington. She affiliates with the tribe and has been allotted Allotment No. 586 on the reservation.
Petitioner is married to a white man, Dick Scott, and resides off the reservation with him and their dependent son, Daniel W. Scott. So far as her holdings and interest in the reservation are concerned, petitioner is classified as a ward of the Federal Government.
Petitioner and her husband filed with the collector for the district of Washington a joint income tax return for 1941 on the cash receipts and disbursements basis.
On July 1, 1855, and January 25 , 1856, a treaty was concluded between the United States and the Quinaielt and allied bands of Indians whereby the Indians ceded to the United States certain of their lands situate within the territory of Washington. In return the United States agreed to set aside as a reservation for the use and occupation of the tribes a tract or tracts of land sufficient for their wants; to pay certain annuities to the tribes; to pay the expenses of removing and settling the Indians for a term of years, etc. The treaty contains no provision exempting the Indians from Federal taxation.
The treaty was ratified by the Senate on March 8, 1859, and proclaimed by the President as the law of the land on April 11, 1859. The President, by proclamation and executive order dated November 4, 1873, established the Quinaielt Indian Reservation.
Petitioner's allotment consists of approximately 80 acres of timber land. A ‘trust‘ patent No. 512549 was issued to petitioner on February 8, 1916, for a term of 25 years, subject to all statutory provisions and restrictions on alienation, etc. On June 18, 1934, by the Indian Reorganization Act, 48 Stat. 984, the period of restriction was extended indefinitely and still exists.
Under the terms of the treaty, the patent, and the laws of the United States, petitioner's allotted land is held under the supervisory control of the Federal Government, acting through the Interior Department and the Office of Indian Affairs. The land may not be alienated, assigned, or encumbered without the consent and approval of both the petitioner and the Government; and neither has consent to a sale of the land in question.
During or prior to 1941 the Office of Indian Affairs, with the consent and approval of petitioner, arranged by contract with independent non-Indian commercial loggers for the cutting, logging, and sale of timber from the lands allotted petitioner. In 1941, pursuant to the contract, 95 per cent of the timber on the petitioner's allotment was so cut, removed, and sold; and the commercial loggers paid to the superintendent on the Taholah Indian Agency at Hoquiam, Washington, on behalf of petitioner, the sum of $3,305.49 on account of the timber cut and sold. None of this income was included in the joint return of petitioner and her husband.
According to the practice of the Office of Indian Affairs, funds in the individual account of an Indian ward are paid out to the Indian in such amounts as are sufficient for his support and well-being. The local Indian agent is authorized to pay $50 a month for the support of the Indian and up to $500 in any year for other purposes if the Indian is regarded as competent to manage his affairs. For the payment of any larger sums, special authorization is required from the central office at Washington, D.C.
Petitioner had no independent control of the net proceeds from the sale of the timber which were deposited with the superintendent of the Indian agency; and from the account so held by him, only $50 was actually paid to her in the taxable year.
In 1942 and 1943 the remaining 5 per cent of the timber on petitioner's allotment was cut and sold, and the loggers paid to the superintendent the sum of $2,946.09. In 1942 the superintendent disbursed to petitioner the sum of $6,207.87, and in 1943 the sum of $73.62 these payments constituting the remaining net proceeds from the sale of the entire stand of timber on petitioner's allotted lands.
The lands within the boundaries of the reservations are practically all unsuitable for agricultural purposes. Petitioner's allotted lands are of little value except for purposes of cutting and selling the timber. Once denuded of the timber, the lands thereafter have only a nominal value because a great many years are required for the growth and development of a new commercial crop.
Petitioner has never applied for or received a certificate of competency from the Federal Government, and she is now and at all times herein material was considered by the Office of Indian Affairs as a ward of the Federal Government in so far as the proceeds of the allotted timber are concerned. She is a citizen of the United States of America by virtue of the Act of Congress of June 2, 1924 (43 Stat. 253). There is no requirement that the Quinaielt Indians live on the reservation. Approximately one-half of them reside off the reservation.
Respondent determined the deficiency of $262.37 in the belief that the entire net proceeds of the timber sale in the amount of $7,078.14 had been received in 1941. Deducting from that amount petitioner's basis of the timber sold, $2,481.88 (the value at the date acquired in 1916), he determined a profit of $4,596.26, which he regarded as capital gain under section 117(k)(2) of the Internal Revenue Code, and 50 percent of which, or $2,298.13, he determined to be subject to the tax.
On the basis of facts developed the deficiency notice was mailed, the parties have now agreed that the correct amount of capital gain in 1941 is $1,049.94; and they have further stipulated that, if petitioner is held taxable on the net proceeds received by the superintendent of the Taholah Indian Agency in 1941, the correct amount of the deficiency is $92.88.
OPINION.
ARUNDELL, Judge:
Petitioner's first contention is that the income in question is exempt from taxation. This question, in effect, has already been decided adversely to petitioner's position in Charles Strom, 6 T.C. 621, in which the taxpayer was a restricted Indian of the same tribe as the petitioner and the same treaty was considered. It is true that the income with which that case was concerned arose from fishing operations on the reservation, but we see no difference whatever, so far as taxability is concerned, between income of that sort and income from the sale of timber from allotted lands on the reservation. It is idle at this late date to contend that tax on capital gain amounts to a capital levy, since, from the beginning of Federal income taxation, gain from the sale of capital assets has been treated as taxable income. Eisner v. Macomber, 252 U.S. 189; Merchants' Loan & Trust Co. v. Smietanka, 255 U.S. 509, cf. Doyle v. Mitchell Brothers Co., 247 U.S. 179. The Indian treaty itself provides no exemption of the Indians from Federal taxation; the Internal Revenue Code provides none; and no other statutes or treaties providing such exemption have been cited to us, nor do we know of any. The reasoning of the Strom case is equally applicable here and requires a holding that the income in question is not exempt from taxation.
Petitioner next contends that in any event she is not taxable on an amount greater than the $50 which was actually paid out to her by the superintendent of the Taholah Indian Agency in the taxable year. This is so, she asserts, because the funds in the hands of the superintendent do not constitute income ‘which is to be distributed currently‘ within the meaning of sections 161(a)(2) and 162(b) of the code, dealing with the tax liability of trusts and be beneficiaries thereof. We think petitioner misconceives the nature of the relationship between the Government and a restricted Indian. That relationship is one of guardian and ward. United States v. Waller, 243 U.S. 452; Tiger v. Western Investment Co., 221 U.S. 286.
Much the same argument was made by the taxpayer in Superintendent, Five Civilized Tribes, for Sandy Fox, 29 B.T.A. 635, which concerned the taxability of certain moneys received by an Indian agent and held in trust as part of the Indian's restricted funds, not subject to his demand. We there said:
* * * Counsel for petitioner emphasizes the fact that the income in question is held in trust by the superintendent and was not subject to petitioner's demand. This is of course true in all cases where there is a guardianship relationship. But the income itself is not exempt from taxation unless it is somewhere so provided. * * *
Our decision that the restricted Indian was taxable on the income held for him by the Indian agent and not subject to his demand was affirmed by the Supreme Court in 295 U.S. 418, which stated:
* * * The taxpayer here is a citizen of the United States, and wardship with limited power over his property does not without more, render him immune from the common burden.
The parties have agreed that the proper amount of the deficiency is $92.88 if it is held that petitioner is taxable on the net proceeds from the timber sale received by the superintendent in the taxable year. We so hold. Accordingly,
Decision will be entered that there is a deficiency in income tax in the amount of $92.88.