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land caused a diminution of the land's value. The Supreme Court
stated:
Once logged off, the land is of little value. The land no
longer serves the purpose for which it was by treaty set
aside * * * and for which it was allotted to him. * * *
Unless the proceeds of the timber sale are preserved for
* * * [the taxpayer], he cannot go forward when declared
competent with the necessary chance of economic survival in
competition with others. * * * [Squire v. Capoeman, supra
at 10; fn. ref. omitted.]
The courts have held that to allow taxation of the proceeds of
activities that diminish the value of land allotted to an Indian
runs contrary to the rationale underlying Capoeman, for it
reduces the value of that which was to be preserved. See
Anderson v. United States, 845 F.2d 206, 207 (9th Cir.1988). The
"derived directly" standard is settled precedent in this and all
other courts that have addressed this issue. United States v.
Willie, supra at 1400; Saunooke v. United States, 806 F.2d 1053,
1055 (Fed. Cir. 1986); Cross v. Commissioner, supra at 565-566.
In Stevens v. Commissioner, 452 F.2d 741 (9th Cir. 1971),
affg. in part and revg. in part 54 T.C. 351 (1970), affg. in part
52 T.C. 330 (1969), the Court of Appeals for the Ninth Circuit
affirmed this Court's holding that, under the "derived directly"
standard, income from farming and ranching of land acquired by
the Government in trust for an individual Indian was exempt from
Federal income tax. See also United States v. Daney, 370 F.2d
791 (10th Cir. 1966) (income from oil and gas leases tax-exempt);
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