Joseph Baldwin Campbell - Page 11

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            land caused a diminution of the land's value.  The Supreme Court                             

                  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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