Joseph Baldwin Campbell - Page 12

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            Big Eagle v. United States, 156 Ct. Cl. 665, 300 F.2d 765 (1962)                             
            (royalties from mineral deposits tax exempt).7                                               
                  The courts have confined the exemption to income received                              
            from activities that diminish or exploit the value of the land                               
            (such as logging, mining, or farming).  Income earned through the                            
            investment of capital or labor, such as restaurants, motels,                                 
            tobacco shops, and similar improvements to the land, fail to                                 
            qualify for the exemption, although the activity takes place on                              
            land held in trust.  See Hoptowit v. Commissioner, 78 T.C. at 145                            
            (income received from the operation of a smokeshop on allotted                               
            land was taxable); see also Cross v. Commissioner, 83 T.C. at                                
            566; Beck v. Commissioner, T.C. Memo. 1994-122, affd. without                                
            published opinion 64 F.3d 655 (4th Cir. 1995) (rental income                                 
            derived from apartments located on Indian reservation land was                               
            not exempt); Critzer v. United States, 220 Ct. Cl. 43, 597 F.2d                              
            708 (1979) (exemption denied for income received from the                                    
            operation of a motel, a restaurant, a gift shop, and from the                                
            rental of a craft shop and apartment units).  Under the rationale                            
            of these cases, the income derived from the operation of a casino                            
            would not be derived directly from the land.                                                 

                  Citing these cases, in Cross v. Commissioner, 83 T.C. 561,                             
            566 (1984), affd. sub nom. Dillard v. United States, 792 F.2d 849                            
            (9th Cir. 1986), this Court adopted a narrow reading of the                                  
            "derived directly" exemption, observing that it had been applied                             
            only in situations where there is exploitation of the land                                   

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