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These deposits were to be made over a period of 10 years. The
primary purpose of the reserve account was to provide funds to
meet the major capital needs of the project.
During 1992 and 1993, petitioners deposited $3,873 and
$3,760, respectively, into the reserve account. During those
years, no funds were disbursed from the reserve account for
expenses.
On petitioners' 1992 and 1993 Federal income tax returns,
petitioners deducted the amounts deposited into the reserve
account during those years. In the statutory notice of
deficiency, respondent denied petitioners' claimed deductions for
these payments. Respondent also denied petitioners' claim for
refund for all taxes paid relating to their 1992 and 1993 income.
OPINION
I. Taxability of Petitioners' Income
Petitioners argue that (1) Native American Indians are not
taxable under the Constitution and its amendments, and, in the
alternative, (2) the Cherokee Treaty of 1866 (the 1866 Treaty),
14 Stat. 799, exempts their income from taxation.
A. Constitutional Arguments
There is well-established case law holding that Native
American Indians are taxable unless specifically exempted by a
Federal statute or treaty. See Squire v. Capoeman, 351 U.S. 1, 6
(1956); Dillon v. United States, 792 F.2d 849 (9th Cir. 1986),
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