George S. and Frela D. Beck - Page 3

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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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