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The property where petitioner cut the timber into lumber was and
remains reservation land not allotted to an individual Indian.
The lumber petitioner produced was sold to Spokane Indian
Reservation Timber Products Enterprises (SIRTPE). In 1993,
petitioner had lumber sales of $17,253 to SIRTPE and in 1994 his
sales to SIRTPE were in the amount of $10,699. Petitioner
incurred lumber sales expenses of $11,214 in 1993 and $6,954 in
1994.
On their joint individual Federal income tax returns filed
for 1993 and 1994, petitioners did not report income or expenses
from lumber sales. Attached to the return for 1993 is a Form
1099-MISC reporting nonemployee compensation from SIRTPE bearing
the handwritten notation, "Indian Exempt".
Discussion
Respondent takes the position that petitioners must report
as income receipts from lumber sales and are allowed to deduct
expenses associated with such sales for both years.
Petitioners argue that "income derived by an Indian from
activities which directly benefit the Tribe is tax-exempt."
Petitioners argue also that income derived by an Indian from a
"natural resource" on Indian reservation land is, by analogy to
section 7873, exempt from income tax.
We start from the premise that every item of a person's
gross income is subject to Federal income tax, unless there is a
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