DocketNumber: Docket No. 3765-79
Citation Numbers: 76 T.C. 101, 1981 U.S. Tax Ct. LEXIS 190
Judges: Featherston
Filed Date: 1/19/1981
Status: Precedential
Modified Date: 11/14/2024
*190
Petitioner Thomas E. Wynecoop and several of his relatives, enrolled members of the Spokane Indian Tribe, obtained a mineral lease of certain tribal lands and exchanged it for the stock of corporation Midnite. Subsequently, Midnite entered into an agreement with corporation Newmont whereby corporation Dawn was created to mine uranium on the leased lands. Under the agreement, Midnite received 49 percent of Dawn's stock in exchange for the assignment of the mineral lease, and Newmont received the remainder of Dawn's stock in exchange for cash and an agreement to finance the mining venture. Newmont subsequently advanced Dawn funds that were used to acquire a lease of nontribal (allotted) lands located within the Spokane Indian Reservation. From the sale of uranium mined from the lands covered by both leases, Dawn made income distributions to Midnite. Midnite then made dividend distributions to petitioner.
*101 OPINION
Respondent determined deficiencies in the amounts of $ 126,912.94 and $ 79,609.48 in petitioners' Federal income taxes for 1975 and 1976, respectively. Due to a concession by respondent, the only issue for decision is whether certain *102 dividends received by petitioner Thomas E. Wynecoop are exempt from Federal income taxation.
This case was submitted fully stipulated.
Petitioners Thomas E. Wynecoop (hereinafter referred to as petitioner) and Shirley Wynecoop, husband and wife, *192 filed joint Federal income tax returns for 1975 and 1976 with the Internal Revenue Service Center, Ogden, Utah. At the time the petition was filed, they resided in Redmond, Wash.
Petitioner was born on the Spokane Indian Reservation (the reservation) on March 21, 1928. At all times pertinent herein, he was an enrolled member of the Spokane Indian Tribe (the tribe).
On June 9, 1954, petitioner and several of his relatives, also enrolled members of the tribe, were granted a permit to prospect for minerals on certain tribal lands. In the event that metal or ore were found in paying quantities, the permit required the permittees to enter into a mineral lease "as provided by the regulations of the Department of the Interior for Tribal Lands." On or about October 1, 1954, a mining lease was entered into between the U.S. Department of Interior, Bureau of Indian Affairs, on behalf of the tribe, as lessor, and petitioner and his relatives, as lessees.
On or about December 10, 1954, petitioner and his relatives, in conjunction with nine other incorporators, formed Midnite Mines, Inc. (Midnite). In exchange for stock of this new corporation, petitioner and his relatives assigned to it their*193 lessees' interests in the October 1, 1954, mining lease.
On April 20, 1955, Midnite entered into an agreement with a second corporation, Newmont Mining Co. (Newmont), under which a third corporation known as Dawn Mining Co. (Dawn) was organized. Pursuant to the agreement, Midnite received (and at the time of the stipulation, held) 147,000 shares of Dawn's stock (49 percent) in exchange for the assignment to Dawn of its lessee's interest in the mining lease with the tribe. Newmont received (and at the time of the stipulation, held) 153,000 shares of Dawn's stock (51 percent) in exchange for $ 153,000 in cash and its agreement to loan Dawn whatever funds were necessary to develop mines on the leased land and build a processing mill for processing the ore taken therefrom.
Subsequently, Newmont loaned Dawn funds to purchase land (not on the reservation) and build a uranium processing mill thereon. Newmont also loaned Dawn funds to acquire a lease, *103 approved by the Department of the Interior, to mine certain land (the Boyd land) located on the reservation that was not owned by the tribe in common. The Boyd land had been allotted to several individual Spokane Indians by the*194 Federal Government and was held by the legal heirs of those original allottees. *195 From the date of its formation through 1975 and 1976, except for small amounts of interest income, Dawn's income was derived entirely from the sale of uranium that was mined from the parcels of land leased from the tribe and the Boyds. Further, except for insignificant amounts of interest income, Midnite's only source of income during the same period was distributions from Dawn.
During 1975 and 1976, petitioner received dividends from Midnite in the respective amounts of $ 284,388.75 and $ 169,881.92. On his 1975 and 1976 income tax returns, petitioner included a note disclosing the receipt of these distributions from Midnite. However, he failed to include any portion of the distributions in his income for those years, stating that it was his position that the distributions received from Midnite were exempt from tax. *196 The Internal Revenue Code broadly provides that the income of
Petitioner has not referred us to, nor have we found, any treaty or statute that would, by its terms, exempt the amounts in question from Federal taxation. Nonetheless, relying on the cases of
In
Petitioner argues that he derived income from the lease of tribal and allotted land, as a result of his ownership of stock in Midnite, and that the income so derived is analogous to the income*201 that was derived from the allotted land acquired by purchase in
Indeed, in
*203 The Court of Appeals for the Ninth Circuit, to which appeal in this case would lie, was recently faced for the first time with the question of the taxability of a noncompetent Indian on income derived from the allotted land of other Indians and from tribal land.
*107 For the purposes of resolving the issue here presented, we perceive no basis for distinguishing between income derived from land used pursuant to a grazing permit and income derived from land used under a mineral lease. In either case, taxation of a noncompetent Indian's individual profit derived from the lease of tribal or allotted land does not represent a charge or encumbrance upon the tribe's or allottee's ownership interest in such land within the meaning of
To reflect the foregoing,
1. See the Indian General Allotment Act of 1887, ch. 119, 24 Stat. 388,
We note that it is not clear from the record whether the Boyd land was allotted pursuant to the provisions of the Indian General Allotment Act of 1887 or under the provisions of some other statute or treaty.↩
2. On his tax returns, petitioner denied that the distributions from Midnite constituted dividends to him. On brief, he concedes that the distributions would be taxable as dividends, under sec. 301, were it not for the source of the funds and his status as an enrolled member of the tribe.↩
3. All section references are to the Internal Revenue Code of 1954, as in effect during the tax years in issue, unless otherwise noted.↩
4. The term "noncompetent Indian," as used in cases such as the one at bar, refers to one who has been allotted land that is held in trust for him by the United States and who, therefore, may not alienate or encumber that land without the consent of the United States. The term does not denote mental incapacity. See
Petitioner argues that, because he is an enrolled member of the tribe, he is "noncompetent" as a matter of law. However, the stipulation does not disclose whether petitioner has ever been the recipient of an allotment on the reservation, and we are not persuaded that the status of being a noncompetent Indian necessarily follows from enrollment as a member of an Indian tribe. In any event, for purposes of this opinion, we assume that petitioner is a noncompetent Indian. Compare
5. For a general discussion of the guardian-ward relationship referred to here, and a case relying on that relationship as the basis for finding an Indian's income to be exempt from taxation, see
"We no longer believe this reasoning [in our opinion in
6. See note 1
7. See
Respondent argues that the income in this case was not derived directly from the land because it passed through two corporations (Dawn and Midnite) before the petitioner received it. Petitioner argues, in effect, that the corporations were mere conduits through which the proceeds from the sale of uranium passed directly to him. While we tend to agree with respondent (see
8. In
9. The taxpayer in
Bentley L. Holt and Bonnie J. Holt v. Commissioner of ... , 364 F.2d 38 ( 1966 )
Commissioner of Internal Revenue v. Freeman P. Walker and ... , 326 F.2d 261 ( 1964 )
Lawrence R. Fry and Nellie R. Fry, Husband and Wife v. ... , 557 F.2d 646 ( 1977 )
Roger A. Jourdain and Margaret E. Jourdain v. Commissioner ... , 617 F.2d 507 ( 1980 )
Moline Properties, Inc. v. Commissioner , 63 S. Ct. 1132 ( 1943 )
bryan-l-stevens-and-bryan-l-stevens-as-surviving-spouse-of-alma-stevens , 452 F.2d 741 ( 1971 )