118 T.C. No. 37

UNITED STATES TAX COURT

WARBELOW’S AIR VENTURES, INC., Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 10351-00. Filed June 27, 2002.

P leased land from the State of Alaska to operate

an airport. The leased land is surrounded by lands

owned by a Native corporation and a federally

recognized Native entity. P claimed the Indian

employment credit (IEC) on its corporate tax return

with respect to wages paid to employees who perform

substantially all of their services for P at the

airport. R disallowed the IEC.

Held: The term “within an Indian reservation” in

I.R.C. sec. 45A(c)(1)(B) means located “on” an Indian

reservation. 

Held, further, P does not qualify for the IEC

because the airport is not located “within an Indian

reservation” within the meaning of I.R.C. sec. 45A.
- 2 -

1 Mr. Walleri began representing petitioner on Oct. 12,

2001.

2 All section references are to the Internal Revenue Code

in effect for the years in issue, and all Rule references are to

the Tax Court Rules of Practice and Procedure.

Michael J. Walleri, for petitioner.1

Stephen P. Baker, for respondent.

OPINION

VASQUEZ, Judge: Respondent determined the following

deficiencies in petitioner’s Federal income taxes: 

TYE Apr. 30 Deficiency

 1996 $12,482

 1997 8,369

 1998 355

The issue for decision is whether petitioner qualified for the

Indian employment credit (IEC) pursuant to section 45A for its

fiscal years ended April 30, 1996 (TY 1996), April 30, 1997 (TY

1997), and April 30, 1998 (TY 1998).2

Background

The parties submitted this case fully stipulated pursuant to

Rule 122. The stipulation of facts and the attached exhibits are

incorporated herein by this reference. At the time the petition

was filed, petitioner had its mailing address and principal

office in Fairbanks, Alaska.

The city of Galena (Galena) is located approximately 270

miles west of Fairbanks on the north bank of the Yukon River. 
- 3 -

3 Galena Village is also known as Louden Village.

4 Gana-A’ Yoo is the successor to the village corporation

of Notaaghleedin, Ltd. 

Galena was traditionally inhabited by the Athabascan Indians. 

Galena Village3 (Galena Village) refers to an undefined tribal

territory within which Galena is located and also refers to a

federally recognized Native entity within Alaska that has the

same status as tribes in the contiguous 48 States.

 The Alaska Native Claims Settlement Act (ANCSA), Pub. L. 92-

203, 85 Stat. 688 (1971), current version at 43 U.S.C. secs.

1601-1629e (1994), created 12 Native regional corporations. 

Native residents of Galena are shareholders in the Doyon Native

Regional Corporation (Doyon). Under ANCSA, the area on which

Galena is located was made available for land selections by

Doyon.

Native residents in Galena are also shareholders of the

Gana-A’ Yoo Native Village Corporation (Gana-A’ Yoo), which was

also created under State law in accordance with ANCSA.4

Petitioner operates an air charter service, which maintains

a ground facility in Galena (Galena airport). The facility

comprises a hangar and an office building. The Galena airport

serves the villages in the Middle Yukon and Koyukuk River areas.

The Galena airport is located on land that petitioner leases

from the State of Alaska, Department of Transportation and Public
- 4 -

5 The U.S. Air Force transferred this land to the State of

Alaska in 1966, subject to certain reservations respecting

continuing use as a military base.

6 A small portion of the southern border adjoins the Yukon

River and a Federal air navigation site.

7 In its petition, petitioner also claimed an overpayment

of $6,078 for TY 1997.

Facilities. During the taxable years at issue, the State of

Alaska and the Galena Air Station, a U.S. Air Force installation,

owned and administered the land on which the Galena airport is

located.5 On this land, substantially all of petitioner’s

services are performed by Alaska Native employees. The Galena

airport’s land is bordered on the south by the Galena Village

Townsite.6 Gana-A’ Yoo, pursuant to ANCSA, owns the lands that

border the Galena airport on the north, east, and west.

On its amended corporate tax returns for TY 1996, TY 1997,

and TY 1998, petitioner claimed the IEC. In the notice of

deficiency, respondent disallowed the IEC because petitioner had

not demonstrated that it met the requirements to claim the credit

and allowed an additional deduction for wages or salary expense

because of the disallowed credit.7

Discussion

Section 38 allows a taxpayer to claim against his tax a

general business credit, which includes the amount of the current

year business credit. Sec. 38(a)(2). The amount of the current
- 5 -

year business credit includes the IEC determined under section

45A(a). Sec. 38(b)(10). Section 45A(a) provides:

SEC. 45A(a). Amount of Credit.--For purposes of

section 38, the amount of the Indian employment credit

determined under this section with respect to any

employer for any taxable year is an amount equal to 20

percent of the excess (if any) of--

(1) the sum of--

(A) the qualified wages paid or

incurred during such taxable year, plus

(B) qualified employee health insurance

costs paid or incurred during such taxable

year, over

(2) the sum of the qualified wages and

qualified employee health insurance costs

(determined as if this section were in effect)

which were paid or incurred by the employer (or

any predecessor) during calendar year 1993. 

[Emphasis added.]

“Qualified wages” are defined as “any wages paid or incurred by

an employer for services performed by an employee while such

employee is a qualified employee.” Sec. 45A(b) (emphasis added). 

A “qualified employee” is defined in section 45A(c)(1) as:

(1) In general.--Except as otherwise provided in

this subsection, the term “qualified employee” means,

with respect to any period, any employee of an employer

if--

(A) the employee is an enrolled

member of an Indian tribe or the spouse

of an enrolled member of an Indian

tribe,

(B) substantially all of the

services performed during such period by 
- 6 -

8 Sec. 7491 is effective for court proceedings arising in

connection with examinations commencing after July 22, 1998. 

Petitioner does not contend that sec. 7491 is applicable to its

case. Further, we do not find that the resolution of this case

depends on which party has the burden of proof.

such employee for such employer are

performed within an Indian

reservation, and

(C) the principal place of abode

of such employee while performing such

services is on or near the reservation

in which the services are performed. 

[Emphasis added.]

The parties dispute the meaning of the phrase “within an Indian

reservation” contained in section 45A(c)(1)(B).8

I. “Within” an Indian Reservation

Petitioner argues that section 45A does not require a

qualified employee to work “on” an Indian reservation but

“within” an Indian reservation. Petitioner contends that the

Galena airport is within the exterior boundaries of a reservation

and is therefore “within” an Indian reservation as defined by

section 45A because the Galena airport is totally surrounded by

land that qualifies as an Indian reservation.

Respondent argues that Congress intended the phrase “within

an Indian reservation” in section 45A to refer to the interior of

the Indian reservation itself, not to non-Indian land adjacent to

an Indian reservation. Respondent contends that Congress

provided the IEC to encourage private businesses to locate on

Indian reservations in order to employ Native Americans who live
- 7 -

there; therefore, respondent argues that the Galena airport must

be physically located on an Indian reservation “per se” in order

to qualify for the IEC. 

We begin our analysis with the well-established rule that

statutory construction begins with the language of the relevant

statute. Consumer Prod. Safety Commn. v. GTE Sylvania, Inc., 447

U.S. 102, 108 (1980). Statutes are to be read so as to give

effect to their plain and ordinary meaning unless to do so would

produce absurd or futile results. United States v. Am. Trucking

Associations, Inc., 310 U.S. 534, 543 (1940); see Tamarisk

Country Club v. Commissioner, 84 T.C. 756, 761 (1985). We may

use legislative history to clarify an ambiguous statute. 

Burlington N. R.R. v. Okla. Tax Commn., 481 U.S. 454, 461 (1987);

City of New York v. Commissioner, 103 T.C. 481, 489 (1994), affd.

70 F.3d 142 (D.C. Cir. 1995). From the face of the statute, it

is not clear what is meant by “within”. We therefore examine the

legislative history to clarify the language.

The House conference report accompanying the enactment of

the section providing for the IEC referred to the IEC and to a

related provision as “Tax incentives for businesses on Indian

reservations.” H. Conf. Rept. 103-213, at 718 (1993) (emphasis

added). Further, the conference report described the Senate

amendment as follows: “Under the Senate amendment, businesses

located on Indian reservations generally are allowed a credit
- 8 -

against income tax liability for certain investments (‘the Indian

reservation credit’) and a credit against income tax liability

for certain wages and health insurance costs (‘the Indian

employment credit’).” Id. (fn. ref. omitted; emphasis added). 

Further, the conference agreement set forth in the conference

report stated: “As under the Senate amendment, a tribal member

or spouse is a qualified employee only if he or she works on a

reservation (and lives on or near that reservation) and is paid

wages that do not exceed $30,000 annually.” Id. at 723 (fn. ref.

omitted; emphasis added). Thus, we conclude that the phrase

“within an Indian reservation” in section 45A(c)(1)(B) means

located on an Indian reservation.

II. Defining “Indian Reservation”

Petitioner further argues that the land on which the Galena

airport is located falls within the definition of an Indian

reservation and therefore qualifies for the IEC pursuant to

section 45A because the definition of Indian reservation is

broader in this section than its conventional definition. 

Petitioner contends that section 45A, by incorporating the

definitions from the Indian Financing Act of 1974 (IFA), Pub. L.

93-262, 88 Stat. 77, current version at 25 U.S.C. secs. 1451-1544

(2000), and the Indian Child Welfare Act of 1978 (ICWA), Pub. L.

95-608, 92 Stat. 3069, current version at 25 U.S.C. secs. 1901-

1963 (2000), includes ANCSA lands. 
- 9 -

9 Only one Indian reservation, the Annette Island Reserve,

remains in Alaska after the enactment of ANCSA. 43 U.S.C. sec.

(continued...)

Respondent argues that the Galena airport is not located

within an Indian reservation as defined by the IFA, the ICWA, or

by 18 U.S.C. sec. 1151 (2000). Additionally, respondent argues

that Congress specifically carved out land on which airports were

located from the Federal public lands that were made available

for Native selection under ANCSA and, therefore, deliberately

excluded these lands from Native ownership.

Section 45A defines “Indian reservation” as a reservation as

defined in section 3(d) of the IFA, 25 U.S.C. sec. 1452(d), or

section 4(10) of the ICWA, 25 U.S.C. sec. 1903(10). Secs.

45A(c)(7), 168(j)(6).

Further, Congress passed ANCSA to provide a grant of land

and money to Native Alaskans in exchange for the extinguishment

of their land claims within Alaska. See Doyon, Ltd. v. United

States, 214 F.3d 1309, 1311 (Fed. Cir. 2000) (citing ANCSA). 

Pursuant to ANCSA, regional and village Alaska Native

corporations were organized under State law, including Doyon and

Gana-A’ Yoo, to assist Native Alaskans in managing the 44 million

acres of land and the $962.5 million transferred to them. 43

U.S.C. sec. 1607(a); Doyon, Ltd. v. United States, supra at 1311. 

Essentially, ANCSA ended Federal supervision over Indian affairs

and revoked the Indian reservation system in Alaska.9 43 U.S.C.
- 10 -

9(...continued)

1618(a).

sec. 1618(a); see Alaska v. Native Vill., 522 U.S. 520, 523

(1998). The ANCSA corporations received title to the land in fee

simple without any Federal restrictions applied to subsequent

land transfers. See Alaska v. Native Vill., supra at 524.

Certain land was required to be conveyed to the Federal

Government under ANCSA. See 43 U.S.C. sec. 1613. Specifically,

title to the land on which an airport is located, including

additional land that was necessary to provide Government-related

services and to ensure safe airplane approaches, was required to

be conveyed to the Federal or State Government or appropriate

municipal corporation. 43 U.S.C. sec. 1613(c)(4). Of

importance, the land on which the Galena airport is located had

been conveyed to the State of Alaska and the Federal Government.

A. Definition Under the IFA

The IFA defines “reservation” as: “Indian reservations,

public domain Indian allotments, former Indian reservations in

Oklahoma, and land held by incorporated Native groups, regional

corporations, and village corporations under the provisions of

the Alaska Native Claims Settlement Act.” 25 U.S.C. sec.

1452(d). The land on which petitioner’s Galena airport is

located does not qualify as a “reservation” under the IFA. The

land is not an Indian reservation because the enactment of ANCSA
- 11 -

revoked the Indian reservation system in Alaska. Additionally,

the land is not held by any incorporated Native groups, regional

corporations, or village corporations as provided by ANCSA. The

land was specifically excluded from ownership by any of the ANCSA

corporations because the land was used for airport purposes. 43

U.S.C. sec. 1613(c)(4).

B. Definition Under the ICWA

The ICWA defines “reservation” as: “Indian country as

defined in section 1151 of Title 18 and any lands, not covered

under such section, title to which is either held by the United

States in trust for the benefit of any Indian tribe or individual

or held by any Indian tribe or individual subject to a

restriction by the United States against alienation.” 25 U.S.C.

sec. 1903(10). We note that the land on which the Galena airport

is located is not held by the United States in trust for the

benefit of any Indian tribe or individual and is not held by any

Indian tribe or individual subject to a restriction by the United

States against alienation. “Indian country” is:

(a) all land within the limits of any Indian

reservation under the jurisdiction of the United States

Government, notwithstanding the issuance of any patent,

and, including rights-of-way running through the

reservation, (b) all dependent Indian communities

within the borders of the United States whether within

the original or subsequently acquired territory

thereof, and whether within or without the limits of a

state, and (c) all Indian allotments, the Indian titles

to which have not been extinguished, including rightsof-way running through the same.
- 12 -

18 U.S.C. sec. 1151. The land on which the Galena airport is

located does not fit the definition as provided in (a) or (c)

because the land is not within the limits of an Indian

reservation, and is not an Indian allotment to which the Indian

titles have not been extinguished. 

The land is also not a “dependent Indian community” as

provided for in (b) of the above section. The U.S. Supreme Court

held that a “dependent Indian community” exists when Indian lands

have been set aside by the Federal Government for the use of the

Indians as Indian land, and the lands must be under Federal

superintendence. Alaska v. Native Vill., supra at 527. The land

has not been set aside by the Federal Government for the use as

Indian land because the land was conveyed to the Federal

Government for airport purposes. Additionally, the land is not

under the Federal superintendence that existed previously; i.e.,

the Federal Government does not act as a guardian over it. Id.

at 533.

We conclude that the land on which the Galena airport is

located is not an “Indian reservation” within the meaning of

section 45A. Additionally, we conclude that the Galena airport

is not located “within an Indian reservation” within the meaning

of section 45A because the Galena airport is not located on an

Indian reservation. Thus, we hold that petitioner is not

entitled to the IEC with respect to wages paid to employees who
- 13 -

perform substantially all their services in petitioner’s employ

at the airport.

In reaching all of our holdings herein, we have considered

all arguments made by the parties, and, to the extent not

mentioned above, we find them to be irrelevant or without merit.

To reflect the foregoing,

Decision will be

entered for respondent.