Taxability of Indian Treaty Fishing Income

Various treaties between the United States and Indian tribes secure to the Indian signatories the 

“right of taking fish at all usual and accustomed grounds and stations.” In determining 

whether income derived from the exercise of these fishing rights is subject to federal tax, the 

relevant analysis is that employed by the Supreme Court in Squire v. Capoeman, 351 U.S. 1 

(1956). Squire held that Indians are subject to the payment of income taxes as are other 

citizens unless a tax exemption is “clearly expressed” in an applicable treaty or statute. Squire

also held that in analyzing a particular treaty or statute applicable to Indians, ambiguous 

language should be construed in the Indians' favor. The Tax Court has properly resolved the 

inherent tension between these two canons of construction by concluding that income earned 

by Indians from the exercise of treaty fishing rights is subject to the federal income tax.

December 12, 1985

M e m o r a n d u m O p i n i o n f o r t h e S e c r e t a r y o f t h e In t e r i o r

Your letter to the Attorney General regarding the taxability, under federal 

law, of income earned by certain Indian tribes from the exercise of commercial 

fishing rights guaranteed by treaty has been submitted to the Office of Legal 

Counsel for review. This review, which examines the different positions of the 

Department of the Interior (Interior) and the Internal Revenue Service (IRS) on 

this subject, is being undertaken pursuant to Executive Order No. 12146 (July 

18, 1979), reprinted in 28 U.S.C. § 509 note, and 28 C.F.R. § 0.25, which 

authorize the Office of Legal Counsel, on behalf of the Attorney General, to 

resolve legal disputes between Executive Branch agencies.

In 1983, the Solicitor of Interior concluded that treaty language reserving 

fishing rights to Indian tribes precluded federal taxation of income derived 

from the exercise of those rights. The IRS does not share that view, and has 

attempted to collect income taxes on fishing income earned by tribal fishermen 

from commercial fishing operations.1 A number of Indians who have received 

notices of deficiency from the IRS have filed petitions for redetermination in 

the Tax Court.2

As you note in your letter, the Department of Justice will need to resolve this 

issue in order to arrive at a uniform position of the United States, should the 

pending cases proceed to litigation handled by the Department. We have

1 The IRS issued technical memoranda in 1983 adopting the position that members of the affected Indian 

tribes are subject to the federal income tax. The IRS has maintained that position in ongoing litigation in Tax 

Court. See infra note 2.

2 We have received copies of pleadings on summary judgm ent motions filed in two of those proceedings, 

Jefferson v. Commissioner, No. 836-84, and Greene v. Commissioner, No. 15921-84.

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therefore reviewed the dispute in that context. As set forth below, we believe 

that the position of the IRS represents the more reasonable and sound reading 

of the applicable Supreme Court precedent, and therefore can be maintained in 

litigation handled by this Department.

I. Background

A. Interpretation o f Treaty Fishing Rights

The treaties at issue here were negotiated in the 1850s with Indian tribes 

living in what is now the State of Washington in order to extinguish the last 

group of conflicting claims to lands lying west of the Cascade Mountains and 

north of the Columbia River.3 See Washington v. Washington State Commercial Passenger Fishing Vessel Ass'n, 443 U.S. 658, 661-62 (1979). In exchange for their interest in most of the territory, the Indians were given 

monetary payments and the “exclusive use” of relatively small tracts of land, as 

well as certain other rights, including the right to fish. Id. With immaterial 

variations, the treaties each provide:

The right of taking fish at all usual and accustomed grounds and 

stations is secured to said Indians in common with all citizens of 

the Territory, and of erecting temporary houses for the purpose 

of curing the same; together with the privilege of hunting, 

gathering roots and berries, and pasturing their horses on all 

open and unclaimed lands.

Treaty of Olympia, art. Ill, 12 Stat. 971, 972 (July 1, 1855/Jan. 25, 1856). The 

scope of the fishing rights secured by these treaties, and the extent to which a 

state may interfere with those rights, has been considered on a number of 

occasions by the Supreme Court. See, e.g., United States v. Winans, 198 U.S. 

371 (1905); Seufert Bros. v. United States, 249 U.S. 194 (1919); Tulee v. 

Washington, 315 U.S. 681 (1942); Puyallup Tribe v. Department o f Game, 391 

U.S. 392 (1968) (Puyallup I); Department o f Game v. Puyallup Tribe, 414 U.S. 

44 (1973) (Puyallup //); Puyallup Tribe v. Department o f Game, 433 U.S. 165

(1977) (Puyallup III); Commercial Passenger Fishing, 443 U.S. 658. The 

Court has recognized that the rights secured by the treaties include the right to 

fish for commercial, as well as subsistence, purposes, and that the fishing right 

was critically important to the Indians in their acceptance of the treaties.4 The 

Court has specifically rejected the argument that the treaties guarantee to the

3 We understand that the following treaties are applicable here: Treaty of M edicine Creek, 10 Stat. 1132 

(Dec. 26, 1854); Treaty o f Point Elliott, 12 Stat. 927 (Jan. 22, 1855); Treaty of Point No Point, 12 Stat. 933 

(Jan. 26,1855); Treaty o f Neah Bay, 12 S tat. 939 (Jan. 31, 1855); Treaty w ith the Yakimas, 12Stat.951 (June 

9, 1855); and Treaty o f Olym pia, 12 Stat. 971 (July 1, 1855/Jan. 25, 1856).

4 See C om mercial Passenger Fishing, 44 3 U.S. at 676 (“During the negotiations, the vital importance o f the 

fish to the Indians was repeatedly emphasized by both sides, and the G overnor’s promises that the treaties 

would protect that source o f food and com m erce was crucial in obtaining the Indians’ assent."); see also id. at 

665-66 & n.7.

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Indians only the opportunity to compete with nontreaty fishermen on an individual basis, finding instead that the treaties entitle the Indians to take a fair 

share of the available fish.5 In reaching that conclusion, the Court has found it 

significant that the Indians reserved to themselves preexisting fishing rights, 

rather than obtaining rights from the government:

Because the Indians had always exercised the right to meet their 

subsistence and commercial needs by taking fish from treaty 

area waters, they would be unlikely to perceive a “reservation” 

of that right as merely the chance, shared with millions of other 

citizens, occasionally to dip their nets into the territorial waters.

Commercial Passenger Fishing, 443 U.S. at 678-79.

The Court has defined an “equitable measure” of the treaty right to be a 

division of the harvestable portion of each run that passes through a “usual and 

accustomed” place into “approximately equal treaty and nontreaty shares.” 

Id. at 685. The treaty share should be reduced, however, “if tribal needs may be 

satisfied by a lesser amount.” Id. Drawing on cases involving Indian reserved 

water rights,6 the Court stated:

[T]he centra] principle here must be that Indian treaty rights to a 

natural resource that once was thoroughly and exclusively exploited by the Indians secures so much as, but no more than, is 

necessary to provide the Indians with a livelihood — that is to 

say, a moderate living. Accordingly, while the maximum possible allocation to the Indians is fixed at 50%, the minimum is 

not; the latter will, upon proper submissions to the District 

Court, be modified in response to changing circumstances.

Id. at 686-87 (footnote omitted).

The Court has also made clear that a state cannot interfere with the exercise 

of the fishing right, other than nondiscriminatory regulations reasonable and 

necessary for conservation of the fish. Thus, a state may not grant a nontreaty 

fisherman rights to use a “fish wheel” — a device capable of catching fish by 

the ton and totally destroying a run of fish, thereby effectively excluding the 

Indians from the right to take fish at a “usual and accustomed place.” United

States v. Winans, 198 U.S. 371, 384 (1905). A state may not require Indians to

5 In Commercial Passenger Fishing, the Court said:

But we think greater importance should be given to the Indians’ likely understanding o f the other 

words in the treaties and especially the reference to the “right of taking fish” — a nght that had 

no special meaning at common law but that must have had obvious significance to the tribes 

relinquishing a portion of their pre-existing rights to the United States in return for this promise.

. . . In this context, it makes sense to say that a party has a right to “take" — rather than merely 

the “opportunity" to try to catch — some o f the large quantities of fish that will almost certainly 

be available at a given place at a given time.

Id. at 678; see also id. at 683; Puyallup I, 391 U.S. at 398; Puyallup III, 433 U.S. at 48-49.

6 The Supreme Court has held that treaties reserving land for the use of Indians in the and western states 

also reserve, by implication, rights to water sufficient to meet subsistence or other needs of the Indians 

reasonably within the contemplation of the parties at the time the treaties were negotiated. See Winters v. 

United States, 207 U.S. 564, 576 (1908); see also Cappaert v. United States, 426 U.S. 128 (1968).

105
obtain a fishing license as a prerequisite to exercise of their treaty rights, 

Seufert Bros. v. United States, 249 U.S. 194, 198 (1919), and must give Indians 

access across private lands, if necessary, in order to assure access to treaty 

fishing locations, Tulee v. Washington, 315 U.S. 668,685 (1942). State regulations justified on the basis of conservation must be both reasonable and 

necessary, Puyallup II, 414 U.S. at 45, and cannot discriminate against exercise 

by the Indians of their fishing rights, id. at 48; Puyallup I, 391 U.S. at 398.

On the other hand, the Indians cannot rely on their treaty right to exclude 

others from access to certain fishing sites outside the reservation in order to 

deprive other citizens of the state of a “fair apportionment” of a particular run. 

Commercial Passenger Fishing, 443 U.S. at 683-84. In sum:

Nontreaty fishermen may not rely on property law concepts, 

devices such as the fish wheel, license fees, or general regulations to deprive the Indians of a fair share of the relevant runs of 

. . . fish in the case area. Nor may treaty fishermen rely on their 

exclusive right of access to the reservations to destroy the rights 

of other “citizens of the Territory.” Both sides have a right, 

secured by treaty, to take a fair share of the available fish. That, 

we think, is what the parties to the treaty intended when they 

secured to the Indians the right of taking fish in common with 

other citizens.

Id. at 684-85.

The analysis in these treaty fishing cases relies heavily on factual evidence 

about the understanding of the parties at the time the treaties were negotiated 

and the importance of the fishing rights to the Indians who signed the treaties. 

The Court, consistent with its approach in other cases involving construction of 

Indian treaties, gave “special meaning” to the rule that “it is the intention of 

the parties, and not solely that of the superior side, that must control any 

attempt to interpret the treaties,” id. at 675, because of the circumstances of the 

negotiations:

[This Court] has held that the United States, as the party with the 

presumptively superior negotiating skills and superior knowledge of the language in which the treaty is recorded, has a 

responsibility to avoid taking advantage of the other side. “The 

treaty must therefore be construed, not according to the technical meaning of its words to learned lawyers, but in the sense in 

which they would naturally be understood by the Indians.”

Id. at 675-76 (quoting Jones v. Meehan, 175 U.S. 1,11 (1899)).

B. Indian Tax Cases

None of the cases construing the scope of the fishing right guaranteed by 

treaty discuss whether the income derived from exercise of the right to take a

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fair share of fish at “usual and accustomed places” is exempt from federal 

income taxation. The Supreme Court and the lower federal courts have, however, reviewed the taxability of income earned by Indians in other contexts. 

The leading case involving the authority of the federal government to tax 

Indian income is Squire v. Capoeman, 351 U.S. 1 (1956), in which the Supreme Court considered whether capital gains from the sale of standing timber 

on lands allotted to noncompetent Indians pursuant to the General Allotment 

Act of 1887, ch. 119, 24 Stat. 388 (codified as amended at 25 U.S.C. § 331 et

seq.), was subject to the federal income tax.7

The General Allotment Act was intended to begin a new era in federal Indian 

policy. By treaty, most Indians had been guaranteed exclusive use of reservation land. Under the General Allotment Act, tribal lands were to be divided and 

allotted to individual members of the tribe. The allotments were to be held in 

trust by the United States for twenty five years or longer, if the President 

deemed an extension desirable, and then to be transferred to the allottee 

discharged of government trusteeship. 25 U.S.C. §§ 347, 348.

The Court began its analysis in Squire with the principle, already established 

in prior cases,8 that “Indians are citizens and . . . in ordinary affairs of life, not 

governed by treaties or remedial legislation, they are subject to the payment of 

income taxes as are other citizens.” 351 U.S. at 5-6. The Court recognized, 

however, that applicable treaties or statutes could create tax exemptions, if 

such exemptions were “clearly expressed.” Id. The Court found such an exemption in the language in § 5 of the General Allotment Act, which provided 

that lands on Indian reservations allotted to individual Indians and held in trust 

for them by the government shall ultimately be conveyed to them in fee simple 

discharged of the trust and “free of all charge or incumbrance whatsoever.” 25 

U.S.C. § 348.

The Court recognized that this statutory provision was not “expressly couched 

in terms of nontaxability,” and in fact became effective prior to enactment of

7 A noncompetent Indian is one who holds allotted lands only under a trust patent, and who may not dispose 

o f his property without the approval of the Secretary of the Interior The term does not denote mental 

capacity.

8 In Choteau v. Burnet, 283 U.S. 691 (1931), and Superintendent o f Five Civilized Tribes v. Commissioner,

295 U.S. 418 (1935), the Supreme Court definitively rejected the argument that Indians are exem pt from 

federal taxation merely because of their status, in the absence of treaty or statutory provisions to the contrary. 

In Choteau, the Court held taxable the petitioner’s share of tribal income from oil and gas leases made by the 

tribe pursuant to statute, concluding that “[t]he intent to exclude [income from taxation] must be definitively 

expressed, where, as here, the general language of the Act laying the tax is broad enough to include the 

subject matter.” 283 U.S. at 696 (citations omitted). Jn Five Civilized Tribes, the Court concluded that the 

proceeds from the investment of funds derived from a restricted allotment were subject to federal taxation 

See 295 U.S. at 420-21.

Both Choteau v Burnet and Five Civilized Tribes were distinguished by the Court in Squire v. Capoeman

The Court noted that Choteau concerned the question whether an Indian was exempt from tax solely because 

o f his status, and that the facts in Choteau fit within the terms of § 6 of the General Allotment Act, which 

contemplates taxation of income earned by a competent Indian who has unrestricted control over lands and 

income thereon. Five Civilized Tribes was distinguished on the ground that the income involved was 

“reinvestment incom e” or “income derived from investment o f surplus income on land." The Court stated that 

it would not be necessary to exempt such income from taxation in order to fulfill the purposes of the General 

Allotment Act. See Squire, 351 U.S. at 9.

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any federal income tax, but nonetheless concluded that the words “charge or 

incumbrance might well be sufficient to include taxation.” 351 U.S. at 7. In 

reaching this conclusion, the Court relied on its earlier statements indicating 

that ambiguous language in treaties and statutes applicable to Indians should be 

interpreted favorably to the Indians:

Doubtful expressions are to be resolved in favor of the weak and 

defenseless people who are the wards of the nation, dependent 

upon its protection and good faith. Hence, in the words of Chief 

Justice Marshall, “The language used in treaties with the Indians 

should never be construed to their prejudice. If words be made 

use of, which are susceptible of a more extended meaning than 

their plain import, as connected with the tenor of the treaty, they 

should be considered as used only in the latter sense.” Worcester

v. G eorgia, 32 U.S. (6 Pet.) 515, 582 (1832).

351 U.S. at 6-7 (quoting Carpenter v. Shaw, 280 U.S. 363, 367 (1930)).

The Court did not find it necessary, however, to rely solely on the language 

of § 5. It found “additional force” in § 6 of the General Allotment Act, 25 

U.S.C. § 349, which authorizes the Secretary of the Interior to issue a patent in 

fee simple to any allottee competent to manage his own affairs. That section 

provided that “thereafter all restrictions as to sale, incumbrance, or taxation of 

said land shall be removed and said land shall not be liable to the satisfaction of 

any debt contracted prior to the issuing of such patent” (emphasis added). The 

Court concluded:

The literal language o f the proviso evinces a congressional 

intent to subject an Indian allotment to all taxes only after a 

patent in fee is issued to the allottee. This, in turn, implies that, 

until such time as the patent is issued, the allotment shall be free 

from all taxes, both those in being and those which might in the 

future be enacted.

351 U.S. at 7-8.

The Court also found that its interpretation of the intent of § 5 was supported 

by several opinions of the Attorney General and unofficial writings “relatively 

contemporaneous” with the enactment of the General Allotment Act. Id. at 8-9. 

The Court concluded the opinion with the observation that the exemption in § 5 

was consistent with the overall purpose of the General Allotment Act:

Unless the proceeds of the timber sale are preserved for respondent, he cannot go forward when declared competent with the 

necessary chance of economic survival in competition with 

others. This chance is guaranteed by the tax exemption afforded 

by the General Allotment Act, and the solemn undertaking in the 

patent.

Id. at 10.

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The analysis in Squire v, Capoeman has been applied in a number of 

subsequent cases in the federal courts of appeals. In those cases arising under 

the General Allotment Act or other acts construed by the courts in pari materia

with that act, the courts have generally held that income derived directly from 

the ownership of restricted allotted land is exempt from federal taxation. See,

e.g., Stevens v. Commissioner, 452 F.2d 741 (9th Cir. 1971); United States v. 

Hallam, 304 F.2d 620 (10th Cir. 1962); see also Big Eagle v. United States,

300 F.2d 765 (Ct. Cl. 1962). Income that is not derived directly from the 

taxpayer’s individual ownership of the land or that is derived from the ownership or use of unrestricted or unallotted land, however, is subject to taxation. 

See, e.g., United States v. Anderson, 625 F.2d 910 (9th Cir.) (income from 

cattle ranching on reservation land), cert, denied, 450 U.S. 920 (1980); Jourdain

v. Commissioner, 617 F.2d 507 (8th Cir.) (income earned as chairman of tribal 

council), cert, denied, 449 U.S. 839 (1980); Fry v. Commissioner, 557 F.2d 

646 (9th Cir. 1977) (income from logging operation on reservation land), cert,

denied, 434 U.S. 1011 (1978); Holt v. Commissioner, 364 F.2d 38 (8th Cir. 

1966) (income from grazing on reservation land), cert, denied, 386 U.S. 931 

(1967); Commissioner v. Walker, 326 F.2d 261 (9th Cir. 1964) (income earned 

as employee of the Indian community).

These cases interpret Squire v. Capoeman to teach that a tax exemption must 

derive from some particular language in a treaty or statute, although that 

language need not specifically set out a tax exemption, and that an exemption 

may not be based on policy alone or on generalized references to treaties and 

statutes. In United States v. Anderson, the Ninth Circuit explained the Squire

analysis as follows:

The rule that ambiguous statutes and treaties are to be construed 

in favor of Indians applies to tax exemptions, . .. but this rule 

“comes into play only if such statute or treaty contains language 

which can reasonably be construed to confer income tax exemptions.” “The intent to exclude must be definitely expressed, 

where, as here, the general language of the Act laying the tax is 

broad enough to include the subject matter.”

625 F.2d at 913 (citations omitted). The court explained further that although 

“policy arguments are fruitless in the absence of statutory or treaty language 

that arguably is an express tax exemption,” they “might persuade courts to 

construe such arguable language, if any exists, actually to be an express tax 

exemption.” Id. at 914 n.6.

In Karmun v. Commissioner, 749 F.2d 567 (9th Cir. 1984), the Ninth Circuit 

applied this analysis in a case arising under the Reindeer Industry Act of 1937, 

25 U.S.C. § 500. That Act authorizes the Secretary of the Interior to acquire for 

the Alaskan natives reindeer and other property owned by non-natives. The 

Secretary is authorized to distribute or hold in trust the reindeer and other 

property, and to organize, manage, and regulate the reindeer industry in such a 

manner as to establish and maintain for the Alaskan natives a self-sustaining

109
business. See 749 F.2d at 569. The court rejected the claim made by Indians 

who operated herds of reindeer under that Act that their income should be 

exempt from federal taxation under the Squire v. Capoeman rationale. The 

Court noted that “[i]ncome is tax exempt under Squire only when the governing treaty or statute contains language which can reasonably be construed to 

confer an exemption,” and it found “no clear expression of intent to exempt” in 

the Reindeer Act. 749 F.2d at 570. In addition, the court found it significant 

that the purposes of the General Allotment Act and the Reindeer Act were 

different:

The purpose of the [General Allotment Act] was to benefit the 

individual allottees by preparing them to become independent 

citizens. Accordingly, the Squire Court found that the tax exemption was crucial to fulfilling this purpose. By contrast, the 

purpose of the Reindeer Act is to provide a continuing food 

source to the Eskimos of northwestern Alaska through the establishment of a native operated reindeer industry. That purpose is 

not undermined by requiring the owners and operators of reindeer herds to pay federal income taxes on their profits from the 

successful conduct of such operations.

Id. (citations omitted).

The issue we have been asked to address — the taxability of treaty fishing 

rights — has been considered twice by the Tax Court, once before the Squire

decision and once again in 1982. See Strom v. Commissioner, 6 T.C. 621 

(1946), a jf d p e r curiam, 158 F.2d 520 (9th Cir. 1947); Earl v. Commissioner,

78 T.C. 1014 (1982). In both Strom and Earl, the Tax Court concluded that 

income earned by the Indians from the exercise of treaty fishing rights is 

subject to federal tax. In Strom, the court rejected the argument advanced by 

the Indians that imposition of a tax upon income earned in carrying on a 

commercial fishing business is a restriction on the right to fish guaranteed by 

treaty:

The Quinaielt Indians on the reservation were as free to fish in 

the Quinaielt River after the imposition of an income tax as they 

were prior to that time. The disputed income tax is not a burden 

upon the right to fish, but upon the income earned through the 

exercise of that right.

6 T.C. at 627. Noting that there was no express exemption from tax in the 

treaty, and that the income involved was derived “personally” by a restricted 

Indian (rather than in trust), the Tax Court concluded that the income was 

subject to the general provisions of the Internal Revenue Code. Id. at 627-28.

In Earl, the petitioner relied on Squire v. Capoeman as a basis for his 

claimed tax exemption, arguing that income from fishing in the usual and 

accustomed fishing grounds is analogous to income from the cutting of timber

110
from allotted lands.9 The Tax Court rejected that analogy, finding instead that 

the treaty language guaranteeing the right to fish “contains nothing dealing 

with the taxation of income derived from such fishing.” 78 T.C. at 1017. 

Moreover, it found that the right of an Indian to share in treaty fishing rights is 

more like his rights as a member of the tribe in unallotted land on the reservation (income from which would not be exempt under Squire) than individual 

rights in allotted land (income from which would fall within the “free from 

charge or incumbrance” language analyzed in Squire). Id.

In contrast to its treatment of cases involving federal taxation, the Supreme 

Court has repeatedly held that Indians and their property are exempt from state

taxation within their reservations, unless Congress clearly manifests its consent 

to such taxation. See Montana v. Blackfeet Tribe o f Indians, 471 U.S. 759, 

764-65 (1985); McClanahan v. Arizona State Tax Comm’n, 411 U.S. 164, 

170-71 (1973). Those decisions rest on a preemption rationale, as explained by 

the Court in Bryan v. Itasca County, 426 U.S. 373 (1976):

The McClanahan principle derives from a general pre-emption 

analysis that gives effect to the plenary and exclusive power of 

the federal government to deal with Indian tribes, and “to regulate and protect the Indians and their property against interference even by a state.” This pre-emption analysis draws support 

from “the ‘backdrop’ of the Indian sovereignty doctrine,” ‘“ the 

policy of leaving Indians free from state jurisdiction and control 

which is deeply rooted in the Nation’s history,”’ and the extensive federal legislative and administrative regulation of Indian 

tribes and reservations. “Congress has acted consistently upon 

the assumption that the States have no power to regulate the 

affairs of Indians on a reservation,” and therefore “‘State laws 

generally are not applicable to tribal Indians on an Indian reservation except where Congress has expressly provided that State 

laws shall apply.’”

Id. at 376 n.2 (citations omitted). Property and income earned outside the 

reservation, however, have generally been held to be subject to nondiscriminatory state taxation, unless federal law otherwise provides for an exemption. See

Mescalero Apache Tribe v. Jones, 411 U.S. 145, 148—49, 155-56 (1973) 

(holding that the state may impose gross receipts tax on ski resort operated by 

Indian tribe on off-reservation land).

C. Positions o f Interior and the IRS

Interior and the IRS both recognize that the relevant analysis here is that 

used by the Court in Squire v. Capoeman. The disagreement centers on whether

9 Pleadings filed by some of the Indian tribes in the pending Tax Court proceedings state that the factual 

premise o f the holding in Earl — that the income was earned through exercise o f treaty fishing nghts — is 

incorrect, because the individual involved, although an Indian, was fishing as a crewmember on a vessel 

owned by a non-Indian, and merely shared in proceeds of fishing attributable to non-Indian treaty shares.

Ill
the treaty language is sufficiently specific to meet the threshold requirements 

of Squire, and what role policy considerations play in interpreting that language.

1. Interior Position

Interior maintains that the treaty language expressly securing to the Indians 

the right of “taking fish at usual and accustomed grounds and stations” is 

language that meets the threshold requirement of Squire v. Capoeman that a tax 

exemption be based on specific language. It is language that is “directly 

applicable” to the fishing activity, and it does not state any limitation on the 

right other than that it is to be exercised in common with other citizens. Interior 

therefore argues that the language, on its face, “might well be read to prohibit 

any limitation on diminishment of the fishing right other than the one specified.”

Interior acknowledges that the language “might also be read otherwise,” but 

argues that, at a minimum, an ambiguity exists and, accordingly, that the treaty 

must be construed in the light most favorable to the Indians. See generally

Squire, 351 U.S. at 7. Interior notes that at the time of negotiation of the treaty, 

the reference to the right of “taking fish at usual and accustomed grounds and 

stations” was clearly intended to include commercial fishing activities, see

Commercial Passenger Fishing, 443 U.S. at 665-66 & n.7, 676, and that the 

Indians were assured that they would be able to fish and trade as they had prior 

to the treaties — that is, without taxation and with no obligation to turn over a 

portion of their fishing catch or proceeds to the federal government. Thus, 

Interior reasons that “it is no more likely that the Indians understood that the 

federal government would tax their fishing right than that they understood that 

future states would be able to impose a charge upon it.”10

2. IRS Position

The IRS contends that the interpretation advanced by Interior would be “an 

unwarranted expansion of the principles announced in Squire v. Capoeman.”

The IRS believes that the treaty language granting the fishing rights cannot 

reasonably be construed to create a tax exemption. The IRS views Interior’s 

position as a policy argument o f the type the courts have rejected as a sole basis 

for a tax exemption, and views the “non-tax cases” cited by Interior (that is,

10 T his argum ent is considerably expanded in the pleadings filed by Indian tribes in the Tax Court 

proceedings. Those tribes have opposed m otions for summary judgment filed by the IRS on the ground, inter

alia, that “a decision cannot be made without a thorough understanding o f the historical and anthropological 

data surrounding the negotiation of the T reaty,” which can be presented only at trial. See, e.g.. Brief for 

Petitioner at 2, Jefferson v. Commissioner, No. 836-84 (T.C. Apr. 18, 1985). A num ber of affidavits have 

been offered with those pleadings to provide a foundation for petitioners' claims that at trial they will 

dem onstrate that the Indians negotiating the treaties did not contemplate that the United States would be 

allow ed to tax or otherwise to take a share of the fishery that the Indians reserved for themselves. The tribes 

also argue that there is no evidence that the United States attempted to negotiate for the right to tax treaty 

fishing incom e in the treaty negotiations o r understood that the treaty gave it that right, and that there is no 

suggestion in the numerous Supreme C ourt and lower federal court decisions construing treaty fishing rights 

that “one o f the federal purposes in negotiating these agreem ents was to enable [the government! to raise 

revenue from the Indians* commerce.” Id. at 6.

112
those cases construing the treaty fishing rights) as inapposite, because they 

merely “clarify the rights which the treaties guarantee — rights which we are 

disputing only to the extent that Interior is reading them to convey a specific 

tax exemption.” Accordingly, the IRS maintains that the reasoning of the Tax 

Court in Strom and Earl is persuasive, and should be followed by the IRS in its 

enforcement efforts.

II. Analysis

The dispute between Interior and the IRS arises out of an inherent tension 

between two applicable and longstanding canons of construction: first, that 

regardless of the circumstances, exemptions from federal income taxation be 

“definitely expressed,” see supra note 8 and accompanying text; and second, 

that treaties and statutes affecting Indians be interpreted liberally, in light of the 

trust responsibility of the United States and bearing in mind the Indians’ 

historically inferior bargaining position, which characterized the negotiation of 

the treaties, see supra text immediately preceding Part I.B. Unfortunately, the 

courts have not been wholly consistent in describing how the balance between 

the competing canons should be struck. In Squire, the Court noted that the “free 

from charge or incumbrance” language of § 5 was not “expressly couched in 

terms of nontaxability,” but found that the words used were “susceptible of a 

more extended meaning than their plain import, as connected with the tenor of 

their treaty.” 351 U.S. at 7. In Choteau v. Burnet, the Court stated that the intent 

to exclude income from taxation must be “definitively expressed.” 283 U.S. at 

696. The language used in United States v. Anderson referred both to the need 

for “express exempting language in a statute or treaty,” 625 F.2d at 917, and to 

statutory or treaty language “that arguably is a tax exemption,” id. at 914 n.6. In 

Holt v. Commissioner, the court referred to language that “can reasonably be 

construed to confer income tax exemptions.” 364 F.2d at 40.

Nor have the courts articulated precisely what types of underlying considerations would be persuasive in construing specific language to be a tax exemption. Although the courts have generally rejected arguments that the general 

goal of increased economic opportunities for Indians justifies an exemption 

from federal income taxes, they have nevertheless recognized that the federal 

government’s responsibility to the Indians must color interpretation of treaty 

rights and obligations. Moreover, there are few concrete examples to guide our 

analysis, because as far as we are aware, the only specific language that has 

been analyzed by the courts for the purpose of determining whether a federal 

tax exemption exists is the language in §§ 5 and 6 of the General Allotment Act.

Although in the absence of direct guidance from the courts it is difficult to 

determine definitively whether the treaty language falls within the Squire

rationale, we believe that the position taken by the IRS represents the more 

sound view of the law. For this reason, as we discuss below, we believe that if 

the pending cases proceed to the federal courts, the Department of Justice could 

argue the position set out by the IRS.

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Interior has argued that because the treaty contains some language dealing 

with fishing rights, the threshold Squire v. Capoeman test has been met. We 

believe that is an overly broad reading of Squire. There is a significant difference between the specific language relied upon by the Court in Squire and the 

language relied upon by Interior to support a tax exemption. In Squire, and in 

its preceding decisions in Choteau and Five Civilized Tribes, the Court emphasized that the language creating a tax exemption must be specific and clear, 

because the language of the Internal Revenue Code otherwise plainly encompasses income earned by Indians from any source. See supra note 8 and 

accompanying text. In Choteau and Five Civilized Tribes, the Court did not 

find such language, even in the face of express treaty guarantees of exclusive 

use of reservation land (language that the Court did not address). The difference in Squire was the presence of specific statutory language that, although 

not expressly mentioning taxation, expressly dealt with “charges” and 

“incumbrances” that might be levied on the allotted land. In addition, the Court 

had the benefit of other literal language in the statute dealing with the grant of 

the land in fee simple to the Indians, which expressly included taxation as a 

restriction that otherwise might be applicable to the land. Thus, it was not 

difficult for the Court to conclude that Congress intended to include taxation 

(including taxation of income derived directly from the land) as a “charge or 

incumbrance” within the meaning of § 5 of the General Allotment Act.

Here the treaty language granting Indians the “right of taking fish” does not 

contain any comparable specific language dealing with “charges,” 

“incumbrances,” “restrictions,” or other types of limitations. Rather, that language merely grants a particular right. It is more analogous to broad treaty 

language granting the Indians exclusive use of reservation land,11 or language 

in the General Allotment Act granting Indians rights to allotted lands12 — 

neither of which was even considered by the Court in Squire or subsequent 

cases. On its face, then, the treaty language lacks the specificity and focus of 

the language at issue in Squire.

To be sure, the Supreme Court, in considering the scope of the “right of 

taking fish,” suggested that the only permissible limitations on that right are 

reasonable, nondiscriminatory regulations designed to conserve the fish (and 

thereby preserve the fishing right). See, e.g., Puyallup II, 414 U.S. at 45, 48; 

Puyallup I, 391 U.S. at 398. As noted above, however, the Court has not 

considered the question whether taxation of the income earned from the exercise of the fishing right is or is not contemplated by the treaty language. We

11 See, e.g.. Treaty of Olympia, art. II, 12 Stat. at 971:

There s h a ll. . . be reserved, for the use and occupation of the tribes and bands aforesaid, a tract 

o r tracts o f land sufficient for their wants within the Territory of Washington, to be selected by 

the President of the United States, and hereafter surveyed or located and set apart for their 

exclusive use, and no white man shall be perm itted to reside thereon without permission of the 

tribe and o f the superintendent o f Indian affairs or Indian agent.

12 See, e.g., 25 U.S.C. § 331 (authorizing allotment to each Indian located upon a reservation); id. § 334 

(granting allotm ents to Indians not residing on reservations), id. § 336 (granting allotments to Indians making 

settlem ent on unappropriated lands).

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believe that taxation of the income earned from the exercise of the treaty 

fishing right would have a qualitatively different effect on those rights than did 

the restrictions struck down by the Court in the treaty cases. The latter restrictions involved an actual limitation on the ability or opportunity of the Indians to 

take fish at the treaty locations — such as prohibitions on access, the use of 

physical devices that diminish or destroy the runs of fish available to the 

Indians, and license fees required as a prerequisite for exercise of fishing 

rights. See discussion supra Part I.A. An income tax on the profits received 

from exercise of those fishing rights, although it may diminish the economic 

value of the right, does not interfere with the scope of the right itself — that is, 

the right to take a reasonable share of the available fish.

The taxation of profits earned from the exercise of treaty fishing rights will, 

of course, have an economic impact on Indians who earn that income. But the 

reduction of the economic value of a right guaranteed to the Indians has 

generally not been considered to be sufficient reason, standing alone, to create 

a tax exemption. See, e.g, United States v. Anderson, 625 F.2d at 914 n.6 

(“Capoeman and every other Supreme Court and Ninth Circuit case have held 

that such policy arguments are fruitless in the absence of statutory or treaty 

language that arguably is an express tax exemption.”); Fry v. United States,

557 F.2d at 649 (“[I]t is one thing to say that courts should construe treaties and 

statutes dealing with Indians liberally, and quite another to say that, based on 

those same policy considerations which prompted the canon of liberal construction, courts themselves are free to create favorable rules.”). That the right 

was created by language in a treaty does not provide an exception to the general 

rule favoring taxation, when that language merely establishes the existence of 

the right in broad terms. Otherwise, Squire v. Capoeman would be reduced to 

quite mechanical operation: that is, if a right is granted to Indians by express 

language in a statute or treaty that benefits the Indians economically, income 

earned from exercise of that right is exempt from federal income taxation. We 

believe that conclusion is inconsistent with Squire, as well as with the conclusions in Choteau v. Burnet and Five Civilized Tribes.13

In addition, in Squire the Court was able to point to a direct link between the 

tax exemption and the purpose of the statute, which was to grant individual 

Indians an unencumbered right to their allotted land, when they were judged 

ready to assume full responsibility for that land and the obligations flowing 

from ownership. During the period of trusteeship, that purpose could be thwarted

13 If Squire were to be read that broadly, we would have difficulty developing a principled distinction 

between cases in which a right is granted by express language and cases in which a right is implied. For 

example, the statute at issue in Karmun v. Commissioner, the Reindeer Industry Act, arguably gave Indians 

an implied right to operate herds o f reindeer for profit, subject to the supervision of the Secretary of the 

Interior. Similarly, treaties between the United States and Indians in the western states have generally been 

interpreted to grant implied rights to use water that is minimally necessary to carry out the needs of the tribe, 

even if no water is expressly guaranteed by the treaties. It seems to us that to the extent it is argued that the 

express grant of a right to Indians that has economic benefit carries with it a tax exemption, the argument 

should also apply to implied treaty rights. Clearly, however, that argument is inconsistent with the C ourt’s 

analysis in Squire and its repeated assertions that exemptions from taxation must be clearly and definitively 

expressed.

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by taxation of income received directly from use of the land, because a failure 

to pay that tax could result in a tax lien on the property. See 351 U.S. at 10. 

Here, however, the link is much more tenuous, for it is difficult to argue that 

taxation of the net income derived from exercise of the fishing right would 

threaten the continued availability of that right. Accordingly, this situation is 

analogous to that described by the Court in Karmun v. Commissioner.

Moreover, as the Tax Court observed, the purpose of the 

legislation involved here [the Reindeer Industry Act] is entirely 

different from that in Squire. The purpose of the [General Allotment Act] was to benefit the individual allottees by preparing 

them to become independent citizens. Accordingly, the Squire

Court found that the tax exemption was crucial to fulfilling this 

purpose. By contrast, the purpose of the Reindeer Act is to 

provide a continuing food source to the Eskimos of northwestern Alaska through the establishment of a native-operated reindeer industry. That purpose is not undermined by requiring the 

owners and operators of the reindeer herds to pay federal income taxes on their profits from the successful conduct of such 

operations.

749 F.2d at 570 (citations omitted).

Nor do we find persuasive the further argument that because neither the 

Indians nor the United States contemplated, at the time the treaties were 

negotiated, that income derived from commercial fishing would be taxable, the 

rights reserved by the Indians include the right to be free from taxation. This 

argument, if taken to its logical extreme, would require that all income earned 

by Indians deriving from the exercise of a treaty or statutory right that predates 

the federal income tax be exempt from that tax. In Choteau, Five Civilized

Tribes, and Squire, the Supreme Court implicitly rejected that argument, holding that Indians are not exempt from federal income taxation merely because of 

their status as Indians (that is, as formerly sovereign people who had not been 

subject to the tax), but rather could claim an exemption only on the basis of 

specific treaty or statutory language indicating an intent to exempt them.

Furthermore, this argument, again if taken to its logical extreme, would 

mean that the courts could never take account of changes in conditions, laws, or 

regulations that postdate negotiation of the treaties — a view that would, we 

believe, stretch the canon of construction favoring interpretation of treaties as 

the Indians understood them beyond the scope intended by the Supreme Court. 

As the Court stated in Kennedy v. Becker, 241 U.S. 556, 563 (1916):

It has frequently been said that treaties with the Indians should 

be construed in the sense in which the Indians understood them.

But it is idle to suppose that there was any actual anticipation at 

the time the treaty was made of the conditions now existing to 

which the legislation in question was addressed.

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Finally, we do not believe the cases dealing with state taxation of Indians are 

relevant to the question of federal taxation. As discussed above, see supra text 

immediately preceding Part I.C, those cases rest on a preemption rationale that 

is not pertinent to interpretation of federal law:

Royalties received by the government from mineral leases of 

Indian lands have been held to be beyond a State’s taxing power 

on the ground that, while in the possession of the United States, 

they are a federal instrumentality, to be used to carry out a 

governmental purpose. It does not follow, however, that they 

cannot be subjected to a federal tax.

Choteau v. Burnet, 283 U.S. at 696 (citations omitted).

Conclusion

For these reasons, we conclude that the position maintained by the IRS that 

income earned from exercise of treaty fishing rights is subject to the federal 

income tax is the more sound view of the law. We believe that position is fully 

consistent with the applicable Supreme Court precedents and is consonant with 

the trust relationship held by the United States with respect to Indian tribes.

A l l a n G e r s o n

Deputy Assistant Attorney General

Office o f Legal Counsel

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