t c no united_states tax_court alice perkins and fredrick perkins petitioners v commissioner of internal revenue respondent docket no filed date ps claimed that income they earned from selling gravel mined from seneca nation land was exempt from tax under the general allotment act the canandaigua treaty and the treaty of because the income was derived from indian land r adjusted ps’ income to include the gravel income r also determined that ps were liable for additions to tax and penalties under sec_6651 and sec_6662 held income earned from selling gravel mined from seneca nation land is taxable_income that is not excluded by either treaty or by the general allotment act held further ps are liable for additions to tax under sec_6651 held further ps may not be liable for penalties under sec_6662 gary dennis borek for petitioners mark alexander ericson for respondent opinion holmes judge alice perkins is an enrolled member of the seneca na- tion which has been and remains the largest indian nation within the iroquois confederacy and the largest population of indians in western new york perkins and her husband live on seneca property and got permission from the nation’s government to mine and sell gravel during and they argue that their income from these sales is exempt from federal taxation under the terms of several treaties signed when the united_states were in their infancy which the perkinses say promise that the federal government won’t tax members of the seneca nation nomenclature is fraught in this field the senecas refer to themselves in their own language as the o-non-dowa-gah their government strongly prefers to be called a nation rather than a tribe and the official name of the nation in english is the seneca nation of indians see seneca nation of indians https sni org last visited date seneca nation of indians faq https sni org last visited date the nation’s own website is agnostic on the question of referring to senecas as indians or native americans see seneca nation of indians faq much of the literature in this area refers to indian law and indian treaties and the like however so to maintain some continuity with this legal-historical past we will use the traditional nomenclature but we will use nation when we refer to the senecas’ government and collective term for themselves in english on this kind of income both parties are before the western district of new york in an essentially identical refund case and the perkinses recently won the argu- ment there withstanding the government’s motion to dismiss see perkins v united_states no 16-cv-495 ljv wl w d n y date the commissioner nevertheless argues that we have dealt with this issue many times before and there’s no tax exemption to be found he thinks this case is ripe for summary_judgment background alice perkins and her husband fredrick live on the allegany territory of the seneca nation in alice began a trucking business called a f trucking the perkinses’ tax returns suggest fredrick worked for the company as a truck driver the record doesn’t tell us all the services a f trucking performed but it does show that the perkinses were interested in mining gravel on the nation’s land this meant they had to win permission from the nation’s council alice won that permission for a f trucking in no one disputes that she mined and sold the gravel in both and in date the nation withdrew the permit but the business had piled up enough gravel to continue to sell it into the record does not tell us how much gravel was dug up or who bought it but the perkinses’ tax returns show that the business had almost dollar_figure million in gross_receipts from and nearly dollar_figure million from the perkinses didn’t file their and tax returns until date which means both returns were late the perkinses attached a detail sheet to each return that said the income from the gravel was from native american land not subject_to federal income taxes on disclosure statements they explained the taxpayer is claiming that the revenue from gravel income earned from the depletion of his land is not subject_to federal_income_tax the us tax_court concluded that a federal_income_tax exemption was created by the indian general allotment act of ch for income that an individual indian allottee derives directly from the land held in trust for him citing squire v capoeman spelling corrected the commissioner soon showed up to dispute this claim in date he sent the perkinses a notice_of_deficiency for their through tax years he said that the gravel income was taxable and that he would impose penalties under sec_6651 and sec_6662 all section references are to the internal_revenue_code in effect for and and all rule references are to the tax_court rules_of_practice and procedure unless we say otherwise the perkinses responded by filing a tax_court petition for their and tax years during discovery the perkinses sent an email to the irs stating that their argument was now based on two treaties--the canandaigua treaty nov 7_stat_44 and the treaty with the seneca may 7_stat_586 treaty the commissioner saw his chance and moved for summary_judgment on the issues of whether the gravel income is taxable and whether the perkinses should pay penalties for their tax_year the perkinses paid the alleged deficiency and filed a refund_suit in u s district_court see perkins v united_states a f t r 2d ria w d n y after some pretrial maneuvering the govern- ment in that case made the same argument that the commissioner makes here--that neither the canandaigua treaty nor the treaty exempts the perkinses’ grav- el-sales income from federal taxation id pincite magistrate judge scott of the western district of new york issued a report and recommendation that the the commissioner initially disputed a number of other items in the notice_of_deficiency but the only argument the perkinses made in their petition was that the gravel wasn’t taxable and they shouldn’t have to pay penalties that means that we deem the other items in the notice_of_deficiency conceded by the perkinses under rule b the canandaigua treaty is also known as the treaty of the six nations which is the name some courts use see eg sylvester v commissioner tcmemo_1999_35 wl at n district_court deny the government’s motion to dismiss based on the canandaigua treaty but grant its motion based on the treaty id pincite to both parties objected see fed r civ p and district judge vilardo very recently adopted judge scott’s recommendation about the canandaigua treaty but rejected his recommendation about the treaty perkins wl at he denied the government’s motion to dismiss id at this presents an unusual opportunity for two courts to analyze the same question about the same taxpayers at the same time discussion we begin with some general principles we may grant summary_judgment when there’s no genuine dispute of material fact and a decision may be rendered as matter of law rule b see eg 98_tc_518 aff’d 17_f3d_965 7th cir there is no genuine dispute of material fact here so we may move straight to the law the relevant law begins with a reminder that american indians have all been american citizens since indian citizenship act of ch 43_stat_253 federal tax law applies to every american including indians and their property interests 362_us_99 326_f2d_261 9th cir aff’g in part rev’g in part 37_tc_962 the code taxes every individual on all income from whatever source derived see sec_1 a - c a unless the income is specifically excluded see generally ch subch b p iii items specif- ically excluded from gross_income indians are subject_to the tax law just like other americans unless there’s a specific exclusion in a treaty or statute 351_us_1 superintendent of five civilized tribes for sandy fox creek no v commissioner 295_us_418 history does affect how we construe those exceptions the normal maxims --cited almost every day our court releases opinions--that deductions are a matter of legislative grace see eg 76_tc_1001 and that exemptions from tax are strictly construed see eg 32_tc_824 are displaced a bit when indians are involved we construe treaties and statutes in favor of indians because courts have viewed indians as being in a more vulnerable position in relation to the united_states government see 224_us_665 the construction instead of being strict is liberal doubtful expressions are to be resolved in favor of the indians generally treaties are con- strued more liberally than private agreements and the history negotiations and practical construction adopted by the parties are all relevant to treaty interpreta- tion moreover indian treaties ‘are to be construed so far as possible in the sense in which the indians understood them ’ 382_f3d_245 2d cir quoting 318_us_423 still we can’t use this canon to create favor- able rules for them jourdain v commissioner 671_tc_980 aff’d 617_f2d_507 8th cir with these constraints in mind we turn to the parties’ arguments we start with the perkinses’ return position on their returns the perkinses reported their income but in an explanatory attachment denied it was taxable under the general allotment act of ch 24_stat_388 codified as amended pincite u s c sec_334 as the perkinses later recognized however the general allotment act specifically exempted the the general allotment act divided reservations into parcels and held the allotments in trust for individual indians general allotment act of ch secs stat pincite 625_f2d_910 9th cir after the statutory trust period ended allottees got their land in fee discharged of said trust and free of all charge or incumbrance whatsoever general allotment act sec_5 stat pincite see u s c sec 351_us_1 452_f2d_741 9th cir aff’g in part rev’g in part 54_tc_351 and 52_tc_330 also at that time all restrictions as to sale incumbrance or taxation of said land were removed u s c sec congress likely assumed the act would bring about the end of the reservation system although the more direct goal was to promote assimilation 510_us_399 blackmun j dissenting reservations of the seneca nation of new york indians in the state of new york see id sec stat pincite that exemption remains in effect to this day see u s c sec we agree with the commissioner--and now even the perkinses--that this act doesn’t apply to the perkinses and does not excuse them from paying tax on the income they earned selling gravel the perkinses realized this during the audit and raised some new arguments based on the nation’s treaties with the federal government the first of these is the canandaigua treaty the perkinses focus our attention on the part of the treaty that says t he united_states will never claim the seneca nation’s treaty-defined lands nor disturb the seneka nation nor any of the six nations or of their indian friends residing thereon and united with them in the free use and enjoyment thereof but it shall remain theirs until they choose to sell the same to the people of the united_states who have the right to purchase canandaigua treaty art iii stat pincite emphasis added the perkinses argue that the guaranty not to disturb the free use and enjoyment of the seneca nation’s land includes a tax exemption for income derived directly from the land the seneca nation vehemently opposed allotment of tribal lands see laurence m hauptman senecas and subdividers resistance to allotment of indian lands in new york prologue the journal of the national archive sec_105 the first question here is whether this treaty even provides rights to individual indians rather than to the nation as such focus on this passage t he united_states will never claim the seneca nation’s treaty-defined lands nor disturb the seneka nation nor any of the six nations or of their indian friends residing thereon and united with them in the free use and enjoyment thereof id the district_court read the phrase or of their indian friends residing thereon as creating rights for the perkinses themselves perkins wl at we must respectfully disagree--the phrase is part of a list that includes the nation and any of the other nations of the iroquois confederacy we don’t think that the phrase or of their indian friends residing thereon and united with them can reasonably be read as creating personal rights--the class of indian friends being limited to those friends who have become united with one of the iroquois nations this court has consistently rejected the argument that the canandaigua treaty creates a tax exemption for individual members of the constituent nations of the iroquois confederacy see sylvester v commissioner tcmemo_1999_ wl at maracle v commissioner tcmemo_1991_98 61_tcm_2083 george v commissioner tcmemo_1989_401 57_tcm_1168 nephew v commissioner tcmemo_1989_32 56_tcm_1122 see also 11_f3d_1180 3d cir finding that the canandaigua treaty did not exempt wages earned by members of the mohawk nation--another party to the canandaigua treaty aff’g in relevant part tcmemo_1992_404 wl by its express terms the treaty protects the seneca nation’s lands from being disturbed which is different from creating a tax exemption the rest of that sentence-- it shall remain theirs until they choose to sell the same to the people of the united_states who have the right to purchase --doesn’t make sense as a tax-exemption provision but makes perfect sense as a restriction on alienation of the nation’s lands the inclusion of indian friends residing thereon and united with them means that the nation gets to choose who is a member of the nation and perhaps even can be seen as a promise not to use non-seneca indians as putative sellers of seneca land the court of federal claims has also analyzed this particular provision in the canandaigua treaty and held that excise taxation does not prevent free use and enjoyment by indians 32_fedclaims_170 this is also how the supreme court has construed similar language in other indian treaties see superintendent of five civilized tribes u s pincite non-taxability and restriction upon alienation are distinct things the eighth circuit has likewise held that the promise that land would be free of molestation from the united_states meant free from interference with the rights of indians to hunt and otherwise enjoy their land not the ‘right’ to be free from federal taxation jourdain f 2d pincite emphasis added discussing the treaty of greenville aug stat and we have ourselves held that a treaty reserving the right of taking fish at all usual and accustomed grounds and stations didn’t create a tax exemption for income derived by using the rights guaranteed by the treaty 78_tc_1014 quoting the treaty of medicine creek dec stat but the perkinses argue there’s more under the surface in this case they point out that previous cases that analyzed the canandaigua treaty arose from challenges by individual iroquois to the taxation of income from wages or similar types of income they say that their income was different because it was derived from the nation’s land the district_court agreed see perkins wl at the perkinses argue that this changes everything and they cite several cases that speculated in dicta that the canandaigua treaty might create an exemption from taxation on income derived directly from the land lazore f 3d pincite emphasis added discussing 709_f2d_564 9th cir sylvester wl at noting that none of petitioner’s income was derived directly or indirectly from the use of indian land in ruling that the income wasn’t exempt under the canandaigua treaty emphasis added neither court explained what part of the treaty or caselaw led it to make these comments we can sort out this issue by going back to capoeman the supreme court in capoeman u s pincite held that the general allotment act created an exemption for income derived directly from land if the land is allotted and still held in trust of course the parties agree that the general allotment act doesn’t directly apply to the perkinses but the perkinses seem to argue there’s a general exemption--or perhaps a presumption of some sort--for exempting all income derived from indian land but capoeman did not create a general exemption for all income derived from land an applicable exemption from taxation in a treaty or statute is still required capoeman u s pincite indians are citizens and in ordinary affairs of life not governed by treaties they are subject_to the payment of income taxes as are other citizens t o be valid exemptions to tax laws should be clearly expressed the ninth circuit stretched capoeman to include income derived directly from land that has been allotted under any other act with similar language to the general allotment act 452_f2d_741 9th cir aff’g in part rev’g in part 54_tc_351 and 52_tc_330 still the capoeman exemption applies only to income derived from allotted land jourdain f 2d pincite emphasis added the exemption was intended to ensure indians received unencumbered land when it was released from trust and became the property of the indian who received the allotment 76_tc_101 it was not intended to benefit indians simply because the income was derived from land located on an indian_reservation id and courts before the district court’s recent opinion have consistently held that income derived from common tribal land--as opposed to allotted land--is taxable anderson f 2d pincite income from cattle ranching under a tribal license was taxable fry f 2d pincite income from logging on reservation land was taxable wynecoop t c pincite dividends from stock received in exchange for mineral leases of tribal lands were taxable see also holt f 2d pincite earl t c pincite jourdain t c pincite tonasket v commissioner tcmemo_1985_365 50_tcm_489 the land here wasn’t allotted to the perkinses allotted means land set_aside in trust for individual indians in contrast to land held by the nation see eg capoeman u s pincite the perkinses admitted that the g ravel at i ssue was taken from land that was part of the common lands recognized by federal treaties to be the territories of the seneca nation they also admitted that the gravel at issue was not taken from land that was allotted to petitioner-husband during and the perkinses wouldn’t admit or deny whether the gravel was taken from land allotted to alice but if the gravel was taken from common land it couldn’t have been specifically allotted to alice the district_court refers to capoeman but does not discuss its analysis of the distinction between allotted and tribal lands or the taxability of income from each we therefore must again respectfully disagree with its holding we hold instead that the canandaigua treaty doesn’t exempt the perkinses from paying taxes on the gravel income the perkinses also say we should understand the canandaigua treaty in light of how the seneca nation understood it see 175_us_1 citing lazore f 3d pincite the perkinses argue that the iroquois understanding of the canandaigua treaty was embodied in the two row wampum a belt consisting of two parallel rows of dark colored beads on a background of lighter colored beads signifying two peoples coexisting peacefully neither imposing their laws or religion on the other like the court in lazore however we are constrained from finding an exemption in the absence of some textual support id pincite the two row wampum does not provide this required support we now turn to the treaty the perkinses cite the following portion of its text to protect such of the lands of the seneca indians within the state of new york as may from time to time remain in their possession from as the perkinses point out the iroquois used wampum belts--belts made from strings of shells or beads--to memorialize agreements see eg colin g calloway treaties and treaty making in the oxford handbook of american indian history frederick e hoxie ed the two row wampum initially commemorated a 17th-century agreement between the iroquois and the dutch 11_f3d_1180 3d cir aff’g in part tcmemo_1992_404 in lazore the court heard testimony explaining that in the iroquois’ view the principles of the two row wampum were the basis for treaties with france great britain and the united_states including the treaty of canandaigua id although neither the perkinses nor lazore discusses it we note that george washington had a specific wampum belt made to commemorate the canandaigua treaty see eg richard w hill sr linking arms and brightening the chain building relations through treaties in nation to nation treaties between the united_states and american indian nation sec_37 sec_56 suzan shown harjo ed that belt shows two figures under the roof of a longhouse linking arms with thirteen figures that represent the original states id this wampum belt however also does not give us the textual support we need to find a tax exemption all taxes and assessment for roads highways or any other purpose until such lands shall be sold and conveyed by the said indians and the possession thereof shall have been relinquished by them treaty art stat pincite emphasis added the perkinses argue that this treaty explicitly provides a tax exemption for income derived from the use of tribal land the second circuit has held that the treaty clearly prohibit s only the taxation of real_property 241_fedappx_747 2d cir citing snyder v wetzler n y s 2d n y app div treaty clearly refers only to taxes levied upon real_property or land aff’d n y 2d n y in the perkinses’ parallel district_court case after questioning the precedential import of kaid judge vilardo found it also lacked persuasive value because kaid dealt with products unrelated to seneca land and the parties in kaid were not indians perkins wl at t here is no reason to believe that the second circuit even thought about taxing the products of the real_property indeed the district_court the treaty ceded back to the seneca nation land it had previously sold to the ogden company including the allegany territory see treaty art stat pincite hauptman supra pincite because kaid is a summary order published in the federal appendix judge vilardo remarked that it’s not precedential in the second circuit perkins wl at citing 2d cir r a citation of summary orders we are nonetheless persuaded by the second circuit’s reading of the treaty questioned whether real_property can even be distinguished from the dirt gravel and foliage that comprise it id we on the other hand are persuaded by the second circuit’s reading of the treaty and we don’t find it difficult to distinguish real_property from the gravel severed from it black’s law dictionary 10th ed defines real_property as l and and anything growing on attached to or erected on it excluding anything that may be severed without injury to the land the gravel wasn’t attached to the land when it was sold so the perkinses aren’t exempt from tax on the sale of the gravel under the treaty cf in re briggs ave in new york n e n y a building that is severed from real_property becomes personal_property that leaves the issue of penalties the commissioner asserted two a failure-to-timely-file penalty under sec_6651 and an accuracy-related_penalty under sec_6662 sec_6651 add sec_5 per month up to a maximum of to the tax already owed for failure_to_file a return on time the commissioner has produced the perkinses’ and returns to show that they were filed late so he has met his burden of production see sec_7491 the perkinses’ tax_return was due in date and their return was due in date they didn’t file either until date the perkinses also didn’t address penalties in their brief so we deem this issue conceded for that reason as well see rule e 92_tc_661 tufft v commissioner tcmemo_2009_59 the commissioner also determined that the perkinses are liable for accuracy-related_penalties under sec_6662 sec_6662 penalizes a taxpayer on the portion of the underpayment_of_tax attributable to any substantial_understatement_of_income_tax sec_6662 b the commissioner also has the burden of production here sec_7491 an understatement is substantial if it exceeds the greater of dollar_figure or percent of the tax required to be shown on the return sec_6662 the perkinses’ true tax_liability for is just shy of dollar_figure but they initially didn’t report any taxable_income for their correct_tax liability is just over dollar_figure but as for they originally didn’t report any taxable_income these understatements are of course greater than of the tax the perkinses should have reported which is greater than dollar_figure this would ordinarily be enough for us to hold that the commissioner has met his burden of production on the sec_6662 penalty the second circuit however recently held in 851_f3d_190 2d cir aff’g in part rev’g in part tcmemo_2015_42 that sec_6751 requires written approval of the initial penalty determination no later than the date the irs issues the notice_of_deficiency asserting such penalty it also held that compliance with sec_6751 is part of the commissioner’s burden of production and proof in a deficiency case in which a penalty is asserted id the commissioner has not met even his burden of production on the sec_6662 penalty here and so we cannot find that he has established his entitlement to judgment as a matter of law on this penalty even though the perkinses didn’t make any arguments about the penalty in their briefdollar_figure an appropriate order will be issued reviewed by the court vasquez morrison buch and nega jj agree with this opinion of the court the perkinses also filed a motion for leave to file supplemental materials which we will grant we considered the supplemental material in this opinion lauber and pugh jj concurring in part and concurring in the result we agree with the opinion of the court that the canandaigua treaty nov 7_stat_44 does not exempt from federal_income_tax the revenues of peti- tioners’ gravel mining business the opinion of the court reaches the same conclusion with respect to the treaty with the seneca may treaty 7_stat_586 reasoning that it exempts from tax only the lands of the seneca and that the gravel petitioners mined is distinct from those lands but as judge foley convincingly shows in his dissenting opinion there are unresolved factual and legal issues as to whether gravel mined from indian land is part of indian land although summary_judgment on that theory is inappropriate for that reason we would sustain summary_judgment for respondent on two alternative grounds first that the treaty like the canandaigua treaty did not confer rights on individual members of the seneca nation and second that the treaty addresses exemption only from state not federal taxes the opinion of the court correctly notes that we should interpret the treaty as the seneca understood it doing so requires understanding the historical background of the treaty and analyzing the language the parties employed see 318_us_423 the treaty had a very narrow purpose namely to resolve disagreements that had arisen under a treaty the united_states had signed with the seneca four years pre- viously see treaty at buffalo creek of 7_stat_550 treaty when the text of the treaty is read against this historical background it is clear that the treaty conferred rights on the seneca nation not its constituent mem- bers and that it covers only taxes imposed by the state of new york the land on which petitioners conducted their gravel mining business is within the seneca reservation before the seneca lived on four distinct re- servations in upstate new york the buffalo creek cattaraugus allegany and tonnewanda reservations in the seneca sold all four reservations to a pair of private businessmen thomas ogden and joseph fellows for dollar_figure in the treaty executed concurrently with the deed of sale it was agreed that the seneca would move west of the mississippi river by april but that they could remain on the allegany and cattaraugus reservations until that date treaty arts 7_stat_550 in the new york legislature imposed a highway tax and in it imposed a road tax on the land then owned by ogden and fellows that had con- stituted the allegany and cattaraugus reservations act of may 63d sess 1the treaty was signed on january but was not proclaimed until april ch sec_1 and act of may 64th sess ch sec_1 if either tax went unpaid the state could impose liens and seize land on which the seneca were then residing and on which they had the right to reside until the taxes and the enforcement mechanism were controversial resulting in a lawsuit that eventually found its way to the u s supreme court see in re new york indians u s wall numerous disagreements on this and other points arose concerning the pro- per interpretation of the treaty the treaty which essentially replaced the treaty was intended to settle compromise and finally terminate these divers questions and differences treaty stat pincite fifth whereas clause under the treaty ogden and fellows retained ownership of the land that formerly constituted the buffalo creek and tonnewanda reservations the seneca were restored to ownership of the allegany and cattaraugus reserva- tions but the treaty vested in ogden and fellows the right to purchase the land comprising those two reservations when the seneca moved west id art and in lieu of the purchase_price stipulated in the treaty the treaty pro- vided that the seneca would ultimately be paid for release of the buffalo creek and tonnewanda reservations a just consideration sum to be determinated by a panel of arbitrators id arts and stat pincite article of the treaty is the provision that concerns us here when quoting this provision see op ct p the opinion of the court omits the first words which are quite significant in our view article in its entirety reads as follows the parties to this compact mutually agree to solicit the influence of the government of the united_states to protect such of the lands of the seneca indians within the state of new york as may from time to time remain in their posses- sion from all taxes and assessments for roads highways or any other purpose until such lands shall be sold and conveyed by the said indians and the possession thereof shall have been relinquished by them id stat pincite when this language is read against the historical context it seems clear that the treaty like the canandaigua treaty did not create a tax exemption for individual members of the seneca nation see in re new york indians u s pincite rather the parties agreed that the remaining tribal lands--ie the lands comprising the allegany and cattaraugus reservations--would be protected only as long as those lands remained in the seneca’s possession there is no dispute that the perkinses mined and sold the gravel to generate income for themselves not for the seneca nation the treaty then has no application to this case it also seems clear that the taxes to which the treaty refers are taxes imposed by the state of new york as the opinion of the court correctly notes article has always been interpreted to refer only to taxes levied upon real_property or land see op ct p quoting snyder v wetzler n y s 2d n y app div aff’d n y 2d in there was no federal tax on real_property or land indeed no federal tax on land had existed during the previou sec_26 years given the extremely narrow focus of the treaty--to settle disputes that had arisen about interpretation of the treaty--it seems highly unlikely that the parties intended article to confer immunity from a federal tax that did not then exist and had not existed for a generation indeed article is limited to the lands of the seneca indians within the state of new york all parties to the treaty expected that the seneca would eventually move west of the missis- sippi river if the seneca had been concerned about the possible future appear- ance of a federal property_tax they presumably would not have agreed to limit the federal exemption to property within new york 2the fifth congress enacted the first direct_tax on land in the fixed amount of dollar_figure million act of july 1_stat_597 the jefferson administration de- clined to renew the tax and also repealed contemporaneously enacted excise tax- es see act of apr 2_stat_148 other federal taxes on land generally imposed in a fixed amount on a one-time basis were enacted in and but then disappeared until the civil war act of aug 3_stat_53 act of jan 3_stat_164 act of mar 3_stat_255 see generally veazie bank v fenno u s wall the type of taxes to which article refers is also instructive it refers to assessments for roads highways or any other purpose levied on land that may from time to time remain in the seneca nation’s possession until such lands shall be sold and conveyed by the said indians under the treaty the land that was to remain in the seneca’s possession consisted of the allegany and cattaraugus reservations which were the target of the objectionable highway tax and road tax--ie assessments for roads or highways --that the new york legislature had enacted in and given this historical context article seems clearly designed to protect the allegany and cattaraugus reservations from new york taxes until the seneca sold the land and moved west perhaps most instructive are the introductory words of article whereby t he parties mutually agree to solicit the influence of the government of the united_states to protect the lands of the seneca indians from taxation this would be an extremely odd--we would guess unprecedented--way to express an exemption from federal taxation to start with a sovereign government cannot influence itself if the united_states had intended to confer immunity from federal taxation in article it would presumably just have said so and if the seneca had bargained for immunity from federal taxation they presumably would have demanded an explicit statement to that effect which the united_states had it intended to grant such an exemption could easily have supplied the natural interpretation of these introductory words is that the united_states would exercise its influence to prevent new york from taxing the seneca’s land as the new york legislature had sought to do in and the state of new york was not a party to the treaty and principles of sovereign im- munity would have prevented the united_states from attempting to interfere with an otherwise-constitutional new york tax the best the united_states could do was to pledge to use its influence to dissuade new york from taxing seneca reser- vation land while the seneca continued to occupy it this campaign apparently succeeded in new york abolished the highway tax and the road tax see in re new york indians u s pincite for these reasons we conclude that article of the treaty does not confer immunity from federal taxation and does not even address that subject like the rest of the treaty article was intended to address one of the di- vers questions and differences that had arisen in the wake of the treaty-- 3see dobbins v comm’rs of erie cty u s pet state taxing power is a sacred right essential to the existence of government--an incident of sovereignty m’culloch v maryland u s wheat distinguishing state taxes assessed on a federal instrumentality’s land from state taxes imposed on its constitutionally authorized operations namely new york’s attempt to impose road and highway_taxes on the land com- prising the allegany and cattaraugus reservations ownership of which the treaty revested in the seneca in article the united_states agreed to use its in- fluence to prevent new york from taxing the land within those two reservations so long as the seneca continued to occupy that land that article accordingly has no application to federal taxation unlike the opinion of the court we would not reach the issue of whether gravel constitutes real_property instead we would grant summary_judgment for respondent because article of the treaty conferred rights on the seneca nation not its constituent members and because immunity from federal taxation was not among the rights conferred marvel gale thornton goeke gustafson paris kerrigan and ashford jj agree with this opinion concurring in part and concurring in the result foley j dissenting the treaty with the seneca may 7_stat_586 treaty states that the united_states will protect such of the lands of the seneca indians within the state of new york as may from time to time remain in their possession from all taxes treaty art stat pincite emphasis added when determining whether summary_judgment is appropriate we must view all facts in the light most favorable to the perkinses ie the nonmoving party see 98_tc_518 aff’d 17_f3d_965 7th cir in addition treaties should be construed liberally in favor of the indians with ambiguous provisions interpreted to their benefit 470_us_226 internal citations omitted the opinion of the court however construes the treaty narrowly rather than liberally and cites 241_fedappx_747 2d cir an irrelevant nonprecedential summary order and black’s law dictionary as its only authorities the opinion of the court concludes that gravel mined from indian land is not part of indian land reasoning that t he gravel wasn’t attached to the land when it was sold so the perkinses aren’t exempt from tax on the sale of the gravel under the treaty see op ct p more convincingly the united_states district_court for the western district of new york stated that g iven the liberal principles of treaty construction that apply here there is no reason to believe that one rule would apply to taxing the dirt gravel and foliage that make up the property and another to the property itself--if the property can even be distinguished from the dirt gravel and foliage that comprise it perkins v united_states no 16-cv-495 ljv wl at w d n y date the opinion of the court’s conclusion see op ct p that it is not difficult to distinguish real_property from the gravel severed from it ignores the complexities relating to mineral rights and property law see 462_us_36 holding that in the context of the stock-raising homestead act of srha since repealed valuable minerals include gravel 853_f2d_727 9th cir analyzing the subsurface and surface ownership rights of sand and gravel 96_fedclaims_457 holding the navy correctly determined that embedded gravel and sand were real_property pursuant to c f_r sec cf 541_us_176 declining to extend w nuclear inc u s pincite and holding that sand and gravel were not considered valuable minerals pursuant to the pittman underground water act of simply put the opinion of the court fails to address the requisite legal and factual issues thus the grant of summary_judgment is not appropriate


internal_revenue_service number release date index no department of the treasury washington dc person to contact marilyn e brookens id no telephone number refer reply to cc ita - plr-125680-00 date date legend x s dear this responds to your letter of as supplemented by your letter of requesting a private_letter_ruling plr under sec_265 of the internal_revenue_code the ruling requested is in summary that x’s implementation of the transaction described below as it relates to certain government deferred payment agreements dpas will not affect plr issued to x on date facts background the represented facts underlying the request for the prior plr are incorporated by reference and reiterated in abbreviated form below x is a publicly-held corporation organized under the laws of s and is engaged directly and through its subsidiaries in selling its products to customers including state and local governments some of x’s sales to customers are in the form of deferred payment transactions with x taking back dpas a dpa provides for stated_interest on the unpaid principal balance x accepts dpas from state and local governments on terms substantially the same as those offered to other customers except that the interest rates charged are lower to reflect that interest_paid on state and local obligations is exempt from federal_income_tax under sec_103 and government dpas include nonappropriation clauses which release a government_entity from its payment obligations in the event the entity fails to receive approval for the funds necessary to meet those obligations in x requested a plr under sec_265 concerning its proposed acceptance of government dpas that contain a contractual restriction against subsequent transfer the anti-assignment provision would bar any transfer sale or assignment of the dpa plr-125680-00 to any other party any violation of this clause would render the contract void x represented that it would comply with the anti-assignment clause and that the dpas would not be pledged as security in any financing_arrangement on date x received a plr the prior plr concluding based on the facts and representations presented that no portion of x’s deduction for interest_paid or accrued will be disallowed under sec_265 because it acquires dpas in the ordinary course of business from selling products to customers that issue obligations the interest on which is exempt under sec_103 additional facts represented by x in its current submission x makes the representations set forth below in reliance on the prior plr x has continued to engage in transactions of the type described above the earlier-represented facts have continued to be in effect since the issuance of the prior plr and will continue to be in effect as to government dpas acquired after the date the proposed transaction described below is completed as a result of a recent significant deterioration in its financial situation x’s normal means of obtaining funds needed for operations have become severely restricted to obtain immediate operating funds x is planning various transactions that it would never have considered in the past including a proposed transaction involving the previously- described government dpas x currently is the only person entitled to receive the payments of principal and interest on the government dpas it owns x proposes with respect to the majority of such dpas in its portfolio to assign to a newly formed partnership its rights to receive all such payments of principal and interest at the same time that x makes this assignment unrelated investors would contribute cash to the partnership in an amount equal to approximately percent of the principal_amount of the assigned dpas x would then immediately receive both an interest in the partnership and the contributed cash while the investors would receive interests in the partnership after making the assignment x would continue to hold the dpas and to bill the state and local governmental purchasers in its own name the government entities which would continue making payments on the dpas directly to x will also continue to have all their rights against x with respect to the products giving rise to the dpas x believes that under both the law of s which governs the vast majority of the dpas at issue and the laws of other states which govern the remaining dpas at issue the proposed transaction does not violate the anti-assignment clause because that transaction does not affect the obligations of the government entities under the dpas x will remit to the partnership the principal and interest it collects on the dpas and the partnership rather than x will be reported as the owner of all rights to the collected principal and interest with respect to principal payments on the dpas the unrelated investors will have the right to receive an amount equal to their original cash plr-125680-00 contributions the investors will also have the right with respect to the dpa interest_income received by the partnership to receive a specified percentage rate of return on their cash contributions x will be entitled due to its partnership_interest to receive the balance of the dpa principal and interest for federal_income_tax purposes x will report its assignment of the collection rights to the partnership in part as a sale and in part as a contribution_to_capital under sec_707 and sec_1_707-3 of the income_tax regulations x will treat the assignment as a sale at fair_market_value of the portion of the dpas' collection rights equaling the amount of cash x will receive from the partnership immediately after the assignment x will treat its assignment of the remaining portion of the dpas' collection rights as a contribution_to_capital which will be nontaxable under sec_721 because made in exchange for a partnership_interest ruling requests x requests a ruling that implementation of the proposed transaction described above will not affect the prior plr as to the following categories of government dpas completed dpas these are prior-year dpas on which all principal and interest already have been collected by x and on which x has performed all its obligations they will not be included in the portfolio of dpas that will be the subject of the proposed transaction existing dpas that will not be included in the portfolio collection on these will straddle the date of the completed transaction that is before during and after the proposed transaction is implemented x rather than the partnership is and will be the sole taxpayer entitled to collect retain and make use of the principal and interest on this category of dpas only a minority of existing government dpas are in this category existing dpas that will be included in the portfolio collection on these will straddle the completed transaction x will be entitled to collect retain and make use of all principal and interest that it collects up until immediately before the proposed transaction is completed immediately after the proposed transaction is completed x will assign its rights to collect the principal and interest to the partnership in exchange for cash and a partnership_interest as to these dpas x requests a ruling that with respect to x’s collection retention and use of all principal and interest the prior plr is not affected by completion of the proposed transaction newly created dpas these are dpas that are created after the proposed transaction is completed they will not be included in the portfolio x does not request a ruling on whether the prior plr will be affected by the partnership's collection rights which will exist once the proposed transaction is completed and the collection rights to principal and interest on the category dpas are assigned to the partnership plr-125680-00 law and analysis sec_103 and c generally exclude from gross_income the interest on any state_or_local_government obligation sec_265 provides that interest on indebtedness incurred or continued to purchase or carry tax-exempt obligations is not deductible revproc_72_18 1972_1_cb_740 sets forth guidelines for the application of sec_265 to certain taxpayers holding state and local obligations the interest in which is wholly exempt from federal income_taxation section dollar_figure provides that in the absence of direct evidence linking indebtedness with the purchase or carrying of tax- exempt obligations sec_265 will apply only where the totality of facts and circumstances establishes a sufficiently direct relationship between the borrowing and the investment in tax-exempt obligations section dollar_figure provides that the purpose to carry tax-exempt obligations can be inferred if a corporation continues indebtedness that it could discharge in whole or in part by liquidating its holdings of tax-exempt obligations section dollar_figure of revproc_72_18 as modified by revproc_87_53 1987_2_cb_669 provides that the required relationship will generally not be present if the taxpayer is unable to sell holdings of tax-exempt obligations acquired in the ordinary course of business in payment for services performed for or goods supplied to state or local governments section dollar_figure is in the nature of a safe_harbor provision ie the inability to sell the tax-exempt obligations negates the application of sec_265 the conclusion of the prior plr that x’s deduction for interest will not be disallowed by sec_265 was based on x’s business_purpose in accepting the dpas the nonsalability of the dpas negated the inference that x was using borrowed funds to carry tax-exempt obligations in contravention of sec_265 on the facts as represented the prior plr was a correct statement of irs position x has represented that the only factual changes between issuance of the prior ruling and completion of the proposed transaction are those facts related to the proposed transaction itself accordingly the proposed transaction has no effect on the four specific categories of government dpas on which x has requested rulings because the first second and fourth categories of dpas will not be included in the portfolio of those dpas on which the collection rights are assigned to the partnership these dpas are governed by the prior ruling the third category of dpas also is governed by the date ruling with respect to principal and interest collected by x prior to completion of the proposed transaction x has not requested a ruling concerning nor do we rule on the federal tax consequences either to x or to the partnership of the partnership’s post-transaction collection of principal and interest on those dpas included in the portfolio conclusion plr-125680-00 the implementation of the proposed transaction described in this ruling will not affect the prior ruling in plr with respect to the four categories of government dpas described above on which x sought rulings caveats this ruling is conditioned on the assignment of the collection rights to the government dpas not violating the anti-assignment clauses of the affected dpas a copy of this letter must be attached to any income_tax return to which it is relevant we enclose a copy of the letter for this purpose also enclosed is a copy of the letter_ruling showing the deletions proposed to be made in the letter when it is disclosed under sec_6110 of the internal_revenue_code except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely associate chief_counsel income_tax accounting robert a berkovsky chief branch by enclosures copy of letter copy for sec_6110 purposes cc


internal_revenue_service department of the treasury sin washington dc contact person telephone number d in reference to t ep ra t4 date sep legend county a state b plan x group c employees in response to a request for a private this letter is letter_ruling dated behalf by your authorized representative regarding the federal_income_tax treatment of certain contributions to plan x under sec_414 the code of the internal_revenue_code submitted on your the following facts and representations have been submitted county a a political_subdivision of state b has a defined_contribution_plan for the established plan x benefit of employees of county a date of sec_40 a commencing employment on or after in plan x of the code plan x plan x has an effective is intended to qualify under all employees of county a participate in addition an employee of county a who sec_2e2f page participates in one of the defined benefit plans sponsored by county a may elect to participate in plan xx plan x is a contributory plan benefits under plan x are funded in part through mandatory_contributions by participating employees plan x are equal to required employee contributions to of compensation plan x by its terms authorizes and directs county a and any affiliate that adopts plan x pay employees in lieu of these employees paying such contributions the mandatory employee contributions of group c to pick up assume and group c employees will have no option to receive the picked-up contributions in cash in lieu of having such contributions paid to plan xx based on the aforementioned facts and representations you have requested the following rulings that the contributions to plan x that are picked up by county a will be treated as employer contributions that the contributions to plan x that are picked up by county a on behalf of group cc employees will not be included in the gross_income of these employees until distributed or otherwise made available to them that the contributions to plan x that are picked-up by county a on behalf of group c employees will excepted from wages under sec_3401 a the code and therefore will not be subject_to federal_income_tax withholding in the taxable_year in which they are contributed to plan x be of sec_414 of the code provides that contributions otherwise designated as employee contributions shall be treated as employer contributions if such contributions are made to a plan described in sec_401 established by a state government or a political_subdivision thereof and are picked up by the employing unit page the federal_income_tax treatment to be accorded c b a state pension_plan the employer school district agreed to assume and of the code is specified in in that revenue contributions which are picked up by the employer within the meaning of sec_414 revrul_77_462 ruling pay the amounts employees were required by state law to contribute to concluded that the school district’s picked-up contributions to the plan are excluded from the employees’ gross_income until such time as they are distributed to the employees the revenue_ruling held further that under the provisions of sec_3401 a contributions to the plan are excluded from wages for purposes of the collection of income_tax at source on wages therefore no withholding is required from the employees’ salaries with respect to such picked-up contributions the school district’s revrul_77_462 of the code the issue of whether contributions have been picked up c b and revrul_81_36 by an employer within the meaning of sec_414 the code is addressed in revrul_81_35 revenue rulings established that the following two criteria must be met contributions although designated as employee contributions are being paid_by the employer in lieu of contributions by the employee and be given the option of choosing to receive the contributed amounts directly instead of having them paid_by the employer to the pension_plan the employer must specify that the the employee must not c b these of revrul_87_10 1987_1_cb_136 provides that in order to satisfy revenue rulings and required specification of designated employee contributions must be completed before the period to which such contributions relate thus employees may not exclude from current gross_income designated employee contributions to a qualified_plan that relate to compensation earned for services prior to the date of the last governmental action necessary to effect the pick up the plan x satisfies the criteria set forth in revrul_81_35 and revrul_81_36 because it specifies that county a will assume and pay mandatory employee contributions to plan x employees and that group c employees may not elect to receive such contributions directly instead of having such contributions paid_by county a to plan x in lieu of contributions by group c ens page accordingly we conclude that the amounts picked up by county a on behalf of group c employees shall be treated as employer contributions and will not be includible in group c employees’ gross_income in the year in which such amounts are contributed these amounts will be includible in the gross_income of group c employees or their beneficiaries only in the taxable_year in which they are distributed to the extent that the amounts represent contributions made by county a because we have determined that the picked-up amounts are to be treated as employer contributions such amounts are excepted from wages as defined in sec_3401 a a of the code for federal_income_tax withholding purposes therefore no withholding of federal_income_tax is required from group c employees’ salaries with respect to such picked-up contributions sec_414 is immaterial whether county a picks up contributions through a reduction in salary an offset against future salary increases or a combination of both for purposes of the application of of the code it these rulings apply only if the effective date for the commencement of any proposed pick up is not any earlier than the later of the date plan x is put in effect is signed or the date it these rulings are based on the assumption that plan x meets the requirements for qualification under sec_401 of the code at the time of the proposed contributions no opinion is expressed as to whether the amounts in question are subject_to tax under the federal_insurance_contributions_act the amounts in question are paid pursuant to reduction agreement within the meaning of sec_3121 b no opinion is expressed as of the code a salary to whether this letter_ruling is directed only to the taxpayer that requested it that it may not be used or cited by others as precedent sec_6110 of the code provides page a copy of this letter is being sent to your authorized vepresentative in accordance with a power_of_attorney on file in this office sincerely yours felon lde ty john g riddle jr manager employee_plans technical group tax_exempt_and_government_entities_division enclosures deleted copy of letter_ruling notice cer