Opinion ID: 564917
Heading Depth: 2
Heading Rank: 2

Heading: Taxation of UDC Distributions

Text: 17 The government argues appellants are not entitled to appeal the district court's judgment because that court awarded the entire amount of refunds sought by appellants. When one party files a notice of appeal challenging the district court's decision, the opposing party is entitled to cross-appeal on all other issues litigated below. See W.W. Windle Co. v. Commissioner, 550 F.2d 43, 45 n. 2 (1st Cir.), cert. denied, 431 U.S. 966, 97 S.Ct. 2923, 53 L.Ed.2d 1062 (1977). The rule limiting issues raised on appeal merely restricts a party with a judgment in his favor from seeking appellate review of findings he deems erroneous which are not necessary to support the decree. Electrical Fittings Corp. v. Thomas & Betts Co., 307 U.S. 241, 242, 59 S.Ct. 860, 860, 83 L.Ed. 1263 (1939). 18 Here, the government commenced this appeal by filing a notice of appeal challenging the district court's prospective application of its ruling. Appellants may challenge the district court's ruling on the taxation of distributions because it is an integral part of the judgment. The issue of statutory interpretation we face here pursuant to section 1291 appellate jurisdiction is unlike the situation this court faces in reviewing issues unnecessary to a final decision of the tax court pursuant to 26 U.S.C. Sec. 7482(a). See, e.g., Van Roekel v. Commissioner, 905 F.2d 80 (5th Cir.1990); W.W. Windle Co., 550 F.2d 43. 19 To determine whether the district court properly ordered the requested refunds, we must first consider whether the court correctly interpreted the statute to subject UDC distributions to federal income tax. Section 677p of the UPA addresses the tax status of property distributed to the mixed-bloods. This provision states in part: 20 No distribution of the assets made under the provisions of this subchapter shall be subject to any Federal or State income tax.... Property distributed to the mixed-blood group pursuant to the terms of this subchapter shall be exempt from property taxes for a period of seven years from August 27, 1954, unless the original distributee parts with title thereto.... After seven years from August 27, 1954, all property distributed to the mixed-blood members of the tribe under the provisions of this subchapter, and all income derived therefrom by the individual, corporation, or other legal entity, shall be subject to the same taxes, State and Federal, as in the case of non-Indians; except that [the UDC] shall not be subject to corporate income taxes. 21 We review de novo the question whether the UDC distributions are taxable under this provision. Absentee Shawnee Tribe of Indians v. State of Kansas, 862 F.2d 1415, 1416 (10th Cir.1988), cert. denied, 490 U.S. 1046, 109 S.Ct. 1955, 104 L.Ed.2d 424 (1989). 22 When statutory language is unambiguous, the plain language controls except in rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intention of its drafters. Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 571, 102 S.Ct. 3245, 3250, 73 L.Ed.2d 973 (1982). Canons directing a court to construe a statute for the benefit of a particular group, such as Indians, only apply when there are doubtful expressions or the statute is silent on the issue. See United States v. Felter, 752 F.2d 1505, 1511 (10th Cir.1985); United States v. Anderson, 625 F.2d 910, 913 (9th Cir.1980), cert. denied, 450 U.S. 920, 101 S.Ct. 1367, 67 L.Ed.2d 347 (1981). Further, we do not defer to an agency interpretation of a statute when that statute is not ambiguous. Board of Governors of the Fed. Reserve System v. Dimension Fin. Corp., 474 U.S. 361, 368, 106 S.Ct. 681, 685-86, 88 L.Ed.2d 691 (1986); Chevron, USA, Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-44, 104 S.Ct. 2778, 2781-83, 81 L.Ed.2d 694 (1984). 23 Congress expressed an intent in section 677p to make distributions received after a specific date subject to federal income tax. Although the provision indicates initial distributions are tax-exempt, the provision also states that this limited tax exemption expires on August 27, 1961. According to the plain language of section 677p, UDC shareholders must pay federal income tax on all distributions received after August 27, 1961. 24 We must follow the unambiguous language of the statute unless the legislative history reveals a clear contrary intent that UDC distributions are not taxable. The legislative history of the 1954 enactment of the UPA does not address the tax status of distributions of income from the indivisible assets to the mixed-bloods. See 1954 U.S.Code Cong. & Admin.News 3352, 3355. In 1956, Congress amended section 677p of the UPA to create a corporate income tax exemption for the UDC. The House and Senate Reports state this amendment was intended to preserve the tax-exempt status of the distributions from the trust funds held by the United States Government on the principle that the corporation would merely act as a conduit for the transmission of funds received from the Government to the members of the mixed-blood group. H.R.Rep. No. 2744, 84th Cong., 2d Sess. 2 (1956); S.Rep. No. 2432, 84th Cong., 2d Sess. 2 (1956). 25 Included in these reports is a letter from the Assistant Secretary of the Interior to the chairman of the Senate committee considering the amendment. This letter states: 26 The present act provides that the initial distribution of tribal assets (except interest earned on funds in the United States Treasury) to the members of the mixed-blood group shall not be subject to income taxes. This is proper because the distribution represents an original tribal capital asset.... The corporation thus represents merely an interim step pending the ultimate division of the undivided assets. Inasmuch as the ultimate division and distribution of those assets will not be subject to income tax, we believe that it is proper to exempt the interim corporation that will be organized principally for the convenience of the Government from corporate income taxes. 27 H.R.Rep. No. 2744, 84th Cong., 2d Sess. 3 (1956); S.Rep. No. 2432, 84th Cong., 2d Sess. 3 (1956). 28 The language contained in these reports and the Department of Interior letter only refer to a limited exemption for distributions of assets. When these documents were prepared in 1956, all distributions to the mixed-bloods were tax-exempt under section 677p, and they did not lose this status until 1961. By 1961, the mixed-blood members had received their distribution of shares of stock in UDC tax-free. Nothing in the legislative history contradicts the plain language of section 677p indicating income derived from this stock is subject to federal income taxation after August 27, 1961. 29 Further, section 677p reflects the general policy of enabling Indians to participate fully in the rights and responsibilities of United States citizens. Congress expressed this policy as follows: 30 [I]t is the policy of Congress, as rapidly as possible to make the Indians ... subject to the same laws and entitled to the same privileges and responsibilities as are applicable to other citizens of the United States, to end their status as wards of the United States and to grant them all of the rights and prerogatives pertaining to American citizenship.... 31 H.R.Con.Res. 108, 83d Cong., 1st Sess. (1954). For the mixed-bloods, the application of this policy in section 677p would require them to assume the responsibility of paying taxes on all income received after their membership in a distinct Indian tribe was terminated. The district court properly concluded UDC income distributions made after August 27, 1961 are subject to federal income tax. 32 Appellants contend section 677p exempts all UDC distributions from federal income tax whether they are made before or after August 27, 1961. They contend UDC distributions are exempt from federal income tax because the general income tax exemption found in the first sentence is not modified as it relates to income distributions derived from the indivisible assets. Although the statute provides that property distributed to the mixed bloods shall be subject to the same state and federal taxes imposed on non-Indians after 1961, appellants argue the phrase property distributed only refers to property that previously had been distributed tax-free. This tortured construction of section 677p is contrary to the statute's plain language. Section 677p's tax exemption expires on August 27, 1961 with respect to all property distributed; the provision does not state the exemption expires on that date only as to property previously distributed tax free. 33 Appellants also argue the legislative history of other termination acts enacted during the 1950s reveals an intent that distributions to Indians remain tax-free in perpetuity. Although the tax provisions of other acts may exempt the distribution of tribal assets from federal taxation, see, e.g., 25 U.S.C. Sec. 564j (Klamaths of Oregon); 25 U.S.C. Sec. 749 (Paiutes of Utah); 25 U.S.C. Sec. 699 (sixty tribes and bands in western Oregon); 25 U.S.C. Sec. 898 (Menominee Tribe of Wisconsin) (repealed 1973), the tax provision in the UPA differs from those in the other termination acts. Section 677p provides that distributions made to the mixed-bloods prior to their termination shall be tax-exempt, while those subsequently made are subject to federal and state taxes. As noted previously, the termination of the Ute Indians involved the unique problem of distributing indivisible assets. In enacting section 677p, Congress was faced with the problem of partitioning the tribal property between the terminated and non-terminated groups. This provision with its limited exception represents Congress' resolution of the taxation issues involved in the distribution of indivisible tribal assets.