Court Opinion

ID: 9442703
Source: CourtListenerOpinion
Date Created: 2023-08-03 18:56:18.085217+00
Date Added: 2024-06-11T17:29:11.589127
License: Public Domain

PHILLIPS, Chief Judge
(dissenting in part).
Bert Taunah and Peawifeah Taunah brought this action against Jones to recover certain Federal income taxes paid by them for the year 1946. Both of the Taunahs are full-blood, restricted Comanche Indians. Bert owns an individual allotment and other allotted lands which came to him by inheritance. Peawifeah owns an individual allotment and other allotted lands which came to her by inheritance. Trust patents for the original .allotments and inherited allotments were issued under the General Allotment Act of 1887. The trust period has been extended and has not expired.
During the year 1946, Peawifeah received agricultural and interest income . amounting to $195.56 and oil and gas royalty income amounting to $25,239.99. All except $22.46 of the latter amount came from her original allotment.
During the year 1946, Bert Taunah received $345 agricultural lease income, $360 oil and gas royalty income, $100 oil lease bonus, or advanced royalty, and .40 interest, making a total income of $805.40.
The income of Peawifeah and Bert Tau-nah from all sources, after deductions, aggregated $19,200.95. It was divided equally between them for income tax purposes. An income tax return for the year 1946 was prepared and filed for them by the Kiowa Indian Agency at Anadarko, Oklahoma. The tax payable, as shown by the return, was charged against the individual accounts of Peawifeah and Bert, on deposit with the Treasurer of the United States, and under the supervision and control of the Secretary of the Interior, and was credited to the account of the Collector for the District of Oklahoma.
Under the agreement of October 21, 1892, entered into by the United States and the Comanche, Kiowa and Apache tribes of Indians, the residue of the reservation of such Indians remaining after the selection of 160-acre allotments by each member of the three tribes, and the setting apart of 480,000 acres of grazing lands for use in common by the three tribes, was ceded and relinquished to the United States. The agreement was approved by Congress on June 6, 1900, 31 Stat. 676, 681.
The agreement provided that the allotted lands should be held in trust for the period of 25 years, and at the expiration of such period should be "conveyed in fee simple to the allottees or their heirs, free from all in-cumbrances.” The allotments were made under the General Allotment Act, 24 Stat. 388, 389. The 'General Allotment Act provided that trust patents should be issued to the allottees, and that the allotments should be held in trust by the United States for a *449period of 25 years, and at the end of the trust period should be conveyed to the al-lotees and their heirs in fee, free of all charges or encumbrance, whatever. Neither the agreement of 1892 or the General Allotment Act provides for any exemption from taxation but the amendment thereto of May 8, 1906, 34 Stat. 182, provided that upon the issuance of the patent in fee simple, “ * * * all restrictions as to sale, incumbrance, or taxation of said land shall be removed”.
In United States v. Rickert, 188 U.S. 432, 23 S.Ct. 478, 480, 47 L.Ed. 532, the court held that lands allotted under the General Allotment Act were exempt from state taxation during the trust period. One of the grounds upon which the decision rested is that to tax such lands during the trust period would be to tax an instrumentality of the United States. Another ground was stated by the court, as follows: “So that if they may be taxed, then the obligations which the government has assumed in reference to these Indians may be entirely defeated; for by the act of 1887 the government has agreed at a named time to convey the land to the allottee in fee, discharged of the trust, ‘and free of all charge or encumbrances whatsoever.’ To say that these lands may be assessed and taxed by the county of Roberts under the authority of the State is to say they may be sold for the taxes, and thus become so burdened that the United States could not discharge its obligations to the Indians without itself paying the taxes imposed from year to year, and therby keeping the lands free from encumbrances.”
See also Chouteau v. Commissioner, 10 Cir., 38 F.2d 976.
For income tax purposes all of the proceeds derived from oil and gas is regarded as gross income. But viewed realistically, oil and gas are exhaustible and irreplaceable natural resources. Once withdrawn from land they are gone forever. Ordinarily, when oil and gas is found in land in paying quantities, the oil and gas rights are much more valuable than the surface. Had the United States not permitted the oil and gas to be removed from the original allotments during the trust period, under departmental leases and in consideration of royalties paid to it for the benefit of the allottees, it would have been obligated at the end of the trust period to transfer to each allot-tee his allotted land in fee simple, free and clear from all charges and encumbrances, including both the surface rights and the oil and gas and other minerals in the land. What it in effect did, acting as trustee for the allottees, was to exchange the oil and gas for cash during the trust period. Its obligation, under the agreement, in my opinion, at the end of the trust period will be to transfer the land and the cash which it received for the oil and gas extracted from the land, undiminished. To do less than that would not be to fulfill either the letter or the spirit of its obligation under the agreement of October 21, 1892.
With respect to the inherited lands, no such obligation exists. The right to take property by descent is a privilege or creature of the law and not a matter of inherent right.1 The obligation of the United States to convey the original allotment undiminished to the allottees at the end of the trust period could not lawfully 'be changed. To do so would impair the contract. But the right of the heirs of an allottee to take his allotment is a mere privilege of the law and is subject to change at the will of Congress.2
With respect to the income derived by the allottee from oil and gas royalties from his original allotment, the instant case is distinguishable from Oklahoma Tax Commission v. United States, 319 U.S. 598, 63 S.Ct. 1284, 87 L.Ed. 1612. That case dealt with a state inheritance tax and not income tax on royalty received under an oil and gas lease of an original allotment. That tax diminished what an heir received. The tax here on oil and gas royalty from the original allotment will diminish what the original allottee will receive.
*450For the reasons indicated I would hold that the royalties derived from leases on the original allotments are not subject to Federal income tax, but that interest earned by investment of royalty funds, agricultural income and royalty income from inherited lands are subject to- Federal income tax.

. Hernandez v. Becker, 10 Cir., 54 F.2d 542, 549; Dunn v. Micco, 10 Cir., 106 F.2d 356, 359.

. Jefferson v. Fink, 247 U.S. 288, 38 S.Ct. 516, 62 L.Ed. 1117; Dunn v. Micco, supra.