Respondent Brief in Opposition to Petition for Writ of Certiorari — Squire v. Capoeman

Coes se » No. 134 | NARNLD BWALLEY, Cork

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TABLE oF CASES

Anderson ve He aie fins, JTO178, GO coe). ear ees beatae

Badeer Oi] Co, ve Con, Hissioner Int. ‘Bev, (C.A. oth, ‘

WEE be ee es ae A Tee een eee ‘

Bankers Coal Co, vy. Burnet,-287 U.S.-308 2.00200... 7

Burnel v. dearniei: 2e7. U8. 106250. og weekes Jee |

Clioteau v: Burnet,-283 US, 691. 22... yeas a ira 9°

Helvering vo Bankline Oil Coe. S03 ULS. nb. be nee a ed 7

Helvering ve Elbe OH Land Co., 308 ULS. 372°. a aes |

e - ae. ° ss . th . -

Helvering ve Twin Bell OU Syndieate, 292 LU Ss. » SAS i

SOGGR Ve TRUM, LOU By ak Se ee eS we a - ah

lanenes: vi Green, 262 US. O41 j..6..5; Spas ace =

~J bo

Lyneliy. Alworth- Stephens Co. 267 U.S. 364.........

Nicodemus ve U nited Stites (XN. iy. ida June ts. --

1955). M55 Pe Tux Se rvice, aS 2. ES eee Ap TE

| Oklahwima Tax Commission Cases, 386 US. 342 500000~0°~«9

Scott «. Coiumissioner, iS _ Re ree eres \:

Str mtton-cs Tile ye hele NEE Hlowbert, 2OLTULS. S49 |. <a

Supe rintendent of Five. Civilized Tribes ve Corts.

nioner, 240 U.S. 498. 0.5. pea en ee ee] s

United States v.-Biwabik Mining-( fe Y47 US. Lifes. 5. 1

United States v. D: akota- Wontana (ul Co, 2S US. 459 ee

United Stites v.-Lude Vi 74-1) BB. Sa : en ?

“Von Ranmbach wv Sargent Land Co.. 242. Uy. . BOS. : 7

STATUTES AND TREATI ES

(jeneral Allotuient Aet of TSS; eG. His, 24 Stat. BSS, 2) :

S.C. § 351 Par Soe Ow Ceara oer ore y © 3

Treaty of Judy 100855 and January 2a, I856, 12 Stat.

i SAR ert te) eee Wty Pipe te all ae

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Supreme Court of the Bnited rates By

Arciober Term1955

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Crank Sgtine, Cellector of Internal Revenue for the > ee:

: Distritt of Washington, Petitioner

Mee one

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Wonton CarporemaN.vand EaMaA CAroEMAN, his wife.

3 - BRIEF IN OPPOSITION

_" #9 the Petition for Writ oF Ci Certorari.

TREATIES AND STATUTES INVOLVED -

Treaty provisions and? statutes invelved ave qiipted

in the appendix tothe petition save.those provis sige of

Art. Loft the Treaty with the Quinaielt of July 1, 1855,

anid Jann: wy 25, 1856, 12 Stat. 97 L.which aise LS the

Qin Lie It habitat. the entire article reading as follows:

Anrienn DT. Phe said tribes: and” bands. hereby

cede, pe pe lis shh. and eonvey to the Unig. States

all theiv right. title, ; ns dointerest i agd-t6 the lauds

anid saints oeeupied Ay them, beatnided and «de-

3

scribed as follows: Commencing at a. point on-

the .Pacitie coast, which is the southwest corner

of- the dands lately ceded-by the Makab tribe of -

dndians to the lL “hited States, and rruniag caste rly

With gad along the southern boundary of the said

Makah tribe: to the middle. of the eorst range of”

mountains; thence southerly With said range of

mountains to-their dutersection with the dividing

ridge between the Chelialis and Quiniatl Rivers ;

thenee westerly with said ridge tothe Pacitie coast :

thenee northe arly along said cous st to the place e of

beeing, ;

2

~.., « QUESTICNS PRESENTED

1. Is allotted land on the Quinaielt Indian Res-

ervation, Which has never been transferred. free of -re-

striction to the. Indian allottee, subject to capital-gains -

tax upok its conversion by the United States inte cash,

‘notwithstanding the undertaking by the United States 2

to transfer the land to limi **free of all charge er in- |

“evmbrance whatsoever’? ?. |

,?

2. Is there att basis’? fey caipyal-gain tax en the sale of

timber growing on restricted, allotted Indian band held

by the United States in trust and never, prior to the

sale ot the timber, transve rred to the <a 3

the prions f" Pe.

The question of there being no capitalky nce no basis,

until the linsi. or the proceesdts of its conversion } be transfvrred

to the allottes free of all charge “or incumbratige whatsoever was

* 4 ewround of the’ detision. of the District Court ‘(see p. llaof the

petition It Was tot exprissly adverted : to by the. Court af

Appeals. Even were cit: ruled against respondent in the Court. gf

Appeals it would be open upon review of the merits i.this (Court.

sine® its resolution in accordance. With respondénts’ theory would

support the judgment of the court below. (Langues y. Green, 282

RS ot Dy!

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STATEMENT |

When white meieane.te the Olympic? Peninsita,

— they found the Quinaielt Tribe: ‘and their neighhers,

othe Quillfente, cecupying a tract of country Ling be

Weel the Coast Range-and the ocean. This land (sieve

Rs \ r the rese rvation of cert: Ain lands for their exclusive

“Nase, Art. li), they ceded. ‘just 4 i century age lo the

‘eri States by Treaty of St ie 1, 1855, and January

5, W856, 12 Stat. 971, Art. To Tt is on the reservation”

Set Ninel to this treaty Sat i ae Pull,

blood uingielt Tndians—tive. R33, 34-35.

Xx

Ditthe \reaty it had heen unde nstoed that the Quin--

aielts shoukd liave exeusive tise of their reservation

“and né white n man shall he permitted to feside there-

_on Without per ission of the Trilie’ (Art: IF). Buta

re new app rode h te the “Indian problem’ resulted in

Bade sie enactment of the Generale Allotment Aet of ISS87.

, 119, 24 Stat. 388, 96 -U-S.C. 6 331, ef SOY. Thereunder,

Tadiane were to be allatte d lands onftheir reser vations

het to exceed 160 acres ‘ef grazing dand,or 80 aeres of -

‘dericultural lands and’ 25 vears after allotment the

3 allottees were to recclge the 1 lands discharged of the

. - trust under which the U nited, States had theretofore

held them and to take a pate nt “in fee discharged of

ay said trust = free of all charge‘or incumbrance what-

- ~ soever”’ U.S.C.) $348)--thoagh the President,

a | might e ie nd the period. Still f drther change qt policy

With respect to Ahie Ind yin problem. (in 193 4) has

decreed thi ut existing periods eftrust o¥ restriction on

>. ° alienation ‘are. extended’ until otherwise-«adirected |

2 UBL, 3402-0 - 2, oy

t: Oneress,

Under the General Allotment Act of ISS7T Petitioner,

wae 93.25 aeres. and received: a trast patent

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October 1, 1907 CR. 1.35). The pate tit re pire re ents: ‘ate

ae that the hited Biates mB

does anid wilk Hold the land thus allotted (snh-

jeét- to all statutory provisions and restrictions )

for the period of twenty-five vedrs,in trust for

the sole use and benetit of the said Indian, and

that atthe expiration of said period the United

- States will-copvey the same = hy patent ta said:

-* “ Indian, in fee, discharged of said trust and free

‘of all charge or incumbrance whatsover, if the,

said Indian does not die. before the expiration of

the-trust period; but in the event said Indian does =

die before the-expiration of that period this patent.

and the allotment upon which Mt is based shall be”

canceled, and the said land shall revert to. the’

United States.and be thereafter disposed of in the

manner prese ribed by law.”

The title deebirnies to be held in trust (R35).

In 1948. sti nding timber On respondent Indian’ s

“allotment was cut, sold and paid for pursilant to a con.

tract by the Burean of Indian Affairs with the approval

of respondents, the sales price beitig in the amount of,

¥8.418.28 CR. 36). From this, $2.026. 80—heing tlre.

fair market value of the timber Mare h 31,-1913, as de-

te rmined by the ferest ranger at Taliwlah Indian *

a

* Agveney (R.-20)—was déducted, together with £073.46

“expenses of sale CR, 18),le LV ingattvain’’ of $5,718.64, °°.

of which BOC, or #285952, was taken into account:

(R. 18, 15-16) asa long-term capital gain in comput- |

hg respondents’ income tax for 1943, The tax com-

puted on this theory was,paid from the trust-fund pre- >

ceeds in the hands ofthe Indiam AZeENEN ( R. 19-20) and

_respondent sued. upon a timely claim for re Fund.; CR.

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Judge: Fee “10 F.. Supp. 924, Appe nde B te the

petition sherein, p.- 8a) held respondénts: entitled. to.

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recover. The ‘URite do Sgaite mar iug taken this prop

erty with the ob ligation to vonvey’ it at the end of the

triist period to the allottee in, feo" dise harged lof Said

trust and free of all charge or ine um brance whatso-

ever) it follows that until the allottee is put in pos

—sessfon of the land on those terms namely, the whole

scorpus of the trust. which :it has; eon avreed, wilk be.

turned over to him free of all charge or incumbrance—

“the land cannot be ‘treated as an, ordifary ‘éapital

asset”” for fax purposes, He pointed out that immedi-

ately on turning over. to an Tndian a patent in,fee, the

lindiai receives a value ‘greater than,the March 1,000 >>

1913, value or the value on the date of the treaty; but 0 7 |

if, therenpon, the Federal vovernment taxed that in

erement, it would destrov the value of: the trust prop. 4

erty and violate its undertaking. Timber is a part of ;

othe Jand, and* the proceeds, of timber here are a sub- -

stitute for the land-itself, Merely by cutting thetimber,

the trustee. ‘does not refieve itself cof the: trust. or

become o7 ititled to help itself to proceeds « of that which :

it had promised to. put in fhe hands of respiontlents,

The Court of Appeals for the Ninth Cireuit (Healy,

Bone and Cldinbers, JJ.) affiltimed per curiam, noting” ’

‘general agreement with Judge Fee and noting. also

that ‘‘this-attempt to tax evidences, at the ‘Te eos

sorry. breach of faith with the Tndians.”* If. found: |

no ground for the «listinetion Which Judge Fee had auaeerey:

supposed of the decision of the Tenth Cirenit’in Jones 0?

Ve. Tanah; 186 F.2d 445, but expressiv agteed with the SoA

‘dissenting opinion. of Chief Jndge Plillips 3 in th; at Case,

220 ¥. 2d: 49, Poti. p. 1a

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~ ARGUMENT

There. Is PEO) eopthet with “Jones \V. Pecath (CMA.

ay With. 105] ), DS6 EF. 2d 44), cert. den. 341 boss. 204, or

the paresent ease invelyes a so-called: capital-gains tax,

snd the “question whether there ean be sana gain”

where tht amdiminisheds unnedambered’ corpis itself

hint. be: put in the hands of the government's ward,

There is no tSbasis’ in cost to the ward which ts other

or differerit: than the proceeds of the sale of Tand

‘stafding.timber involved here. But in the Teawnah

case no wapitals ains situation Was involved, but. oil

boutises tad) ran; alties owhielf have never as te annual

produit bean. tres ated as’ involving capital gains at

all, but CAREY ther own formula for depletion, cand

“thuk fi in theory restore the basic capital itself at eurrent

valries. ats distinguished from the annual: product of

the Tine. Tn Taunali’s ease the government Samplied

with itssobligation ta tira over fochim: either the land ‘.

the proceeds of the eatversion of the land: this it

did throngt the. depletion allowance. But in the pres’

ent HSC the tax eoHeetor has helped himself net to the

nie be anginal prpdliet uf the Jand, .such-as’ the annual

cyrowth of timber fir the vear-ot sale, but.to a portion

or the proceeds of sale whic h stand in place of the. lati

ise. A

This C'ourt tse If has ir ivkt id the clear distinetion We :

. ts. 2

“tween sithations. strech as’ Pitnivah- “ay Which the, tHX-

paver gets back jhis capital at current rates through -

the depletion allowance and the saleofla capital asset,

Said this! Court in Anderson \. Ielvering, SAN USS

14, 4OT-S: Gia eae ia

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Phe production of onl and was. like the

rmining.of are, 1s treated ds ancineeme- producing

OPER Aten, not as a conye rston of eapiti i] ravest- -

. gold

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mentas upota sale. amd is said to resemble a mania

©. facturing business carried on by thecuse of the

“ soth | Barnet. vy. eink 287 Us, lO 1G 107:

Bankers Coal Cov. Burnet, 287 US. 308; United |

States Vv. Biwatnin ‘Mining (0,, 247 U.S. 116: Von

Baumbach \. Sargeut Land Co,, 242 US. 503, 521.

N22 -Strattou’s Lludepondence Ve Mowpbert, 231

Us. 399. 414. The depletion effected hy produe-

tionis likened to the depreciation of machinery or

the using up ef raw materials in manufacturing.

United States.v. Ludey, 274 US S. 295, wi rk

Lynch ve Alworth-Steplevs Ce, 2 7 U.S: 364, -37(

Compare Vou Baumbach ¥., ion nto Land Ca.

supra, at 524-52 5. The deduction is therefore per-

omitted as an act of vrace and is intended as com-

pensation for the capital assets consumed ‘in the. -

production of income through the sever: ance of the

minerals, Helivering: \:. Banh se Oil Co, 803-ULS.

BOLL B66-3607. The erititns of an abbitrary dedne-

tion in the inferests of convenience, of a percent-

. age of the ross rece derived from the sever-

ance of otf and gas. merely emphasizes the under

wing theory of the allowanere as a tax-free return.

Gf the capital consimned tn the produetion of gross

income through severance, Melrering ¥. Twin Bell

“T Oal Nundicate. ty’) Be ee 51. +e Ms lL nitéd. States

\, Dakota Vontana. al Ce, 288 U.S. 459. 10. sid

See alse Ile hive ring vo bhe Oil Laatud ax. 8} tT 372.

aYHy Drivel eye r Oil Cu, v. Conmmisstoner tnt Revs CCA,”

Sth, W41)..118 FL 2d 791, 79

,

es 1h this eas Ddite cf raise the (Torert ute Appe als for the Fifth

Curent stated Jawith the ertation of mtany authorities:

: The allowance for depletion is intended to return

tis thre roWits rs af the aif Peer v's the hays al Nien. ae Which

enters ite tho sales price af the gill produced. Tt. deals with

trharodye realizes ts | cond abet bon "as has tro applic ation tr sales

Wholetor in-part ef othe capital investment. the cof reserve

ren

Nor should there Ue unete appre ie ‘Ls don that tlie ex

bress note of conthre below will eause diffic vulive: tor

the court below also’expressly agreed in the main with */

the opinioncof Fudge Fee, which discloses. the dis-

tinction we have just delineated S and the preference

“of the court helow for the dissenting oplmen of Chief

Fudge > ‘Phillips will hot We oat eertiorarl i portane e

until and unless that time comes when ina de ‘pletion’

situation the Ninth Cirenit court. should) follow. the

inelination here expressed, © 0" 4 +.

The assertion of 4*eonflict’’ with Seoft vo Com NUS

stoner, S.PLC. 126, ignores the fact that cases like that,

and this, jnavolving incompetent Indians on the Qui-

naielt Reservation, would be finally disposed of in the

Ninth Cireait-Court of Appeals. The Scott case was

never appealed; ado the present case represents the

latest expression of the Ninth Cireujt Court of Appeals

on the subject.

.

2 Is asserted tis it the deci PSION - low is erroneous,

setitione r citing. four Gases none of Which involves

conversion by the. trustee of the land which it has

azreed to deliver: free. from charge or encumbrance

coupled with a levy on the .proveeds which should

stand in Bel of the hind. While Superintendent of Rive

reiliz ed Probe s° Vv... Commissioner, 295 U.S. 418,"

° Judge Kee hele Petn., P SC) ee cere After the conveyance

lof the land to the allottee > free vi trust}, whieh. must be an

thorized by the Indian-in order to burden hime with the weight of

2 Obligation, the nationak and state governments ape enypowered to

tax this land and its increments as the real property of an

other ertizen, bt: follows that, until the land as thins conveyed, it

cannot be treated as ‘capital’ orta ‘capital asser’

Tneomie net ‘trom, the restricted allotment but from invest

Tiers raced ‘ it Tiras: Tram Hiupads i? excess. of taxpaver’s trees

though orsginally derived from the allotment,

z h :

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, CWoleauw \ Barn f 2PR Bae Hy], aia the Olhlahboma

Tac es CESS BOONE CASES Cent) as. Se tea, footnote

Bia i anid 319 US, O98") ‘be irrdewd : dissipate thie prerprel

tarly- herded Palle that ludiaus are net taxable apres

ne taNves, noneot them titiniates that the United States

Will-wet homer ats tevist through holding either the bared

or its proceeds at current tates Por dedivery. ditaet and

Without dieuimbranee, to its avard.

It mia bie riisle; ading to talk about this ease as one of

implied tay exemption’, or te confuse it, as petitioner

does, with taxability: of Atak frauits of the land. In

dans are hot exempt from tax on their income. Wien

these petitioners ave placed? 'n Possession of their land:

or its proceeds, free from the trust, they willthen have

a ‘Sbasis’? looking te the production of income over

that Guasis in the future. TPhereafter they av @iave |

capital-gain income, hence be taxed. But so fares this

lanek is concerned (unlike qou-restricted. or nou-trust

lands whieh an Pndian or pnvone else might, purchase)

ne pontents have not vet ree vived: their capital upon

whie h to vi ike gan

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t

The talk of continuing iuiportance of this: case in

the light of am estimated T3.600.000 eres of restricted,

allotted lands from owhieh the ineome cis substantial

would tet apply toe respondents” case or to hespond-

ents’ Lneome or that of other Dudians situated as are,

: a

.

»

7” v; veglecned 1+ tTiret eats eT sl ppecg: Ww ae ce eee | 4 eget ven 4 besyds

1 pes reacag ane - Bb UPR RESEP PIE Vek nt Wee etias Pa » Ah we. they

“Viel n Case. 4tist t «lee ide il, Pt io \ read HES ¥. 77 pity f

* 4 ‘ am } 4 5 . e .

bheome aetiiaily. reeerved bye competent Dadian stemming

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fa Yi i }? | is } isis

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"State vross-prodiuetion tax oon dessees, not Dudians, even the

‘ ‘ > nal ' j 7 :

‘ “TU ited) rer I itty Tho ti Pov dt itt Mh

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‘Stete imherditance tax

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10."

States ‘UN. Div. Ida, June 5, 1955), 1955 P-H] Tax

Services, © T2786. invelyving ordinary fcome from

trust or restricted land inthe form of rents and grain >) *

(fructus indastriales) would be a more likely target

ofa petition OW and gas boirises, rents and rovalties

from leases are not im point, as we showed above, CC , Gears Fe

any wreat sales of land in the guise of a

stamling timber of Indian dllottees must be. substan- |

_ tially confined to, the: Olympic Peninsula, hence to the

Ninth Gireuit- but in any event, evens Were that not

ee. should awalt “the occasion of & conthiet, if ever

one arises, ; ;

- CONCLUS SION ;

There is no contlied of deci isions among the cine “units

and there is no continuing importance in the case sufh- :

cient to Warrant granting the writ,.whreli acc cordingly

should Jy denied. | |

Respectfully submitted,

Jouxn W. Cracun- 3

Cosnsel: for Respondents’

aE ae 4

GLen A. WILKINSON : Soe boot

Roperr WY Barker 7

Of Counsel .