Income from Gravel Mined on Common Tribal Land Taxable (Perkins, TC)

Native Americans’ income from selling gravel mined on tribal land was taxable. Neither the treaties cited nor the General Allotment Act excluded the gravel income. In addition, the taxpayers were liable for the late-filing penalty. However, they were not liable for an accuracy-related penalty. The IRS failed to show that a supervisor approved in writing the accuracy-related penalty before issuing the deficiency notice.


The taxpayers were Native Americans living on tribal lands. They requested and received tribal permission to mine gravel on tribal property. On their returns, the taxpayers claimed that the income they earned from selling the gravel was exempt from income tax because it was derived from tribal land. They cited to the General Allotment Act, the Canandaigua Treaty and the Treaty of 1842 to support their argument. However, the IRS determined that the gravel income was taxable. Then, the taxpayers paid one year’s tax and filed a refund claim in federal district court, which agreed with their argument. For the other two years, they filed a petition for redetermination in the Tax Court.

Allotted land

The Tax Court rejected the taxpayers’ argument that their income was exempt from taxation under the General Allotment Act of 1887. The General Allotment Act did not apply to individuals and did not excuse the taxpayers from paying tax on the income they earned. In addition, the Tax Court rejected the taxpayers’ argument that the Canandaigua Treaty exempted their gravel income from tax. The guaranty not to “disturb the free use and enjoyment of tribal land” did not include a tax exemption for income derived directly from the land. Moreover, the Tax Court found that the treaty did not provide rights to individual Native Americans. Rather, the treaty granted rights to the Indian Nations. (In the related case, the district court found that the treaty did create rights for the individuals because their income was derived from tribal land).

Common Tribal Land

Further, the tax exemption recognized by the Supreme Court in Capoeman (56-1 ustc ¶9474) only applies to income derived from allotted land. However, the land the individuals mined for gravel was not allotted to them. The gravel was taken from land that was part of the common tribal land. And, income derived from common tribal land, rather than allotted land, is taxable.

Finally, the Treaty of 1842 did not exempt from taxation the couple’s gravel sale income. The taxpayers argued that the treaty explicitly exempted from tax income derived from the use of tribal land. However, the 1842 Treaty clearly prohibited only the taxation of real property and the gravel was not attached to the land when it was sold. Therefore, the 1842 Treaty did not exempt from tax income from the sale of gravel mined on common tribal land.


The taxpayers were liable for the failure to timely file penalty. The taxpayers filed the returns late and they did not address this penalty in their brief. However, the taxpayers were not liable for an accuracy-related penalty. The IRS failed to show that a supervisor approved the penalty in writing before issuing the deficiency notice.

Related case at DC N.Y., 2017-2 ustc ¶50,407.

A. Perkins, 150 TC —, No. 6, Dec. 61,129

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All stories by: CCHTaxGroup