ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – WHY DO NATIVE AMERICANS (INDIANS) HAVE TO PAY FEDERAL INCOME TAXES?
By Robert S. Schriebman
I have, from time-to-time, wondered why Native Americans have to pay income taxes to the federal government. Afterall, the Indian tribes were here long before the Pilgrims landed on Plymouth Rock or before the Vikings discovered America – choose your theory. The Indian tribes throughout the eastern part of our country were not part of the original 13 colonies. Indian tribes are regarded as separate and independent nations and historically treaties were created between them and the federal government much in the same way we have treaties with foreign countries. On May 24, 2023, the US Tax Court issued its decision in the Frank Warren Bibeau case. The case is interesting and in it Judge Holmes explains how and why Native Americans must pay federal income tax on their receipt of income and profits arising from personal services, business transaction or the sale of properties.
Frank Bibeau is a member of the Chippewa tribe residing in Minnesota. Frank is a practicing lawyer. He failed to pay self-employment taxes for the years 2016 and 2017. He advanced several interesting arguments as to why he should be exempt from having to pay federal income taxes. Unfortunately, the Tax Court disagreed with Frank.
In this article I will discuss the Bibeau case and examine Frank’s very interesting and logical arguments. Frank Warren Bibeau v. Commissioner (T.C. Mem, 2023-66, May 24, 2023)
The Frank Warren Bibeau Case
Frank is a self-employed practicing attorney and a member of the Chippewa Indian Nation. He earned his income through representing his tribe in the Tribal Court regarding reservation disputes and conducting historical research. Frank and his wife filed joint federal income tax returns, Form 1040, for the years 2016 and 2017 but paid no income taxes because they had enough losses to zero out their income tax liability. However, self-employment taxes still must be paid. The IRS assessed self-employment taxes, penalties and interest. Frank timely filed a Collection Due Process (CDP) petition. At the CDP hearing he took the position that he was exempt for income taxes due to treaties between the US and Chippewa Nation. Indians are subject to federal taxation unless there is a specific law or treaty providing otherwise (Squire v. Capoeman 351 US 1 (1956)).
The first argument advanced by Frank was that the 1837 Treaty protects the right of his people to make a “modest living.” Actually, the Treaty says, the Chippewas will be granted the privilege of hunting, fishing, and gathering wild rice, upon the lands, the rivers, and the lakes. I found it interesting that the 1837 Treaty predated any of our modern Internal Revenue Codes.
Frank argued that practicing law is a modern-day interpretation of the 1837 Treaty, i.e., his right to make a modest living. That is to say Frank’s right to food, clothing, shelter, and travel. The modern canoe is an automobile.
Tax Court Judge Holmes ruled that the term, “modest living” does not mean the right to a “modest tax-free living.” The 1837 Treaty means that the Chippewa Nation would not be criminally prosecuted for hunting, fishing, etc. However, if the Indians sold the fish or game at a profit, they would not be exempt from having to pay taxes. Practicing law does not yield income derived from “hunting, fishing, or gathering the wild rice.” There is nothing in the language of the 1837 Treaty to expand the activities that it protects beyond those it explicitly lists. The Tax Court cannot create new rules by implying or finding an exemption not set forth in the Treaty. (Jourdian v. Commissioner, 71 TC 980, (1979)).
Having been shot down on his first argument, Frank set forth his second argument. There is nothing in the 1837 Treaty where the Chippewa Nation granted the US the right to tax members of the tribe or their income from any activity. Treaties between the US and the Indians are not a grant of rights TO the Indians, but a grant of rights FROM them – a reservation of rights not granted.
When it comes to exemptions from tax, however, the Supreme Court has stated “that Indians are citizens and that in ordinary affairs of life, not governed by treaties or remedial legislation, [Indians] are subject to the payment of income taxes as are other citizens.” (Capoeman, 351 US at 6). This means that the absence of tax terms from a treaty does not imply the Indians reserved their right to be free of taxation – instead, it means that an exemption from taxation does not exist. In other words, “tax exemptions are not granted, by implication, to Indians.” (Jourdain, 71 TC at 990)
Finally, Frank put forth his third and final argument. The Indian Citizenship Act of 1924 while granting Indians US Citizenship, did not impact any issues of taxation. The Tax Court shot down this third argument as well. The US Court of Appeals for the 8th Circuit squarely held that the Indian Citizen Act maintained Indians’ “pre-existing right to tribal and other property” but “does not create a tax exemption.” Fond du Lac Band of Lake Superior Chippewa v. Frans, 649 F.3d 849, 851
So, there you have it. Native Americans are citizens and unless there is a treaty creating an exemption, they are subject to income taxes. The absence of tax provisions in a treaty does not imply any reservation of tribal rights to be free from taxation.
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD, and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
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