Alice Perkins & Fredrick Perkins v. Commissioner, 150 T.C. 6

Background

Alice and Fredrick Perkins, Seneca Nation residents, mined and sold gravel from Seneca reservation land in 2008–2009 with tribal permission; gross receipts near $1.5M (2008) and $1.7M (2009).
Perkinses filed late 2008–2009 returns in 2011, claiming gravel income exempt from federal tax under the General Allotment Act and two treaties (Canandaigua Treaty 1794; Treaty with the Seneca 1842).
IRS issued a notice of deficiency for 2008–2010, including tax on the gravel income and penalties under I.R.C. §§ 6651(a)(1) (late filing) and 6662(a) (accuracy-related).
The Tax Court found no genuine issue of material fact and proceeded on summary judgment; the Perkinses’ General Allotment Act claim failed because the Act expressly exempted Seneca reservations from allotment.
The core legal questions: whether either treaty exempts income from sale of gravel mined from tribal (common) land, and whether penalties apply.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Canandaigua Treaty exempts income from sale of gravel mined from Seneca land	Treaty’s promise not to “disturb the free use and enjoyment” of Seneca lands protects individual members’ income from land-based activities	Treaty protects Nation’s land and rights, not a personal federal income-tax exemption for individual members	Held: No exemption; treaty protects land/alienation rights, not federal income taxation of individuals
Whether 1842 Treaty exempts income from sale of gravel mined from Seneca land	Treaty’s Article 9 (“protect…lands…from all taxes”) shields income derived from tribal land	Treaty protects real property from taxation (historically aimed at NY state taxes); severed gravel is personal property and not covered; treaty protects Nation’s land, not individual income	Held: No exemption; Article 9 covers taxation of land (not severed gravel) and does not exempt petitioners’ gravel sales from federal income tax
Whether income from common tribal (non-allotted) land is Capoeman-type exempt income	Perkinses assert a Capoeman-like rule applies to income derived from Indian land generally	Commissioner: Capoeman exemption applies only to income from allotted land held in trust; income from common tribal land is taxable	Held: Capoeman does not create a general exemption; exemption limited to allotted land, so gravel sales from common tribal land are taxable
Whether penalties under I.R.C. §§ 6651(a)(1) and 6662(a) apply	Perkinses offered no substantive defense to penalties in briefing	Commissioner sought late-filing penalty and accuracy-related penalty; but must satisfy administrative prerequisites for penalties	Held: §6651(a)(1) late-filing penalty applied (returns were filed late). §6662(a) accuracy-related penalty not decided in Commissioner’s favor because Commissioner did not meet burden of production under §6751(b) for initial penalty approval

Key Cases Cited

Squire v. Capoeman, 351 U.S. 1 (1956) (Capoeman limited tax exemption to income derived from allotted trust lands)
Superintendent of Five Civilized Tribes v. Commissioner, 295 U.S. 418 (1935) (Indians subject to tax unless specific exemption exists)
Choctaw Nation of Indians v. United States, 318 U.S. 423 (1943) (treaties construed liberally in favor of Indians, considering historical context)
Lazore v. Commissioner, 11 F.3d 1180 (3d Cir. 1993) (Canandaigua Treaty does not exempt wages; discussion whether treaty might exempt land-derived income)
Seneca Nation of Indians v. New York, 382 F.3d 245 (2d Cir. 2004) (treaty interpretation principles and construing treaties as the Indians likely understood them)
Chai v. Commissioner, 851 F.3d 190 (2d Cir. 2017) (§6751(b) requires written approval of initial penalty determination; Commissioner bears production burden for penalties)
Jourdain v. Commissioner, 617 F.2d 507 (8th Cir. 1980) (Capoeman exemption applies only to allotted land; income from tribal licenses taxable)
Stevens v. Commissioner, 452 F.2d 741 (9th Cir. 1971) (interpretations of Capoeman and limits of exemptions to allotted land)