                 Taxability of Indian Treaty Fishing Income

Various treaties between the United States and Indian tribes secure to the Indian signatories the
  “right o f taking fish at all usual and accustomed grounds and stations.” In determining
  whether income derived from the exercise o f these fishing rights is subject to federal tax, the
  relevant analysis is that employed by the Supreme Court in Squire v. Capoeman, 351 U.S. 1
  (1956). Squire held that Indians are subject to the payment of income taxes as are other
  citizens unless a tax exemption is “clearly expressed” in an applicable treaty or statute. Squire
  also held that in analyzing a particular treaty or statute applicable to Indians, ambiguous
  language should be construed in the Indians' favor. The Tax Court has properly resolved the
  inherent tension between these two canons o f construction by concluding that income earned
  by Indians from the exercise of treaty fishing rights is subject to the federal income tax.

                                                                                   December 12, 1985

          M   em orandum         O p in io n   for th e    Secretary         of the     In t e r io r


   Your letter to the Attorney General regarding the taxability, under federal
law, of income earned by certain Indian tribes from the exercise of commercial
fishing rights guaranteed by treaty has been submitted to the Office of Legal
Counsel for review. This review, which examines the different positions of the
Department of the Interior (Interior) and the Internal Revenue Service (IRS) on
this subject, is being undertaken pursuant to Executive Order No. 12146 (July
 18, 1979), reprinted in 28 U.S.C. § 509 note, and 28 C.F.R. § 0.25, which
authorize the Office of Legal Counsel, on behalf of the Attorney General, to
resolve legal disputes between Executive Branch agencies.
   In 1983, the Solicitor of Interior concluded that treaty language reserving
fishing rights to Indian tribes precluded federal taxation of income derived
from the exercise of those rights. The IRS does not share that view, and has
attempted to collect income taxes on fishing income earned by tribal fishermen
from commercial fishing operations.1 A number of Indians who have received
notices of deficiency from the IRS have filed petitions for redetermination in
the Tax Court.2
   As you note in your letter, the Department of Justice will need to resolve this
issue in order to arrive at a uniform position of the United States, should the
pending cases proceed to litigation handled by the Department. We have
   1 The IRS issued technical m emoranda in 1983 adopting the position that m em bers of the affected Indian
tribes are subject to the federal income tax. The IRS has maintained that position in ongoing litigation in Tax
C ourt. See infra note 2.
   2 We have received copies o f pleadings on summary judgm ent motions filed in tw o of those proceedings,
Jefferson v. C om m issioner, No. 83 6 -8 4 , and G reene v. Com missioner, No. 15921-84.

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therefore reviewed the dispute in that context. As set forth below, we believe
that the position o f the IRS represents the more reasonable and sound reading
of the applicable Supreme Court precedent, and therefore can be maintained in
litigation handled by this Department.

                                                 I. Background

A. Interpretation o f Treaty Fishing Rights

   The treaties at issue here were negotiated in the 1850s with Indian tribes
living in what is now the State of Washington in order to extinguish the last
group o f conflicting claims to lands lying west of the Cascade Mountains and
north o f the Columbia River.3 See Washington v. Washington State Commer­
cia l P assen ger Fishing Vessel Ass'n, 443 U.S. 658, 661-62 (1979). In ex­
change for their interest in m ost of the territory, the Indians were given
monetary payments and the “exclusive use” of relatively small tracts of land, as
well as certain other rights, including the right to fish. Id. With immaterial
variations, the treaties each provide:
           The right o f taking fish at all usual and accustomed grounds and
           stations is secured to said Indians in common with all citizens of
           the Territory, and of erecting temporary houses for the purpose
           of curing the same; together with the privilege of hunting,
           gathering roots and berries, and pasturing their horses on all
           open and unclaimed lands.
Treaty of Olympia, art. Ill, 12 Stat. 971, 972 (July 1, 1855/Jan. 25, 1856). The
scope o f the fishing rights secured by these treaties, and the extent to which a
state may interfere with those rights, has been considered on a number of
occasions by the Supreme Court. See, e.g., United States v. Winans, 198 U.S.
371 (1905); Seufert Bros. v. United States, 249 U.S. 194 (1919); Tulee v.
W ashington, 315 U.S. 681 (1942); Puyallup Tribe v. Department o f Game, 391
U.S. 392 (1968) (Puyallup I); D epartm ent o f Game v. Puyallup Tribe, 414 U.S.
44 (1973) ( Puyallup //); Puyallup Tribe v. Departm ent o f Game, 433 U.S. 165
(1977) (Puyallup III); Commercial P assenger Fishing, 443 U.S. 658. The
Court has recognized that the rights secured by the treaties include the right to
fish for commercial, as well as subsistence, purposes, and that the fishing right
was critically important to the Indians in their acceptance of the treaties.4 The
Court has specifically rejected the argument that the treaties guarantee to the

   3 W e understand that the following treaties are applicable here: Treaty o f M edicine Creek, 10 Stat. 1132
(D ec. 26, 1854); T reaty o f P oint Elliott, 12 Stat. 927 (Jan. 22, 1855); T reaty o f Point No Point, 12 Stat. 933
(Jan. 2 6 ,1 8 5 5 ); T reaty o f N eah Bay, 12 S ta t. 939 (Jan. 31, 1855); T reaty w ith the Yakim as, 12S tat.951 (June
9, 1855); and T reaty o f O lym pia, 12 Stat. 971 (July 1, 1855/Jan. 25, 1856).
   4 See C om m ercial P a ssen g er Fishing, 4 4 3 U.S. at 676 (“ D uring the negotiations, the vital importance o f the
fish to the Indians was repeatedly em phasized by both sides, and the G overnor’s prom ises that the treaties
w ould p ro tect that source o f food and com m erce was crucial in obtaining the Indians’ assent."); see also id. at
6 6 5 -6 6 & n.7.

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Indians only the opportunity to compete with nontreaty fishermen on an indi­
vidual basis, finding instead that the treaties entitle the Indians to take a fair
share of the available fish.5 In reaching that conclusion, the Court has found it
significant that the Indians reserved to themselves preexisting fishing rights,
rather than obtaining rights from the government:
          Because the Indians had always exercised the right to meet their
          subsistence and commercial needs by taking fish from treaty
          area waters, they would be unlikely to perceive a “reservation”
          of that right as merely the chance, shared with millions o f other
          citizens, occasionally to dip their nets into the territorial waters.
Commercial Passenger Fishing, 443 U.S. at 678-79.
   The Court has defined an “equitable measure” of the treaty right to be a
division of the harvestable portion of each run that passes through a “usual and
accustomed” place into “approximately equal treaty and nontreaty shares.”
Id. at 685. The treaty share should be reduced, however, “if tribal needs may be
satisfied by a lesser amount.” Id. Drawing on cases involving Indian reserved
water rights,6 the Court stated:
          [T]he centra] principle here must be that Indian treaty rights to a
          natural resource that once was thoroughly and exclusively ex­
          ploited by the Indians secures so much as, but no more than, is
          necessary to provide the Indians with a livelihood — that is to
          say, a moderate living. Accordingly, while the maximum pos­
          sible allocation to the Indians is fixed at 50%, the minimum is
          not; the latter will, upon proper submissions to the District
          Court, be modified in response to changing circumstances.
Id. at 686-87 (footnote omitted).
   The Court has also made clear that a state cannot interfere with the exercise
of the fishing right, other than nondiscriminatory regulations reasonable and
necessary for conservation of the fish. Thus, a state may not grant a nontreaty
fisherman rights to use a “fish wheel” — a device capable of catching fish by
the ton and totally destroying a run of fish, thereby effectively excluding the
Indians from the right to take fish at a “usual and accustomed place.” United
States v. Winans, 198 U.S. 371, 384 (1905). A state may not require Indians to
  5 In Com m ercial Passenger F ishing, the Court said:
       But we think greater importance should be given to the Indians’ likely understanding o f the other
       words in the treaties and especially the reference to the “right o f taking fish” — a n g h t that had
       no special meaning at common law but that must have had obvious significance to the tribes
       relinquishing a portion o f their pre-existing rights to the U nited States in return for this promise.
       . . . In this context, it m akes sense to say that a party has a right to “take" — rather than merely
       the “opportunity" to try to catch — some o f the large quantities o f fish that w ill alm ost certainly
       be available at a given place at a given time.
Id. at 678; see also id. at 683; Puyallup I, 391 U.S. at 398; Puyallup III, 433 U.S. at 48-49.
  6 The Suprem e C ourt has held that treaties reserving land for the use o f Indians in the a n d western states
also reserve, by im plication, rights to w ater sufficient to meet subsistence or other needs o f the Indians
reasonably within the contem plation o f the parties at the time the treaties were negotiated. See W inters v.
U nited States, 207 U.S. 564, 576 (1908); see also Cappaert v. U nited States, 426 U.S. 128 (1968).

                                                      105
obtain a fishing license as a prerequisite to exercise of their treaty rights,
Seufert Bros. v. U nited States, 249 U.S. 194, 198 (1919), and must give Indians
access across private lands, if necessary, in order to assure access to treaty
fishing locations, Tulee v. Washington, 315 U.S. 668,685 (1942). State regula­
tions justified on the basis of conservation must be both reasonable and
necessary, Puyallup II, 414 U.S. at 45, and cannot discriminate against exercise
by the Indians of their fishing rights, id. at 48; Puyallup I, 391 U.S. at 398.
   On the other hand, the Indians cannot rely on their treaty right to exclude
others from access to certain fishing sites outside the reservation in order to
deprive other citizens of the state of a “fair apportionment” of a particular run.
C om m ercial P assen ger Fishing, 443 U.S. at 683-84. In sum:

        Nontreaty fishermen may not rely on property law concepts,
        devices such as the fish wheel, license fees, or general regula­
        tions to deprive the Indians of a fair share of the relevant runs of
        . . . fish in the case area. N or may treaty fishermen rely on their
        exclusive right o f access to the reservations to destroy the rights
        o f other “citizens of the Territory.” Both sides have a right,
        secured by treaty, to take a fair share of the available fish. That,
        we think, is what the parties to the treaty intended when they
        secured to the Indians the right o f taking fish in common with
        other citizens.
Id. at 684-85.
   The analysis in these treaty fishing cases relies heavily on factual evidence
about the understanding of the parties at the time the treaties were negotiated
and the importance of the fishing rights to the Indians who signed the treaties.
The Court, consistent with its approach in other cases involving construction of
Indian treaties, gave “special meaning” to the rule that “it is the intention of
the parties, and not solely that of the superior side, that must control any
attem pt to interpret the treaties,” id. at 675, because o f the circumstances of the
negotiations:
        [This Court] has held that the United States, as the party with the
        presumptively superior negotiating skills and superior knowl­
        edge of the language in which the treaty is recorded, has a
        responsibility to avoid taking advantage of the other side. “The
        treaty must therefore be construed, not according to the techni­
        cal meaning o f its words to learned lawyers, but in the sense in
        which they would naturally be understood by the Indians.”
Id. at 675-76 (quoting Jones v. Meehan, 175 U.S. 1,11 (1899)).

B. Indian Tax Cases

   None o f the cases construing the scope of the fishing right guaranteed by
treaty discuss whether the income derived from exercise of the right to take a
                                         106
fair share of fish at “usual and accustomed places” is exempt from federal
income taxation. The Supreme Court and the lower federal courts have, how­
ever, reviewed the taxability of income earned by Indians in other contexts.
The leading case involving the authority of the federal government to tax
Indian income is Squire v. Capoeman, 351 U.S. 1 (1956), in which the Su­
preme Court considered whether capital gains from the sale of standing timber
on lands allotted to noncompetent Indians pursuant to the General Allotment
Act of 1887, ch. 119, 24 Stat. 388 (codified as amended at 25 U.S.C. § 331 et
seq.), was subject to the federal income tax.7
   The General Allotment Act was intended to begin a new era in federal Indian
policy. By treaty, most Indians had been guaranteed exclusive use of reserva­
tion land. Under the General Allotment Act, tribal lands were to be divided and
allotted to individual members of the tribe. The allotments were to be held in
trust by the United States for twenty five years or longer, if the President
deemed an extension desirable, and then to be transferred to the allottee
discharged of government trusteeship. 25 U.S.C. §§ 347, 348.
   The Court began its analysis in Squire with the principle, already established
in prior cases,8 that “Indians are citizens and . . . in ordinary affairs of life, not
governed by treaties or remedial legislation, they are subject to the payment of
income taxes as are other citizens.” 351 U.S. at 5-6. The Court recognized,
however, that applicable treaties or statutes could create tax exemptions, if
such exemptions were “clearly expressed.” Id. The Court found such an ex­
emption in the language in § 5 of the General Allotment Act, which provided
that lands on Indian reservations allotted to individual Indians and held in trust
for them by the government shall ultimately be conveyed to them in fee simple
discharged o f the trust and “free of all charge or incumbrance whatsoever.” 25
U.S.C. § 348.
   The Court recognized that this statutory provision was not “expressly couched
in terms of nontaxability,” and in fact became effective prior to enactment of

   7 A noncom petent Indian is one who holds allotted lands only under a trust patent, and who may not dispose
o f his property w ithout the approval o f the Secretary o f the Interior The term does not denote mental
capacity.
   8 In Choteau v. Burnet, 283 U.S. 691 (1931), and Superintendent o f Five C ivilized Tribes v. C om missioner,
295 U.S. 418 (1935), the Supreme Court definitively rejected the argum ent that Indians are exem pt from
federal taxation m erely because o f their status, in the absence o f treaty or statutory provisions to the contrary.
In C hoteau, the C ourt held taxable the petitioner’s share o f tribal income from oil and gas leases made by the
tribe pursuant to statute, concluding that “ [t]he intent to exclude [income from taxation] m ust be definitively
expressed, where, as here, the general language o f the A ct laying the tax is broad enough to include the
subject m atter.” 283 U.S. at 696 (citations om itted). Jn Five C ivilized Tribes, the Court concluded that the
proceeds from the investm ent o f funds derived from a restricted allotm ent were subject to federal taxation
See 295 U.S. at 4 2 0 -2 1 .
   Both Choteau v Burnet and Five C ivilized Tribes were distinguished by the Court in Squire v. Capoeman
The Court noted that C hoteau concerned the question w hether an Indian was exem pt from tax solely because
o f his status, and that the facts in Choteau fit within the terms o f § 6 of the General A llotm ent Act, which
contem plates taxation o f income earned by a com petent Indian who has unrestricted control over lands and
income thereon. Five C ivilized Tribes was distinguished on the ground that the income involved was
“reinvestm ent incom e” or “income derived from investm ent o f surplus income on land." The Court stated that
it w ould not be necessary to exem pt such incom e from taxation in order to fulfill the purposes o f the General
A llotm ent Act. See S q u ire, 351 U.S. at 9.

                                                        107
any federal income tax, but nonetheless concluded that the words “charge or
incumbrance might well be sufficient to include taxation.” 351 U.S. at 7. In
reaching this conclusion, the Court relied on its earlier statements indicating
that ambiguous language in treaties and statutes applicable to Indians should be
interpreted favorably to the Indians:
        Doubtful expressions are to be resolved in favor of the weak and
        defenseless people who are the wards of the nation, dependent
        upon its protection and good faith. Hence, in the words of Chief
        Justice M arshall, “The language used in treaties with the Indians
        should never be construed to their prejudice. If words be made
        use of, which are susceptible of a more extended meaning than
        their plain import, as connected with the tenor of the treaty, they
        should be considered as used only in the latter sense.” Worcester
        v. G eorgia , 32 U.S. (6 Pet.) 515, 582 (1832).
351 U.S. at 6 -7 (quoting Carpenter v. Shaw, 280 U.S. 363, 367 (1930)).
   The Court did not find it necessary, however, to rely solely on the language
of § 5. It found “additional force” in § 6 of the General Allotment Act, 25
U.S.C. § 349, which authorizes the Secretary o f the Interior to issue a patent in
fee simple to any allottee competent to manage his own affairs. That section
provided that “thereafter all restrictions as to sale, incumbrance, or taxation of
said land shall be removed and said land shall not be liable to the satisfaction of
any debt contracted prior to the issuing of such patent” (emphasis added). The
Court concluded:
        The literal language o f the proviso evinces a congressional
        intent to subject an Indian allotment to all taxes only after a
        patent in fee is issued to the allottee. This, in turn, implies that,
        until such time as the patent is issued, the allotment shall be free
        from all taxes, both those in being and those which might in the
        future be enacted.
351 U.S. at 7-8.
  The Court also found that its interpretation o f the intent of § 5 was supported
by several opinions o f the Attorney General and unofficial writings “relatively
contem poraneous” with the enactment o f the General Allotment Act. Id. at 8-9.
The Court concluded the opinion with the observation that the exemption in § 5
was consistent with the overall purpose of the General Allotment Act:
        Unless the proceeds of the timber sale are preserved for respon­
        dent, he cannot go forward when declared competent with the
        necessary chance of economic survival in competition with
        others. This chance is guaranteed by the tax exemption afforded
        by the General Allotment Act, and the solemn undertaking in the
        patent.
Id. at 10.

                                        108
   The analysis in Squire v, Capoeman has been applied in a number of
subsequent cases in the federal courts of appeals. In those cases arising under
the General Allotment Act or other acts construed by the courts in pari materia
with that act, the courts have generally held that income derived directly from
the ownership of restricted allotted land is exempt from federal taxation. See,
e.g., Stevens v. Commissioner, 452 F.2d 741 (9th Cir. 1971); United States v.
Hallam, 304 F.2d 620 (10th Cir. 1962); see also Big Eagle v. United States,
300 F.2d 765 (Ct. Cl. 1962). Income that is not derived directly from the
taxpayer’s individual ownership of the land or that is derived from the owner­
ship or use o f unrestricted or unallotted land, however, is subject to taxation.
See, e.g., United States v. Anderson, 625 F.2d 910 (9th Cir.) (income from
cattle ranching on reservation land), cert, denied, 450 U.S. 920 (1980); Jourdain
v. Commissioner, 617 F.2d 507 (8th Cir.) (income earned as chairman of tribal
council), cert, denied, 449 U.S. 839 (1980); Fry v. Commissioner, 557 F.2d
646 (9th Cir. 1977) (income from logging operation on reservation land), cert,
denied, 434 U.S. 1011 (1978); H olt v. Commissioner, 364 F.2d 38 (8th Cir.
1966) (income from grazing on reservation land), cert, denied, 386 U.S. 931
(1967); Com m issioner v. Walker, 326 F.2d 261 (9th Cir. 1964) (income earned
as employee of the Indian community).
   These cases interpret Squire v. Capoeman to teach that a tax exemption must
derive from some particular language in a treaty or statute, although that
language need not specifically set out a tax exemption, and that an exemption
may not be based on policy alone or on generalized references to treaties and
statutes. In U nited States v. Anderson, the Ninth Circuit explained the Squire
analysis as follows:
       The rule that ambiguous statutes and treaties are to be construed
       in favor o f Indians applies to tax exemptions, . . . but this rule
       “comes into play only if such statute or treaty contains language
       which can reasonably be construed to confer income tax exemp­
       tions.” “The intent to exclude must be definitely expressed,
       where, as here, the general language of the Act laying the tax is
       broad enough to include the subject matter.”
625 F.2d at 913 (citations omitted). The court explained further that although
“policy arguments are fruitless in the absence of statutory or treaty language
that arguably is an express tax exemption,” they “might persuade courts to
construe such arguable language, if any exists, actually to be an express tax
exemption.” Id. at 914 n.6.
   In Karmun v. Commissioner, 749 F.2d 567 (9th Cir. 1984), the Ninth Circuit
applied this analysis in a case arising under the Reindeer Industry Act of 1937,
25 U.S.C. § 500. That Act authorizes the Secretary of the Interior to acquire for
the Alaskan natives reindeer and other property owned by non-natives. The
Secretary is authorized to distribute or hold in trust the reindeer and other
property, and to organize, manage, and regulate the reindeer industry in such a
manner as to establish and maintain for the Alaskan natives a self-sustaining
                                      109
business. See 749 F.2d at 569. The court rejected the claim made by Indians
who operated herds o f reindeer under that Act that their income should be
exempt from federal taxation under the Squire v. Capoeman rationale. The
Court noted that “ [i]ncome is tax exempt under Squire only when the govern­
ing treaty or statute contains language which can reasonably be construed to
confer an exemption,” and it found “no clear expression of intent to exempt” in
the Reindeer Act. 749 F.2d at 570. In addition, the court found it significant
that the purposes o f the General Allotment Act and the Reindeer Act were
different:

        The purpose of the [General Allotment Act] was to benefit the
        individual allottees by preparing them to become independent
        citizens. Accordingly, the Squire Court found that the tax ex­
        emption was crucial to fulfilling this purpose. By contrast, the
        purpose o f the Reindeer Act is to provide a continuing food
        source to the Eskimos of northwestern Alaska through the estab­
        lishment of a native operated reindeer industry. That purpose is
        not undermined by requiring the owners and operators o f rein­
        deer herds to pay federal income taxes on their profits from the
        successful conduct of such operations.

Id. (citations omitted).
   The issue we have been asked to address — the taxability of treaty fishing
rights — has been considered twice by the Tax Court, once before the Squire
decision and once again in 1982. See Strom v. Commissioner, 6 T.C. 621
(1946), a j f d p e r curiam, 158 F.2d 520 (9th Cir. 1947); Earl v. Commissioner,
78 T.C. 1014 (1982). In both Strom and Earl, the Tax Court concluded that
income earned by the Indians from the exercise of treaty fishing rights is
subject to federal tax. In Strom, the court rejected the argument advanced by
the Indians that imposition of a tax upon income earned in carrying on a
commercial fishing business is a restriction on the right to fish guaranteed by
treaty:

       The Quinaielt Indians on the reservation were as free to fish in
       the Quinaielt River after the imposition of an income tax as they
       were prior to that time. The disputed income tax is not a burden
       upon the right to fish, but upon the income earned through the
       exercise of that right.

6 T.C. at 627. Noting that there was no express exemption from tax in the
treaty, and that the income involved was derived “personally” by a restricted
Indian (rather than in trust), the Tax Court concluded that the income was
subject to the general provisions of the Internal Revenue Code. Id. at 627-28.
   In E arl, the petitioner relied on Squire v. Capoeman as a basis for his
claimed tax exemption, arguing that income from fishing in the usual and
accustomed fishing grounds is analogous to income from the cutting of timber
                                       110
from allotted lands.9 The Tax Court rejected that analogy, finding instead that
the treaty language guaranteeing the right to fish “contains nothing dealing
with the taxation of income derived from such fishing.” 78 T.C. at 1017.
Moreover, it found that the right of an Indian to share in treaty fishing rights is
more like his rights as a member of the tribe in unallotted land on the reserva­
tion (income from which would not be exempt under Squire ) than individual
rights in allotted land (income from which would fall within the “free from
charge or incumbrance” language analyzed in Squire). Id.
   In contrast to its treatment of cases involving federal taxation, the Supreme
Court has repeatedly held that Indians and their property are exempt from state
taxation within their reservations, unless Congress clearly manifests its consent
to such taxation. See Montana v. Blackfeet Tribe o f Indians, 471 U.S. 759,
764-65 (1985); McClanahan v. Arizona State Tax Com m ’n, 411 U.S. 164,
170-71 (1973). Those decisions rest on a preemption rationale, as explained by
the Court in Bryan v. Itasca County, 426 U.S. 373 (1976):
             The McClanahan principle derives from a general pre-emption
          analysis that gives effect to the plenary and exclusive power of
          the federal government to deal with Indian tribes, and “to regu­
          late and protect the Indians and their property against interfer­
          ence even by a state.” This pre-emption analysis draws support
          from “the ‘backdrop’ of the Indian sovereignty doctrine,” ‘“ the
          policy of leaving Indians free from state jurisdiction and control
          which is deeply rooted in the Nation’s history,”’ and the exten­
          sive federal legislative and administrative regulation of Indian
          tribes and reservations. “Congress has acted consistently upon
          the assumption that the States have no power to regulate the
          affairs of Indians on a reservation,” and therefore “‘State laws
          generally are not applicable to tribal Indians on an Indian reser­
          vation except where Congress has expressly provided that State
          laws shall apply.’”
Id. at 376 n.2 (citations omitted). Property and income earned outside the
reservation, however, have generally been held to be subject to nondiscrimina-
tory state taxation, unless federal law otherwise provides for an exemption. See
M escalero Apache Tribe v. Jones, 411 U.S. 145, 148—49, 155-56 (1973)
(holding that the state may impose gross receipts tax on ski resort operated by
Indian tribe on off-reservation land).

C. Positions o f Interior and the IRS

  Interior and the IRS both recognize that the relevant analysis here is that
used by the Court in Squire v. Capoeman. The disagreement centers on whether
  9 Pleadings filed by som e o f the Indian tribes in the pending Tax Court proceedings state that the factual
premise o f the holding in Earl — that the income was earned through exercise o f treaty fishing nghts — is
incorrect, because the individual involved, although an Indian, was fishing as a crew m em ber on a vessel
owned by a non-Indian, and merely shared in proceeds o f fishing attributable to non-Indian treaty shares.

                                                   Ill
the treaty language is sufficiently specific to meet the threshold requirements
of Squire, and what role policy considerations play in interpreting that language.

   1. Interior Position

   Interior maintains that the treaty language expressly securing to the Indians
the right of “taking fish at usual and accustomed grounds and stations” is
language that meets the threshold requirement of Squire v. Capoeman that a tax
exemption be based on specific language. It is language that is “directly
applicable” to the fishing activity, and it does not state any limitation on the
right other than that it is to be exercised in common with other citizens. Interior
therefore argues that the language, on its face, “might well be read to prohibit
any limitation on diminishment o f the fishing right other than the one specified.”
   Interior acknowledges that the language “might also be read otherwise,” but
argues that, at a minimum, an ambiguity exists and, accordingly, that the treaty
must be construed in the light most favorable to the Indians. See generally
Squire, 351 U.S. at 7. Interior notes that at the time of negotiation of the treaty,
the reference to the right of “taking fish at usual and accustomed grounds and
stations” was clearly intended to include commercial fishing activities, see
C om m ercial P assenger Fishing, 443 U.S. at 665-66 & n.7, 676, and that the
Indians were assured that they would be able to fish and trade as they had prior
to the treaties — that is, without taxation and with no obligation to turn over a
portion of their fishing catch or proceeds to the federal government. Thus,
Interior reasons that “it is no more likely that the Indians understood that the
federal government would tax their fishing right than that they understood that
future states would be able to impose a charge upon it.”10

   2. IRS Position

  The IRS contends that the interpretation advanced by Interior would be “an
unwarranted expansion of the principles announced in Squire v. Capoeman.”
The IRS believes that the treaty language granting the fishing rights cannot
reasonably be construed to create a tax exemption. The IRS views Interior’s
position as a policy argument o f the type the courts have rejected as a sole basis
for a tax exemption, and views the “non-tax cases” cited by Interior (that is,
   10 T h is argum ent is considerably expanded in the pleadings filed by Indian tribes in the Tax Court
proceedings. T hose tribes have opposed m o tio n s for sum m ary judgm ent filed by the IRS on the ground, inter
alia , that “a decision cannot be made w ithout a thorough understanding o f the historical and anthropological
data surro u n d in g the negotiation of the T reaty ,” which can be presented only at trial. See, e.g.. B rief for
P etitio n er at 2, Jefferson v. Commissioner, No. 8 3 6 -8 4 (T.C . Apr. 18, 1985). A num ber of affidavits have
been offered w ith those pleadings to p ro v id e a foundation for petitioners' claim s that at trial they will
dem onstrate that the Indians negotiating the treaties did not contem plate that the U nited States w ould be
allow ed to tax o r otherw ise to take a share o f the fishery th a t the Indians reserved for themselves. The tribes
also argue th at there is no evidence that the United States attem pted to negotiate for the right to tax treaty
fish in g incom e in the treaty negotiations o r understood that the treaty gave it that right, and that there is no
suggestion in the num erous Supreme C o u rt and low er federal court decisions construing treaty fishing rights
that “one o f the federal purposes in negotiating these agreem ents was to enable [the government! to raise
revenue from the Indians* commerce.” Id. at 6.

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those cases construing the treaty fishing rights) as inapposite, because they
merely “clarify the rights which the treaties guarantee — rights which we are
disputing only to the extent that Interior is reading them to convey a specific
tax exemption.” Accordingly, the IRS maintains that the reasoning of the Tax
Court in Strom and Earl is persuasive, and should be followed by the IRS in its
enforcement efforts.

                                    II. Analysis

   The dispute between Interior and the IRS arises out of an inherent tension
between two applicable and longstanding canons of construction: first, that
regardless of the circumstances, exemptions from federal income taxation be
“definitely expressed,” see supra note 8 and accompanying text; and second,
that treaties and statutes affecting Indians be interpreted liberally, in light of the
trust responsibility of the United States and bearing in mind the Indians’
historically inferior bargaining position, which characterized the negotiation of
the treaties, see supra text immediately preceding Part I.B. Unfortunately, the
courts have not been wholly consistent in describing how the balance between
the competing canons should be struck. In Squire, the Court noted that the “free
from charge or incumbrance” language of § 5 was not “expressly couched in
terms of nontaxability,” but found that the words used were “susceptible of a
more extended meaning than their plain import, as connected with the tenor of
their treaty.” 351 U.S. at 7. In Choteau v. Burnet, the Court stated that the intent
to exclude income from taxation must be “definitively expressed.” 283 U.S. at
696. The language used in United States v. Anderson referred both to the need
for “express exempting language in a statute or treaty,” 625 F.2d at 917, and to
statutory or treaty language “that arguably is a tax exemption,” id. at 914 n.6. In
Holt v. Commissioner, the court referred to language that “can reasonably be
construed to confer income tax exemptions.” 364 F.2d at 40.
   Nor have the courts articulated precisely what types of underlying consider­
ations would be persuasive in construing specific language to be a tax exemp­
tion. Although the courts have generally rejected arguments that the general
goal of increased economic opportunities for Indians justifies an exemption
from federal income taxes, they have nevertheless recognized that the federal
government’s responsibility to the Indians must color interpretation of treaty
rights and obligations. Moreover, there are few concrete examples to guide our
analysis, because as far as we are aware, the only specific language that has
been analyzed by the courts for the purpose of determining whether a federal
tax exemption exists is the language in §§ 5 and 6 of the General Allotment Act.
   Although in the absence of direct guidance from the courts it is difficult to
determine definitively whether the treaty language falls within the Squire
rationale, we believe that the position taken by the IRS represents the more
sound view of the law. For this reason, as we discuss below, we believe that if
the pending cases proceed to the federal courts, the Department of Justice could
argue the position set out by the IRS.
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   Interior has argued that because the treaty contains some language dealing
with fishing rights, the threshold Squire v. Capoeman test has been met. We
believe that is an overly broad reading of Squire. There is a significant differ­
ence between the specific language relied upon by the Court in Squire and the
language relied upon by Interior to support a tax exemption. In Squire, and in
its preceding decisions in Choteau and Five C ivilized Tribes, the Court empha­
sized that the language creating a tax exemption must be specific and clear,
because the language of the Internal Revenue Code otherwise plainly encom­
passes income earned by Indians from any source. See supra note 8 and
accompanying text. In Choteau and Five C ivilized Tribes, the Court did not
find such language, even in the face of express treaty guarantees of exclusive
use of reservation land (language that the Court did not address). The differ­
ence in Squire was the presence of specific statutory language that, although
not expressly mentioning taxation, expressly dealt with “charges” and
“incumbrances” that might be levied on the allotted land. In addition, the Court
had the benefit of other literal language in the statute dealing with the grant of
the land in fee simple to the Indians, which expressly included taxation as a
restriction that otherwise might be applicable to the land. Thus, it was not
difficult for the Court to conclude that Congress intended to include taxation
(including taxation of income derived directly from the land) as a “charge or
incumbrance” within the meaning of § 5 of the General Allotment Act.
   Here the treaty language granting Indians the “right of taking fish” does not
contain any comparable specific language dealing with “charges,”
“incumbrances,” “restrictions,” or other types of limitations. Rather, that lan­
guage merely grants a particular right. It is more analogous to broad treaty
language granting the Indians exclusive use of reservation land,11 or language
in the General Allotment Act granting Indians rights to allotted lands12 —
neither of which was even considered by the Court in Squire or subsequent
cases. On its face, then, the treaty language lacks the specificity and focus of
the language at issue in Squire.
   To be sure, the Supreme Court, in considering the scope of the “right of
taking fish,” suggested that the only permissible limitations on that right are
reasonable, nondiscriminatory regulations designed to conserve the fish (and
thereby preserve the fishing right). See, e.g., Puyallup II, 414 U.S. at 45, 48;
Puyallup I, 391 U.S. at 398. As noted above, however, the Court has not
considered the question whether taxation of the income earned from the exer­
cise of the fishing right is or is not contemplated by the treaty language. We

  11 See , e.g.. T reaty o f O lym pia, art. II, 12 Stat. at 971:
          T here s h a ll. . . be reserved, for th e use and occupation o f the tribes and bands aforesaid, a tract
       o r tracts o f land sufficient for th e ir wants w ithin the Territory o f W ashington, to be selected by
       the President o f the United S tates, and hereafter surveyed o r located and set apart fo r their
       ex clu siv e use, and no white man shall be perm itted to reside thereon w ithout perm ission of the
       tribe and o f the superintendent o f Indian affairs o r Indian agent.
  12 See, e.g., 25 U .S.C . § 331 (authorizing allotm ent to each Indian located upon a reservation); id. § 334
(granting allotm ents to Indians not residing on reservations), id. § 336 (granting allotm ents to Indians making
settlem ent on unappropriated lands).

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believe that taxation of the income earned from the exercise of the treaty
fishing right would have a qualitatively different effect on those rights than did
the restrictions struck down by the Court in the treaty cases. The latter restric­
tions involved an actual limitation on the ability or opportunity of the Indians to
take fish at the treaty locations — such as prohibitions on access, the use of
physical devices that diminish or destroy the runs of fish available to the
Indians, and license fees required as a prerequisite for exercise of fishing
rights. See discussion supra Part I.A. An income tax on the profits received
from exercise of those fishing rights, although it may diminish the economic
value of the right, does not interfere with the scope of the right itself — that is,
the right to take a reasonable share of the available fish.
   The taxation of profits earned from the exercise of treaty fishing rights will,
of course, have an economic impact on Indians who earn that income. But the
reduction of the economic value of a right guaranteed to the Indians has
generally not been considered to be sufficient reason, standing alone, to create
a tax exemption. See , e.g, United States v. Anderson, 625 F.2d at 914 n.6
(“Capoeman and every other Supreme Court and Ninth Circuit case have held
that such policy arguments are fruitless in the absence of statutory or treaty
language that arguably is an express tax exemption.”); Fry v. United States,
557 F.2d at 649 (“[I]t is one thing to say that courts should construe treaties and
statutes dealing with Indians liberally, and quite another to say that, based on
those same policy considerations which prompted the canon of liberal con­
struction, courts themselves are free to create favorable rules.”). That the right
was created by language in a treaty does not provide an exception to the general
rule favoring taxation, when that language merely establishes the existence of
the right in broad terms. Otherwise, Squire v. Capoeman would be reduced to
quite mechanical operation: that is, if a right is granted to Indians by express
language in a statute or treaty that benefits the Indians economically, income
earned from exercise of that right is exempt from federal income taxation. We
believe that conclusion is inconsistent with Squire, as well as with the conclu­
sions in Choteau v. Burnet and Five C ivilized Tribes .13
   In addition, in Squire the Court was able to point to a direct link between the
tax exemption and the purpose of the statute, which was to grant individual
Indians an unencumbered right to their allotted land, when they were judged
ready to assume full responsibility for that land and the obligations flowing
from ownership. During the period of trusteeship, that purpose could be thwarted
  13 If Squire w ere to be read that broadly, we would have difficulty developing a principled distinction
betw een cases in w hich a right is granted by express language and cases in which a right is implied. For
exam ple, the statute at issue in Karmun v. Commissioner, the R eindeer Industry Act, arguably gave Indians
an im plied right to operate herds o f reindeer for profit, subject to the supervision o f the Secretary o f the
Interior. Sim ilarly, treaties between the United States and Indians in the w estern states have generally been
interpreted to grant im plied rights to use w ater that is minimally necessary to carry out the needs of the tribe,
even if no w ater is expressly guaranteed by the treaties. It seem s to us that to the extent it is argued that the
express grant o f a right to Indians that has econom ic benefit carries with it a tax exem ption, the argum ent
should also apply to im plied treaty rights. Clearly, however, that argum ent is inconsistent w ith the C o u rt’s
analysis in Squire and its repeated assertions that exem ptions from taxation m ust be clearly and definitively
expressed.

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by taxation of income received directly from use of the land, because a failure
to pay that tax could result in a tax lien on the property. See 351 U.S. at 10.
Here, however, the link is much more tenuous, for it is difficult to argue that
taxation of the net income derived from exercise of the fishing right would
threaten the continued availability of that right. Accordingly, this situation is
analogous to that described by the Court in Karmun v. Commissioner.

          Moreover, as the Tax Court observed, the purpose of the
       legislation involved here [the Reindeer Industry Act] is entirely
       different from that in Squire. The purpose of the [General Allot­
       ment Act] was to benefit the individual allottees by preparing
       them to become independent citizens. Accordingly, the Squire
       Court found that the tax exemption was crucial to fulfilling this
       purpose. By contrast, the purpose of the Reindeer Act is to
       provide a continuing food source to the Eskimos of northwest­
       ern Alaska through the establishment of a native-operated rein­
       deer industry. That purpose is not undermined by requiring the
       owners and operators of the reindeer herds to pay federal in­
       come taxes on their profits from the successful conduct of such
       operations.
749 F.2d at 570 (citations omitted).
   Nor do we find persuasive the further argument that because neither the
Indians nor the United States contemplated, at the time the treaties were
negotiated, that income derived from commercial fishing would be taxable, the
rights reserved by the Indians include the right to be free from taxation. This
argument, if taken to its logical extreme, would require that all income earned
by Indians deriving from the exercise of a treaty or statutory right that predates
the federal income tax be exempt from that tax. In Choteau, Five Civilized
Tribes, and Squire, the Supreme Court implicitly rejected that argument, hold­
ing that Indians are not exempt from federal income taxation merely because of
their status as Indians (that is, as formerly sovereign people who had not been
subject to the tax), but rather could claim an exemption only on the basis of
specific treaty or statutory language indicating an intent to exempt them.
   Furthermore, this argument, again if taken to its logical extreme, would
mean that the courts could never take account of changes in conditions, laws, or
regulations that postdate negotiation of the treaties — a view that would, we
believe, stretch the canon of construction favoring interpretation of treaties as
the Indians understood them beyond the scope intended by the Supreme Court.
As the Court stated in Kennedy v. Becker, 241 U.S. 556, 563 (1916):
        It has frequently been said that treaties with the Indians should
        be construed in the sense in which the Indians understood them.
        But it is idle to suppose that there was any actual anticipation at
        the time the treaty was made of the conditions now existing to
        which the legislation in question was addressed.
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   Finally, we do not believe the cases dealing with state taxation of Indians are
relevant to the question of federal taxation. As discussed above, see supra text
immediately preceding Part I.C, those cases rest on a preemption rationale that
is not pertinent to interpretation of federal law:
       Royalties received by the government from mineral leases of
       Indian lands have been held to be beyond a State’s taxing power
       on the ground that, while in the possession of the United States,
       they are a federal instrumentality, to be used to carry out a
       governmental purpose. It does not follow, however, that they
       cannot be subjected to a federal tax.
Choteau v. Burnet, 283 U.S. at 696 (citations omitted).

                                  Conclusion

  For these reasons, we conclude that the position maintained by the IRS that
income earned from exercise of treaty fishing rights is subject to the federal
income tax is the more sound view of the law. We believe that position is fully
consistent with the applicable Supreme Court precedents and is consonant with
the trust relationship held by the United States with respect to Indian tribes.

                                                    A llan G   erso n

                                          Deputy Assistant Attorney General
                                              Office o f Legal Counsel




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