                                                  UNIBAND, INC., PETITIONER v. COMMISSIONER                                OF
                                                        INTERNAL REVENUE, RESPONDENT
                                                        Docket No. 4718–06.                            Filed May 22, 2013.

                                                  P is a Delaware corporation, wholly owned by T, an Indian
                                               tribe. For the years at issue P attempted to file consolidated
                                               returns with C, another corporation wholly owned by T. P con-
                                               tends that T is the common parent corporation of P and C and
                                               that together they constitute an affiliated group eligible to file
                                               a consolidated return. On the returns filed, P did not claim
                                               Indian employment credits under I.R.C. sec. 45A even though
                                               P was entitled to them; instead P deducted the entirety of its
                                               employee expenses. R determined that the consolidated
                                               returns that P joined in filing were invalid and that P was
                                               required to claim a credit under I.R.C. sec. 45A and reduce its
                                               wage deduction by the entire credit amount (without regard
                                               to credit limitations for particular tax years). P now contends
                                               that it is not subject to corporate income tax because it is an
                                               integral part of T, which because it is an Indian tribe is
                                               exempt from income tax. Held: P, as a State-chartered cor-
                                               poration, is a separate and distinct entity from T and is not
                                               exempt from the corporate income tax. Held, further, the
                                               consolidated returns filed for the years in issue were invalid
                                               because T, as an Indian tribe, was not eligible to join in the

                                      230




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                                      (230)                         UNIBAND, INC. v. COMMISSIONER                                                     231


                                                 filing of a consolidated return, and P and C alone did not con-
                                                 stitute an affiliated group. Held, further, the Indian employ-
                                                 ment credits under I.R.C. sec. 45A are not elective; and as a
                                                 result, P’s employee expense deductions for the years at issue
                                                 must be reduced by the amount of the credit as determined
                                                 under I.R.C. sec. 45A without regard to limitations on the
                                                 allowable amount of the credit.

                                           Scott A. Taylor, for petitioner.
                                           Jack Martin Forsberg, for respondent.
                                                                                        CONTENTS
                                      FINDINGS OF FACT ............................................................................. 232
                                      TMBCI and its corporations ..................................................................                  233
                                      Uniband, Inc. ..........................................................................................       233
                                      TMMC ......................................................................................................    236
                                      The section 17 corporation .....................................................................               237
                                      The tax returns .......................................................................................        239
                                      Indian employment credit ......................................................................                240
                                      OPINION ................................................................................................. 241
                                      I.    Federal income tax exemption issue ...............................................                       241
                                           A. Indian tribes are not subject to Federal income tax. ................                                  241
                                             1. TMBCI has no inherent immunity from Federal taxes. ........                                          241
                                             2. No treaty exempts TMBCI from Federal income tax. ............                                        242
                                               a. An exemption must be ‘‘definitely expressed’’. ....................                                243
                                               b. The cited treaties do not express an income tax exemp-
                                                     tion. ......................................................................................    243
                                             3. The Code does not impose income tax liability on TMBCI. ..                                           244
                                           B. Uniband does not share TMBCI’s ‘‘exemption’’ from Federal
                                                 income tax. ................................................................................        246
                                             1. Apart from its association with TMBCI, Uniband is tax-
                                                   able. .........................................................................................   246
                                             2. As a general rule, corporations are distinct from their
                                                   owners for tax purposes. ........................................................                 246
                                             3. Uniband is not an ‘‘integral part’’ of TMBCI. .........................                              247
                                               a. Authorities addressing integral parts of States ..................                                 248
                                               b. Sovereign immunity ..............................................................                  249
                                               (1) Analysis of sovereign immunity ..........................................                         250
                                                 (a) Arm of the tribe ................................................................               251
                                                 (b) Tribal establishment ........................................................                   252
                                                 (c) Other criteria ....................................................................             253
                                               (2) Sovereign immunity does not necessarily confer
                                                      ‘‘integral part’’ status. .......................................................              256
                                               c. ‘‘Indian tribal organization’’ ..................................................                  258
                                               d. Similarity to section 17 corporations ...................................                          259
                                               (1) The origin of section 17 corporations .................................                           261
                                               (2) Characteristics of section 17 corporations .........................                              261
                                               (3) Taxation of section 17 corporations ....................................                          262




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                                      232                 140 UNITED STATES TAX COURT REPORTS                                                 (230)


                                             (4) Uniband’s differences from a section 17 corporation ........                                 263
                                      II. Consolidated return issue ...............................................................           264
                                         A. Uniband was not part of an affiliated group. ............................                         265
                                           1. Body politic ................................................................................   266
                                           2. An entity taxed as a corporation .............................................                  266
                                         B. The consolidated returns were not valid. ...................................                      267
                                           1. TMBCI did not make the consolidated returns. .....................                              267
                                           2. TMBCI did not consent to the consolidated returns. .............                                267
                                           3. TMBCI did not report its items on the consolidated
                                                returns for 1996 or 1997. .......................................................             269
                                      III. Wage deduction reduction issue ...................................................... 270
                                      IV. Conclusion ......................................................................................... 273

                                         GUSTAFSON, Judge: In a notice of deficiency mailed to peti-
                                      tioner Uniband, Inc. (‘‘Uniband’’), pursuant to section 6212 1
                                      on November 28, 2005, the Internal Revenue Service (‘‘IRS’’)
                                      determined income tax deficiencies of $220,851 for 1996,
                                      $754,758 for 1997, and $308,498 for 1998. Uniband timely
                                      filed a petition requesting this Court to redetermine those
                                      deficiencies. After concessions by the parties three issues
                                      remain for decision:
                                         (1) Whether Uniband, as a State-chartered corporation
                                      wholly owned by an Indian tribe, is subject to the corporate
                                      income tax under section 11. We hold that it is subject to tax.
                                         (2) Whether, if Uniband is subject to tax, the consolidated
                                      returns that Uniband and its sister corporation joined in
                                      filing for 1996, 1997, and 1998 were valid under section
                                      1501. We hold that they were not valid.
                                         (3) Whether section 280C(a) requires that Uniband’s sec-
                                      tion 162 deductions for wage and employee expenses be
                                      reduced by the entire amount of the Indian employment
                                      credit for which Uniband was eligible under section 45A(a),
                                      even if Uniband did not claim the credit. We hold that it does
                                      require the reduction.

                                                                             FINDINGS OF FACT

                                        The parties submitted this case fully stipulated pursuant
                                      to Rule 122. 2 The parties’ stipulated facts are incorporated
                                           1 Unless
                                                  otherwise indicated, all section references are to the Internal
                                      Revenue Code of 1986 (codified in 26 U.S.C. and referred to herein as ‘‘the
                                      Code’’), and all Rule references are to the Tax Court Rules of Practice and
                                      Procedure.
                                        2 The burden of proof is generally on the taxpayer, see Rule 142(a)(1),




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                                      (230)                    UNIBAND, INC. v. COMMISSIONER                                      233


                                      herein by this reference. At the time Uniband filed its peti-
                                      tion, it maintained its principal place of business in Belcourt,
                                      North Dakota.
                                      TMBCI and its corporations
                                         The Turtle Mountain Band of Chippewa Indians (‘‘TMBCI’’
                                      or ‘‘the Band’’) is a federally recognized, unincorporated band
                                      of Indians acting under a revised constitution and bylaws
                                      approved by the Secretary of the Interior on June 16, 1959.
                                      TMBCI’s reservation is approximately 68 square miles and is
                                      in Rolette County, North Dakota. Belcourt, North Dakota, is
                                      on the reservation. TMBCI has never filed a Federal income
                                      tax return on its own behalf or on behalf of any other entity.
                                         For the years in issue, TMBCI was the sole owner of three
                                      corporations relevant in this case: (1) petitioner Uniband,
                                      Inc., chartered in Delaware; (2) Turtle Mountain Manufac-
                                      turing Co. (‘‘TMMC’’), chartered in North Dakota; and (3) a
                                      federally chartered corporation that was also named Uniband
                                      Corp. and that we refer to here as the ‘‘section 17 corpora-
                                      tion’’ for reasons we explain below. 3
                                      Uniband, Inc.
                                        Petitioner Uniband, Inc., was incorporated under the laws
                                      of Delaware on July 28, 1987. From then until September
                                      1990, TMBCI owned 51% of Uniband’s stock, and the
                                      remaining 49% was owned by Unibase Technologies, Inc., a
                                      Delaware corporation in which TMBCI had no ownership
                                      interest. Since September 1990, TMBCI has been the 100%
                                      owner of Uniband’s stock.
                                        The record indicates that Uniband was engaged in
                                      commercial activities. In its brief Uniband states that it
                                      regularly performed data entry services for several Federal
                                      Government agencies. Uniband cites no evidence for this
                                      proposition, but we assume it is true.

                                      and the submission of a case fully stipulated under Rule 122 does not alter
                                      that burden, see Borchers v. Commissioner, 95 T.C. 82, 91 (1990), aff ’d,
                                      943 F.2d 22 (8th Cir. 1991).
                                         3 The record indicates that TMBCI was also the sole owner of Uniband

                                      Tribal Corp., a corporation chartered under tribal law. That tribal corpora-
                                      tion is not relevant in this case.




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                                      234                 140 UNITED STATES TAX COURT REPORTS                                       (230)


                                           Uniband’s original certificate of incorporation states:
                                           The nature of the business and the purpose to be conducted or promoted
                                           by the corporation is to engage in any lawful act or activity for which
                                           corporations may be organized under the General Corporation Law of
                                           the State of Delaware.[4]

                                      No provision in Uniband’s articles of incorporation or bylaws
                                      further restricts the activities of the corporation. The certifi-
                                      cate gives Uniband’s board of directors the unilateral power
                                      to ‘‘make, alter or repeal the By-Laws of the corporation.’’
                                      The certificate of incorporation also reserves the corporation’s
                                      right ‘‘to amend, alter, change or repeal any provision con-
                                      tained in this Certificate of Incorporation’’. In March 1991,
                                      Uniband exercised that right and filed a restated certificate
                                      of incorporation with the Delaware secretary of state. The
                                      restated certificate added an ‘‘Article Ninth’’ entitled ‘‘Waiver
                                      of Sovereign Immunity’’, under which Uniband is able—
                                           To sue and to be sued in courts of competent jurisdiction within the
                                           United States, * * * over all matters relating to the Corporation’s rela-
                                           tionship with the United States Small Business Administration (SBA)
                                           * * *.

                                        With regard to Uniband’s management, Uniband’s bylaws
                                      adopted February 28, 1991, provide:
                                           Section 3.11 Election of Directors. At each election of Directors every
                                           shareholder having the right to vote in that election shall be afforded the
                                           right to vote the number of shares owned by him, either in person or
                                           by proxy, for as many persons as there are Directors to be elected. The
                                           candidate receiving the highest number of votes shall be deemed to be
                                           elected. * * *

                                                                       *       *      *       *   *       *   *
                                           Section 4.1 Exercise of Corporate Power. The business affairs of the cor-
                                           poration shall be managed by the Board of Directors (hereinafter, the
                                           Board).




                                           4 The
                                              certificate as restated in 1991 apparently deleted words from this
                                      provision, presumably inadvertently, so that it thereafter read: ‘‘The na-
                                      ture of the business and the purpose to be conducted or promoted by the
                                      corporations [apparent deletion] may be organized under the General Cor-
                                      poration Law of the State of Delaware.’’




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                                      (230)                    UNIBAND, INC. v. COMMISSIONER                                          235


                                           Section 4.2 Qualifications. Directors need not be residents of Delaware
                                           or shareholders of the corporation. They need have no other qualifica-
                                           tions.

                                                                       *       *      *       *   *       *   *
                                           Section 16.1 Waiver of Sovereign Immunity. The corporation may sue
                                           and be sued in courts of competent jurisdiction within the United States,
                                           including, but not limited to, United States federal courts; provided how-
                                           ever, that the grant or exercise of such power to sue or be sued shall
                                           not be deemed a consent by the Turtle Mountain Band of Chippewa
                                           Indians (‘‘Tribe’’) to the levy of any judgment, lien, attachment or other
                                           encumbrance upon any property of the Tribe other than property specifi-
                                           cally pledge or assigned by the Tribe.
                                              All inherent sovereign rights of the Tribe as a federally recognized
                                           Indian tribe with respect to the existence and activities of the corpora-
                                           tion are hereby expressly reserved, including sovereign immunity from
                                           suit in any state, federal or tribal court. Nothing in these By-Laws nor
                                           any action of the Board of Directors, shareholders, officers, agents or
                                           employees of the corporation shall waive the sovereign immunity from
                                           suit of the Tribe, or to be a consent of the Tribe to the jurisdiction of
                                           the United States or of any state or any tribe with regard to any activi-
                                           ties of the Tribe, or to be a consent of the Tribe to any cause of action,
                                           case or controversy, or to the levy of any judgment, lien or attachment
                                           upon any property of the Tribe; or a consent to suit in respect with any
                                           land within the exterior boundries [sic] of the Tribe’s Reservation, or an
                                           consent to any alienation, attachment or encumbrance of such lands.
                                             Nothing in there [sic] By-Laws nor any activity of the corporation shall
                                           implicate or in any way involve the credit of the Tribe.
                                             The corporation shall have only those assets acquired by it in the
                                           name of the corporation. No activity of the corporation nor any indebted-
                                           ness incurred by the corporation shall implicate or in any way involve
                                           any assets of tribal members or the Tribe not assigned or otherwise
                                           transferred in writing to the corporation in its corporate name.

                                      Our record does not show who Uniband’s officers and direc-
                                      tors were during the years at issue, nor whether they were
                                      members of TMBCI.
                                         Neither Uniband’s restated certificate of incorporation nor
                                      its bylaws set forth any limitations on the alienation of
                                      Uniband shares, and our record includes no Uniband share-
                                      holder agreement imposing any such limitation. Uniband’s
                                      restated certificate of incorporation and its bylaws do not
                                      place any restrictions on when or under what circumstances
                                      Uniband may dissolve.




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                                      236                 140 UNITED STATES TAX COURT REPORTS                                   (230)


                                        Apart from the fact that TMBCI is its sole shareholder,
                                      Uniband has not offered any evidence regarding the financial
                                      relationship between TMBCI and Uniband. In particular, the
                                      record does not show any contributions of capital that
                                      TMBCI made to Uniband, does not show any loan guaranties
                                      by TMBCI, and shows no liability on TMBCI’s part for any
                                      debt of Uniband; and section 16.1 of the bylaws (quoted
                                      above) explicitly provides that TMBCI will not be liable for
                                      Uniband’s debts. Uniband maintained its principal place of
                                      business within TMBCI’s reservation, but we cannot tell
                                      whether Uniband conducted any activity or had any assets
                                      outside of the reservation. A portion of Uniband’s workforce
                                      were TMBCI members; however, our record does not indicate
                                      how many TMBCI members Uniband employed for the years
                                      in issue. 5
                                        Uniband uses the accrual method of accounting for both
                                      tax and financial reporting purposes and has a taxable year
                                      ending October 31. During the years in issue, Uniband
                                      treated itself as a C corporation, though it now maintains
                                      that it is not subject to corporate income tax. At no point has
                                      Uniband owned any shares of TMMC.
                                      TMMC
                                        TMMC is a North Dakota corporation, incorporated in
                                      January 1979. From TMMC’s creation through April 1989,
                                      TMBCI indirectly owned at least 51% of TMMC. In May
                                      1989, TMBCI became TMMC’s sole shareholder. At all times
                                      since incorporation, TMMC has used the accrual method of
                                      accounting for both tax and financial reporting purposes and
                                      has had a fiscal and taxable year ending September 30.
                                      Through the years in issue TMMC has treated itself as a C
                                      corporation. At no point has TMMC owned any shares of
                                      Uniband.
                                           5 The
                                               parties have stipulated that for Uniband’s 1998 taxable year, it
                                      paid about $4.5 million in ‘‘qualified wages’’ and ‘‘qualified employee health
                                      insurance costs’’ (as defined by section 45A(b)(1) and (2)) to members of
                                      TMBCI. However, that amount appears to account for less than a quarter
                                      of Uniband’s total employee expenses of $29 million: Uniband on its 1998
                                      returns deducted $1.5 million for ‘‘salaries and wages’’ and included, in its
                                      cost of goods sold, $16.7 million for ‘‘cost of labor’’ and $10.8 million for
                                      ‘‘contract labor’’. These figures suggest that Uniband employed significant
                                      numbers of persons who were not TMBCI members.




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                                      (230)                    UNIBAND, INC. v. COMMISSIONER                                          237


                                      The section 17 corporation
                                        On September 23, 1998, the Secretary of the Interior,
                                      pursuant to section 17 of the Indian Reorganization Act of
                                      1934 (‘‘IRA’’), ch. 576, sec. 17, 48 Stat. at 988 (codified as
                                      amended at 25 U.S.C. sec. 477 (1994)), granted to TMBCI a
                                      Federal charter of incorporation for a so-called section 17 cor-
                                      poration. The charter is different in material respects from
                                      Uniband’s certificate of incorporation and provides in perti-
                                      nent part:
                                             1. Issuance of Charter.
                                              The Secretary of the Interior issues this charter of incorporation
                                           (‘‘Charter’’) to the Turtle Mountain Band of Chippewa Indians (‘‘Tribe’’)
                                           * * * . This Charter shall become operative when ratified by the gov-
                                           erning body of the Tribe, its Tribal Council.

                                                                *   *    *   *   *   *   *
                                             3. Tribal Ownership; Exercised by Tribal Council; No Tribal Liability.
                                              The [section 17] Corporation shall be wholly owned by the Tribe. The
                                           rights, duties and prerogatives of the Tribe as sole owner of the Corpora-
                                           tion shall be exercised and performed on behalf of the Tribe by its Tribal
                                           Council * * *.

                                                                       *       *      *       *   *       *   *
                                             6. Reorganization of State Corporation, Uniband, Inc., or Tribal Cor-
                                           poration, Uniband Tribal Corporation.
                                              As an initial matter, the [section 17] Corporation has been organized
                                           as a vehicle for reorganization of Uniband, Inc., a Delaware corporation
                                           [i.e., petitioner] wholly owned by the Tribe, and/or Uniband Tribal Cor-
                                           poration, a tribally-chartered corporation wholly owned by the Tribe. To
                                           that end, this [section 17] Corporation is authorized to acquire the assets
                                           and liabilities of Uniband, Inc. and/or Uniband Tribal Corporation by
                                           merger, consolidation, exchange, transfer, stock acquisition or other
                                           means, and to thereafter carry on all or any part of the business of
                                           Uniband, Inc. and/or Uniband Tribal Corporation, in the name of this
                                           [section 17] Corporation.

                                                                       *       *      *       *   *       *   *
                                             8. Generic Powers.
                                             a. Powers under Section 17. The [section 17] Corporation shall have
                                           * * * the power to purchase trust or restricted Indian lands and to issue
                                           in exchange therefor interests in Corporate property * * *, provided the
                                           Corporation shall have no authority to sell, mortgage, or lease for a




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                                      238                 140 UNITED STATES TAX COURT REPORTS                                       (230)

                                           period exceeding twenty-five years any trust or restricted lands owned
                                           by the Corporation that are within the Reservation.

                                                                 *   *                *       *   *       *   *
                                             13. Board of Directors.
                                             The business and affairs of the [section 17] Corporation shall be man-
                                           aged by a board of directors (‘‘Board of Directors’’ or ‘‘Board’’) in accord-
                                           ance with the following provisions:
                                              a. Composition, Appointment and Designation of Chairman. There
                                           shall be five Board seats. The Tribal Council shall appoint one person
                                           (‘‘Director’’) to fill each open Board seat and shall designate one Director
                                           as Chairman of the Board * * *
                                             b. Qualifications.
                                             (1) To be eligible to serve as a Director, a person must:
                                             —not be a member of the Tribal Council; * * *
                                             (2) At least a majority of the Directors must be enrolled members of
                                           the Tribe.

                                                                       *       *      *       *   *       *   *
                                             22. By-Laws.
                                             The Board of Directors may adopt, amend, or repeal by-laws of the
                                           [section 17] Corporation, provided the by-laws may not contain provi-
                                           sions inconsistent with the provisions of this Charter or applicable law.
                                             23. Amendment.
                                             As provided in Section 17 of the IRA, this Charter may be amended
                                           by the Secretary of the Interior upon petition by the Tribe, provided an
                                           amended charter shall not be effective until ratified by the Tribal
                                           Council.

                                      The charter also provided that TMBCI’s section 17 corpora-
                                      tion could sue and ‘‘by explicit resolution of the Corporation’s
                                      Board of Directors, waive the Corporation’s immunity from
                                      suit’’. By tribal Resolution Number TMBC 1121–10–98,
                                      TMBCI’s tribal council ratified this charter on October 2,
                                      1998.
                                         However, the parties stipulate that as of the filing of the
                                      petition in this case, TMBCI’s section 17 corporation has not
                                      merged with Uniband. Thus, the ‘‘Reorganization’’ authorized
                                      in section 6 of the charter, quoted above, has never taken
                                      place. 6
                                        6 Rev. Rul. 94–65, 1994–2 C.B. 14, stated that the IRS would not chal-

                                      lenge the exemption from tax of a tribe’s wholly owned State-chartered cor-
                                      poration’s income earned after September 30, 1994, if the tribe could dem-
                                      onstrate (in an application for relief under section 7805(b)) that it was in
                                      good faith seeking to comply with Rev. Rul. 94–16, 1994–1 C.B. 19, by dis-




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                                      (230)                    UNIBAND, INC. v. COMMISSIONER                                              239


                                      The tax returns
                                        The parties have stipulated that TMBCI itself has not filed
                                      any Federal income tax returns.
                                        Uniband and TMMC filed the following separate Forms
                                      1120, ‘‘U.S. Corporation Income Tax Return’’, for the years
                                      1995 and 1996:

                                                                           Separately filed returns

                                                Form           Filing corporation                     TYE                  Filed
                                                 1120                  Uniband                 Oct. 31, 1995              July 1996
                                                 1120                  Uniband                 Oct. 31, 1996              Feb. 1997
                                                 1120                  TMMC                   Sept. 30, 1996              Aug. 1997

                                      Although the return is not in our record, TMMC appears to
                                      have also filed a nonconsolidated corporate return for its tax-
                                      able year ended September 30, 1995. In any event, the two
                                      corporations filed separately, with different taxable years.
                                        Thereafter Uniband filed purported consolidated Federal
                                      corporate income tax returns for the years 1995 through
                                      1998, as follows:
                                                                                  Consolidated returns

                                                            Filing         Other included
                                             Form        corporation          entities                       TYE             Filed

                                            1120          Uniband              TMMC                   Oct.   31,   1997     July   1998
                                            1120X         Uniband              TMMC                   Oct.   31,   1995    Sept.   1998
                                            1120X         Uniband              TMMC                   Oct.   31,   1996    Sept.   1998
                                            1120          Uniband              TMMC                   Oct.   31,   1998     July   1999
                                            1120X         Uniband              TMMC and               Oct.   31,   1998    Aug.    1999
                                                                                TMBCI

                                         With the exception of the 1998 Form 1120X, ‘‘Amended
                                      U.S. Corporation Income Tax Return’’, none of the consoli-
                                      dated returns filed for the years in issue contained informa-
                                      tion regarding TMBCI or its tax attributes; and each return
                                      on its respective Form 851, ‘‘Affiliations Schedule’’, reported
                                      Uniband and not TMBCI as the common parent of TMMC. 7
                                      solving its State-chartered corporation and organizing as a section 17 cor-
                                      poration. Uniband filed such an application under section 7805(b) on Au-
                                      gust 4, 2009 (more than three years after filing this suit), but after learn-
                                      ing that the IRS intended to rule adversely on the request, Uniband with-
                                      drew its ruling request in January 2010.
                                        7 The affiliation schedule attached to the 1995 Form 1120X (a year not
                                                                                                        Continued




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                                      240                 140 UNITED STATES TAX COURT REPORTS                                   (230)


                                      The 1998 Form 1120X, like the filings before it, listed the
                                      name of the taxpayer as ‘‘Uniband, Inc.’’, and it made no
                                      changes to taxable income or tax; but it amended the Form
                                      851 to show TMBCI as owning 100% of both Uniband and
                                      TMMC. Also, the consolidation schedules attached to the
                                      1998 Form 1120X were amended to include for the first time
                                      a column for ‘‘Turtle Mountain Band of Chippewa Indians’’—
                                      but with zeros entered on each line in the column for
                                      TMBCI. In a statement attached to the 1998 amended
                                      return, Uniband explained:
                                           This amended return is being filed to report the income and deductions
                                           of two wholly owned subsidiary corporations of the Turtle Mountain
                                           Band of Chippewa Indians, EIN - * * *. The two corporations are
                                           Uniband, Inc. - EIN * * * and Turtle Mountain Manufacturing Co, Inc.
                                           - EIN * * *. On the original 1120 income tax return, the Form 851
                                           incorrectly reported Turtle Mountain Manufacturing as being wholly
                                           owned by Uniband, Inc. The common owner of the two corporations is
                                           the Turtle Mountain Band of Chippewa Indians. Enclosed is an amended
                                           affiliations schedule, Form 851, which correctly reports the Turtle Moun-
                                           tain Band of Chippewa Indians as the common parent and Uniband, Inc.
                                           and Turtle Mountain Manufacturing Co., Inc. as the subsidiary corpora-
                                           tions. [Original in all capitals.]

                                         The consolidated returns all had one intended and claimed
                                      effect—i.e., to largely offset Uniband’s income with TMMC’s
                                      losses, resulting in little or no claimed tax liability for the
                                      supposed consolidated group. The IRS determined that the
                                      consolidated returns filed for the years in issue were not
                                      appropriate filings and that Uniband’s tax liability should be
                                      calculated on a separate basis from TMMC’s, resulting in
                                      deficiencies for Uniband.
                                      Indian employment credit
                                        On both its original and amended returns Uniband
                                      deducted what appears to be the entirety of its salary, wage,
                                      and other employee expenses (not reduced by any credit

                                      before us) showed TMBCI as the common parent of the group and Uniband
                                      and TMMC as wholly owned subsidiaries of TMBCI. Although the expla-
                                      nation attached to the 1996 amended return did disclose that Uniband and
                                      TMMC were owned by TMBCI, it also stated that ‘‘[t]he Taxpayer,
                                      Uniband, Inc. * * * is amending this 1120 tax return for the year ended
                                      October 31, 1996 to include the taxable income of its subsidiary, Turtle
                                      Mountain Manufacturing Co., Inc.’’




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                                      (230)                    UNIBAND, INC. v. COMMISSIONER                                      241


                                      amount), and the parties have stipulated the pertinent
                                      amounts for each relevant year. On its returns Uniband did
                                      not claim any general business credits (in particular, the
                                      Indian employment credit provided in section 45A). The IRS
                                      determined, however, that Uniband was entitled to the
                                      Indian employment credit determined under section 45A,
                                      reduced by the credit limitations set forth in section 38(c) (in
                                      amounts not in dispute here). To Uniband’s advantage, the
                                      IRS applied that limited credit against Uniband’s determined
                                      tax liability; but to Uniband’s greater disadvantage, the IRS
                                      reduced Uniband’s deductible wages by the credit amount
                                      determined under section 45A.
                                        The net result of the IRS’s adjustments (i.e., the allowance
                                      of the limited Indian employment credits and the reduction
                                      of wage deductions) resulted in greater tax deficiencies for
                                      Uniband. Uniband now challenges the IRS’s deficiency deter-
                                      minations.

                                                                                  OPINION

                                      I. Federal income tax exemption issue
                                        Uniband begins by arguing that the deficiencies that the
                                      IRS determined are incorrect because Uniband is exempt
                                      from tax (and that Uniband itself erred by filing returns for
                                      the years at issue as if it were a taxable C corporation).
                                      Uniband contends that as an integral part of its owner,
                                      TMBCI—a federally recognized Indian tribe—Uniband
                                      shares in TMBCI’s immunity from Federal income tax. The
                                      Commissioner agrees that TMBCI is not subject to Federal
                                      income tax but asserts that Uniband is a separate taxable
                                      entity that is subject to income tax.
                                           A. Indian tribes are not subject to Federal income tax.
                                        The parties agree that federally recognized Indian tribes
                                      are not subject to Federal income tax; but they disagree
                                      about why. Resolving that dispute will help us to resolve the
                                      arguments advanced in this case.
                                           1. TMBCI has no inherent immunity from Federal taxes.
                                         Uniband asserts that its owner TMBCI possesses an
                                      ‘‘inherent sovereignty and immunity from the federal income




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                                      242                 140 UNITED STATES TAX COURT REPORTS                                   (230)


                                      tax’’ (which Uniband contends it shares). This is incorrect. As
                                      the Supreme Court has explained:
                                           The sovereignty that the Indian tribes retain is of a unique and limited
                                           character. It exists only at the sufferance of Congress and is subject to
                                           complete defeasance. But until Congress acts, the tribes retain their
                                           existing sovereign powers. In sum, Indian tribes still possess those
                                           aspects of sovereignty not withdrawn by treaty or statute, or by implica-
                                           tion as a necessary result of their dependent status. * * * [United States
                                           v. Wheeler, 435 U.S. 313, 323 (1978).]

                                      Thus, if and when Congress acts to subject Indian tribes to
                                      Federal tax liability, they become liable—for example, for the
                                      Federal excise tax on wagering under section 4401(c), see
                                      Chickasaw Nation v. United States, 534 U.S. 84 (2001), aff ’g
                                      208 F.3d 871, 878–879 (10th Cir. 2000); for other excise
                                      taxes, see, e.g., Confederated Tribes of the Warm Springs Res-
                                      ervation of Or. v. Kurtz, 691 F.2d 878 (9th Cir. 1982) (holding
                                      a tribe subject to ‘‘(1) a tax on the use of certain highway
                                      motor vehicles, 26 U.S.C. § 4481(a); (2) a tax on diesel fuel
                                      used in highway vehicles, 26 U.S.C. § 4041(a); (3) a tax on
                                      special fuels used in motor vehicles, 26 U.S.C. § 4041(b); and
                                      (4) a tax on manufacturing, in this case a truck chassis
                                      assembled by the Tribe, 26 U.S.C. §§ 4061(a), 4218(a)’’); or
                                      for tax under section 511(a)(2)(b) on the unrelated business
                                      income of tribally owned colleges or universities, see sec.
                                      7871(a)(5). TMBCI has no ‘‘inherent’’ immunity from Federal
                                      income tax that Uniband could share.
                                           2. No treaty exempts TMBCI from Federal income tax.
                                        Next Uniband asserts that TMBCI has an exemption from
                                      income tax (which exemption Uniband contends it shares) by
                                      virtue of treaties into which it has entered with the United
                                      States. 8 Uniband cites six treaties 9 generally as the basis for
                                        8 Uniband contends that ‘‘[a] close reading of those treaties shows that

                                      * * * [TMBCI] has not consented to imposition of the federal income tax
                                      on itself or on those entities that comprise its constituent parts.’’ (Empha-
                                      sis added.) To the extent Uniband argues TMBCI is inherently exempt
                                      from Federal tax unless it consents to be taxed, that argument is answered
                                      in part I.A.1 above.
                                        9 The treaties relied upon by Uniband are: (1) 1795 Treaty with the Wy-

                                      andots, Etc., Aug. 3, 1795, 7 Stat. 49; (2) 1815 Treaty with the Wyandot,
                                      Etc., Sept. 8, 1815, 7 Stat. 131; (3) Treaty with the Sioux, Etc., Aug. 19,
                                      1825, 7 Stat. 272; (4) Treaty with the Chippewa, Aug. 5, 1826, 7 Stat. 290;




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                                      (230)                    UNIBAND, INC. v. COMMISSIONER                                      243


                                      its claim for exemption from corporate income tax and points
                                      to two particular treaty provisions. Uniband’s treaty argu-
                                      ments have previously been rejected, as we discuss below.
                                           a. An exemption must be ‘‘definitely expressed’’.
                                         We generally construe statutes and treaties in favor of
                                      Indians, see Choate v. Trapp, 224 U.S. 665, 675 (1912);
                                      Jourdain v. Commissioner, 71 T.C. 980, 990 (1979), aff ’d, 617
                                      F.2d 507 (8th Cir. 1980); and a tax exemption will be held
                                      to exist where a statute or treaty contains ‘‘express exemp-
                                      tive language’’, United States v. Anderson, 625 F.2d 910, 913
                                      (9th Cir. 1980). However, we cannot use this canon ‘‘to create
                                      favorable rules’’ for Indians, Jourdain v. Commissioner, 71
                                      T.C. at 990; and in the absence of a ‘‘ ‘definitely expressed’
                                      exemption’’, Indians are subject to taxation, Mescalero
                                      Apache Tribe v. Jones, 411 U.S. 145, 156 (1973) (quoting
                                      Choteau v. Burnet, 283 U.S. 691, 696–697 (1931)).
                                           b. The cited treaties do not express an income tax exemp-
                                              tion.
                                         To support its treaty argument, Uniband points to two par-
                                      ticular provisions in the treaties. Uniband first relies on the
                                      following language from article 5 of the 1795 Treaty with the
                                      Wyandot, Etc., Aug. 3, 1795, 7 Stat. 49, 52 (‘‘Treaty of Green-
                                      ville’’):
                                             To prevent any misunderstanding about the Indian lands relinquished
                                           by the United States in the fourth article, it is now explicitly declared,
                                           that the meaning of that relinquishment is this: The Indian tribes who
                                           have a right to those lands, are quietly to enjoy them, hunting, planting,
                                           and dwelling thereon so long as they please, without any molestation
                                           from the United States * * *. [Emphasis added.]

                                      When previously presented with the issue of whether the
                                      ‘‘molestation’’ provision in the Treaty of Greenville exempts
                                      individual Indians from Federal income tax, we concluded:
                                      ‘‘It is apparent that the molestation the parties had in mind
                                      was interference in the Indians’ rights to hunt, etc., not the
                                      right to be free from taxation.’’ Jourdain v. Commissioner, 71
                                      T.C. at 990.
                                      (5) Treaty with the Chippewa, Red Lake and Pembina Bands, Oct. 2, 1863,
                                      13 Stat. 667; and (6) 1892 Agreement with Turtle Mountain Band, Act of
                                      April 21, 1904, ch. 1402, 33 Stat. 189, 194–196.




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                                      244                 140 UNITED STATES TAX COURT REPORTS                                   (230)


                                        Second, Uniband cites the 1892 Agreement with Turtle
                                      Mountain Band, Act of April 21, 1904, ch. 1402, 33 Stat. 189,
                                      194–196 (‘‘Turtle Mountain Agreement’’), which was entered
                                      into by the United States and TMBCI on October 2, 1892,
                                      and provides in article VII:
                                           So long as the United States retains and holds the title to any land in
                                           the use or occupation of any member of the Turtle Mountain [B]and of
                                           Chippewa Indians or the title to other property in the possession of any
                                           Indian of said band, which it may do for twenty years, there shall be no
                                           tax or other duty levied or assessed upon the property, the title to which
                                           is held or retained by the United States. [Emphasis added.]

                                      Regarding the ‘‘no tax or other duty’’ clause in article VII, we
                                      have observed that ‘‘[t]his treaty provision refers to a tax
                                      upon the property for a 20-year period. Neither this provision
                                      nor any of the other treaties cited by petitioner provide to the
                                      Turtle Mountain Band of Chippewas a blanket exemption
                                      from Federal income tax on all income.’’ LaFontaine v.
                                      Commissioner, T.C. Memo. 1975–165, aff ’d per curiam, 533
                                      F.2d 382 (8th Cir. 1976). The treaty precludes tax on certain
                                      property ‘‘held or retained by the United States’’; it says
                                      nothing about income tax or any exemption therefrom.
                                        TMBCI thus has no treaty immunity from Federal income
                                      tax that Uniband could share.
                                           3. The Code does not impose income tax liability on
                                              TMBCI.
                                        Income tax is imposed in section 1 on ‘‘individuals’’ and in
                                      section 11 on ‘‘corporations’’; but as an Indian tribe, TMBCI
                                      is neither an individual nor (since it has not been incor-
                                      porated) a corporation. See part II.A. below.
                                        It is true that the tax law defines ‘‘corporations’’ broadly
                                      enough that the term ‘‘includes associations’’, sec. 7701(a)(3);
                                      but any argument that TMBCI should be taxable as a ‘‘cor-
                                      poration’’ because it is an ‘‘association’’ would fail in view of
                                      the Commissioner’s concession reflected in his public rulings,
                                      see note 10 below. Moreover, the Supreme Court has rejected
                                      the characterization of an Indian tribe as a mere association.
                                      In United States v. Mazurie, 487 F.2d 14, 19 (10th Cir. 1973),
                                      rev’d, 419 U.S. 544 (1975), the Court of Appeals acknowl-
                                      edged that Indian tribes are ‘‘very important organizations
                                      which exercise a broad tribal authority over their members’’




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                                      (230)                    UNIBAND, INC. v. COMMISSIONER                                      245


                                      but observed that ‘‘[t]ribal members are citizens of the
                                      United States’’ and had characterized the tribe as ‘‘an
                                      association of citizens’’. The Supreme Court countered ‘‘that
                                      Indian tribes are unique aggregations possessing attributes
                                      of sovereignty over both their members and their territory’’
                                      and ‘‘that Indian tribes within ‘Indian country’ are a good
                                      deal more than ‘private, voluntary organizations’ ’’. Mazurie,
                                      419 U.S. at 557.
                                         Thus, the reason TMBCI is not subject to Federal income
                                      tax is not that Indian tribes are inherently immune from
                                      Federal income tax, nor that they have been exempted from
                                      Federal income tax by treaty or statute, but rather simply
                                      that Congress has never imposed the Federal income tax on
                                      Indian tribes. For decades the Commissioner’s position has
                                      reflected this truism. 10
                                         However, the persistence of this circumstance of non-
                                      liability over so many decades shows that it can hardly be
                                      the result of congressional oversight but must instead be
                                      deliberate. Thus, while there is no positive provision in the
                                      Code exempting Indian tribes from the income tax,
                                      Congress’s persistent exclusion of them from the Federal
                                      income tax regime may be thought of as an ‘‘exemption’’, and
                                      the Commissioner’s briefs refer to it as such. Uniband argues
                                      that TMBCI’s ‘‘exemption’’ (however it arises) extends to
                                      Uniband—either as an ‘‘integral part’’ of TMBCI or as the
                                      equivalent of a section 17 corporation of TMBCI—and we
                                      now turn to that argument.


                                           10 See
                                                Rev. Rul. 94–16, 1994–1 C.B. at 20 (‘‘Because an Indian tribe is
                                      not a taxable entity, any income earned by an unincorporated tribe * * *
                                      is not subject to federal income tax’’); Rev. Rul. 81–295, 1981–2 C.B. 15,
                                      16 (‘‘no tax liability has been asserted against a tribe with respect to tribal
                                      income from activities carried on within the boundaries of the reserva-
                                      tion’’); Rev. Rul. 67–284, 1967–2 C.B. 55, 58 (‘‘Income tax statutes do not
                                      tax Indian tribes. The tribe is not a taxable entity’’); see also H.R. Conf.
                                      Rept. No. 97–984, at 16 (1982), 1983–1 C.B. 522, 523 (‘‘The amendment
                                      does not change the present income tax treatment of Indian tribal govern-
                                      ments specified in Rev. Rul. 67–284’’); Staff of J. Comm. on Taxation,
                                      ‘‘Overview of Federal Tax Provisions and Analysis of Selected Issues Relat-
                                      ing To Native American Tribes and Their Members’’ 3–4 (J. Comm. Print
                                      2012).




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                                      246                 140 UNITED STATES TAX COURT REPORTS                                   (230)


                                           B. Uniband does not share TMBCI’s ‘‘exemption’’ from Fed-
                                              eral income tax.
                                           1. Apart from its association with TMBCI, Uniband is tax-
                                              able.
                                        TMBCI is an Indian tribe; and, as we have shown, the
                                      income tax has not been imposed on Indian tribes. Uniband,
                                      however, is not a tribe but a corporation; and section 11 pro-
                                      vides: ‘‘A tax is hereby imposed for each taxable year on the
                                      taxable income of every corporation.’’ (Emphasis added.) As
                                      the U.S. Court of Appeals for the Ninth Circuit observed in
                                      Commissioner v. Walker, 326 F.2d 261, 263 (9th Cir. 1964),
                                      aff ’g in part, rev’g in part 37 T.C. 962 (1962):
                                           A general Act of Congress applying to all persons includes Indians and
                                           their property interests. Federal Power Commission v. Tuscarora Indian
                                           Nation, 362 U.S. 99, 116, 80 S.Ct. 543, 553, 4 L.Ed.2d 584 (1960). Sec-
                                           tions 1 and 61(a) of the Internal Revenue Code of 1954 subject the
                                           income of ‘‘every individual’’ to tax, and include income ‘‘from any source
                                           whatever’’, that is not elsewhere specifically excluded. Because the
                                           Internal Revenue Code is a general Act of Congress, it follows that
                                           Indians are subject to payment of federal income taxes, as are other citi-
                                           zens, unless an exemption from taxation can be found in the language
                                           of a Treaty or Act of Congress. * * *

                                      We can likewise observe that sections 11 and 61(a) of the
                                      Code are general, apply to all persons, and subject the
                                      income of ‘‘every corporation’’ to income tax, so that corpora-
                                      tions owned by Indians or Indian tribes are subject to pay-
                                      ment of Federal income taxes, as are other corporations,
                                      ‘‘unless an exemption from taxation can be found in the lan-
                                      guage of a Treaty or Act of Congress.’’ Commissioner v.
                                      Walker, 326 F.2d at 263. We have already seen that no
                                      treaty provides such an exemption for TMBCI (or Uniband),
                                      and we now consider Uniband’s arguments to determine
                                      whether an ‘‘Act of Congress’’—i.e., the Code, as properly
                                      construed and applied—provides such an exemption for
                                      Uniband, notwithstanding the general language of section 11.
                                           2. As a general rule, corporations are distinct from their
                                              owners for tax purposes.
                                        Under any rationale, the argument that Uniband obtains
                                      an exemption by virtue of its association with its owner
                                      TMBCI is in tension with a basic principle of tax law—i.e.,




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                                      (230)                    UNIBAND, INC. v. COMMISSIONER                                      247


                                      that a corporation is treated as distinct from its share-
                                      holders. See Moline Props., Inc. v. Commissioner, 319 U.S.
                                      436, 438–439 (1943). Under this general rule, Uniband as a
                                      State-chartered corporation is a separate taxable entity and
                                      is distinct from its sole shareholder, TMBCI.
                                         However, this general rule admits exceptions:
                                           An entity formed under local law is not always recognized as a separate
                                           entity for federal tax purposes. For example, an organization wholly
                                           owned by a State is not recognized as a separate entity for federal tax
                                           purposes if it is an integral part of the State. Similarly, tribes incor-
                                           porated under section 17 of the Indian Reorganization Act of 1934, as
                                           amended, 25 U.S.C. 477, or under section 3 of the Oklahoma Indian Wel-
                                           fare Act, as amended, 25 U.S.C. 503, are not recognized as separate enti-
                                           ties for federal tax purposes. [26 C.F.R. sec. 301.7701–1(a)(3), Proced. &
                                           Admin. Regs.]

                                      This regulation mentions the twofold basis for Uniband’s
                                      argument—‘‘integral part’’ and section 17 of the IRA.
                                           3. Uniband is not an ‘‘integral part’’ of TMBCI.
                                         Uniband argues that it is an ‘‘integral part’’ 11 of TMBCI
                                      and should therefore share in TMBCI’s exemption from Fed-
                                      eral income tax, notwithstanding its ostensibly distinct cor-
                                      porate status. We note that the regulation quoted above
                                      states an exception for ‘‘an integral part of the State’’
                                      (emphasis added); but an Indian tribe is not a State. See,
                                      e.g., Chickasaw Nation, 534 U.S. at 86 (holding Indian tribes
                                      subject to gambling-related taxes from which States are
                                      exempt); Lac Courte Oreilles Band of Lake Superior Chip-
                                      pewa Indians v. United States, 845 F.2d 139, 143–144 (7th
                                      Cir. 1988); Confederated Tribes of Warm Springs Reservation
                                      of Or., 691 F.2d at 880 (‘‘Tribal governments, while pos-
                                      sessing aspects of self-rule, thus are quite distinct from the
                                      several states’’). However, Uniband contends that the same
                                      reasoning that treats a State as including the State’s integral
                                      parts should result in treating an Indian tribe as including
                                      the tribe’s integral parts. Assuming this contention is cor-
                                         11 Uniband states this contention in various ways—that it is an ‘‘integral

                                      part’’ of TMBCI, an ‘‘integral and constituent part’’ of TMBCI, and an
                                      ‘‘arm’’ of TMBCI. But its most frequent contention is that it is an ‘‘integral
                                      part’’, for which term there is authority, i.e., 26 C.F.R. sec. 301.7701–
                                      1(a)(3), Proced. & Admin. Regs., that can be consulted to analyze
                                      Uniband’s status, so we consider the argument under that rubric.




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                                      248                 140 UNITED STATES TAX COURT REPORTS                                   (230)


                                      rect, 12 the issue becomes whether Uniband is an integral
                                      part of TMBCI, and Uniband’s argument cites four strands
                                      of authority in favor of that status:
                                           a. Authorities addressing integral parts of States
                                        Uniband points to State-affiliated entities that have been
                                      held not subject to tax and argues that its relation to TMBCI
                                      makes it equivalent to those entities. In support of this argu-
                                      ment Uniband cites Michigan v. United States, 40 F.3d 817,
                                      823 (6th Cir. 1994), and administrative rulings cited
                                      thereat. 13 In Michigan v. United States, the Government
                                      argued that an education trust created by the Michigan
                                      legislature was subject to corporate income tax. The Court of
                                      Appeals for the Sixth Circuit rejected the Government’s argu-
                                      ment, concluding instead that the trust was an ‘‘integral part
                                      of the state’’. Id. at 823. In reaching this conclusion, the
                                      Court of Appeals engaged in a fact-intensive analysis, id. at
                                      826–827, based on criteria given in Revenue Ruling 57–128,
                                      1957–1 C.B. 311, 312. That ruling stated:
                                              In cases involving the status of an organization as an instrumentality
                                           of one or more states or political subdivisions, the following factors are
                                           taken into consideration: (1) whether it is used for a governmental pur-
                                           pose and performs a governmental function; (2) whether performance of
                                           its function is on behalf of one or more states or political subdivisions;
                                           (3) whether there are any private interests involved, or whether the
                                           states or political subdivisions involved have the powers and interests of
                                           an owner; (4) whether control and supervision of the organization is
                                           vested in public authority or authorities; (5) if express or implied statu-
                                           tory or other authority is necessary for the creation and/or use of such
                                           an instrumentality, and whether such authority exists; and (6) the
                                           degree of financial autonomy and the source of its operating expenses.

                                        These six criteria are largely answered in the negative in
                                      Uniband’s situation. (1) Even though Uniband is an impor-
                                      tant source of employment for TMBCI members, Uniband is
                                      still a commercial venture and does not perform a ‘‘govern-
                                         12 We assume but do not decide that a tribe may have ‘‘integral parts’’

                                      that share the tribe’s non-liability for Federal income tax. The language
                                      of 26 C.F.R. sec. 301.7701–1(a)(3) is exemplary and non-exclusive, making
                                      it reasonable to argue that the situation of a State’s integral parts is anal-
                                      ogous to the situation of an Indian tribe’s integral parts.
                                         13 See Rev. Rul. 87–2, 1987–1 C.B. 18; Rev. Rul. 71–131, 1971–1 C.B. 29;

                                      Rev. Rul. 71–132, 1971–1 C.B. 29; G.C.M. 14,407, 1935–1 C.B. 103.




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                                      (230)                    UNIBAND, INC. v. COMMISSIONER                                      249


                                      mental function’’. (2) Although one can say that Uniband, in
                                      pursuing its business, in a sense ‘‘function[s] * * * on behalf
                                      of ’’ TMBCI (as in the second factor listed above), one must
                                      say more precisely that like any corporation Uniband func-
                                      tions in its own name and on its own behalf, paying its
                                      profits to its shareholder. (3) There are currently no ‘‘private
                                      interests involved’’ in Uniband, since TMBCI is currently its
                                      sole shareholder; but it was not until three years after
                                      Uniband was incorporated that TMBCI became Uniband’s
                                      sole shareholder, and there is nothing that prevents TMBCI
                                      from selling some or all of its Uniband shares. (4) The ‘‘con-
                                      trol and supervision’’ of Uniband can be said to be ‘‘vested in
                                      public [tribal] authorities’’ only in the sense that, as sole
                                      shareholder, the tribe has the ultimate power to name the
                                      officers and directors of Uniband. However, there is nothing
                                      in Uniband’s corporate charter or bylaws that gives TMBCI’s
                                      council authority to directly manage the operations of
                                      Uniband or supersede the action of the board of directors,
                                      nor is there any requirement that TMBCI members be on the
                                      board. (5) There is no ‘‘express statutory authority’’ that cre-
                                      ated Uniband or ‘‘provided for [its] * * * management’’. On
                                      the contrary, TMBCI’s ability to control or abolish Uniband
                                      arises not from statute but from TMBCI’s power as
                                      Uniband’s sole shareholder. (6) Nothing in our record sug-
                                      gests that, in its day-to-day operations, Uniband lacks ‘‘finan-
                                      cial autonomy’’ from TMBCI or depends on it as a ‘‘source of
                                      its operating expenses’’.
                                         Considering all the facts and circumstances, we find that
                                      Uniband is readily distinguishable from the educational trust
                                      in Michigan v. United States, 40 F.3d 817, and the other
                                      entities that have been held to be integral parts of their
                                      sovereigns, and conclude that Uniband is not an integral part
                                      of TMBCI.
                                           b. Sovereign immunity
                                         In support of its ‘‘integral part’’ argument, Uniband con-
                                      tends that it has sovereign immunity that it derives from
                                      TMBCI because it is an integral part of TMBCI. However,
                                      this argument has two flaws: (1) Uniband has failed to estab-
                                      lish that it possesses sovereign immunity and (2) Uniband
                                      has not established that being entitled to sovereign immunity




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                                      250                 140 UNITED STATES TAX COURT REPORTS                                   (230)


                                      means it would be an integral part of TMBCI for Federal tax
                                      purposes. First, Uniband essentially assumes that it has sov-
                                      ereign immunity, without offering adequate analysis. It
                                      argues:
                                           Federal case law, however, makes it clear that a wholly owned corpora-
                                           tion operates as an arm of the tribe and has sovereign immunity. Br. for
                                           Pet., p. 23–24. Obviously, sovereign immunity, enjoyed only by govern-
                                           ments, extends to Petitioner because it is an integral part of the Tribe.
                                           Petitioner made a limited waiver of its sovereign immunity in article
                                           nine of its restated articles of incorporation. Ex. 2–J. The waiver estab-
                                           lishes that Petitioner, as an arm of the Tribe, had sovereign immunity.

                                      Uniband does cite cases in which a tribally owned corpora-
                                      tion is held to have sovereign immunity; 14 but it is clear that
                                      not every tribal organization has sovereign immunity; 15 and
                                      Uniband provides essentially no analysis to show that it is
                                      the sort of entity that does. Rather, Uniband seems to
                                      assume that its purported waiver of sovereign immunity (in
                                      its certificate of incorporation) could establish that it pos-
                                      sesses sovereign immunity—but that could hardly be so. We
                                      therefore must analyze further Uniband’s entitlement to sov-
                                      ereign immunity.
                                           (1) Analysis of sovereign immunity
                                        ‘‘Indian tribes have long been recognized as possessing the
                                      common-law immunity from suit traditionally enjoyed by sov-
                                      ereign powers.’’ Santa Clara Pueblo v. Martinez, 436 U.S. 49,
                                      58 (1978). This immunity can extend to both business and
                                      governmental activities of the tribe, Kiowa Tribe of Okla. v.
                                      Mfg. Techs., Inc., 523 U.S. 751, 758–760 (1998); and the
                                      Court of Appeals for the Eighth Circuit (to which an appeal
                                      in this case would apparently lie) has held that ‘‘a tribe’s sov-
                                        14 We are aware of only a few cases holding that a State-chartered cor-

                                      poration (like Uniband) is entitled to tribal sovereign immunity. See J.L.
                                      Ward Assocs., Inc. v. Great Plains Tribal Chairmen’s Health Bd., 842 F.
                                      Supp. 2d 1163, 1176 (D.S.D. 2012); Ransom v. St. Regis Mohawk Educ. &
                                      Cmty. Fund, Inc., 658 N.E.2d 989, 993 (N.Y. 1995). It appears that being
                                      incorporated under State law rather than tribal law ‘‘militate[s] against
                                      sovereign immunity’’. J.L. Ward Assocs., 842 F. Supp. 2d at 1176.
                                        15 See Somerlott v. Cherokee Nation Distribs., Inc., 686 F.3d 1144, 1150

                                      (10th Cir. 2012) (‘‘a separate legal entity organized under the laws of an-
                                      other sovereign, Oklahoma, cannot share in the Nation’s [i.e., the tribe’s]
                                      immunity from suit’’).




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                                      (230)                    UNIBAND, INC. v. COMMISSIONER                                      251


                                      ereign immunity may extend to tribal agencies’’, Hagen v.
                                      Sisseton-Wahpeton Cmty. Coll., 205 F.3d 1040, 1043 (8th Cir.
                                      2000) (emphasis added) (citing Dillon v. Yankton Sioux Tribe
                                      Hous. Auth., 144 F.3d 581, 583 (8th Cir. 1998)).
                                         Although the Court of Appeals for the Eighth Circuit has
                                      not adopted specific criteria to determine whether an
                                      organization is entitled to tribal sovereign immunity, it has
                                      considered whether the organization serves as an ‘‘arm of the
                                      tribe’’ and whether a tribal council established the organiza-
                                      tion pursuant to the council’s power of self-government. 16 We
                                      will therefore consider those criteria.
                                           (a) Arm of the tribe
                                         ‘‘A subdivision of tribal government or a corporation
                                      attached to a tribe may be so closely allied with and
                                      dependent upon the tribe that it is effectively an arm of the
                                      tribe. It is then actually a part of the tribe per se, and, thus,
                                      clothed with tribal immunity.’’ Runyon ex rel. B.R. v. Ass’n
                                      of Vill. Council Presidents, 84 P.3d 437, 439–440 (Alaska
                                      2004) (internal quotation marks and fn. refs. omitted). In
                                      holding that a college served as ‘‘an arm of the tribe and not
                                      as a mere business’’, the Court of Appeals for the Eighth Cir-
                                      cuit in Hagen relied on the facts that the college was ‘‘char-
                                      tered, funded, and controlled by the Tribe to provide edu-
                                      cation to tribal members on Indian land’’. Hagen, 205 F.3d
                                      at 1043. Similarly, in the few cases that have held a State-
                                      chartered corporation to be entitled to tribal sovereign immu-
                                      nity, factors important to that holding were: (1) the corpora-
                                      tion’s purpose of improving the general welfare of the tribe,
                                      and (2) the assurance that the corporation’s governing body
                                      could be composed only of tribal representatives. See J.L.
                                         16 See Hagen v. Sisseton-Wahpeton Cmty. Coll., 205 F.3d 1040, 1043 (8th

                                      Cir. 2000) (‘‘[T]he College serves as an arm of the tribe and not as a mere
                                      business and is thus entitled to tribal sovereign immunity’’); Dillon v.
                                      Yankton Sioux Tribe Hous. Auth., 144 F.3d 581, 583 (8th Cir. 1998) (hold-
                                      ing that a tribal housing authority established by tribal council pursuant
                                      to its powers of self-government was a tribal agency rather than ‘‘a sepa-
                                      rate corporate entity created by the tribe’’); Weeks Constr., Inc. v. Oglala
                                      Sioux Hous. Auth., 797 F.2d 668, 670–671 (8th Cir. 1986) (‘‘As an arm of
                                      tribal government, a tribal housing authority possesses attributes of tribal
                                      sovereignty * * * and suits against an agency like the Housing Authority
                                      normally are barred absent a waiver of sovereign immunity’’).




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                                      Ward Assocs., Inc. v. Great Plains Tribal Chairmen’s Health
                                      Bd., 842 F. Supp. 2d 1163, 1176 (D.S.D. 2012); Ransom v. St.
                                      Regis Mohawk Educ. & Cmty. Fund, Inc., 658 N.E.2d 989,
                                      993 (N.Y. 1995). Uniband’s facts are otherwise.
                                         First, although its brief asserts that ‘‘from the beginning
                                      [Uniband] was a means to promote economic development on
                                      TMBCI’s disadvantaged reservation suffering from high and
                                      chronic unemployment’’, Uniband cites no record support for
                                      this proposition. In fact, Uniband’s certificate of incorpora-
                                      tion states that its purpose is simply to engage in ‘‘any lawful
                                      act or activity’’—not just activities that ‘‘promote economic
                                      development’’.
                                         Second, Uniband has nothing in its corporate charter or
                                      bylaws to ensure that Uniband’s governing body is composed
                                      of TMBCI’s tribal representatives. Rather, article IV, section
                                      4.2 of Uniband’s bylaws sets forth the qualifications for
                                      Uniband’s directors and states simply: ‘‘Directors need not be
                                      residents of Delaware or shareholders of the corporation.
                                      They need have no other qualification.’’ Thus, Uniband’s gov-
                                      erning body may be but need not be composed of TMBCI’s
                                      tribal representatives. Uniband’s directors may be under the
                                      de facto control of TMBCI by virtue of TMBCI’s sole owner-
                                      ship of Uniband, but the same can be said for any wholly
                                      owned investment, whether or not it has any other claim to
                                      being an ‘‘arm’’ of its owner. Moreover, nothing prevents
                                      TMBCI from selling some or all of its shares and destroying
                                      that de facto control.
                                         Since Uniband’s purposes may or may not promote the
                                      general welfare of TMBCI’s members, and since it may or
                                      may not be managed and controlled by TMBCI’s tribal rep-
                                      resentatives, we conclude it fails to be an ‘‘arm’’ of TMBCI.
                                           (b) Tribal establishment
                                         Another factor that distinguishes an organization entitled
                                      to tribal sovereign immunity (as opposed to a mere business
                                      interest of a tribe) is that the tribal council establishes the
                                      organization pursuant to its powers of self-government. See
                                      Dillon, 144 F.3d at 583 (concluding that a housing authority
                                      ‘‘established by a tribal council pursuant to its powers of self-
                                      government’’ is a tribal agency entitled to tribal sovereign
                                      immunity). Uniband, however, chartered not by the tribe but




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                                      (230)                    UNIBAND, INC. v. COMMISSIONER                                      253


                                      by the State of Delaware, is an entity that exists by virtue
                                      of the sovereign powers of Delaware, and Uniband’s powers
                                      are defined and limited by Delaware law. In particular,
                                      Uniband, like every other corporation created under title 8 of
                                      the Delaware Code (including chapter 1 entitled ‘‘General
                                      Corporation Law’’, pursuant to which Uniband was estab-
                                      lished), ‘‘shall have power to: * * * [s]ue and be sued in all
                                      courts and participate, as a party or otherwise, in any
                                      judicial, administrative, arbitrative or other proceeding, in its
                                      corporate name’’. Del. Code Ann. tit. 8, sec. 122 (2011)
                                      (emphasis added). Uniband does not explain what might
                                      trump this statutory provision.
                                         Moreover, Uniband was established as a Delaware corpora-
                                      tion in 1987 by TMBCI and a third party not affiliated with
                                      TMBCI, and for three years TMBCI held only 51% of
                                      Uniband. Thus, TMBCI did not establish Uniband by itself;
                                      at its inception Uniband was simply a business owned in
                                      part by TMBCI and was clearly ‘‘a separate corporate entity
                                      created [in part] by the tribe’’. Dillon, 144 F.3d at 583; see
                                      also Myrick v. Devils Sioux Mfg. Corp., 718 F. Supp. 753, 755
                                      (D.N.D. 1989) (holding that a State-chartered corporation
                                      partially owned by an Indian tribe was not a tribal agency).
                                      Uniband has not shown us how TMBCI’s purchasing an addi-
                                      tional 49% of Uniband transformed Uniband from a mere
                                      business holding into a tribal agency established by a tribal
                                      council pursuant to the tribe’s powers of self-government. See
                                      McNally CPA’s & Consultants, S.C. v. DJ Hosts, Inc., 692
                                      N.W.2d 247, 253 (Wis. Ct. App. 2004) (rejecting the argu-
                                      ment that tribal immunity attaches to a corporation when a
                                      tribe acquires 100% ownership of the corporation).
                                           (c) Other criteria
                                         Other courts have used several additional factors to deter-
                                      mine whether tribal sovereign immunity is possessed by a
                                      tribal business, which, if so, is sometimes referred to as a
                                      ‘‘subordinate economic entity’’, 17 and those factors do not
                                           17 The
                                               subordinate economic entity doctrine was initially articulated by
                                      Arizona State courts, see, e.g., Dixon v. Picopa Constr. Co., 772 P.2d 1104,
                                      1108 (Ariz. 1989); White Mountain Apache Indian Tribe v. Shelley, 480
                                      P.2d 654, 657 (Ariz. 1971), and has been adopted by the Court of Appeals
                                      for the Tenth Circuit, see, e.g., Somerlott v. Cherokee Nation Distribs., Inc.,
                                                                                                       Continued




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                                      254                 140 UNITED STATES TAX COURT REPORTS                                   (230)


                                      support Uniband’s claim. Courts have considered some or all
                                      of the following factors:
                                           (1) the announced purpose for which the entity was formed; (2) whether
                                           the entity was formed to manage or exploit specific tribal resources; (3)
                                           whether federal policy designed to protect Indian assets and tribal cul-
                                           tural autonomy is furthered by the extension of sovereign immunity to
                                           the entity; (4) whether the entity is organized under the tribe’s laws or
                                           constitution rather than federal law; (5) whether the entity’s purposes
                                           are similar to or serve those of the tribal government; (6) whether the
                                           entity’s governing body is comprised mainly of tribal officials; (7)
                                           whether the tribe has legal title or ownership of property used by the
                                           entity; (8) whether tribal officials exercise control over the administra-
                                           tion or accounting activities of the organization; (9) whether the tribe’s
                                           governing body has power to dismiss members of the organization’s gov-
                                           erning body, and (10) whether the entity generates its own revenue,
                                           whether a suit against the entity would impact the tribe’s fiscal
                                           resources, and whether it may bind or obligate tribal funds. [Johnson v.
                                           Harrah’s Kan. Casino Corp., No. 5:04–CV–04142–JAR, 2006 WL 463138,
                                           at *4–*6 (D. Kan. Feb. 23, 2006); fn. ref. omitted.18]

                                      While several of these factors overlap with the Court of
                                      Appeals for the Eighth Circuit’s analysis and therefore are
                                      adequately addressed above, the remainder—in particular,
                                      the promotion of tribal autonomy, the financial relationship
                                      between the entity and the tribe, and whether the entity was
                                      created under State law—bear further analysis here.
                                        Promotion of tribal autonomy. In Allen v. Gold Country
                                      Casino, 464 F.3d 1044 (9th Cir. 2006), the Court of Appeals
                                      for the Ninth Circuit held that a tribe’s casino was ‘‘no ordi-
                                      nary business’’ and was entitled to tribal immunity because
                                      686 F.3d at 1148–1150.
                                         18 In the following cases, courts have considered some or all of the factors

                                      listed in Johnson v. Harrah’s Kan. Casino Corp., No. 5:04–CV–04142–JAR,
                                      2006 WL 463138, at *4–*6 (D. Kan. Feb. 23, 2006): Somerlott v. Cherokee
                                      Nation Distribs., Inc., 686 F.3d at 1148–1150; Breakthrough Mgmt. Grp.,
                                      Inc. v. Chukchansi Econ. Dev. Auth., 629 F.3d 1173 (10th Cir. 2010); Allen
                                      v. Gold Country Casino, 464 F.3d 1044, 1046–1047 (9th Cir. 2006); J.L.
                                      Ward Assocs., 842 F. Supp. 2d at 1176; Bucher v. Dakota Fin. Corp. (In
                                      re Whitaker), 474 B.R. 687, 696–697 (B.A.P. 8th Cir. 2012); Runyon ex rel.
                                      B.R. v. Ass’n of Vill. Council Presidents, 84 P.3d 437, 440 (Alaska 2004);
                                      Am. Prop. Mgmt. Corp. v. Superior Court, 141 Cal. Rptr. 3d 802, 809 (Ct.
                                      App. 2012); Cash Advance & Preferred Cash Loans v. Colo. ex rel. Suthers,
                                      242 P.3d 1099, 1109 (Colo. 2010); Gavle v. Little Six, Inc., 555 N.W.2d 284,
                                      294 (Minn. 1996); Airvator, Inc. v. Turtle Mountain Mfg. Co., 329 N.W.2d
                                      596, 604 (N.D. 1983); Wright v. Prairie Chicken, 579 N.W.2d 7, 10 (S.D.
                                      1998).




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                                      (230)                    UNIBAND, INC. v. COMMISSIONER                                      255


                                      the casino’s ‘‘creation was dependent upon [tribal] govern-
                                      ment approval at numerous levels’’, and the Federal statute
                                      under which the casino was created intended that creation
                                      and operation of Indian casinos promote ‘‘ ‘tribal economic
                                      development, self-sufficiency, and strong tribal govern-
                                      ments’ ’’. Id. at 1046–1047 (quoting 25 U.S.C. sec. 2702(1)
                                      (1994)); see also J.L. Ward Assocs., 842 F. Supp. 2d at 1177;
                                      Cash Advance & Preferred Cash Loans v. Colo. ex rel.
                                      Suthers, 242 P.3d 1099, 1109 (Colo. 2010); Gavle v. Little Six,
                                      Inc., 555 N.W.2d 284, 294 (Minn. 1996). While Uniband
                                      appears to have employed TMBCI members to perform its
                                      data entry services, it has not shown the extent of its
                                      employment of TMBCI members nor demonstrated that it
                                      was established to promote TMBCI’s economic development,
                                      as opposed to simply generating revenue. Uniband has not
                                      shown that its operation promotes tribal ‘‘self-sufficiency’’ or
                                      ‘‘strong tribal government’’, nor that extending tribal immu-
                                      nity to such an operation would ‘‘protect Indian assets and
                                      tribal cultural autonomy’’. Moreover, as we have already dis-
                                      cussed above, Uniband’s creation did not depend only on
                                      TMBCI’s approval.
                                         Financial relationship. A related and critical factor for
                                      some courts in extending tribal sovereign immunity to tribal
                                      businesses is the business entity’s financial relationship with
                                      the tribe. See Ransom v. St. Regis Mohawk Educ. & Cmty.
                                      Fund, Inc., 658 N.E.2d at 992–993. ‘‘[I]f a judgment against
                                      * * * [an entity] will not reach the tribe’s assets or if it lacks
                                      the ‘power to bind or obligate the funds of the [tribe],’ it is
                                      unlikely that the tribe is the real party in interest. If, on the
                                      other hand, the tribe would be legally responsible for the
                                      entity’s obligations, it may be an arm of the tribe.’’ Runyon
                                      ex rel. B.R. v. Ass’n of Vill. Council Presidents, 84 P.3d at
                                      440–441 (quoting Ransom, 658 N.E.2d at 992). Uniband has
                                      not shown that it is funded by TMBCI or that its actions
                                      would ‘‘expos[e] the tribal treasury’’, id., and the record
                                      shows otherwise.
                                         Creation under State law. Another crucial factor for many
                                      courts that has weighed against the extension of sovereign
                                      immunity has been the tribe’s creating an entity under State
                                      law. Somerlott v. Cherokee Nation Distribs., Inc., 686 F.3d at
                                      1148–1150 (10th Cir. 2012) (‘‘the subordinate economic entity
                                      test is inapplicable to entities which are legally distinct from




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                                      256                 140 UNITED STATES TAX COURT REPORTS                                   (230)


                                      their members and which voluntarily subject themselves to
                                      the authority of another sovereign’’); see also Am. Prop.
                                      Mgmt. Corp. v. Superior Court, 141 Cal. Rptr. 3d 802, 810
                                      (Ct. App. 2012); Airvator, Inc. v. Turtle Mountain Mfg. Co.,
                                      329 N.W.2d 596, 602–604 (N.D. 1983); Wright v. Prairie
                                      Chicken, 579 N.W.2d 7, 10 (S.D. 1998). Thus, Uniband’s
                                      incorporation under Delaware law weighs heavily against
                                      tribal sovereign immunity.
                                         Even under more expansive standards, Uniband has failed
                                      to establish that it would be entitled to sovereign immunity.
                                           (2) Sovereign immunity does not necessarily confer ‘‘integral
                                               part’’ status.
                                         Uniband’s sovereign immunity argument assumes that if
                                      an organization is entitled to tribal sovereign immunity, then
                                      the organization is therefore an integral part of the tribe.
                                      While the two concepts are not unrelated, the question
                                      whether the sovereign immunity of a tribe extends to an
                                      organization is distinct from the question whether an
                                      organization is an integral part of a sovereign entity for tax
                                      purposes. The entity classification regulation that Uniband
                                      relies on here is not the only instance in which ‘‘integral
                                      part’’ status arises in tax law, but we find no analogous
                                      provision in which sovereign immunity assures that status.
                                         Under section 501(c)(3), governance is not a tax-exempt
                                      purpose, so that while a mere ‘‘instrumentality’’ of a State
                                      may be exempt from tax under that provision, an ‘‘integral
                                      part’’ is not. See Rev. Rul. 60–384, 1960–2 C.B. 172. Under
                                      this analysis, an ‘‘integral part’’ of a State government is an
                                      ‘‘integral governmental instrumentalit[y] exercising ‘sov-
                                      ereign’ powers’’. Old Colony Trust Co. v. United States, 438
                                      F.2d 684, 687 (1st Cir. 1971); see also Tex. Learning Tech.
                                      Grp. v. Commissioner, 958 F.2d 122, 126–127 (5th Cir. 1992),
                                      aff ’g 96 T.C. 686 (1991). Such ‘‘sovereign powers’’ might
                                      include sovereign immunity, see Breakthrough Mgmt. Grp.,
                                      Inc. v. Chukchansi Econ. Dev. Auth., 629 F.3d 1173, 1182–
                                      1183 (10th Cir. 2010); but in fact the three powers usually
                                      examined in this context are ‘‘[t]he power to tax, the power
                                      of eminent domain, and the police power’’, Tex. Learning
                                      Tech. Grp. v. Commissioner, 958 F.2d at 124—none of which
                                      Uniband claims to possess.




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                                      (230)                    UNIBAND, INC. v. COMMISSIONER                                      257


                                         Similarly, section 892 exempts from tax U.S.-source income
                                      earned by ‘‘foreign governments’’, and the temporary regula-
                                      tions define ‘‘foreign government’’ to mean ‘‘only the integral
                                      parts * * * of a foreign sovereign.’’ 26 C.F.R. sec. 1.892–
                                      2T(a)(1), Temporary Income Tax Regs., 53 Fed. Reg. 24061
                                      (June 27, 1988). However, the definition of ‘‘integral part’’ in
                                      the temporary regulations makes no mention of sovereign
                                      immunity. Id. sec. 1.892–2T(a)(2) (‘‘An ‘integral part’ of a for-
                                      eign sovereign is any person, body of persons, organization,
                                      agency, bureau, fund, instrumentality, or other body, how-
                                      ever designated, that constitutes a governing authority of a
                                      foreign country. The net earnings of the governing authority
                                      must be credited to its own account or to other accounts of
                                      the foreign sovereign, with no portion inuring to the benefit
                                      of any private person’’). Under that definition, though it is
                                      not controlling in this case, even if Uniband had sovereign
                                      immunity, it could not be an ‘‘integral part’’ of TMBCI,
                                      because it is not ‘‘a governing authority’’.
                                         Uniband relies on G.C.M. 38,853 (May 17, 1982) as the
                                      foundation for its sovereign immunity argument, since that
                                      memorandum does relate sovereign immunity to tax exemp-
                                      tion. However, a general counsel memorandum is merely a
                                      legal opinion from one division of the Commissioner’s Office
                                      of Chief Counsel to another, and is not precedential. Old
                                      Harbor Native Corp. v. Commissioner, 104 T.C. 191, 206–207
                                      (1995). But even if G.C.M. 38,853 were binding authority, it
                                      does not support Uniband’s conclusion. G.C.M. 38,853 lists
                                      sovereign immunity as one of several factors 19 to support the
                                      IRS’s conclusion that a section 17 corporation is not subject
                                      to the corporate income tax. It does not state whether a sec-
                                      tion 17 corporation is an integral part of a tribe, or discuss
                                      what factors to consider to determine if an entity is an
                                      integral part of a tribe. Therefore, even if Uniband had
                                      established that it possesses sovereign immunity, it would
                                           19 In
                                               addition, G.C.M. 38,853 (May 17, 1982) relied on ‘‘the traditional
                                      federal income tax immunity of Indian tribes, the Congressional purpose
                                      in enacting section 17 of the [Indian Reorganization] Act, the lack of any
                                      indication that such immunity would be waived by incorporation, [and] the
                                      implication in the legislation that the tribe and the corporation are one’’.
                                      Uniband argues that it achieves the same purposes that Congress had for
                                      section 17 corporations, but as we discuss below in part I.B.3.d., Uniband
                                      is clearly not a section 17 corporation.




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                                      258                 140 UNITED STATES TAX COURT REPORTS                                   (230)


                                      not necessarily have thereby established that it is an
                                      ‘‘integral part’’ of TMBCI for purposes of entity classification
                                      in 26 C.F.R. section 301.7701–1(a)(2), Proced. & Admin.
                                      Regs.
                                           c. ‘‘Indian tribal organization’’
                                         Uniband lays great stress on the fact that it is an ‘‘Indian
                                      tribal organization’’ (‘‘ITO’’) for purposes of 18 U.S.C. section
                                      1163 (1994) and argues that it is therefore an integral part
                                      of TMBCI. It appears that a State-chartered corporation can
                                      be an ITO, 20 and we assume that Uniband is an ITO; 21 but
                                      it does not follow that Uniband is therefore an integral part
                                      of TMBCI for Federal tax purposes.
                                         Section 1163 of title 18 makes it a Federal crime to
                                      embezzle money or other property ‘‘belonging to any Indian
                                      tribal organization’’. Section 1163 provides that ‘‘the term
                                      ‘Indian tribal organization’ means any tribe, band, or commu-
                                      nity of Indians which is subject to the laws of the United
                                      States relating to Indian affairs or any corporation, associa-
                                      tion, or group which is organized under any of such laws’’—
                                      and it states that the term is so defined ‘‘[a]s used in this
                                      section’’. The statute thus includes nothing to support the
                                      suggestion that ITO status has legal implications outside of
                                      the crime defined in section 1163. Uniband has not cited and
                                      we have not found any authority to support its contention
                                      that if an organization is an ITO for purposes of 18 U.S.C.
                                      section 1163, it should, therefore, be treated as an integral
                                      part of the tribe for purposes of the Internal Revenue Code.
                                         This lack of authority is not surprising, since the criminal-
                                      law purposes of 18 U.S.C. section 1163 have no resonance
                                      with the taxation-law principles at issue here. There is no
                                        20 See United States v. Logan, 641 F.2d 860, 862 (10th Cir. 1981) (a

                                      State-chartered corporation established under the guidelines of the Indian
                                      Financing Act of 1974 is a ‘‘corporation organized under the laws of the
                                      United States relating to Indian affairs within the meaning of [18 U.S.C.]
                                      section 1163’’).
                                        21 The Commissioner disputes Uniband’s ITO status, but Uniband points

                                      to an instance in which the United States prosecuted (and entered into a
                                      plea agreement with) an individual who had embezzled funds from
                                      Uniband; and in that instance the individual was charged with violating
                                      18 U.S.C. section 1163 (among other provisions), and the plea agreement
                                      included the assertion that Uniband is an ITO.




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                                      (230)                    UNIBAND, INC. v. COMMISSIONER                                      259


                                      apparent reason the criminal statute should reach only enti-
                                      ties that share the tax attributes of a tribe. Moreover, if
                                      every ITO were by definition an ‘‘integral part’’ of an Indian
                                      tribe, then every ‘‘corporation, association, or group which is
                                      organized’’ under ‘‘the laws of the United States relating to
                                      Indian affairs’’ would be exempt from income tax—a broad
                                      proposition that cannot be justified. The Commissioner aptly
                                      states that Uniband’s ITO status ‘‘is at best peripheral to the
                                      issue of whether the Petitioner is subject to the corporate
                                      income tax’’.
                                           d. Similarity to section 17 corporations
                                         The fourth strain of Uniband’s argument that it is an
                                      integral part of TMBCI and therefore shares its exemption
                                      starts with the proposition that corporations established
                                      pursuant to section 17 of the IRA, codified at 25 U.S.C. sec-
                                      tion 477—referred to as ‘‘section 17 corporations’’—are not
                                      subject to the corporate income tax, as is stated in 26 C.F.R.
                                      section 301.7701–1(a)(3) (effective January 1, 1997), and as
                                      the IRS previously held in Revenue Ruling 94–16, 1994–1
                                      C.B. 19. 22 Uniband asserts that ‘‘the logic behind Rev. Rul.
                                           22 Uniband’s
                                                      argument for its pre-1997 status (before the regulation be-
                                      came effective) appears to be based solely on ‘‘the logic behind Rev. Rul.
                                      94–16’’. A revenue ruling is not a regulation issued after notice and com-
                                      ment, PBS Holdings, Inc. v. Commissioner, 129 T.C. 131, 144–145 (2007);
                                      and this Court has held that such a ruling can be invoked by a taxpayer
                                      and will be enforced only as a concession by the Commissioner, Rauenhorst
                                      v. Commissioner, 119 T.C. 157, 171 (2002), and that such a concession will
                                      be limited to its specific facts and holding. That is, a taxpayer can rely on
                                      a revenue ruling only to the extent that the taxpayer’s facts are ‘‘substan-
                                      tially the same as’’ those in the ruling and only as to the issue addressed
                                      in the ruling. See 26 C.F.R. sec. 601.601(d)(2)(v)(e), Statement of Proce-
                                      dural Rules. In this instance, Uniband’s facts are not substantially the
                                      same as those in Rev. Rul. 94–16 (rather, Uniband is not a section 17 cor-
                                      poration), and one of the holdings in the ruling (i.e., that a State-chartered
                                      corporation does not share a tribe’s exemption) flatly contradicts the posi-
                                      tion that Uniband advances. Accordingly, the ruling clearly cannot be con-
                                      strued as a concession by the Commissioner that Uniband should be ex-
                                      empt from tax. However, Uniband nonetheless takes the (somewhat awk-
                                      ward) position that the holding of Rev. Rul. 94–16 regarding section 17
                                      corporations should be regarded as persuasive and should be extended to
                                      this case, see United States v. Mead Corp., 533 U.S. 218, 234–235 (2001)
                                      (an agency’s interpretation may merit deference under Skidmore v. Swift
                                                                                                       Continued




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                                      260                 140 UNITED STATES TAX COURT REPORTS                                   (230)


                                      94–16’’ that exempts section 17 corporations from Federal
                                      income tax applies equally to tribal corporations chartered
                                      under State law. Uniband thus argues that a State-chartered
                                      corporation wholly owned by an Indian tribe and a section 17
                                      corporation are essentially the same, and that they should
                                      therefore obtain the same tax treatment. 23
                                         To apply the ‘‘logic of Rev. Rul. 94–16’’ and the regulation
                                      to Uniband’s facts, we must ask: Why are section 17 corpora-
                                      tions not subject to the corporate income tax? The parties
                                      articulate that logic differently: Uniband states that ‘‘tax-
                                      exempt status is appropriate for a section 17 corporation
                                      because the tribe and its corporation are the same govern-
                                      mental entity, even though the sole purpose of the section 17
                                      corporation may be primarily commercial * * * [and] federal
                                      cases involving tribal sovereign immunity justify a parallel
                                      treatment for federal income tax purposes’’, while the
                                      Commissioner states that ‘‘a section 17 corporation * * * is
                                      a form of the tribe. It is part of the organizational structure
                                      of the tribe just as much as is a tribal government formed
                                      under section 16’’.
                                         Uniband’s rationale actually works against it, since, as we
                                      held above, Uniband has failed to show that it possesses
                                      TMBCI’s sovereign immunity. Moreover, Uniband’s rationale
                                      is faulty because it mistakes the effect (sharing TMBCI’s sov-
                                      ereign immunity) for the cause (being a manifestation or, in
                                      the Commissioner’s word, a ‘‘form’’) of TMBCI. See Memphis
                                      Biofuels, LLC v. Chickasaw Nation Indus., Inc., 585 F.3d
                                      917, 921 (6th Cir. 2009) (‘‘the language of Section 17 itself—
                                      by calling the entity an ‘incorporated tribe’—suggests that
                                      the entity is an arm of the tribe * * * that do[es] not auto-
                                      & Co., 323 U.S. 134 (1944)), but that second holding of Rev. Rul. 94–16
                                      regarding State-chartered corporations was incorrect. Even so, since the
                                      regulation effectively established the position in the ruling, and since we
                                      hold that Uniband is materially distinguishable from a section 17 corpora-
                                      tion, the same analysis suffices for both its pre- and post-regulation years.
                                         23 Uniband argues that giving it tax treatment different from that of a

                                      section 17 corporation would yield ‘‘inequitable results’’, citing the uni-
                                      formity clause of the United States Constitution. See U.S. Const. art. I,
                                      sec. 8, cl. 1. This constitutional argument fails because the ‘‘constitutional
                                      requirement of uniformity is not intrinsic, but geographic’’. Poe v. Seaborn,
                                      282 U.S. 101, 117 (1930). Because Uniband is materially different from
                                      section 17 corporations, for the reasons we explain below, it is not entitled
                                      to the same treatment they receive.




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                                      (230)                    UNIBAND, INC. v. COMMISSIONER                                      261


                                      matically forfeit tribal-sovereign immunity’’). If we simply
                                      examine the nature of a section 17 corporation, we see that
                                      Uniband differs radically from a section 17 corporation in
                                      ways that mark it as distinct from TMBCI.
                                           (1) The origin of section 17 corporations
                                         Before the enactment of the IRA, both the governmental
                                      and business functions of a tribe were conducted in the same
                                      unincorporated entity. In 1934 Congress enacted the IRA,
                                      which allows a tribe to operate its governmental affairs and
                                      commercial matters through separate mechanisms. Section
                                      16 of the IRA (codified at 25 U.S.C. sec. 476) permits a tribe
                                      to adopt a constitution and bylaws under which it conducts
                                      its governmental affairs; and section 17 of the IRA allows a
                                      tribe to operate its commercial enterprises through a feder-
                                      ally chartered corporation.
                                         According to its legislative history, the purpose of section
                                      17 was to ‘‘permit Indian tribes to equip themselves with the
                                      devices of modern business organization, through forming
                                      themselves into business corporations.’’ S. Rept. No. 1080,
                                      73d Cong., 2d Sess. 1 (1934). One feature of a section 17 cor-
                                      poration is that it gives a tribe the ability to waive tribal sov-
                                      ereign immunity for a business operated by a section 17 cor-
                                      poration without having to waive the tribe’s immunity for
                                      nonbusiness liability. This waiver removes a major market
                                      hurdle for a tribal business (because third parties generally
                                      do not want to enter into contracts with parties they cannot
                                      sue to enforce agreements or to seek tort damages) and puts
                                      a tribal business on equal footing with nontribal businesses.
                                           (2) Characteristics of section 17 corporations
                                        Section 17 corporations have several distinguishing
                                      characteristics, all of which are reflected in the organizing
                                      documents of TMBCI’s section 17 corporation, as quoted
                                      above pages 237–238. The first is that the establishment of
                                      a section 17 corporation is within the discretion of the Sec-
                                      retary of the Interior. A petitioning tribe has the power only
                                      to adopt or to veto the corporate charter issued by the Sec-
                                      retary of the Interior. See 25 U.S.C. sec. 477 (‘‘The Secretary
                                      of the Interior may, upon petition by any tribe, issue a
                                      charter of incorporation to such tribe’’). Consequently, a sec-




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                                      262                 140 UNITED STATES TAX COURT REPORTS                                   (230)


                                      tion 17 charter will confer only powers that the Secretary of
                                      the Interior is willing for the corporation to possess. See Md.
                                      Cas. Co. v. Citizen Nat’l Bank of W. Hollywood, 361 F.2d 517,
                                      520 (5th Cir. 1966) (‘‘the powers granted to the corporation
                                      were only those which the Secretary of the Interior, by the
                                      terms of the charter, conveyed to them’’).
                                         Second, ‘‘Any charter so issued shall not be revoked or
                                      surrendered except by Act of Congress.’’ 25 U.S.C. sec. 477.
                                         Third, 25 U.S.C. section 477 gives a section 17 corporation
                                      ‘‘the power to purchase restricted Indian lands’’, a right that
                                      is otherwise exclusively held by tribes. See id. sec. 464.
                                         Fourth, the IRA places restrictions on the alienation of cor-
                                      porate stock and of certain corporate-owned land. See id. (‘‘no
                                      sale, devise, gift, exchange, or other transfer of restricted
                                      Indian lands or of shares in the assets of any Indian tribe
                                      or corporation organized under this Act shall be made or
                                      approved’’, subject to provisos); id. sec. 477 (‘‘no authority
                                      shall be granted to sell, mortgage, or lease for a period
                                      exceeding twenty-five years any trust or restricted lands
                                      included in the limits of the reservation’’).
                                         These limitations are obviously aimed at preserving the
                                      tribe’s assets and existence—suggesting that the tribe exists,
                                      at least in part, through its section 17 corporation, notwith-
                                      standing the fact that the corporation is a distinct legal
                                      entity.
                                           (3) Taxation of section 17 corporations
                                        The IRA makes no provision as to tax liability of section
                                      17 corporations, but in 1973 the Supreme Court, in Mescalero
                                      Apache Tribe, 411 U.S. at 157–158, shed some light on the
                                      issue. In Mescalero Apache Tribe the Supreme Court faced
                                      the question whether a tribally owned ski resort was exempt
                                      from State tax 24 when it was unclear whether the resort was
                                      an unincorporated entity operating under section 16 (i.e., as
                                      a governmental organization) or was a section 17 corporation.
                                      Id. at 157 n.13. The Court concluded that under either form
                                      the ski resort would be subject to State tax, since the activity
                                           24 The
                                                exemption at issue             in Mescalero Apache Tribe v. Jones, 411 U.S.
                                      145 (1973), arose under the              provision that ‘‘any lands or rights acquired’’
                                      pursuant to any provision of             the IRA ‘‘shall be exempt from State and local
                                      taxation.’’ 25 U.S.C. sec. 465           (1968).




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                                      (230)                    UNIBAND, INC. v. COMMISSIONER                                      263


                                      was conducted outside of the borders of the Indian reserva-
                                      tion. Id. at 157–158. In so concluding, the Supreme Court
                                      stated that ‘‘the question of tax immunity cannot be made to
                                      turn on the particular form in which the Tribe chooses to
                                      conduct its business.’’ Id. at 157 n.13.
                                         In 1981 the Commissioner, relying on this statement in
                                      Mescalero Apache Tribe, concluded that a ‘‘federally char-
                                      tered Indian tribal corporation shares the same tax status as
                                      the Indian tribe and is not taxable on income from activities
                                      carried on within the boundaries of the reservation.’’ Rev.
                                      Rul. 81–295, 1981–2 C.B. 15. Revenue Ruling 81–295 did not
                                      address State-chartered corporations owned by Indian tribes.
                                         In 1994 the Commissioner clarified Revenue Ruling 81–295
                                      in Revenue Ruling 94–16, 1994–1 C.B. at 20, in which he
                                      stated:
                                           An Indian tribal corporation organized under section 17 of the IRA
                                           shares the same tax status as the tribe. Therefore, any income earned
                                           by such a corporation, regardless of the location of the business activities
                                           that produced the income, is not subject to federal income tax. * * * [A]
                                           corporation organized by an Indian tribe under state law does not share
                                           the same tax status as the tribe for federal income tax purposes and is
                                           subject to federal income tax on any income earned, regardless of the
                                           location of the business activities that produced the income.

                                         The ‘‘check-the-box’’ regulations, effective January 1, 1997,
                                      followed the approach of Revenue Ruling 94–16. The regula-
                                      tion addressed the classification of section 17 corporations for
                                      tax purposes by providing that ‘‘tribes incorporated under
                                      section 17 of the Indian Reorganization Act of 1934 * * * are
                                      not recognized as separate entities for federal tax purposes.’’
                                      26 C.F.R. sec. 301.7701–1(a)(3). Under this regulation, a sec-
                                      tion 17 corporation is not regarded as separate from the tribe
                                      for tax purposes and, as a result, is not subject to Federal
                                      income tax.
                                           (4) Uniband’s differences from a section 17 corporation
                                         Uniband does not have the distinctive characteristics of a
                                      section 17 corporation, as outlined above. First, unlike a sec-
                                      tion 17 corporation that is established at the discretion of the
                                      Secretary of the Interior and that is given only the powers
                                      that the Secretary of the Interior approves, Uniband was
                                      established by the decision of TMBCI and its co-shareholder




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                                      264                 140 UNITED STATES TAX COURT REPORTS                                   (230)


                                      and was given by them all the lawful powers that a Dela-
                                      ware corporation may possess.
                                         Second, unlike a section 17 charter, which ‘‘shall not be
                                      revoked or surrendered except by Act of Congress’’, Uniband
                                      exists at the pleasure of its owner, TMBCI, and its charter
                                      can be revoked by the State of Delaware. See Del. Code Ann.
                                      tit. 8, sec. 284(a) (2011) (‘‘The Court of Chancery shall have
                                      jurisdiction to revoke or forfeit the charter of any corporation
                                      for abuse, misuse or nonuse of its corporate powers, privi-
                                      leges or franchises’’).
                                         Third, Uniband does not possess the special power to pur-
                                      chase restricted Indian lands, a power that a section 17 cor-
                                      poration is given by statute.
                                         Fourth, Uniband is not bound by the restrictions the IRA
                                      places on the alienation of section 17 corporate stock and of
                                      certain corporate-owned land. TMBCI is free to sell all or
                                      part of its Uniband stock, as it could any investment.
                                         In sum, Uniband lacks the special character of a section 17
                                      corporation and its special relationship to an Indian tribe. As
                                      a State-chartered corporation, it is an investment of TMBCI;
                                      its stock is property owned by TMBCI. It is not an integral
                                      part of TMBCI but is a distinct corporate entity with its own
                                      tax character. Accordingly, unlike TMBCI, Uniband is sub-
                                      ject to Federal income tax.
                                      II. Consolidated return issue
                                         We now turn to Uniband’s alternative claim that for tax
                                      years 1996, 1997, and 1998 it was entitled to and did prop-
                                      erly file consolidated returns with its sister corporation
                                      TMMC. The filing of a consolidated return is a ‘‘privilege’’,
                                      sec. 1501, as to which the Secretary is explicitly authorized
                                      to promulgate regulations, 25 sec. 1502. To prevail with this
                                      claim, Uniband must show that Uniband and TMMC were
                                      part of an affiliated group of corporations and that the group
                                      filed valid consolidated returns for the years in issue. 26
                                      Uniband’s claim fails for multiple reasons.
                                        25 The consolidated return regulations are legislative in character and

                                      have the force and effect of law. Salem Packing Co. v. Commissioner, 56
                                      T.C. 131, 141 (1971).
                                        26 Because we hold against Uniband on both these grounds, we need not

                                      address the Commissioner’s further contention that the 1996 consolidated
                                      return, even if otherwise valid, was untimely.




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                                      (230)                    UNIBAND, INC. v. COMMISSIONER                                      265


                                           A. Uniband was not part of an affiliated group.
                                         Section 1501 provides that ‘‘[a]n affiliated group of corpora-
                                      tions shall * * * have the privilege of making a consolidated
                                      return’’. An affiliated group is one or more chains of ‘‘includ-
                                      ible corporations’’ connected through the requisite stock
                                      ownership by a common parent corporation which is also an
                                      ‘‘includible corporation’’. Sec. 1504(a). An ‘‘includible corpora-
                                      tion’’ is any corporation, except those specifically excluded in
                                      section 1504(b). See sec. 1504(b)(1)–(8).
                                         Uniband contends that itself, TMMC, and TMBCI are all
                                      corporations within the meaning of section 7701(a) and 26
                                      C.F.R. section 301.7701–2(b), Proced. & Admin. Regs., and
                                      therefore are ‘‘includible corporations’’ in an ‘‘affiliated
                                      group’’, eligible to make a consolidated return. With regard
                                      to TMBCI, Uniband argues that it is a corporation, first,
                                      because it is a ‘‘body politic’’ described in 26 C.F.R. section
                                      301.7701–2(b)(1), and, second, because it is treated as a cor-
                                      poration for purposes of the wagering tax imposed by section
                                      4401. 27 We disagree with both of Uniband’s arguments. 28
                                         27 Uniband in its briefing appears to ask us to reconsider our order strik-

                                      ing Uniband’s third contention that TMBCI is a corporation because it is
                                      an ‘‘association’’ for tax purposes. We will not do so, since in response to
                                      a request for admissions, Uniband explicitly admitted that during the peri-
                                      ods at issue it was not ‘‘an entity of the type described in Treas. Reg. §
                                      301.7701–2(b)(2)’’ (i.e., an ‘‘association’’) and then agreed to the same as-
                                      sertion in the parties’ joint stipulation. See order of Dec. 10, 2010; see also
                                      United States v. Mazurie, 419 U.S. 544, 557 (1975) (‘‘Indian tribes are
                                      unique aggregations possessing attributes of sovereignty over both their
                                      members and their territory’’; and ‘‘Indian tribes within ‘Indian country’
                                      are a good deal more than ‘private, voluntary organizations’ ’’), discussed
                                      above in part I.A.3. Uniband’s ‘‘association’’ argument addresses whether
                                      Uniband and TMMC were in an affiliated group (discussed in this part
                                      II.A.), and if this argument prevailed, it would, by itself, still be unavailing
                                      given our conclusion, see part II.B., that even if Uniband and TMMC were
                                      in an affiliated group, the consolidated returns that were filed are still in-
                                      valid.
                                         28 The Commissioner argues in the alternative that since TMBCI is an

                                      Indian tribe and the Code ‘‘provides for special treatment of that organiza-
                                      tion’’, 26 C.F.R. sec. 301.7701–1(b), the entity classification regulations do
                                      not apply to TMBCI. Given our conclusion that TMBCI is not described
                                      within the definition of a ‘‘corporation’’ as provided in 26 C.F.R. sec.
                                      301.7701–2(b), Proced. & Admin. Regs., we do not need to address whether
                                      the Code ‘‘provides for special treatment’’ of TMBCI for purposes of 26
                                                                                                       Continued




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                                      266                 140 UNITED STATES TAX COURT REPORTS                                   (230)


                                           1. Body politic
                                         For tax purposes, the term ‘‘corporation’’ includes ‘‘[a] busi-
                                      ness entity organized under a Federal or State statute, or
                                      under a statute of a federally recognized Indian tribe, if the
                                      statute describes or refers to the entity as incorporated or as
                                      a corporation, body corporate, or body politic’’. 26 C.F.R. sec.
                                      301.7701–2(b)(1). TMBCI is an unincorporated band of
                                      Indians organized under a revised constitution and by-laws
                                      approved by the Secretary of the Interior pursuant to 25
                                      U.S.C. section 476. Nothing in TMBCI’s organizing statute,
                                      25 U.S.C. section 476, or even TMBCI’s constitution ‘‘refers
                                      to [TMBCI] * * * as * * * [a] body politic’’. Accordingly,
                                      TMBCI can not be considered a corporation under the defini-
                                      tion provided in 26 C.F.R. section 301.7701–2(b)(1).
                                           2. An entity taxed as a corporation
                                         The term ‘‘corporation’’ also includes ‘‘[a] business entity
                                      that is taxable as a corporation under a provision of the
                                      Internal Revenue Code other than section 7701(a)(3)’’. 26
                                      C.F.R. sec. 301.7701–2(b)(7). Uniband argues that TMBCI is
                                      taxed as a corporation for purposes of the wagering tax
                                      imposed by section 4401 and that it is therefore a corporation
                                      under 26 C.F.R. section 301.7701–2(b)(7). It is true that
                                      Indian tribes, including TMBCI, are subject to tax under sec-
                                      tion 4401, see Chickasaw Nation, 534 U.S. at 95, but not
                                      because tribes are corporations. Rather, section 4401 imposes
                                      an excise tax on certain wagers and provides that ‘‘[e]ach per-
                                      son who is engaged in the business of accepting wagers shall
                                      be liable for and shall pay the tax under this subchapter on
                                      all wagers placed with him.’’ Sec. 4401(c) (emphasis added).
                                      An Indian tribe is considered a ‘‘person’’ for purposes of sec-
                                      tion 4401(c), see Chickasaw Nation, 208 F.3d at 878–879, and
                                      it is this classification (i.e., as a person, not as a corporation)
                                      that makes TMBCI taxable under section 4401. Therefore,
                                      section 4401 does not cause TMBCI to be a corporation under
                                      the terms of 26 C.F.R. section 301.7701–2(b)(7).



                                      C.F.R. sec. 301.7701–1(b). Cf. part I.A.3. above.




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                                      (230)                    UNIBAND, INC. v. COMMISSIONER                                      267


                                           B. The consolidated returns were not valid.
                                        Even if we assume, contrary to our holding in part II.A.
                                      above, that Uniband was part of an affiliated group entitled
                                      to file a consolidated return, the purported consolidated
                                      returns that Uniband filed were invalid because TMBCI did
                                      not make the returns, did not consent to them, and did not
                                      report its items on them.
                                           1. TMBCI did not make the consolidated returns.
                                         26 C.F.R. section 1.1502–75(h)(1), Income Tax Regs.,
                                      states: ‘‘The consolidated return shall be made on Form 1120
                                      for the group by the common parent corporation.’’ Assuming
                                      (as Uniband contends) that TMBCI were properly treated as
                                      a corporation, then it would be TMBCI that would be ‘‘the
                                      common parent corporation’’ and that would have to make
                                      the consolidated return in order for it to be a valid consoli-
                                      dated return. However, Uniband has stipulated that TMBCI
                                      has not filed any tax returns for the years at issue. Instead,
                                      it is Uniband and not TMBCI that appears as the taxpayer
                                      on each of the Forms 1120 filed for the years at issue.
                                      Accordingly, all of the consolidated returns that Uniband
                                      filed with TMMC for 1996, 1997, and 1998 (including the
                                      amended 1998 consolidated return) are invalid because
                                      Uniband, not TMBCI, filed the returns. This major irregu-
                                      larity produced a related but distinct fatal flaw:
                                           2. TMBCI did not consent to the consolidated returns.
                                           Section 1501 provides in part:
                                           The making of a consolidated return shall be upon the condition that all
                                           corporations which at any time during the taxable year have been mem-
                                           bers of the affiliated group consent to all the consolidated return regula-
                                           tions prescribed under section 1502 prior to the last day prescribed by
                                           law for the filing of such return. The making of a consolidated return
                                           shall be considered as such consent. * * * [Emphasis added.]

                                      Corresponding regulations provide:
                                           The consent of a corporation * * * [to all of the consolidated return
                                           regulations] shall be made by such corporation joining in the making of
                                           the consolidated return for such year. A corporation shall be deemed to
                                           have joined in the making of such return for such year if it files a Form
                                           1122 in the manner specified in paragraph (h)(2) of this section. [26
                                           C.F.R. sec. 1.1502–75(b)(1).]




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                                      268                 140 UNITED STATES TAX COURT REPORTS                                   (230)


                                      The directions in 26 C.F.R. section 1.1502–75(h)(2) for filing
                                      Form 1122, ‘‘Authorization and Consent of Subsidiary Cor-
                                      poration To Be Included in a Consolidated Income Tax
                                      Return’’, require that each subsidiary execute a Form 1122
                                      and that the forms be attached to the consolidated return.
                                          Thus, the parent ‘‘mak[es]’’ the return, 26 C.F.R. sec.
                                      1.1502–75(h)(1), and thereby ‘‘consent[s]’’ to it, sec. 1501; and
                                      the subsidiary ‘‘consent[s]’’ to the return by ‘‘joining in
                                      making’’ it, 26 C.F.R. sec. 1.1502–75(b)(1). Paragraph (h)(2)
                                      gives directions for the subsidiary to file the ‘‘Authorization
                                      and Consent’’, and not for the common parent to do so,
                                      because the preceding paragraph (h)(1) provides: ‘‘The
                                      consolidated return shall be made on Form 1120 for the
                                      group by the common parent corporation.’’ 26 C.F.R. sec.
                                      1.1502–75(h)(1) (emphasis added). 29
                                          Accordingly, a common parent does not consent by
                                      ‘‘join[ing]’’ a return; instead, as section 1501 itself provides:
                                      ‘‘The making of * * * [the return] shall be considered as
                                      such [i.e., common parent’s] consent’’. But TMBCI neither
                                      ‘‘made’’ the returns at issue here nor ‘‘joined’’ them, and it
                                      therefore never consented to them. 30



                                         29 The consolidated return must be executed by the common parent’s

                                      ‘‘president, vice president, treasurer, assistant treasurer, chief accounting
                                      officer or any other officer duly authorized so to act.’’ Sec. 6062 (cited in
                                      26 C.F.R. sec. 1.1502–75(h)(3), Income Tax Regs.).
                                         30 26 C.F.R. section 1.1502–75(e) suggests that failing to include an affili-

                                      ated corporation on a consolidated return may not be fatal to the return:
                                           If a consolidated return is required for the taxable year under the provi-
                                           sions of paragraph (a)(2) of this section [requiring continued filing of con-
                                           solidated returns, if they were filed for the preceding year], the tax li-
                                           ability of all members of the group for such year shall be computed on
                                           a consolidated basis even though * * * [t]here has been a failure to in-
                                           clude in the consolidated return the income of any member of the group.

                                      However, in order to invoke this provision, the provisions of 26 C.F.R. sec-
                                      tion 1.1502–75(a)(2) must first apply, which requires at least one correct
                                      and valid consolidated return to have been filed for the prior year. None
                                      of the returns in this case satisfies this condition because none of the re-
                                      turns was filed by TMBCI, the common parent, as required by 26 C.F.R.
                                      section 1.1502–75(h)(1).




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                                      (230)                    UNIBAND, INC. v. COMMISSIONER                                      269


                                           3. TMBCI did not report its items on the consolidated
                                              returns for 1996 or 1997.
                                         Although the consolidated return regulations require that
                                      ‘‘[a] consolidated return must include the common parent’s
                                      items of income, gain, deduction, loss, and credit for the
                                      entire consolidated return year,’’ 26 C.F.R. sec. 1.1502–
                                      76(b)(1)(i), Income Tax Regs., no such items for TMBCI
                                      appear on Uniband’s consolidated returns for 1996 or 1997.
                                      Subsidiaries are not entitled to file a consolidated return that
                                      does not include a common parent’s tax items. Charles
                                      Schneider & Co. v. Commissioner, T.C. Memo. 1973–130,
                                      aff ’d, 500 F.2d 148 (8th Cir. 1974).
                                         Uniband acknowledged as much when it filed the amended
                                      1998 consolidated return including information for TMBCI,
                                      albeit in the form of zeros for each item. 31 However,
                                      Uniband did not make similar corrections for the 1996
                                      amended return or the 1997 return, which do not contain any
                                      of TMBCI’s tax items. Accordingly, the 1996 and 1997 puta-
                                      tive consolidated returns were invalid for that additional rea-
                                      son.
                                         For each year at issue, Uniband’s consolidated returns
                                      have multiple irregularities that render them invalid.
                                      Uniband’s tax liability will therefore be calculated without
                                      including TMMC’s tax items.


                                         31 Because the 1998 consolidated return was invalid for other reasons,

                                      we need not consider whether in fact the zero entries render invalid the
                                      purported consolidated return. It seems certain that Uniband reported
                                      zeros not because those zero amounts corresponded to anything on
                                      TMBCI’s books but because Uniband takes the position that, because
                                      TMBCI is exempt, its items to be reported are all zero. If so, then the re-
                                      turns do not actually ‘‘consolidate’’ TMBCI’s real items with Uniband’s and
                                      TMMC’s but ignore them and use TMBCI as a figurehead. This dem-
                                      onstrates the anomaly of attempting a consolidated return where the par-
                                      ent is not subject to tax but the subsidiaries are. See sec. 1504(b)(1) (ex-
                                      cluding from the definition of ‘‘includable corporation’’ eligible to join a con-
                                      solidated return corporations exempt from tax under sec. 501); cf. 26
                                      C.F.R. sec. 1.1502–100, Income Tax Regs. (allowing a tax-exempt corpora-
                                      tion in special circumstances to file consolidated returns with other exempt
                                      corporations, but changing the items that the corporations are required to
                                      report).




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                                      270                 140 UNITED STATES TAX COURT REPORTS                                   (230)


                                      III. Wage deduction reduction issue
                                         For the years at issue Uniband deducted the entirety of its
                                      wage and employee expenses as business expenses under sec-
                                      tion 162. The Commissioner maintains that a portion of
                                      those expenses—i.e., an amount equal to the ‘‘Indian employ-
                                      ment credit’’ determined under section 45A—is not deductible
                                      pursuant to section 280C. In Uniband’s case, the amount of
                                      the credit as determined under section 45A is limited by sec-
                                      tion 38(c)(1), so that the Commissioner reduced Uniband’s
                                      wage deduction by amounts of credit that were not actually
                                      allowed. Uniband responds with two arguments. First, it
                                      argues that the credit under section 45A is not mandatory,
                                      so that if a taxpayer chooses not to claim the allowed credit
                                      determined under section 45A (as was the case on Uniband’s
                                      returns), then the wage deduction should not be reduced.
                                      Second, Uniband argues that section 280C should be inter-
                                      preted as limiting the deductibility of wage and salary
                                      expenses only to the extent of the credit actually allowed
                                      after applying the limits imposed by section 38(c)(1), which
                                      significantly limited the allowance of credits in Uniband’s
                                      case. 32 Neither of Uniband’s arguments prevails.
                                         The statutory framework is as follows. Section 280C(a) dis-
                                      allows a deduction for ‘‘wages or salaries paid or incurred for
                                      the taxable year which is equal to the sum of the credits
                                      determined for the taxable year under section[] 45A(a)’’. Sec-
                                      tion 45A(a) determines the amount of the Indian employment
                                      credit and provides in part:
                                             SEC. 45A(a). Amount of Credit.—For purposes of section 38, the
                                           amount of the Indian employment credit determined under this section
                                           with respect to any employer for any taxable year is an amount equal
                                           to 20 percent of the excess (if any) of—
                                               (1) the sum of—

                                           32 As
                                              applied in this case, section 38(c)(1) limits the amount of Uniband’s
                                      general business credit to the excess of Uniband’s net income tax (cal-
                                      culated without credits allowed under subparts A and B) over Uniband’s
                                      tentative minimum tax for the taxable year. For the years at issue,
                                      Uniband’s tentative minimum tax was relatively high, causing a smaller
                                      excess between the net income tax and tentative minimum tax, which in
                                      turn caused a significantly smaller allowable credit for Uniband than was
                                      otherwise determined under section 45A. Any of Uniband’s unused Indian
                                      employment credits, however, can be carried forward for 20 years. Sec. 39.




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                                      (230)                    UNIBAND, INC. v. COMMISSIONER                                      271


                                                (A) the qualified wages paid or incurred during such taxable year,
                                              plus
                                                (B) qualified employee health insurance costs paid or incurred
                                              during such taxable year, over
                                              (2) the sum of the qualified wages and qualified employee health
                                            insurance costs (determined as if this section were in effect) which
                                            were paid or incurred by the employer (or any predecessor) during cal-
                                            endar year 1993.

                                         The Indian employment credit is one of several credits that
                                      are included in calculation of the general business credit
                                      allowed under section 38. Hence, section 45A itself does not
                                      actually ‘‘allow’’ a credit; rather, it provides an ‘‘amount
                                      * * * determined’’ (emphasis added) that becomes a compo-
                                      nent of what is ‘‘allowed as a credit’’ by section 38(a)
                                      (emphasis added). This distinction is important to the deduc-
                                      tion limitation in section 280C, because the limitation is cal-
                                      culated not by credits currently ‘‘allowed’’ but by ‘‘credits
                                      determined for the taxable year under section[ ] 45A(a)’’. Sec.
                                      280C (emphasis added). Unlike some other components of the
                                      general business credit, there is nothing in section 45A which
                                      makes the determination of the amount of the credit permis-
                                      sive. 33 Thus, contrary to Uniband’s assertions, the deter-
                                      mination of the credit amount under section 45A—and con-
                                      sequently, the deduction limitation under section 280C—
                                      occurs independently of whether the general business credit
                                      is currently fully allowed under section 38(a) or instead is
                                      limited by section 38(c)(1).
                                         Uniband asks us to depart from the plain language of sec-
                                      tion 280C and interpret it as if it limited the deductibility of
                                      wage and salary expenses only to the extent credits are cur-
                                         33 Cf. sec. 51(j)(1) (‘‘A taxpayer may elect to have this section [work op-

                                      portunity credit] not apply for any taxable year’’); sec. 40(f)(1) (‘‘A taxpayer
                                      may elect to have this section [alcohol fuel credit] not apply for any taxable
                                      year’’); sec. 43(e)(1) (‘‘A taxpayer may elect to have this section [enhanced
                                      oil recovery credit] not apply for any taxable year’’), sec. 45B(d)(1) (‘‘This
                                      section [credit for portion of employer Social Security taxes paid with re-
                                      spect to employee cash tips] shall not apply to a taxpayer for any taxable
                                      year if such taxpayer elects to have this section not apply for such taxable
                                      year’’), sec. 45E(e)(3) (‘‘This section [small employer pension plan startup
                                      cost credit] shall not apply to a taxpayer for any taxable year if such tax-
                                      payer elects to have this section not apply for such taxable year’’), sec.
                                      45H(g) (‘‘No credit [for production of low sulfur diesel fuel] shall be deter-
                                      mined under subsection (a) for the taxable year if the taxpayer elects not
                                      to have subsection (a) apply to such taxable year’’).




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                                      272                 140 UNITED STATES TAX COURT REPORTS                                   (230)


                                      rently allowed after applying the limits imposed by section
                                      38(c)(1). Uniband argues we should adopt this interpretation
                                      because the purpose of section 45A was to increase employ-
                                      ment on the reservations of economically disadvantaged
                                      Indian tribes, but the Commissioner’s interpretation of sec-
                                      tion 280C frustrates this purpose. Uniband has a point. On
                                      its facts, and given the way the statutes are worded,
                                      Uniband would apparently have been better off not to hire as
                                      many Indians as it did—a circumstance that Congress did
                                      not likely intend.
                                         However, ‘‘If the plain language of the statute is unambig-
                                      uous, that language is conclusive absent clear legislative
                                      intent to the contrary. * * * Therefore, if the intent of Con-
                                      gress can be clearly discerned from the statute’s language,
                                      the judicial inquiry must end.’’ United States v. S.A., 129
                                      F.3d 995, 998 (8th Cir. 1997). The plain language of the stat-
                                      utes (sections 38, 45A, and 280C) reflect a legislative intent
                                      to create a tax advantage to spur economic development for
                                      Indian communities—but a tempered advantage that has
                                      built-in checks (e.g., section 38(c)(1)) to prevent potential
                                      abuse.
                                         Moreover, Congress has shown that it is aware of the
                                      conundrum of the sort that faces Uniband and that it knows
                                      how to fix it when it wants to—i.e., by allowing a credit
                                      determination to be optional in certain cases. See note 33
                                      above. For example, the legislative history to the research
                                      credit provision in section 51(g), H.R. Rept. No. 100–795, at
                                      453 (1988), states: ‘‘The election [in section 51(g)] is intended
                                      to address the situation in which a taxpayer cannot claim the
                                      full amount of the research credit that is otherwise allowable
                                      because of the limitation imposed by the alternative min-
                                      imum tax; in that situation, the taxpayer could avoid reduc-
                                      tion of the deduction by electing not to claim the credit.’’
                                      Congress made no such provision as to the Indian employ-
                                      ment credit. Accordingly, we adhere to the plain language of
                                      the statutes and sustain the Commissioner’s disallowance of
                                      the business expenses, notwithstanding some arguable
                                      anomaly in the result.




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                                      (230)                    UNIBAND, INC. v. COMMISSIONER                                      273


                                      IV. Conclusion
                                         For the foregoing reasons we conclude that Uniband is not
                                      exempt from tax, that the consolidated returns that Uniband
                                      filed with TMMC were invalid, and that Uniband’s wage and
                                      employee expense deductions for the years at issues should
                                      have been reduced by the amount of the Indian employment
                                      credit determined under section 45A, whether or not limited
                                      by section 38(c)(1).
                                         To effect the foregoing,
                                                                   Decision will be entered pursuant to Rule 155.

                                                                               f




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