## Facts

- Horton Capoeman, a “full-blood, noncompetent” Quinaielt Indian, held a 93.25-acre allotment on the Quinaielt Reservation under a trust patent issued under the General Allotment Act of 1887.
- Legal title remained in the United States during the trust period; Capoeman could not alienate or encumber the land without federal consent, which had not been given.
- Acting as trustee, the United States sold standing timber from the allotment and held the proceeds for Capoeman.
- The Internal Revenue Service assessed federal capital gains tax on the timber-sale proceeds.
- Capoeman paid the tax and sued for a refund, claiming the proceeds were protected from taxation by treaty and by the General Allotment Act’s trust arrangement.
- The district court ruled for the Government; the Ninth Circuit reversed; the Supreme Court granted review.

## Issues

1. Whether federal capital gains tax may be imposed on proceeds from the Government’s sale of standing timber from an Indian’s trust allotment during the trust period.
2. Whether the General Allotment Act’s provisions and the trust patent protect not only the land but also income derived directly from the land’s natural resources before issuance of a fee patent.
3. Whether general federal income tax statutes override, absent clear congressional statement, tax protections associated with trust allotments.

## Decision

- The Supreme Court affirmed the Ninth Circuit and held the timber-sale proceeds were not subject to federal capital gains tax while the allotment remained in trust.
- The Court read the General Allotment Act to contemplate freedom from taxation during the trust period, given that restrictions “as to taxation” are removed only when a fee patent issues.
- The Court concluded that taxing proceeds from sale of standing timber would reduce the value of the allotment that Congress intended to preserve for the allottee at the end of the trust period.
- The Court rejected the Government’s argument that later income tax statutes impliedly repealed the allotment-related tax protection, finding no clear congressional intent.
- The Court distinguished Superintendent of Five Civilized Tribes v. Commissioner, which involved taxability of investment income rather than proceeds derived directly from trust land.

## Legal Principles

- Indians are generally subject to federal income taxation, but specific treaty and statutory provisions may create tax protection in particular contexts.
- Under the General Allotment Act, an allotment held in trust is protected from taxation until issuance of a fee patent, absent a clear contrary directive from Congress.
- The protection during the trust period extends to income derived directly from the trust land, including proceeds from exploitation of natural resources that are part of the land (such as standing timber).
- General tax statutes are not read to abrogate specific Indian-law protections without clear congressional intent.
- Ambiguities in statutes and treaties concerning Indians are construed liberally in favor of Indians.

## Conclusion

The Court held that federal capital gains tax could not be imposed on proceeds from the Government’s sale of standing timber from a noncompetent Indian’s trust allotment because the General Allotment Act’s trust-period protections preserve the land and its directly derived value from taxation until a fee patent issues.


Squire v. Capoeman, 351 U.S. 1 (1956)