Rev. Rul. 68-204

Advice has been requested whether transfers of interests in realty under the circumstances described below were subject to the documentary stamp tax imposed by section 4361 of the Code prior to its repeal as of January 1, 1968.

In connection with the construction of a dam and reservoir project by the Bureau of Reclamation, it was necessary that the United States provisions of the General Allotment title to certain tracts of land allotted to individual members of a tribe of Indians. The tracts were allotted to the Indians under the provisions of the Geenral Allotment Act of February 8, 1887 (24 Stat. 388, 25 U.S.C. 331 et seq. ). Under the Allotment Act, titles to the allotted lands are held by the United States in trust for the sole use and benefit of the allottees, or their heirs or devisees, for a period of 25 years. The trust period had been extended from time to time as authorized in the Allotment Act, so that the lands in question remained in the same condition of trust as was imposed when they were allotted.

Section 4361 of the Code imposes a documentary stamp tax on each deed, instrument, or writing by which any lands, tenements, or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or purchasers, or any other person or persons, by his or their direction, when the consideration or value of the interest or property conveyed (exclusive of the value of any lien or encumbrance remaining thereon at the time of sale) exceeds $100. The tax imposed by section 4361 does not apply on and after January 1, 1968.

Section 4384 of the Code provides that the documentary stamp tax imposed by section 4361 is to be paid by any person who is a party to a taxable conveyance of realty. However, section 4384 further provides that the United States or any agency or instrumentality thereof is not liable for the tax imposed by section 4361, and affixing of documentary stamps by such agency or instrumentality is not considered payment for the tax, which may be collected by assessment from any other person who is a party to the conveyance.

In Squire v. Capoeman , 351 U.S. 1 (1956), Ct.D. 1796, C.B. 1956-1, 605, the question was whether a Quinaielt Indian was taxable upon income received from the sale of timber from lands allotted to him under the General Allotment Act. Under section 5 of that Act, each Indian was to be allotted a specified amount of land, which was to be held in trust for him for a stated period, and which, upon termination of the trust, was to be conveyed to him `free of all charge or incumbrance whatsoever.' Section 6 of the Act further provided as follows:

That the Secretary of the Interior may in his discretion, and he is authorized, whenever he shall be satisfied that any Indian allottee is competent and capable of managing his or her affairs at any time to cause to be issue to such allottee a patent in fee simple, and thereafter all restrictions as to sale incumbrance or taxation of said land shall be removed and said land shall not be liable to the satisfaction of any debt contracted prior to the issuing of such patent * * *.

The Court held that section 5 of the Act implicitly prohibited taxation of income from the sale of timber from the allotted lands, as such a tax would constitute a `charge' or `incumbrance' within the meaning of that provision, and that section 6 further implicitly prohibited taxation of income from the land before a fee simple patent to the land was issued, by providing that restrictions as to taxation of the land would be removed when the Secretary issued the allottee a fee simple patent to the land. Hence, the Court held that the tax in question was prohibited by the terms of the General Allotment Act. However, the Court made clear that the tax exemption stemmed solely from that Act, and that Indians are not generally exempt from taxation, stating that `Indians are citizens and . . . in the ordinary affairs of life, not governed by treaties or remedial legislation, they are subject to the payment of income taxes as are other citizens.' 351 U.S. at 6.

The provisions of the General Allotment Act, as construed by the Supreme Court of the United States in Squire v. Capoeman , operate to make the real estate transfer presently under consideration exempt from the documentary stamp tax provided by section 4361 of the Code. Just as the allottee in Capoeman would not have received the full proceeds from the sale of timber from his allotted land if Federal Income tax had been imposed thereon, the Indian allottee in the instant case would not receive the full proceeds from the sale of the allotted land if he were required to pay documentary stamp tax on the conveyance. Thus, to impose the documentary stamp tax upon this transfer would be inconsistent with sections 5 and 6 of the General Allotment Act.

For the foregoing reasons, no documentary stamp tax liability is incurred by the Indians in the factual situation described above and stamps are not required to be purchased and affixed to the instruments evidencing the conveyances to the United States.