ITG FAQ #2 Answer-What is meant by the term “non-competent Indian?
Non-competent is used to denote an Indian's inability to hold fee simple title to trust land. This status generally exempts income "directly derived" from the land from federal income tax. The term "non-competent" is sometimes interchanged with the word "restricted".
Another description of non-competent Indians is those who, by treaty, cannot alienate certain lands they own. ( Revenue Ruling 77-78, 1977-1 C.B. 12) An Indian's technical status as a non-competent is not by itself a ground for income tax exemption. Federal revenue laws are of general applicability. Indians are subject to them, whether competent or otherwise. Tax exemptions must be stated specifically.
NOTE: This term should never be confused with "incompetent", which refers to one's inadequacy for a particular purpose.