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ITG FAQ #3 Answer-With regard to Indian tribes, what is the significance of land held in trust?

General principles applicable to the federal income tax treatment of income received by Indians are described in Revenue Ruling 67-284, 1967-2 C.B.55. Five tests must be met for such income to be excludable:

  • the land in question must be held in trust by the United States Government;
  • such land must be restricted and allotted and held for an individual non-competent Indian;
  • the income must be derived directly from the land;
  • the statute, treaty or other authority involved must evidence congressional; intent that the allotment be used as a means of protecting the Indian until such time as he becomes competent; and
  • the authority in question must contain language indicating clear congressional intent that the land, until conveyed in fee simple to the allottee, is not to be subject to taxation.

Payments derived directly from the land include such items as:

  • rentals (including crop rentals);
  • royalties;
  • proceeds from the sale of natural resources on the land and from the sale of cattle and other livestock raised on the land; and
  • income from the sale of crops grown on the land or from the use of the land for grazing purposes. ( Revenue Ruling 56-342, 1956-2 C.B. 20, as amplified by Revenue Ruling 62-16, 1962-1 C.B. 7)

Payments made to non-competent Indians under programs administered by the Department of Agriculture's Stabilization and Conservation Service are income "derived directly from the land" and are excludable from gross income. ( Revenue Ruling 69-289, 1969-1 C.B. 34)

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Page Last Reviewed or Updated: 17-Nov-2016