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 Rev. Rul. 58-64

1958-1 C.B. 12

Caution: Revoked by Rev. Rul. 62-16

IRS Headnote

Income derived from the sale of cattle raised on allotted and restricted Indian lands while such lands are held by the United States, as trustee, in accordance with section 5 of the General Allotment Act of 1887, is not considered income derived directly from the land and is therefore includible in gross income. If such income constitutes income from a trade or business, it is also includible in computing net earnings from self-employment for the purpose of the tax imposed by the Self-Employment Contributions Act of 1954.

Revenue Ruling 56-342, C.B. 1956-2, 20, amplified.

Full Text

Rev. Rul. 58-64

Advice has been requested regarding the application of Revenue Ruling 56-342, C.B. 1956-2, 20, to income derived from the sale of cattle raised on allotted and restricted Indian lands.

The taxpayer, an Indian, is the patent holder of certain allotted and restricted Indian lands held by the United States, as trustee, in accordance with section 5 of the General Allotment Act of 1887, 24 Stat. 388, as amended, 25 U.S.C. 348. The taxpayer's income results primarily from the sale of cattle raised on his allotted lands.

Revenue Ruling 56-342, supra , based on the decision of the Supreme Court of the United States in Squire v. Horton Capoeman et ux , 351 U.S. 1, Ct. D. 1796, C.B. 1956-1, 605, holds that income held in trust for or received by the patent holder which is derived directly from allotted and restricted Indian lands while such lands are held by the United States, as trustee, in accordance with section 5 of the General Allotment Act, supra , is exempt from Federal income tax. Some types of income exempt under this Revenue Ruling are rentals (including crop rentals), royalties, proceeds from the sales of natural resources, income from the sale of crops, and income from the use of the land for grazing purposes.

The afore-mentioned exempt sources of income are nontaxable only to the extent that they are derived from lands held in trust for the taxpayer. Such income derived from land which the taxpayer rents from other patent holders is includible in his gross income as it is not `income held in trust for or received by the patent holder' within the meaning of Revenue Ruling 56-342, supra . See Revenue Ruling 57-523, C.B. 1957-2, 51.

The term `income from the use of the land for grazing purposes' in Revenue Ruling 56-342, supra , pertains to income received for allowing the use of the land for grazing purposes, such as `grazing fees,' as referred to in Revenue Ruling 57-523, supra , and does not refer to income received from the sale of cattle, poultry, or other animals which were raised on the allotted land.

Income derived from a `trade or business' as defined in section 1402(c) of the Self-Employment Contributions Act of 1954, which is includible in gross income and which is not within the exclusions specified in section 1402(a), for Federal income tax purposes, is includible in computing net earnings from self-employment. The gain or loss from the sale of livestock held primarily for sale to customers in the ordinary course of the taxpayer's trade or business is includible in computing net earnings from self-employment regardless of how long held, or whether raised or purchased. See also sections 1.1402(a) and (c) of the Income Tax Regulations.

Accordingly, income derived from the sale of cattle raised on allotted and restricted Indian lands while such lands are held by the United States, as trustee, in accordance with section 5 of the General Allotment Act of 1887, supra , is not considered income derived directly from the land and is therefore includible in gross income. If such income constitutes income from a trade or business, it is also includible in computing net earnings from self-employment for the purpose of the tax imposed by the Self-Employment Contributions Act of 1954.