On Petition to review the decision of the United States Board of Tax Appeals.
Before PHILLIPS, HUXMAN, and MURRAH, Circuit Judges.
This is an appeal from the Board of Tax Appeals and involves the question whether the net estate of a deceased full-blood restricted Creek Indian, consisting of a restricted allotment and the proceeds of oil and gas produced therefrom, is subject to the estate tax imposed by Section 301(a) of the Revenue Act of 1926, 26 U.S.C.A. Int. Rev. Acts, page 225, and the Revenue Act of 1932.
The question presents a contest between the Treasury Department, through the Commissioner of Internal Revenue, who seeks to impose the tax, and the Department of Interior, through the Superintendent of the Five Civilized Tribes, who seeks to avoid imposition and collection. The following facts are pertinent:
Jeanetta Burgess, nee Tiger, a full-blood restricted Creek Indian, died on January 10, 1935. At her death she was seized of a restricted allotment, having an agreed value of $3,000, Liberty Bonds having an agreed value of $227,243.41, and cash with the Superintendent of the five Civilized Tribes in the amount of $4,754.89. The Liberty Bonds represented the invested proceeds derived from the production of oil and gas from the allotment, all of which were restricted funds held by the Secretary of Interior under the direct supervision and control of the Superintendent of the Five Civilized Tribes.
During the decedent's lifetime, the Superintendent of the Five Civilized Tribes, amenable to the laws applicable to restricted Indians, collected all of the income of the decedent and deposited the same with other restricted funds with the United States Treasury, disbursing to the decedent and her family such sums as in the sole judgment of the Superintendent were necessary for their care and maintenance. Title to whatever articles were purchased for the benefit of the decedent was retained in the United States. The decedent had no control whatsoever over the restricted funds, except the rights to the exclusive benefit thereof, or so much as in the judgment of the Superintendent was required for the maintenance of herself and her family. From 1914 to the date of her death, the Superintendent disbursed to the decedent, for the exclusive care and maintenance of her family, the total sum of $444,811.90 out of the funds deposited with the Treasury to her credit.
She had the exclusive right to the possession of the allotment and retained the same as her residence. Upon the death of the decedent, the allotment and funds passed to her heirs, coinsisting of a husband, seven living children and three grandchildren, according to the laws of descent and distribution of Oklahoma. See Caesar v. Burgess, 10 Cir., 103 F.2d 503.
The heirs are likewise restricted Indians and the estate passed to the heirs by the simple expedient of transferring the account of the decedent with the United States Treasury to the restricted heirs according to their respective shares, which was effected by a bookkeeping transaction in the office of the Superintendent of the Five Civilized Tribes.
The estate tax (Revenue Act of 1926, as amended by the Revenue Act of 1928, and supplemented by the Revenue Act of 1932*fn1) is imposed " * * * upon the transfer of the net estate of every decedent dying after the enactment of this act * * * ".
The Superintendent contends: (1) That because of the absolute control of the Superintendent over the property of the decedent, and the absence of any control whatsoever over the affairs of the estate by the decedent, the "hollow interest in the estate" did not amount to an estate within the meaning and purposes of Section 301 of the Revenue Act of 1926, supra. The Superintendent also points to the manner in which the inheritance passed to the respective heirs by a simple bookkeeping transaction and cointends that under these facts and circumstances, the estate is a government instrumentality and therefore nontaxable. (2) The Superintendent contends that by virtue of a series of treaties, agreements and acts of Congress,*fn2 culminating in the Act of April 26, 1906, 34 Stat. 137, 144, Sec. 19, the Indian allottee acquired a vested right to hold the said allotment free from all forms of taxation for a period of twenty-one years from the date of the patent, and that such right was within the guarantees of the Fifth Amendment to the Constitution.
By analogy, the Superintendent argues that since the restricted land is exempt from all forms of taxation, the restricted income therefrom is also exempt. The Board rejected the contentions of the Superintendent, holding the estate subject to the estate tax. 42 B.T.A. 958.
We can find nothing in the nature of the control exercised by the Superintendent as the guardian of the Indian ward which would justify the application of the instrumentality doctrine. The power and the control of the Superintendent over the estate of the Indian ward was no more than the mere exercise of a governmental function for the benefit of a private citizen. No public purpose or end is sought to be effected, except insofar as it becomes the duty of the government to fulfill its historical obligations to a class of its citizens, recognized as a dependent people. This is especially true when the so-called instrumentality doctrine is considered in the light of the recent decisions which bear upon this question. Choteau v. Burnet, 283 U.S. 691, 51 S. Ct. 598, 75 L. Ed. 1353; James v. Dravo Contracting Co., 302 U.S. 134, 150, 58 S. Ct. 208, 82 L. Ed. 155, 114 A.L.R. 318; Helvering v. Mountain Producers Corporation, 303 U.S. 376, 58 S. Ct. 623, 82 L. Ed. 907; Helvering v. Gerhardt, 304 U.S. 405, 58 S. Ct. 969, 82 L. Ed. 1427; Graves v. People of State of New York ex rel. O'Keefe, 306 U.S. 466, 59 S. Ct. 495, 83 L. Ed. 927, 120 A.L.R. 1466; O'Malley v. Woodrough, 307 U.S. 277, 59 S. Ct. 838, 83 L. Ed. 1289, 122 A.L.R. 1379.
It is plain, therefore, that the dominion exercised over the estate of the decedent by the Superintendent was in the nature of a guardianship for the sole and exclusive benefit of the decedent and her family, and for her protection, and would not vest in the government a control exercised in furtherance of a public purpose now ...