3, is, in conjunction with U.S. Const. amend. XIV, sec. 2, a constitutional limitation on Congress' power to tax Indians who were not taxed at the time the Constitution was ratified (at least as to those tribes identified as such at that time). Congress' power to levy taxes is subject to certain limitations, including U.S. Const. art. I, sec. 2, cl. 3, which states, in part: direct taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers, which shall be determined by adding to the whole Number of free Persons, including those bound to Service for a term of Years, and excluding Indians not taxed, three fifths of all other Persons * [Emphasis supplied.] This clause also provided that apportionment in the House of Representatives was to be on the same basis as the apportionment of direct taxes. The 14th Amendment, sec. 2, later amended this by providing, in pertinent part: "Representatives shall be apportioned among the several States according to their respective numbers, counting the whole number of persons in each state, excluding Indians not taxed." (Emphasis supplied.) Petitioner contends that the phrase "excluding Indians not taxed" provides the constitutional limitation on taxing Indians who were not taxed at the time the Constitution was ratified. Although respondent apparently concedes that the Red Lake Bank constitutes Indians who were identified in the United States Constitution as Indians not taxed at the time of its adoption, he contends that the phrase "Indians not taxed" does not restrain the Federal Government from taxing Indians but refers only to State taxation of Indians." We believe that the clause in article I is an apportionment provision designed to establish the method of computing the number of representatives for each State and determine apportionment of direct taxes among the States. The phrase "Indians not taxed," when viewed in context, is clearly descriptive, describing the fact that some Indians are not taxed by the State in which they reside and should, therefore, be excluded from the enumeration of its population. It does not restrain the Federal Government from taxing Indians.10 Petitioner next relies on Squire v. Capoeman, supra, in which "In Commissioner of Taxation v. Brun, 286 Minn. 43, 174 N.W.2d 120 (1970), it was held that the State of Minnesota did not have the power to impose a State income tax on the Red Lake Band, at least as to income derived from sources within the reservation. 10 See United States V. Kagama, 118 U.S. 375, 378 (1886); Elk v. Wilkins, 112 U.S. 94 (1884). the Supreme Court interpreted the General Allotment Act of 1887 to exempt certain income of an Indian from Federal taxation. Squire v. Capoeman is distinguishable from the present case. There, the Court held only that proceeds from the sale of standing timber on a parcel of reservation land that had been allotted to a noncompetent Indian resident of the reservation and held in trust under the General Allotment Act were not subject to Federal income tax. Since there has been no allotment of land to petitioner here, the exemption does not by its terms apply. Fry v. United States, 557 F.2d 646, 648 (9th Cir. 1977), cert. denied 434 U.S. 1017 (1978). Even if we assume that it is not necessary to actually allot the land under the Supreme Court's decision in Squire v. Capoeman in order to exempt income (see United States v. Anderson, 442 F.Supp. 10 (D. Mont. 1977)), and that under the General Allotment Act income directly derived from tribal lands is not taxable either to the tribe or to a member of the tribe who receives his derivative, pro rata share of such tribal income, we do not believe petitioner has established that he is entitled to have his income exempt from taxation. Cf. Choteau v. Burnet, supra; Hayes Big Eagle v. United States, 156 Ct. Cl. 665, 300 F.2d 765 (1962). Petitioner's salary did not represent his pro rata share of tribal income. Rather, his wages were solely for his benefit, obtained through his labor, and we do not believe, therefore, that his wages were directly derived from the land. Nonetheless, petitioner argues that his management of tribal land is a necessary part of deriving (tax exempt) income from the land, and that to tax his income from management of the land is to thereby indirectly tax the land itself. However, it does not follow that income received by an employee as compensation for services rendered the tribe is tax exempt because the income earned by the tribe through (in part) his services is tax exempt. Fry v. Commissioner, supra; Walker v. Commissioner, supra. We conclude, therefore, that no Act of Congress prevents taxation in this instance. Nor do we believe that the Treaty of Greenville prohibits imposition of the Federal income tax on petitioner's wages and other income received. Petitioner relies on article V of the treaty which states: To prevent any misunderstanding about the Indian lands relinquished by the United States in the fourth article, it is now explicitly declared, that the meaning of that relinquishment is this: The Indian tribes who have a right to those lands, are quietly to enjoy them, hunting, planting, and dwelling thereon so long as they please, without any molestation from the United States; but when those tribes, or any of them, shall be disposed to sell their lands, or any part of them, they are to be sold only to the United States; and until such sale, the United States will protect all the said Indian tribes in their quiet enjoyment of their lands against all citizens of the United States, and against all other white persons who intrude upon the same. * Petitioner emphasizes the phrase "without any molestation from the United States" and contends that imposition of an income tax would involve an unwarranted intrusion by the United States into Indian affairs. We do not believe that the language quoted above expresses any intention of exempting the Red Lake Band from taxation. This is especially true when the language of article VII is compared to the language in article V: The said tribes of Indians, parties to this treaty, shall be at liberty to hunt within the territory and lands which they have now ceded to the United States, without hindrance or molestation, so long as they demean themselves peaceably, and offer no injury to the people of the United States. It is apparent that the molestation the parties had in mind was interference in the Indians' rights to hunt, etc., not the right to be free from taxation. Although ambiguities in treaties are to be resolved in favor of Indians, we are not free to create favorable rules, and the Supreme Court has applied the rule that tax exemptions are not granted, by implication, to Indians. See Fry v. Commissioner, supra. Accordingly, we hold that petitioner may not exclude his income from taxation. We must now deal with the sections 6651(a) and 6653(a), additions. Petitioner does not set forth any reason for late filing or failure to report consulting fees, honorariums, and excessive reimbursements for travel expenses, relying entirely upon his contention that such amounts (including the wages received as chairman) were excludable from gross income. We infer from this that the only reason petitioner filed a return was to obtain a refund of taxes withheld from his salary as chairman, no return otherwise being required if his income was tax exempt. Presumably, because no tax was withheld from petitioner's income except for his salary, he did not report any additional income. In determining whether the additions to tax under sections 6651(a) and 6653(a) were properly imposed, the issue is thus the narrow one of whether petitioner's belief that his income was tax exempt, although mistaken, was reasonable. In view of our position in Walker v. Commissioner, supra, we have no problem in finding that petitioner was reasonable in his belief that his salary as chairman was tax exempt, and respondent does not contend otherwise. Once petitioner assumed that his salary as chairman was exempt, his other income was insufficient in the aggregate amount to be subject to income tax in 1972. Therefore, we hold that petitioner is not liable for the additions to tax in 1972. This is not the case for 1971, however, and petitioner's income, aside from his salary as tribal chairman, is sufficient in amount to be taxed. Nonetheless, because of the special status of the Red Lake Band and petitioner's apparently sincere, albeit erroneous, belief that the United States Constitution and the Treaty of Greenville protected any member of the Red Lake Band living on the reservation from Federal taxation of income derived from any sources, we hold for petitioner on this issue in 1971. Decision will be entered under Rule 155. Reviewed by the Court. WILLIAM I. WOODFORD AND MADGE L. WOODFORD, Petitioner, a former United States Civil Service employee, was retired on disability as of Nov. 24, 1974, prior to his reaching the mandatory retirement age. During 1975, he received disability retirement payments in the amount of $10,879 and excluded $5,200 thereof from his gross income as sick pay pursuant to sec. 105(d), I.R.C. 1954. Held, petitioner is not entitled in 1975 under sec. 72(d), I.R.C. 1954, to exclude from his gross income the $5,679 in excess of the sick pay exclusion as a recovery of his contributions to the retirement system. Held, further, the $5,679, in excess "Petitioner's other income for 1971 totaled $2,871.92 ($266.92 excess reimbursement; $2,420 consulting fee; $175 from University of Minnesota; and $10 from the Minnesota Department of Indian Affairs). The low income allowance in 1971 for a joint return was $1,050, and petitioner was entitled to two exemptions (his and his wife's) worth a total of $1,350. This results in taxable income of $471.92. of the sick pay exclusion, constitutes earned income within the William I. Woodford, pro se. Charles N. Woodward, for the respondent. FEATHERSTON, Judge: Respondent determined a deficiency in the amount of $1,270.60 in petitioners' Federal income tax for 1975. The issues for decision are: (1) Whether petitioners, who excluded $5,200 from their gross income for 1975 as sick pay under section 105(d),1 are entitled under section 72(d)(1) also to exclude from their gross income an additional $5,679 as a recovery of their contributions to the Civil Service Retirement Fund. (2) Whether petitioners are entitled to a retirement income credit under section 37 in the amount of $228.60 for 1975. FINDINGS OF FACT Petitioners William I. Woodford and Madge L. Woodford, husband and wife, were legal residents of Little Rock, Ark., when they filed their petition. They filed a timely joint Federal income tax return for 1975 with the District Director, Internal Revenue Service Center, Austin, Tex. Both petitioners were 65 years of age or over at the end of 1975. On March 1, 1966, petitioner William I. Woodford (hereinafter petitioner) retired from the Army of the United States. On December 31, 1973, at the age of 67, he retired from a position in the Internal Revenue Service after approximately 29 years of qualifying employment under the Federal civil service system. Initially, petitioner's retirement under the civil service system was on a nondisability basis. On November 4, 1974, however, pursuant to petitioner's application, the Bureau of Retirement, Insurance, and Occupational Health (the bureau) of the United States Civil Service Commission reclassified petitioner's retirement status to "disability" retirement. The letter from the bureau notifying petitioner of this reclassification reads in pertinent part as follows: 1All section references are to the Internal Revenue Code of 1954, as in effect during the tax year in issue, unless otherwise noted. |