Treaty Does Not Exempt Tribe Member From Self-Employment Tax, Court Holds

There is no treaty between the federal government and a Minnesota Native American tribe, nor any statute “expressly or implicitly” exempting an enrolled tribe member’s self-employment income from taxation, the Eighth Circuit held. (Bibeau, (CA8, 7/19/2024)  134 AFTR 2d 2024-5033)

Frank Bibeau is an enrolled member of the Minnesota Chippewa Tribe and practices law on the Leech Lake Reservation. For tax years 2016 and 2017, he filed joint returns with his wife. A large net operating loss carryforward absorbed his income tax liability but he still owed a total of $6,000 in self-employment taxes.

When Bibeau did not pay, the IRS sent a letter asking him to satisfy his tax debt, to which he replied by requesting a collection due process hearing. At the hearing, Bibeau claimed a treaty between the US and the tribe exempted him from self-employment tax. The IRS disagreed and continued the collection process by making the decision to levy his property.

Bibeau petitioned to the Tax Court, arguing the 1837 treaty affords him the right to make a “modest living.” But as the Tax Court noted, the treaty only guarantees the “privilege of hunting, fishing, and gathering the wild rice” in the protected territory. To Bibeau, his law practice is analogous to these activities because he interpreted the phrasing to mean the right to “food, clothing and shelter and travel, whereby the new canoe is the automobile.”

Unpersuaded, the Tax Court said that the treaty does not intend for a “modest, tax-free living.” (emphasis in original) Generally, all US citizens, including tribal members, “are subject to federal tax laws unless there is a specific law or treaty that provides otherwise,” read the May 24, 2023, opinion (TC Memo. 2023-66).

The opinion cited Supreme Court precedent, which reasoned that because “Indians are citizens and … not governed by treaties or remedial legislation,” the “absence of tax terms from a treaty does not imply the Indians reserved their right to be free of taxation—instead, it means that an exemption from taxation does not exist.”

Bibeau’s self-employment income was taxable, the Tax Court ruled in a victory for the IRS. No statutory language in the Indian Citizenship Act of 1924 contains a specific federal tax exemption either, it clarified. Appealing to the Eighth Circuit, he brought similar arguments but was also unable to persuade the higher court.

The circuit court also said Bibeau’s interpretation of the Fourteenth Amendment “is incorrect” because it does not recognize tribal “sovereign tax immunity” as he argued. The Tax Court’s decision was affirmed July 19.

For more on tribal treaties and tax exemptions, see Checkpoint’s Federal Tax Coordinator ¶ J-1522.