Rev. Rul. 74-179

Advice has been requested whether a bequest of one-third of a decedent's residuary estate to the Zuni Indian Pueblo, Zuni, New Mexico, qualifies for the charitable deduction allowable under section 2055(a) of the Internal Revenue Code of 1954.

The Zuni Indian Pueblo is a recognized Indian tribe organized under a Constitution ratified by the Indians of the Pueblo on July 9, 1970. On August 13, 1970, the Secretary of the Interior approved the Constitution of the Zuni Indian Pueblo under authority of section 16 of the Act of June 18, 1934 (48 Stat. 984), as amended by the Act of June 15, 1935 (49 Stat. 378).

Section 2055(a)(1) of the Code provides that the value of a decedent's taxable estate shall be determined by deducting from the value of the gross estate the amount of all bequests, legacies, devises, or transfers to or for the use of the United States, any State, Territory, and political subdivision thereof, or the District of Columbia, for exclusively public purposes.

The Zuni Indian Pueblo is neither the United States nor the District of Columbia. Neither is it a State or Territory. Ex parte Morgan, 20 F. 298 (W.D. Ark. 1883). Thus, in order for the bequest to be deductible under section 2055(a)(1) of the Code, the Zuni Indian Pueblo must qualify as a political subdivision of the United States, a State, or a Territory within the meaning of this section.

Neither the Code nor the regulations contain a definition of the term "political subdivision" for the purposes of section 2055(a)(1) of the Code, nor has there been a judicial definition of the term. However, the term has long had a consistent definition in income and excise tax provisions:

The term "political subdivision" is broad and comprehensive and denotes any division of the State made by the proper authorities thereof, acting within their constitutional power for the purpose of carrying out a portion of those functions of the State which by long usage and the inherent necessities of government have always been regarded as public. 30 O.A.G. 252, 253 (1914).

See also 38 O.A.G. 563 (1937); sec. 1.103-1, Income Tax Regulations.

Indian pueblos, just as other Indian tribes, have a unique position in the United States and much has been written with respect to their status under our Government. In the early case of Worcester v. Georgia, 31 U.S. 515 (1832), Chief Justice Marshall recognized that Indian tribes had always been considered as distinct political communities. Again, in United States v. Kagama, 118 U.S. 375, 381 (1866), the Court described their status in the following language:

* * * They were, and always have been, regarded as having a semi-independent position when they preserved their tribal relations; not as States, not as nations, not as possessed of the full attributes of sovereignty, but as a separate people, with the power of regulating their internal and social relations, and thus far not brought under the laws of the Union or of the State within whose limits they reside.

More recently, the status of Indian pueblos or tribes, preserving their political entity under the decisions of the Supreme Court, has been summed up in U.S. Interior Department, Federal Indian Law 398 (1958), as follows:

The whole course of judicial decision on the nature of Indian tribal powers is marked by adherence to three fundamental principles: (1) An Indian tribe possessed, in the first instance, all the powers of any sovereign state. (2) Conquest rendered the tribe subject to the legislative power of the United States, and, in substance, terminated the external powers of sovereignty of the tribe, e.g., its power to enter into treaties with foreign nations, but did not by itself terminate the internal sovereignty of the tribe, i.e. powers of local self-government. (3) These internal powers were, of course, subject to qualification by treaties and by express legislation of Congress, but, save as thus expressly qualified, many powers of internal sovereignty have remained in the Indian tribes and in their duly constituted organs of government.

The powers of self-government which Indian tribes or pueblos exercise stem from their original sovereignty. The Supreme Court has recognized that although these powers are subject to the paramount authority of Congress, such powers do not spring from the United States. Talton v. Mayes, 163 U.S. 376 (1896).

These declarations by the Supreme Court have been adhered to in a long line of cases. See Native American Church v. Navajo Tribal Council, 272 F. 2d 131 (1959), and the cases cited therein.

For similar reasons, Pueblos of New Mexico do not derive their governmental power from the State of New Mexico. See United States v. Sandoval, 231 U.S. 28 (1913); Your Food Stores, Inc. v. Village of Espanola, 361 P.2d 950 (1961). In the case of Toledo v. Pueblo de Jemez, 119 F. Supp. 429 (D.C. N. Mex. 1954), it was argued that the Pueblo was, in effect, a political subdivision of the State of New Mexico, by virtue of section 54-1601, New Mexico Statutes, 1941 (now section 51-17-1). Under this provision of the statute, all of the Pueblos of New Mexico were constituted bodies politic and corporate with the right to sue and be sued in certain types of cases. However, the court stated in Toledo at page 432:

* * * the New Mexico Statute does not purport to vest any governmental powers, rights or duties in the Pueblos of New Mexico which are dependent Indian communities, Indian Tribes, under the guardianship of the United States * * *

At least since the Sandoval decision in 1913, it has been clear that the Pueblos do not derive their governmental powers from the State of New Mexico. It has, indeed, been held that the powers of an Indian tribe do not spring from the United States although they are subject to the paramount authority of Congress. Talton v. Maye, 163 U.S. 376, 16 S. Ct. 986, 41 L. Ed. 196.

In view of the foregoing, it is concluded that the Zuni Indian Pueblo is not a political subdivision of the United States, the State of New Mexico, or a Territory as that term is used in section 2055(a)(1) of the Code. Accordingly, the value of decedent's bequest to the Zuni Indian Pueblo is not deductible under section 2055(a)(1) of the Code.

Rev. Rul. 68-231, 1968-1 C.B. 48, in holding that the interest on obligations issued by the Swinomish Indian Tribal Community is not excludable from the gross income of the recipient under section 103 of the Code, states that "the powers of the Tribal Community are delegated to it by the United States Government rather than the State of Washington in which it is located" and that "since it exercises its governing powers by virtue of Federal, rather than State authority, the bonds in question are not issued on behalf of the State within the meaning of the regulations." These statements are misleading in that they suggest that the Indian tribe is a political subdivision of the United States, in contradiction to the conclusion set forth above.

Rev. Rul. 68-231 is modified to remove the language relating to the derivation of Indian powers that implies that an Indian tribe is a political subdivision of the United States.