When exempt income is reinvested, the reinvestment income is subject to taxation. (Superintendent of Five Civilized Tribes v. Commissioner, 295 U. S. 418 (1935)). There is a distinction between income reinvested in the land and reinvestment income earned on funds not at all reinvested in the land - for instance, income used to improve the land to enhance future earnings, and income placed in the bank to earn interest. Return to List of FAQs
