II

106TH CONGRESS

1ST SESSION S. 933

To amend the Internal Revenue Code of 1986 to clarify the tax treatment

of Settlement Trusts established pursuant to the Alaska Native Claims

Settlement Act.

IN THE SENATE OF THE UNITED STATES

APRIL 30, 1999

Mr. MURKOWSKI (for himself and Mr. STEVENS) introduced the following bill;

which was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to clarify

the tax treatment of Settlement Trusts established pursuant to the Alaska Native Claims Settlement Act.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. TAX TREATMENT OF ALASKA NATIVE SETTLE4 MENT TRUSTS.

5 (a) TAX EXEMPTION.—Section 501(c) of the Internal

6 Revenue Code of 1986 is amended by adding at the end

7 the following new paragraph:

8 ‘‘(28) A trust which—
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1 ‘‘(A) constitutes a Settlement Trust under

2 section 39 of the Alaska Native Claims Settle3 ment Act (43 U.S.C. 1629e), and

4 ‘‘(B) with respect to which an election

5 under subsection (p)(2) is in effect.’’

6 (b) SPECIAL RULES RELATING TO TAXATION OF

7 ALASKA NATIVE SETTLEMENT TRUSTS.—Section 501 of

8 the Internal Revenue Code of 1986 is amended by redesig9 nating subsection (p) as subsection (q) and by inserting

10 after subsection (o) the following new subsection:

11 ‘‘(p) SPECIAL RULES FOR TAXATION OF ALASKA NA12 TIVE SETTLEMENT TRUSTS.—

13 ‘‘(1) IN GENERAL.—For purposes of this title,

14 the following rules shall apply in the case of a Set15 tlement Trust:

16 ‘‘(A) ELECTING TRUST.—If an election

17 under paragraph (2) is in effect for any taxable

18 year—

19 ‘‘(i) no amount shall be includible in

20 the gross income of a beneficiary of the

21 Settlement Trust by reason of a contribu22 tion to the Settlement Trust made during

23 such taxable year, and

24 ‘‘(ii) except as provided in this sub25 section, the provisions of subchapter J and
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1 section 1(e) shall not apply to the Settle2 ment Trust and its beneficiaries for such

3 taxable year.

4 ‘‘(B) NONELECTING TRUST.—If an elec5 tion is not in effect under paragraph (2) for

6 any taxable year, the provisions of subchapter J

7 and section 1(e) shall apply to the Settlement

8 Trust and its beneficiaries for such taxable

9 year.

10 ‘‘(2) ONE-TIME ELECTION.—

11 ‘‘(A) IN GENERAL.—A Settlement Trust

12 may elect to have the provisions of this sub13 section and subsection (c)(28) apply to the

14 trust and its beneficiaries.

15 ‘‘(B) TIME AND METHOD OF ELECTION.—

16 An election under subparagraph (A) shall be

17 made—

18 ‘‘(i) before the due date (including ex19 tensions) for filing the Settlement Trust’s

20 return of tax for the 1st taxable year of

21 the Settlement Trust ending after the date

22 of the enactment of this subsection, and

23 ‘‘(ii) by attaching to such return of

24 tax a statement specifically providing for

25 such election.
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1 ‘‘(C) PERIOD ELECTION IN EFFECT.—Ex2 cept as provided in paragraph (3), an election

3 under subparagraph (A)—

4 ‘‘(i) shall apply to the 1st taxable year

5 described in subparagraph (B)(i) and all

6 subsequent taxable years, and

7 ‘‘(ii) may not be revoked once it is

8 made.

9 ‘‘(3) SPECIAL RULES WHERE TRANSFER RE10 STRICTIONS MODIFIED.—

11 ‘‘(A) TRANSFER OF BENEFICIAL INTER12 ESTS.—If, at any time, a beneficial interest in

13 a Settlement Trust may be disposed of in a

14 manner which would not be permitted by sec15 tion 7(h) of the Alaska Native Claims Settle16 ment Act (43 U.S.C. 1606(h)) if the interest

17 were Settlement Common Stock—

18 ‘‘(i) no election may be made under

19 paragraph (2)(A) with respect to such

20 trust, and

21 ‘‘(ii) if an election under paragraph

22 (2)(A) is in effect as of such time—

23 ‘‘(I) such election is revoked as of

24 the 1st day of the taxable year fol-
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1 lowing the taxable year in which such

2 disposition is first permitted, and

3 ‘‘(II) there is hereby imposed on

4 such trust a tax equal to the product

5 of the fair market value of the assets

6 held by the trust as of the close of the

7 taxable year in which such disposition

8 is first permitted and the highest rate

9 of tax under section 1(e) for such tax10 able year.

11 The tax imposed by clause (ii)(II) shall be in

12 lieu of any other tax imposed by this chapter

13 for the taxable year.

14 ‘‘(B) STOCK IN CORPORATION.—If—

15 ‘‘(i) the Settlement Common Stock in

16 any Native Corporation which transferred

17 assets to a Settlement Trust making an

18 election under paragraph (2)(A) may be

19 disposed of in a manner not permitted by

20 section 7(h) of the Alaska Native Claims

21 Settlement Act (43 U.S.C. 1606(h)), and

22 ‘‘(ii) at any time after such disposi23 tion of stock is first permitted, such cor24 poration transfers assets to such trust,
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1 clause (ii) of subparagraph (A) shall be applied

2 to such trust on and after the date of the trans3 fer in the same manner as if the trust per4 mitted dispositions of beneficial interests in the

5 trust in a manner not permitted by such section

6 7(h).

7 ‘‘(C) ADMINISTRATIVE PROVISIONS.—For

8 purposes of subtitle F, any tax imposed by sub9 paragraph (A)(ii)(II) shall be treated as an ex10 cise tax with respect to which the deficiency

11 procedures of such subtitle apply.

12 ‘‘(4) DISTRIBUTION REQUIREMENT ON ELECT13 ING SETTLEMENT TRUST.—

14 ‘‘(A) IN GENERAL.—If an election is in ef15 fect under paragraph (2) for any taxable year,

16 a Settlement Trust shall distribute at least 55

17 percent of its adjusted taxable income for such

18 taxable year.

19 ‘‘(B) TAX IMPOSED IF INSUFFICIENT DIS20 TRIBUTION.—If a Settlement Trust fails to

21 meet the distribution requirement of subpara22 graph (A) for any taxable year, then, notwith23 standing subsection (c)(28), a tax shall be im24 posed on the trust under section 1(e) on an
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1 amount of taxable income equal to the amount

2 of such failure.

3 ‘‘(C) DESIGNATION OF DISTRIBUTION.—

4 Solely for purposes of meeting the requirements

5 of this paragraph, a Settlement Trust may elect

6 to treat any distribution (or portion) during the

7 65-day period following the close of any taxable

8 year as made on the last day of such taxable

9 year. Any such distribution (or portion) may

10 not be taken into account under this paragraph

11 for any other taxable year.

12 ‘‘(D) ADJUSTED TAXABLE INCOME.—For

13 purposes of this paragraph, the term ‘adjusted

14 taxable income’ means taxable income deter15 mined under section 641(b) without regard to

16 any deduction under section 651 or 661.

17 ‘‘(5) TAX TREATMENT OF DISTRIBUTIONS TO

18 BENEFICIARIES.—

19 ‘‘(A) ELECTING TRUST.—If an election is

20 in effect under paragraph (2) for any taxable

21 year, any distribution to a beneficiary shall be

22 included in gross income of the beneficiary as

23 ordinary income.

24 ‘‘(B) NONELECTING TRUSTS.—Any dis25 tribution to a beneficiary from a Settlement
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1 Trust not described in subparagraph (A) shall

2 be includible in income as provided under sub3 chapter J.

4 ‘‘(6) DEFINITIONS.—For purposes of this

5 subsection—

6 ‘‘(A) NATIVE CORPORATION.—The term

7 ‘Native Corporation’ has the meaning given

8 such term by section 3(m) of the Alaska Native

9 Claims Settlement Act (43 U.S.C. 1602(m)).

10 ‘‘(B) SETTLEMENT TRUST.—The term

11 ‘Settlement Trust’ means a trust which con12 stitutes a Settlement Trust under section 39 of

13 the Alaska Native Claims Settlement Act (43

14 U.S.C. 1629e).’’

15 (c) WITHHOLDING ON DISTRIBUTIONS BY ELECTING

16 ANCSA SETTLEMENT TRUSTS.—Section 3402 of the In17 ternal Revenue Code of 1986 is amended by adding at the

18 end the following new subsection:

19 ‘‘(t) TAX WITHHOLDING ON DISTRIBUTIONS BY

20 ELECTING ANCSA SETTLEMENT TRUSTS.—

21 ‘‘(1) IN GENERAL.—Any Settlement Trust (as

22 defined in section 501(p)(6)(B)) which is exempt

23 from income tax under section 501(c)(28) (in this

24 subsection referred to as an ‘electing trust’) and

25 which makes a payment to any beneficiary shall de-
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1 duct and withhold from such payment a tax in an

2 amount equal to such payment’s proportionate share

3 of the annualized tax.

4 ‘‘(2) EXCEPTION.—The tax imposed by para5 graph (1) shall not apply to any payment to the ex6 tent that such payment, when annualized, does not

7 exceed an amount equal to the amount in effect

8 under section 6012(a)(1)(A)(i) for taxable years be9 ginning in the calendar year in which the payment

10 is made.

11 ‘‘(3) ANNUALIZED TAX.—For purposes of para12 graph (1), the term ‘annualized tax’ means, with re13 spect to any payment, the amount of tax which

14 would be imposed by section 1(c) (determined with15 out regard to any rate of tax in excess of 31 per16 cent) on an amount of taxable income equal to the

17 excess of—

18 ‘‘(A) the annualized amount of such pay19 ment, over

20 ‘‘(B) the amount determined under para21 graph (2).

22 ‘‘(4) ANNUALIZATION.—For purposes of this

23 subsection, amounts shall be annualized in the man24 ner prescribed by the Secretary.
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1 ‘‘(5) NO APPLICATION TO THIRD PARTY PAY2 MENTS.—This subsection shall not apply in the case

3 of a payment made, pursuant to the written terms

4 of the trust agreement governing an electing trust,

5 directly to third parties to provide educational, fu6 neral, or medical benefits.

7 ‘‘(6) ALTERNATE WITHHOLDING PROCE8 DURES.—At the election of an electing trust, the tax

9 imposed by this subsection on any payment made by

10 such trust shall be determined in accordance with

11 such tables or computational procedures as may be

12 specified in regulations prescribed by the Secretary

13 (in lieu of in accordance with paragraphs (2) and

14 (3)).

15 ‘‘(7) COORDINATION WITH OTHER SECTIONS.—

16 For purposes of this chapter and so much of subtitle

17 F as relates to this chapter, payments which are

18 subject to withholding under this subsection shall be

19 treated as if they were wages paid by an employer

20 to an employee.’’

21 (d) REPORTING.—Section 6041 of the Internal Rev22 enue Code of 1986 is amended by adding at the end the

23 following new subsection:

24 ‘‘(f) APPLICATION TO ALASKA NATIVE SETTLEMENT

25 TRUSTS.—In the case of any distribution from a Settle-
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1 ment Trust (as defined in section 501(p)(6)(B)) to a bene2 ficiary, this section shall apply, except that—

3 ‘‘(1) this section shall apply to such distribution

4 without regard to the amount thereof,

5 ‘‘(2) the Settlement Trust shall include on any

6 return or statement required by this section infor7 mation as to the character of such distribution (if

8 applicable) and the amount of tax imposed by chap9 ter 1 which has been deducted and withheld from

10 such distribution, and

11 ‘‘(3) the filing of any return or statement re12 quired by this section shall satisfy any requirement

13 to file any other form or schedule under this title

14 with respect to distributive share information (in15 cluding any form or schedule to be included with the

16 trust’s tax return).’’

17 (e) EFFECTIVE DATE.—The amendments made by

18 this section shall apply to taxable years of Settlement

19 Trusts ending after the date of the enactment of this Act

20 and to contributions to such trusts after such date.

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