II

105TH CONGRESS

2D SESSION S. 2065

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

MAY 12, 1998

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—
2

•S 2065 IS

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 SETTLEMENT TRUST.—Section 501 of such Code is

8 amended by redesignating subsection (p) as subsection (q)

9 and by inserting after subsection (o) the following new

10 subsection:

11 ‘‘(p) SPECIAL RULES FOR ALASKA SETTLEMENT

12 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) CONVEYANCE TO TRUST.—No

17 amount shall be includible in the gross income

18 of a beneficiary of the Settlement Trust by rea19 son of a contribution to the Settlement Trust

20 (without regard to whether an election is in ef21 fect under paragraph (2)).

22 ‘‘(B) ELECTING TRUST.—If an election is

23 in effect under paragraph (2) for any taxable

24 year, then except as provided in this subsection,

25 the provisions of subchapter J and section 1(e)
3

•S 2065 IS

1 shall not apply to the Settlement Trust and its

2 beneficiaries.

3 ‘‘(C) NONELECTING TRUST.—If an election

4 is not in effect under paragraph (2) for any

5 taxable year, the provisions of subchapter J and

6 section 1(e) shall apply to the Settlement Trust

7 and its beneficiaries.

8 ‘‘(2) ELECTION.—

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

10 may elect to have the provisions of this sub11 section and subsection (c)(28) apply to the

12 trust and its beneficiaries.

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

14 An election under subparagraph (A) shall be

15 made—

16 ‘‘(i) before the due date (including ex17 tensions) for filing the Settlement Trust’s

18 return of tax for the 1st taxable year to

19 which such election is to apply, and

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

21 tax a statement specifically providing for

22 such election.

23 ‘‘(C) PERIOD ELECTION IN EFFECT.—Ex24 cept as provided in subparagraph (D), an elec-
4

•S 2065 IS

1 tion under subparagraph (A), once made, shall

2 be irrevocable.

3 ‘‘(D) ELECTION REVOKED FOR FAILURE

4 TO MEET TRANSFER RESTRICTION.—

5 ‘‘(i) IN GENERAL.—An election under

6 subparagraph (A) is revoked if, at any

7 time after the 1st day of the 1st taxable

8 year to which such election applies, the

9 trust permits any disposition of a bene10 ficial interest in the trust which would not

11 be permitted under section 7(h) of the

12 Alaska Native Claims Settlement Act (43

13 U.S.C. 1606(h)) if such beneficial interest

14 were Settlement Common Stock.

15 ‘‘(ii) TIME ELECTION REVOKED.—The

16 revocation under clause (i) shall take effect

17 on the 1st day of the taxable year in which

18 the failure occurs.

19 ‘‘(iii) NO FURTHER ELECTION.—If an

20 election is revoked under clause (i), the

21 Settlement Trust (or any successor) may

22 not make any election under this para23 graph for the taxable year of revocation or

24 any subsequent taxable year.
5

•S 2065 IS

1 ‘‘(3) DISTRIBUTION REQUIREMENT ON ELECT2 ING SETTLEMENT TRUST.—

3 ‘‘(A) IN GENERAL.—If an election is in ef4 fect under paragraph (2) for any taxable year,

5 a Settlement Trust shall distribute at least 55

6 percent of its adjusted taxable income for such

7 taxable year.

8 ‘‘(B) TAX IMPOSED IF INSUFFICIENT DIS9 TRIBUTION.—If a Settlement Trust fails to

10 meet the distribution requirement of subpara11 graph (A) for any taxable year, then, notwith12 standing subsection (c)(28), a tax shall be im13 posed on the trust under section 1(e) on an

14 amount of taxable income equal to the amount

15 of such failure.

16 ‘‘(C) DESIGNATION OF DISTRIBUTION.—

17 Solely for purposes of meeting the requirements

18 of this paragraph, a Settlement Trust may elect

19 to treat any distribution (or portion) during the

20 12-month period following the close of any tax21 able year as made on the last day of such tax22 able year. Any such distribution (or portion)

23 may not be taken into account under this para24 graph for any other taxable year.
6

•S 2065 IS

1 ‘‘(D) ADJUSTED TAXABLE INCOME.—For

2 purposes of this paragraph, the term ‘adjusted

3 taxable income’ means taxable income deter4 mined under section 641(b) without regard to

5 any deduction under section 651 or 661.

6 ‘‘(4) TAX TREATMENT OF DISTRIBUTIONS TO

7 BENEFICIARIES.—

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

9 in effect under paragraph (2) for any taxable

10 year, any distribution to a beneficiary shall be

11 included in gross income of the beneficiary as

12 ordinary income.

13 ‘‘(B) OTHER TRUSTS.—Any distribution to

14 a beneficiary from a Settlement Trust not de15 scribed in subparagraph (A) shall—

16 ‘‘(i) be included in gross income of the

17 beneficiary as ordinary income to the ex18 tent allocable to the earnings and profits

19 account under subparagraph (C), and

20 ‘‘(ii) be includible in income as pro21 vided under subchapter J to the extent not

22 so allocable.

23 ‘‘(C) EARNINGS AND PROFITS ACCOUNT.—

24 ‘‘(i) IN GENERAL.—Each Settlement

25 Trust shall establish an earnings and prof-
7

•S 2065 IS

1 its account for purposes of accounting for

2 earnings and profits transferred from an

3 Alaska Native Corporation by reason of a

4 contribution to the trust.

5 ‘‘(ii) INCREASES.—The account shall

6 be increased each time a contribution is

7 made by an Alaska Native Corporation to

8 the Settlement Trust. Such increase shall

9 be equal to the lesser of—

10 ‘‘(I) the amount of the contribu11 tion, or

12 ‘‘(II) the earnings and profits of

13 the Alaska Native Corporation, deter14 mined as of the close of the taxable

15 year in which the contribution was

16 made and without regard to the con17 tribution.

18 For purposes of this clause, all contribu19 tions during a taxable year shall be treated

20 as 1 contribution.

21 ‘‘(iii) DECREASES.—The account shall

22 be decreased by any distribution by the

23 Settlement Fund to its beneficiaries.

24 ‘‘(iv) TAXATION.—For purposes of

25 subparagraph (B), until such time as the
8

•S 2065 IS

1 balance in the account is zero, all distribu2 tions to beneficiaries during a taxable year

3 shall be treated as allocable to the account

4 for purposes of subparagraph (B)(i).

5 Thereafter, all such distributions shall be

6 taxable as provided in subparagraph

7 (B)(ii) until such time as there is an in8 crease in the balance of the account.

9 ‘‘(D) REDUCTION IN EARNINGS AND PROF10 ITS.—The earnings and profits of an Alaska

11 Native Corporation shall be reduced by the

12 amount of the earnings and profits transferred

13 to the account under subparagraph (C).

14 ‘‘(5) VOLUNTARY WITHHOLDING.—

15 ‘‘(A) IN GENERAL.—Notwithstanding any

16 other provision of law, a beneficiary of a Settle17 ment Trust (whether or not an election under

18 paragraph (2) is in effect) may elect to have

19 Federal income tax withheld on distributions

20 from the Settlement Trust to the beneficiary.

21 ‘‘(B) ELECTION.—An election under sub22 paragraph (A) shall—

23 ‘‘(i) be made to the Settlement Trust

24 in writing, and
9

•S 2065 IS

1 ‘‘(ii) specify the percentage (not great2 er than 15 percent) of the distributions to

3 be withheld.

4 Such election may be revoked or modified with

5 respect to distributions made after the revoca6 tion or modification.

7 ‘‘(6) SETTLEMENT TRUST.—For purposes of

8 this section, the term ‘Settlement Trust’ means a

9 trust which constitutes a Settlement Trust under

10 section 39 of the Alaska Native Claims Settlement

11 Act (43 U.S.C. 1629e).’’

12 (c) REPORTING.—Section 6041 of such Code is

13 amended by adding at the end the following new sub14 section:

15 ‘‘(f) APPLICATION TO ALASKA SETTLEMENT

16 TRUSTS.—In the case of any distribution from a Settle17 ment Trust (as defined in section 501(p)(6)) to a bene18 ficiary, this section shall apply, except that—

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

20 without regard to the amount thereof,

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

22 return or statement required by this section infor23 mation as to the character of such distribution (if

24 applicable) and the amount of tax imposed by chap-
10

•S 2065 IS

1 ter 1 deducted and withheld from such distribution,

2 and

3 ‘‘(3) the filing of any return or statement re4 quired by this section shall satisfy any requirement

5 to file any other form or schedule under this title

6 with respect to distributive share information (in7 cluding any form or schedule included with the

8 trust’s tax return).’’

9 (d) EFFECTIVE DATES.—

10 (1) IN GENERAL.—The amendments made by

11 this section shall apply to taxable years of Settle12 ment Trusts beginning after December 31, 1996,

13 and to contributions to such trusts after such date.

14 (2) REQUIREMENT FOR ELECTION.—An elec15 tion under section 501(p)(2) of the Internal Revenue

16 Code of 1986 for a taxable year beginning in 1997

17 shall not be treated as failing to meet the require18 ments of section 501(p)(2)(B) of such Code if such

19 election is filed with the return of tax for the first

20 taxable year after such taxable year.

Æ