I

106TH CONGRESS

1ST SESSION H. R. 1940

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 HOUSE OF REPRESENTATIVES

MAY 25, 1999

Mr. YOUNG of Alaska introduced the following bill; which was referred to the

Committee on Ways and Means

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) on or before the due date (includ19 ing extensions) for filing the Settlement

20 Trust’s return of tax for the 1st taxable

21 year of the Settlement Trust ending after

22 the date of the enactment of this sub23 section, and
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1 ‘‘(ii) by attaching to such return of

2 tax a statement specifically providing for

3 such election.

4 ‘‘(C) PERIOD ELECTION IN EFFECT.—Ex5 cept as provided in paragraph (3), an election

6 under subparagraph (A)—

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

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

9 subsequent taxable years, and

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

11 made.

12 ‘‘(3) SPECIAL RULES WHERE TRANSFER RE13 STRICTIONS MODIFIED.—

14 ‘‘(A) TRANSFER OF BENEFICIAL INTER15 ESTS.—If, at any time, a beneficial interest in

16 a Settlement Trust may be disposed of in a

17 manner which would not be permitted by sec18 tion 7(h) of the Alaska Native Claims Settle19 ment Act (43 U.S.C. 1606(h)) if the interest

20 were Settlement Common Stock—

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

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

23 trust, and

24 ‘‘(ii) if an election under paragraph

25 (2)(A) is in effect as of such time—
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1 ‘‘(I) such election is revoked as of

2 the 1st day of the taxable year fol3 lowing the taxable year in which such

4 disposition is first permitted, and

5 ‘‘(II) there is hereby imposed on

6 such trust a tax equal to the product

7 of the fair market value of the assets

8 held by the trust as of the close of the

9 taxable year in which such disposition

10 is first permitted and the highest rate

11 of tax under section 1(e) for such tax12 able year.

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

14 lieu of any other tax imposed by this chapter

15 for the taxable year.

16 ‘‘(B) STOCK IN CORPORATION.—If—

17 ‘‘(i) the Settlement Common Stock in

18 any Native Corporation which transferred

19 assets to a Settlement Trust making an

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

21 disposed of in a manner not permitted by

22 section 7(h) of the Alaska Native Claims

23 Settlement Act (43 U.S.C. 1606(h)), and
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1 ‘‘(ii) at any time after such disposi2 tion of stock is first permitted, such cor3 poration transfers assets to such trust,

4 clause (ii) of subparagraph (A) shall be applied

5 to such trust on and after the date of the trans6 fer in the same manner as if the trust per7 mitted dispositions of beneficial interests in the

8 trust in a manner not permitted by such section

9 7(h).

10 ‘‘(C) ADMINISTRATIVE PROVISIONS.—For

11 purposes of subtitle F, any tax imposed by sub12 paragraph (A)(ii)(II) shall be treated as an ex13 cise tax with respect to which the deficiency

14 procedures of such subtitle apply.

15 ‘‘(4) DISTRIBUTION REQUIREMENT ON ELECT16 ING SETTLEMENT TRUST.—

17 ‘‘(A) IN GENERAL.—If an election is in ef18 fect under paragraph (2) for any taxable year,

19 a Settlement Trust shall distribute at least 55

20 percent of its adjusted taxable income for such

21 taxable year.

22 ‘‘(B) TAX IMPOSED IF INSUFFICIENT DIS23 TRIBUTION.—If a Settlement Trust fails to

24 meet the distribution requirement of subpara25 graph (A) for any taxable year, then, notwith-
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1 standing subsection (c)(28), a tax shall be im2 posed on the trust under section 1(e) on an

3 amount of taxable income equal to the amount

4 of such failure.

5 ‘‘(C) DESIGNATION OF DISTRIBUTION.—

6 Solely for purposes of meeting the requirements

7 of this paragraph, a Settlement Trust may elect

8 to treat any distribution (or portion) during the

9 65-day period following the close of any taxable

10 year as made on the last day of such taxable

11 year. Any such distribution (or portion) may

12 not be taken into account under this paragraph

13 for any other taxable year.

14 ‘‘(D) ADJUSTED TAXABLE INCOME.—For

15 purposes of this paragraph, the term ‘adjusted

16 taxable income’ means taxable income deter17 mined under section 641(b) without regard to

18 any deduction under section 651 or 661.

19 ‘‘(5) TAX TREATMENT OF DISTRIBUTIONS TO

20 BENEFICIARIES.—

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

22 in effect under paragraph (2) for any taxable

23 year, any distribution to a beneficiary shall be

24 included in gross income of the beneficiary as

25 ordinary income.
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1 ‘‘(B) NONELECTING TRUSTS.—Any dis2 tribution to a beneficiary from a Settlement

3 Trust not described in subparagraph (A) shall

4 be includible in income to the extent provided

5 under subchapter J.

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

7 subsection—

8 ‘‘(A) NATIVE CORPORATION.—The term

9 ‘Native Corporation’ has the meaning given

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

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

12 ‘‘(B) SETTLEMENT TRUST.—The term

13 ‘Settlement Trust’ means a trust which con14 stitutes a Settlement Trust under section 39 of

15 the Alaska Native Claims Settlement Act (43

16 U.S.C. 1629e).’’

17 (c) WITHHOLDING ON DISTRIBUTIONS BY ELECTING

18 ANCSA SETTLEMENT TRUSTS.—Section 3402 of the In19 ternal Revenue Code of 1986 is amended by adding at the

20 end the following new subsection:

21 ‘‘(t) TAX WITHHOLDING ON DISTRIBUTIONS BY

22 ELECTING ANCSA SETTLEMENT TRUSTS.—

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

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

25 from income tax under section 501(c)(28) (in this
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1 subsection referred to as an ‘electing trust’) and

2 which makes a payment to any beneficiary shall de3 duct and withhold from such payment a tax in an

4 amount equal to such payment’s proportionate share

5 of the annualized tax.

6 ‘‘(2) EXCEPTION.—The tax imposed by para7 graph (1) shall not apply to any payment to the ex8 tent that such payment, when annualized, does not

9 exceed an amount equal to the sum of—

10 ‘‘(A) the basic standard deduction (as de11 fined in section 63(c)) for an individual to

12 whom section 63(c)(2)(C) applies; and

13 ‘‘(B) the exemption amount (as defined in

14 section 151(d)).

15 ‘‘(3) ANNUALIZED TAX.—For purposes of para16 graph (1), the term ‘annualized tax’ means, with re17 spect to any payment, the amount of tax which

18 would be imposed by section 1(c) (determined with19 out regard to any rate of tax in excess of 31 per20 cent) on an amount of taxable income equal to the

21 excess of—

22 ‘‘(A) the annualized amount of such pay23 ment, over

24 ‘‘(B) the amount determined under para25 graph (2).
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1 ‘‘(4) ANNUALIZATION.—For purposes of this

2 subsection, amounts shall be annualized in the man3 ner prescribed by the Secretary.

4 ‘‘(5) NO APPLICATION TO THIRD PARTY PAY5 MENTS.—This subsection shall not apply in the case

6 of a payment made, pursuant to the written terms

7 of the trust agreement governing an electing trust,

8 directly to third parties to provide educational, fu9 neral, or medical benefits.

10 ‘‘(6) ALTERNATE WITHHOLDING PROCE11 DURES.—At the election of an electing trust, the tax

12 imposed by this subsection on any payment made by

13 such trust shall be determined in accordance with

14 such tables or computational procedures as may be

15 specified in regulations prescribed by the Secretary

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

17 (3)).

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

19 For purposes of this chapter and so much of subtitle

20 F as relates to this chapter, payments which are

21 subject to withholding under this subsection shall be

22 treated as if they were wages paid by an employer

23 to an employee.’’
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1 (d) REPORTING.—Section 6041 of the Internal Rev2 enue Code of 1986 is amended by adding at the end the

3 following new subsection:

4 ‘‘(f) APPLICATION TO ALASKA NATIVE SETTLEMENT

5 TRUSTS.—In the case of any distribution from a Settle6 ment Trust (as defined in section 501(p)(6)(B)) to a bene7 ficiary, this section shall apply, except that—

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

9 without regard to the amount thereof,

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

11 return or statement required by this section infor12 mation as to the character of such distribution (if

13 applicable) and the amount of tax imposed by chap14 ter 1 which has been deducted and withheld from

15 such distribution, and

16 ‘‘(3) the filing of any return or statement re17 quired by this section shall satisfy any requirement

18 to file any other form or schedule under this title

19 with respect to distributive share information (in20 cluding any form or schedule to be included with the

21 trust’s tax return).’’

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

23 this section shall apply to taxable years of Settlement
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1 Trusts ending after the date of the enactment of this Act

2 and to contributions to such trusts after such date.

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