I

107TH CONGRESS

1ST SESSION H. R. 1692

To amend the Internal Revenue Code of 1986 to simplify and make more

equitable the tax treatment of Settlement Trusts established pursuant

to the Alaska Native Claims Settlement Act.

IN THE HOUSE OF REPRESENTATIVES

MAY 2, 2001

Mr. YOUNG of Alaska (for himself, Mr. HANSEN, Mr. RAHALL, Mr. GEORGE

MILLER of California, Mr. HOUGHTON, Mr. RANGEL, Mr. FOLEY, Mr.

KILDEE, Mr. MCINNIS, Mr. KENNEDY of Rhode Island, Mr. CAMP, Mr.

ABERCROMBIE, Mr. HAYWORTH, Mrs. BONO, Mr. FROST, MR. STUPAK,

Mr. FALEOMAVAEGA, Mr. UDALL of Colorado, and Mr. PALLONE) 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 simplify

and make more equitable 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) TREATMENT OF ALASKA NATIVE SETTLEMENT

6 TRUSTS.—Subpart A of part I of subchapter J of chapter
2

•HR 1692 IH

1 1 of the Internal Revenue Code of 1986 (relating to gen2 eral rules for taxation of trusts and estates) is amended

3 by adding at the end the following new section:

4 ‘‘SEC. 646. TAX TREATMENT OF ALASKA NATIVE SETTLE5 MENT TRUSTS.

6 ‘‘(a) IN GENERAL.—Except as otherwise provided in

7 this section, the provisions of this subchapter and section

8 1(e) shall apply to all Settlement Trusts.

9 ‘‘(b) TAXATION OF INCOME OF TRUST.—Except as

10 provided in subsection (f)(1)(B)(ii)—

11 ‘‘(1) IN GENERAL.—There is hereby imposed on

12 the taxable income of an electing Settlement Trust,

13 other than its net capital gain, a tax at the lowest

14 rate specified in section 1.

15 ‘‘(2) CAPITAL GAIN.—In the case of an electing

16 Settlement Trust with a net capital gain for the tax17 able year, a tax is hereby imposed on such gain at

18 the rate of tax which would apply to such gain if the

19 taxpayer were subject to a tax on its other taxable

20 income at only the lowest rate specified in section 1.

21 ‘‘(c) ONE-TIME ELECTION.—

22 ‘‘(1) IN GENERAL.—A Settlement Trust may

23 elect to have the provisions of this section apply to

24 the trust and its beneficiaries.
3

•HR 1692 IH

1 ‘‘(2) TIME AND METHOD OF ELECTION.—An

2 election under paragraph (1) shall be made by the

3 trustee of such trust—

4 ‘‘(A) on or before the due date (including

5 extensions) for filing the Settlement Trust’s re6 turn of tax for the first taxable year of such

7 trust ending after the date of the enactment of

8 this section, and

9 ‘‘(B) by attaching to such return of tax a

10 statement specifically providing for such elec11 tion.

12 ‘‘(3) PERIOD ELECTION IN EFFECT.—Except as

13 provided in subsection (f), an election under this

14 subsection—

15 ‘‘(A) shall apply to the first taxable year

16 described in paragraph (2)(A) and all subse17 quent taxable years, and

18 ‘‘(B) may not be revoked once it is made.

19 ‘‘(d) CONTRIBUTIONS TO TRUST.—

20 ‘‘(1) BENEFICIARIES OF ELECTING TRUST NOT

21 TAXED ON CONTRIBUTIONS.—In the case of an

22 electing Settlement Trust, no amount shall be in23 cludible in the gross income of a beneficiary of such

24 trust by reason of a contribution to such trust.
4

•HR 1692 IH

1 ‘‘(2) EARNINGS AND PROFITS.—The earnings

2 and profits of the sponsoring Native Corporation

3 shall not be reduced on account of any contribution

4 to such Settlement Trust:

5 ‘‘(e) TAX TREATMENT OF DISTRIBUTIONS TO BENE6 FICIARIES.—Amounts distributed by an electing Settle7 ment Trust during any taxable year shall be considered

8 as having the following characteristics in the hands of the

9 recipient beneficiary:

10 ‘‘(1) First, as amounts excludable from gross

11 income for the taxable year to the extent of the tax12 able income of such trust for such taxable year (de13 creased by any income tax paid by the trust with re14 spect to the income) plus any amount excluded from

15 gross income of the trust under section 103.

16 ‘‘(2) Second, as amounts excludable from gross

17 income to the extent of the amount described in

18 paragraph (1) for all taxable years for which an elec19 tion is in effect under subsection (c) with respect to

20 the trust, and not previously taken into account

21 under paragraph (1).

22 ‘‘(3) Third, as amounts distributed by the spon23 soring Native Corporation with respect to its stock

24 (within the meaning of section 301(a)) during such

25 taxable year and taxable to the recipient beneficiary
5

•HR 1692 IH

1 as amounts described in section 301(c)(1), to the ex2 tent of current accumulated earnings and profits of

3 the sponsoring Native Corporation as of the close of

4 such taxable year after proper adjustment is made

5 for all distributions made by the sponsoring Native

6 Corporation during such taxable year.

7 ‘‘(4) Fourth, as amounts distributed by the

8 trust in excess of the distributable net income of

9 such trust for such taxable year.

10 Amounts distributed to which paragraph (3) applies shall

11 not be treated as a corporate distribution subject to sec12 tion 311(b), and for purposes of determining the amount

13 of a distribution for purposes of paragraph (3) and the

14 basis to the recipients, section 643(e) and not section

15 301(b) or (d) shall apply.

16 ‘‘(f) SPECIAL RULES WHERE TRANSFER RESTRIC17 TIONS MODIFIED.—

18 ‘‘(1) TRANSFER OF BENEFICIAL INTERESTS.—

19 If, at any time, a beneficial interest in an electing

20 Settlement Trust may be disposed of to a person in

21 a manner which would not be permitted by section

22 7(h) of the Alaska Native Claims Settlement Act (43

23 U.S.C. 1606(h)) if such interest were Settlement

24 Common Stock—
6

•HR 1692 IH

1 ‘‘(A) no election may be made under sub2 section (c) with respect to such trust, and

3 ‘‘(B) if such an election is in effect as of

4 such time—

5 ‘‘(i) such election shall cease to apply

6 as of the first day of the taxable year in

7 which such disposition is first permitted,

8 ‘‘(ii) the provisions of this section

9 shall not apply to such trust for such tax10 able year and all taxable years thereafter,

11 and

12 ‘‘(iii) the distributable net income of

13 such trust shall be increased by the cur14 rent and accumulated earnings and profits

15 of the sponsoring Native Corporation as of

16 the close of such taxable year after proper

17 adjustment is made for all distributions

18 made by the sponsoring Native Corpora19 tion during such taxable year.

20 In no event shall the increase under clause (iii) ex21 ceed the fair market value of the trust’s assets as

22 of the date the beneficial interest of the trust first

23 becomes so disposable. The earnings and profits of

24 the sponsoring Native Corporation shall be adjusted

25 as of the last day of such taxable year by the
7

•HR 1692 IH

1 amount of earnings and profits so included in the

2 distributable net income of the trust.

3 ‘‘(2) STOCK IN CORPORATION.—If—

4 ‘‘(A) the Settlement Common Stock in the

5 sponsoring Native Corporation may be disposed

6 of to a person in any manner not permitted by

7 section 7(h) of the Alaska Native Claims Settle8 ment Act (43 U.S.C. 1606(h)), and

9 ‘‘(B) at any time after such disposition of

10 stock is first permitted, such corporation trans11 fers assets to a Settlement Trust,

12 paragraph (1)(B) shall be applied to such trust on

13 and after the date of the transfer in the same man14 ner as if the trust permitted dispositions of bene15 ficial interests in the trust in a manner not per16 mitted by such section 7(h).

17 ‘‘(3) CERTAIN DISTRIBUTIONS.—For purposes

18 of this section, the surrender of an interest in a Na19 tive Corporation or an electing Settlement Trust in

20 order to accomplish the whole or partial redemption

21 of the interest of a shareholder or beneficiary in

22 such corporation or trust, or to accomplish the whole

23 or partial liquidation of such corporation or trust,

24 shall be deemed to be a transfer permitted by sec-
8

•HR 1692 IH

1 tion 7(h) of the Alaska Native Claims Settlement

2 Act.

3 ‘‘(g) TAXABLE INCOME.—For purposes of this title,

4 the taxable income of an electing Settlement Trust shall

5 be determined under section 641(b) without regard to any

6 deduction under section 651 or 661.

7 ‘‘(h) DEFINITIONS.—For purposes of this section—

8 ‘‘(1) ELECTING SETTLEMENT TRUST.—The

9 term ‘electing Settlement Trust’ means a Settlement

10 Trust which has made the election, effective for a

11 taxable year, described in subsection (c).

12 ‘‘(2) NATIVE CORPORATION.—The term ‘Native

13 Corporation’ has the meaning given such term by

14 section 3(m) of the Alaska Native Claims Settlement

15 Act (43 U.S.C. 1602(m)).

16 ‘‘(3) SETTLEMENT COMMON STOCK.—The term

17 ‘Settlement Common Stock’ has the meaning given

18 such term by section 3(p) of the Alaska Native

19 Claims Settlement Act (43 U.S.C. 1602(p)).

20 ‘‘(4) SETTLEMENT TRUST.—The term ‘Settle21 ment Trust’ means a trust that constitutes a settle22 ment trust under section 3(t) of the Alaska Native

23 Claims Settlement Act (43 U.S.C. 1602(t)).

24 ‘‘(5) SPONSORING NATIVE CORPORATION.—The

25 term ‘sponsoring Native Corporation’ means the Na-
9

•HR 1692 IH

1 tive Corporation which transfers assets to an elect2 ing Settlement Trust.

3 ‘‘(i) SPECIAL LOSS DISALLOWANCE RULE.—Any loss

4 that would otherwise be recognized by a shareholder upon

5 a disposition of a share of stock of a sponsoring Native

6 Corporation shall be reduced (but not below zero) by the

7 per share loss adjustment factor. The per share loss ad8 justment factor shall be the aggregate of all contributions

9 to all electing Settlement Trusts sponsored by such Native

10 Corporation made on or after the first day each trust is

11 treated as an electing Settlement Trust expressed on a per

12 share basis and determined as of the day of each such

13 contribution.

14 ‘‘(j) CROSS REFERENCE.—

‘‘For information required with respect to electing

Settlement Trusts and sponsoring Native Corporations, see section 6039H.’’.

15 (b) REPORTING.—Subpart A of part III of sub16 chapter A of chapter 61 of subtitle F of such Code (relat17 ing to information concerning persons subject to special

18 provisions) is amended by inserting after section 6039G

19 the following new section:

20 ‘‘SEC. 6039H. INFORMATION WITH RESPECT TO ALASKA NA21 TIVE SETTLEMENT TRUSTS AND SPON22 SORING NATIVE CORPORATIONS.

23 ‘‘(a) REQUIREMENT.—The fiduciary of an electing

24 Settlement Trust (as defined in section 646(h)(1)) shall
10

•HR 1692 IH

1 include with the return of income of the trust a statement

2 containing the information required under subsection (c).

3 ‘‘(b) APPLICATION WITH OTHER REQUIREMENTS.—

4 The filing of any statement under this section shall be in

5 lieu of the reporting requirements under section 6034A

6 to furnish any statement to a beneficiary regarding

7 amounts distributed to such beneficiary (and such other

8 reporting rules as the Secretary deems appropriate).

9 ‘‘(c) REQUIRED INFORMATION.—The information re10 quired under this subsection shall include—

11 ‘‘(1) the amount of distributions made during

12 the taxable year to each beneficiary,

13 ‘‘(2) the treatment of such distribution under

14 the applicable provision of section 646, including the

15 amount that is excludable from the recipient bene16 ficiary’s gross income under section 646, and

17 ‘‘(3) the amount (if any) of any distribution

18 during such year that is deemed to have been made

19 by the sponsoring Native Corporation (as defined in

20 section 646(h)(5)).

21 ‘‘(d) SPONSORING NATIVE CORPORATION.—

22 ‘‘(1) IN GENERAL.—The electing Settlement

23 Trust shall, on or before the date on which the

24 statement under subsection (a) is required to be
11

•HR 1692 IH

1 filed, furnish such statement to the sponsoring Na2 tive Corporation (as so defined).

3 ‘‘(2) DISTRIBUTEES.—The sponsoring Native

4 Corporation shall furnish each recipient of a dis5 tribution described in section 646(e)(3) a statement

6 containing the amount deemed to have been distrib7 uted to such recipient by such corporation for the

8 taxable year.’’.

9 (c) CLERICAL AMENDMENT.—

10 (1) The table of sections for subpart A of part

11 I of subchapter J of chapter 1 of such Code is

12 amended by adding at the end the following new

13 item:

‘‘Sec. 646. Tax treatment of Alaska Native Settlement Trusts.’’.

14 (2) The table of sections for subpart A of part

15 III of subchapter A of chapter 61 of subtitle F of

16 such Code is amended by inserting after the item re17 lating to section 6039G the following new item:

‘‘Sec. 6039H. Information with respect to Alaska Native Settlement Trusts and sponsoring Native Corporations.’’.

18 (d) EFFECTIVE DATE.—The amendments made by

19 this section shall apply to taxable years ending after the

20 date of the enactment of this Act and to contributions

21 made to electing Settlement Trusts for such year or any

22 subsequent year.

Æ