I
106TH CONGRESS
1ST SESSION
H. R. 2359
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
JUNE 24, 1999
Mr. YOUNG of Alaska (for himself, Mr. GEORGE MILLER of California, Mr.
KILDEE, Mr. FROST, Ms. PELOSI, Mr. ABERCROMBIE, Mr. FOLEY, Mr.
MCINNIS, Mr. UDALL of Colorado, Mr. PALLONE, Mr. WATKINS, Mr.
HAYWORTH, Mr. KENNEDY of Rhode Island, Mr. SMITH of Washington,
Mr. OBERSTAR, Mr. FALEOMAVAEGA, Mr. HOUGHTON, Mr. TOWNS, Ms.
WATERS, Mr. NETHERCUTT, and Mr. STUPAK) 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 pur-
suant to the Alaska Native Claims Settlement Act.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Alaska Native Claims
Settlement Act Settlement Trusts Remedial Tax Act of
1999’’.
SEC. 2. TAX TREATMENT OF ALASKA NATIVE SETTLEMENT
TRUSTS.
(a) TAX EXEMPTION.—Section 501(c) of the Internal
Revenue Code of 1986 is amended by adding at the end
the following new paragraph:
‘‘(28) A trust which—
‘‘(A) constitutes a Settlement Trust under
section 39 of the Alaska Native Claims Settle-
ment Act (43 U.S.C. 1629e), and
‘‘(B) with respect to which an election
under subsection (p)(2) is in effect.’’
(b) SPECIAL RULES RELATING TO TAXATION OF
ALASKA NATIVE SETTLEMENT TRUSTS.—Section 501 of
the Internal Revenue Code of 1986 is amended by redesig-
nating subsection (p) as subsection (q) and by inserting
after subsection (o) the following new subsection:
‘‘(p) SPECIAL RULES FOR TAXATION OF ALASKA NA-
TIVE SETTLEMENT TRUSTS.—
‘‘(1) IN GENERAL.—For purposes of this title,
the following rules shall apply in the case of a Set-
tlement Trust:
‘‘(A) ELECTING
TRUST.—If an election
under paragraph (2) is in effect for any taxable
year—
‘‘(i) no amount shall be includible in
the gross income of a beneficiary of the
Settlement Trust by reason of a contribu-
tion to the Settlement Trust made during
such taxable year, and
‘‘(ii) except as provided in this sub-
section, the provisions of subchapter J and
section 1(e) shall not apply to the Settle-
ment Trust and its beneficiaries for such
taxable year.
‘‘(B) NONELECTING
TRUST.—If an elec-
tion is not in effect under paragraph (2) for
any taxable year, the provisions of subchapter J
and section 1(e) shall apply to the Settlement
Trust and its beneficiaries for such taxable
year.
‘‘(2) ONE-TIME ELECTION.—
‘‘(A) IN
GENERAL.—A Settlement Trust
may elect to have the provisions of this sub-
section and subsection (c)(28) apply to the
trust and its beneficiaries.
‘‘(B) TIME AND METHOD OF ELECTION.—
An election under subparagraph (A) shall be
made—
‘‘(i) on or before the due date (includ-
ing extensions) for filing the Settlement
Trust’s return of tax for the 1st taxable
year of the Settlement Trust ending after
the date of the enactment of this sub-
section, and
‘‘(ii) by attaching to such return of
tax a statement specifically providing for
such election.
‘‘(C) PERIOD ELECTION IN EFFECT.—Ex-
cept as provided in paragraph (3), an election
under subparagraph (A)—
‘‘(i) shall apply to the 1st taxable year
described in subparagraph (B)(i) and all
subsequent taxable years, and
‘‘(ii) may not be revoked once it is
made.
‘‘(3) SPECIAL
RULES
WHERE
TRANSFER
RE-
STRICTIONS MODIFIED.—
‘‘(A) TRANSFER
OF
BENEFICIAL
INTER-
ESTS.—If, at any time, a beneficial interest in
a Settlement Trust may be disposed of in a
manner which would not be permitted by sec-
tion 7(h) of the Alaska Native Claims Settle-
ment Act (43 U.S.C. 1606(h)) if the interest
were Settlement Common Stock—
‘‘(i) no election may be made under
paragraph (2)(A) with respect to such
trust, and
‘‘(ii) if an election under paragraph
(2)(A) is in effect as of such time—
‘‘(I) such election is revoked as of
the 1st day of the taxable year fol-
lowing the taxable year in which such
disposition is first permitted, and
‘‘(II) there is hereby imposed on
such trust a tax equal to the product
of the fair market value of the assets
held by the trust as of the close of the
taxable year in which such disposition
is first permitted and the highest rate
of tax under section 1(e) for such tax-
able year.
The tax imposed by clause (ii)(II) shall be in
lieu of any other tax imposed by this chapter
for the taxable year.
‘‘(B) STOCK IN CORPORATION.—If—
‘‘(i) the Settlement Common Stock in
any Native Corporation which transferred
assets to a Settlement Trust making an
election under paragraph (2)(A) may be
disposed of in a manner not permitted by
section 7(h) of the Alaska Native Claims
Settlement Act (43 U.S.C. 1606(h)), and
‘‘(ii) at any time after such disposi-
tion of stock is first permitted, such cor-
poration transfers assets to such trust,
clause (ii) of subparagraph (A) shall be applied
to such trust on and after the date of the trans-
fer in the same manner as if the trust per-
mitted dispositions of beneficial interests in the
trust in a manner not permitted by such section
7(h).
‘‘(C) ADMINISTRATIVE
PROVISIONS.—For
purposes of subtitle F, any tax imposed by sub-
paragraph (A)(ii)(II) shall be treated as an ex-
cise tax with respect to which the deficiency
procedures of such subtitle apply.
‘‘(4) DISTRIBUTION REQUIREMENT ON ELECT-
ING SETTLEMENT TRUST.—
‘‘(A) IN GENERAL.—If an election is in ef-
fect under paragraph (2) for any taxable year,
a Settlement Trust shall distribute at least 55
percent of its adjusted taxable income for such
taxable year.
‘‘(A) ELECTING TRUST.—If an election is
in effect under paragraph (2) for any taxable
year, any distribution to a beneficiary shall be
included in gross income of the beneficiary as
ordinary income.
‘‘(B) NONELECTING
TRUSTS.—Any dis-
tribution to a beneficiary from a Settlement
Trust not described in subparagraph (A) shall
be includible in income to the extent provided
under subchapter J.
‘‘(6) DEFINITIONS.—For purposes of this
subsection—
‘‘(A) NATIVE
CORPORATION.—The term
‘Native Corporation’ has the meaning given
such term by section 3(m) of the Alaska Native
Claims Settlement Act (43 U.S.C. 1602(m)).
‘‘(B) SETTLEMENT
TRUST.—The term
‘Settlement Trust’ means a trust which con-
stitutes a Settlement Trust under section 39 of
the Alaska Native Claims Settlement Act (43
U.S.C. 1629e).’’
(c) WITHHOLDING ON DISTRIBUTIONS BY ELECTING
ANCSA SETTLEMENT TRUSTS.—Section 3402 of the In-
ternal Revenue Code of 1986 is amended by adding at the
end the following new subsection:
‘‘(t) TAX WITHHOLDING
ON DISTRIBUTIONS
BY
ELECTING ANCSA SETTLEMENT TRUSTS.—
‘‘(1) IN GENERAL.—Any Settlement Trust (as
defined in section 501(p)(6)(B)) which is exempt
from income tax under section 501(c)(28) (in this
subsection referred to as an ‘electing trust’) and
which makes a payment to any beneficiary shall de-
duct and withhold from such payment a tax in an
amount equal to such payment’s proportionate share
of the annualized tax.
‘‘(2) EXCEPTION.—The tax imposed by para-
graph (1) shall not apply to any payment to the ex-
tent that such payment, when annualized, does not
exceed an amount equal to the sum of—
‘‘(A) the basic standard deduction (as de-
fined in section 63(c)) for an individual to
whom section 63(c)(2)(C) applies; and
‘‘(B) the exemption amount (as defined in
section 151(d)).
‘‘(3) ANNUALIZED TAX.—For purposes of para-
graph (1), the term ‘annualized tax’ means, with re-
spect to any payment, the amount of tax which
would be imposed by section 1(c) (determined with-
out regard to any rate of tax in excess of 31 per-
cent) on an amount of taxable income equal to the
excess of—
‘‘(A) the annualized amount of such pay-
ment, over
‘‘(B) the amount determined under para-
graph (2).
‘‘(4) ANNUALIZATION.—For purposes of this
subsection, amounts shall be annualized in the man-
ner prescribed by the Secretary.
‘‘(5) NO APPLICATION TO THIRD PARTY PAY-
MENTS.—This subsection shall not apply in the case
of a payment made, pursuant to the written terms
of the trust agreement governing an electing trust,
directly to third parties to provide educational, fu-
neral, or medical benefits.
‘‘(6) 
ALTERNATE
WITHHOLDING
PROCE-
DURES.—At the election of an electing trust, the tax
imposed by this subsection on any payment made by
such trust shall be determined in accordance with
such tables or computational procedures as may be
specified in regulations prescribed by the Secretary
(in lieu of in accordance with paragraphs (2) and
(3)).
‘‘(7) COORDINATION WITH OTHER SECTIONS.—
For purposes of this chapter and so much of subtitle
F as relates to this chapter, payments which are
subject to withholding under this subsection shall be
treated as if they were wages paid by an employer
to an employee.’’
(d) REPORTING.—Section 6041 of the Internal Rev-
enue Code of 1986 is amended by adding at the end the
following new subsection:
‘‘(f) APPLICATION TO ALASKA NATIVE SETTLEMENT
TRUSTS.—In the case of any distribution from a Settle-
ment Trust (as defined in section 501(p)(6)(B)) to a bene-
ficiary, this section shall apply, except that—
‘‘(1) this section shall apply to such distribution
without regard to the amount thereof,
‘‘(2) the Settlement Trust shall include on any
return or statement required by this section infor-
mation as to the character of such distribution (if
applicable) and the amount of tax imposed by chap-
ter 1 which has been deducted and withheld from
such distribution, and
‘‘(3) the filing of any return or statement re-
quired by this section shall satisfy any requirement
to file any other form or schedule under this title
with respect to distributive share information (in-
cluding any form or schedule to be included with the
trust’s tax return).’’
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years of Settlement
Trusts ending after the date of the enactment of this Act
and to contributions to such trusts after such date.
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