I
105TH CONGRESS
2D SESSION
H. R. 4192
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 25, 1998
Mr. YOUNG of Alaska (for himself, Mr. MILLER of California, and Mr.
HAYWORTH) introduced the following bill; which was referred to the Com-
mittee 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. TAX TREATMENT OF ALASKA NATIVE SETTLE-
MENT 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
SETTLEMENT TRUST.—Section 501 of such Code is
amended by redesignating subsection (p) as subsection (q)
and by inserting after subsection (o) the following new
subsection:
‘‘(p) SPECIAL RULES
FOR ALASKA SETTLEMENT
TRUSTS.—
‘‘(1) IN GENERAL.—For purposes of this title,
the following rules shall apply in the case of a Set-
tlement Trust:
‘‘(A) 
CONVEYANCE
TO
TRUST.—No
amount shall be includible in the gross income
of a beneficiary of the Settlement Trust by rea-
son of a contribution to the Settlement Trust
(without regard to whether an election is in ef-
fect under paragraph (2)).
‘‘(B) ELECTING TRUST.—If an election is
in effect under paragraph (2) for any taxable
year, then except as provided in this subsection,
the provisions of subchapter J and section 1(e)
shall not apply to the Settlement Trust and its
beneficiaries.
‘‘(C) NONELECTING TRUST.—If an election
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.
‘‘(2) 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) before the due date (including ex-
tensions) for filing the Settlement Trust’s
return of tax for the 1st taxable year to
which such election is to apply, 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 subparagraph (D), an elec-
tion under subparagraph (A), once made, shall
be irrevocable.
‘‘(D) ELECTION
REVOKED
FOR
FAILURE
TO MEET TRANSFER RESTRICTION.—
‘‘(i) IN GENERAL.—An election under
subparagraph (A) is revoked if, at any
time after the 1st day of the 1st taxable
year to which such election applies, the
trust permits any disposition of a bene-
ficial interest in the trust which would not
be permitted under section 7(h) of the
Alaska Native Claims Settlement Act (43
U.S.C. 1606(h)) if such beneficial interest
were Settlement Common Stock.
‘‘(ii) TIME ELECTION REVOKED.—The
revocation under clause (i) shall take effect
on the 1st day of the taxable year in which
the failure occurs.
‘‘(iii) NO FURTHER ELECTION.—If an
election is revoked under clause (i), the
Settlement Trust (or any successor) may
not make any election under this para-
graph for the taxable year of revocation or
any subsequent taxable year.
‘‘(3) 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.
‘‘(B) TAX IMPOSED IF INSUFFICIENT DIS-
TRIBUTION.—If a Settlement Trust fails to
meet the distribution requirement of subpara-
graph (A) for any taxable year, then, notwith-
standing subsection (c)(28), a tax shall be im-
posed on the trust under section 1(e) on an
amount of taxable income equal to the amount
of such failure.
‘‘(C) DESIGNATION
OF
DISTRIBUTION.—
Solely for purposes of meeting the requirements
of this paragraph, a Settlement Trust may elect
to treat any distribution (or portion) during the
12-month period following the close of any tax-
able year as made on the last day of such tax-
able year. Any such distribution (or portion)
may not be taken into account under this para-
graph for any other taxable year.
‘‘(D) ADJUSTED TAXABLE INCOME.—For
purposes of this paragraph, the term ‘adjusted
taxable income’ means taxable income deter-
mined under section 641(b) without regard to
any deduction under section 651 or 661.
‘‘(4) TAX TREATMENT OF DISTRIBUTIONS TO
BENEFICIARIES.—
‘‘(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) OTHER TRUSTS.—Any distribution to
a beneficiary from a Settlement Trust not de-
scribed in subparagraph (A) shall—
‘‘(i) be included in gross income of the
beneficiary as ordinary income to the ex-
tent allocable to the earnings and profits
account under subparagraph (C), and
‘‘(ii) be includible in income as pro-
vided under subchapter J to the extent not
so allocable.
‘‘(C) EARNINGS AND PROFITS ACCOUNT.—
‘‘(i) IN
GENERAL.—Each Settlement
Trust shall establish an earnings and prof-
its account for purposes of accounting for
earnings and profits transferred from an
Alaska Native Corporation by reason of a
contribution to the trust.
‘‘(ii) INCREASES.—The account shall
be increased each time a contribution is
made by an Alaska Native Corporation to
the Settlement Trust. Such increase shall
be equal to the lesser of—
‘‘(I) the amount of the contribu-
tion, or
‘‘(II) the earnings and profits of
the Alaska Native Corporation, deter-
mined as of the close of the taxable
year in which the contribution was
made and without regard to the con-
tribution.
For purposes of this clause, all contribu-
tions during a taxable year shall be treated
as 1 contribution.
‘‘(iii) DECREASES.—The account shall
be decreased by any distribution by the
Settlement Fund to its beneficiaries.
‘‘(iv) TAXATION.—For purposes of
subparagraph (B), until such time as the
balance in the account is zero, all distribu-
tions to beneficiaries during a taxable year
shall be treated as allocable to the account
for purposes of subparagraph (B)(i).
Thereafter, all such distributions shall be
taxable 
as 
provided 
in 
subparagraph
(B)(ii) until such time as there is an in-
crease in the balance of the account.
‘‘(D) REDUCTION IN EARNINGS AND PROF-
ITS.—The earnings and profits of an Alaska
Native Corporation shall be reduced by the
amount of the earnings and profits transferred
to the account under subparagraph (C).
‘‘(5) VOLUNTARY WITHHOLDING.—
‘‘(A) IN GENERAL.—Notwithstanding any
other provision of law, a beneficiary of a Settle-
ment Trust (whether or not an election under
paragraph (2) is in effect) may elect to have
Federal income tax withheld on distributions
from the Settlement Trust to the beneficiary.
‘‘(B) ELECTION.—An election under sub-
paragraph (A) shall—
‘‘(i) be made to the Settlement Trust
in writing, and
‘‘(ii) specify the percentage (not great-
er than 15 percent) of the distributions to
be withheld.
Such election may be revoked or modified with
respect to distributions made after the revoca-
tion or modification.
‘‘(6) SETTLEMENT
TRUST.—For purposes of
this section, the term ‘Settlement Trust’ means a
trust which constitutes a Settlement Trust under
section 39 of the Alaska Native Claims Settlement
Act (43 U.S.C. 1629e).’’
(c) REPORTING.—Section 6041 of such Code is
amended by adding at the end the following new sub-
section:
‘‘(f) 
APPLICATION
TO
ALASKA
SETTLEMENT
TRUSTS.—In the case of any distribution from a Settle-
ment Trust (as defined in section 501(p)(6)) 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 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 included with the
trust’s tax return).’’
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section shall apply to taxable years of Settle-
ment Trusts beginning after December 31, 1996,
and to contributions to such trusts after such date.
(2) REQUIREMENT
FOR
ELECTION.—An elec-
tion under section 501(p)(2) of the Internal Revenue
Code of 1986 for a taxable year beginning in 1997
shall not be treated as failing to meet the require-
ments of section 501(p)(2)(B) of such Code if such
election is filed with the return of tax for the first
taxable year after such taxable year.
Æ