[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 2065 Introduced in Senate (IS)]







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.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. 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 Settlement 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 Settlement Trust:
                    ``(A) Conveyance to trust.--No amount shall be 
                includible in the gross income of a beneficiary of the 
                Settlement Trust by reason of a contribution to the 
                Settlement Trust (without regard to whether an election 
                is in effect 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 subsection 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 
                        extensions) 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.--Except as 
                provided in subparagraph (D), an election 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 beneficial 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 paragraph for the 
                        taxable year of revocation or any subsequent 
                        taxable year.
            ``(3) Distribution requirement on electing settlement 
        trust.--
                    ``(A) In general.--If an election is in effect 
                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 distribution.--If 
                a Settlement Trust fails to meet the distribution 
                requirement of subparagraph (A) for any taxable year, 
                then, notwithstanding subsection (c)(28), a tax shall 
                be imposed 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 taxable year as made on the last day of 
                such taxable year. Any such distribution (or portion) 
                may not be taken into account under this paragraph for 
                any other taxable year.
                    ``(D) Adjusted taxable income.--For purposes of 
                this paragraph, the term `adjusted taxable income' 
                means taxable income determined 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 described in 
                subparagraph (A) shall--
                            ``(i) be included in gross income of the 
                        beneficiary as ordinary income to the extent 
                        allocable to the earnings and profits account 
                        under subparagraph (C), and
                            ``(ii) be includible in income as provided 
                        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 profits 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 
                                contribution, or
                                    ``(II) the earnings and profits of 
                                the Alaska Native Corporation, 
                                determined as of the close of the 
                                taxable year in which the contribution 
                                was made and without regard to the 
                                contribution.
                        For purposes of this clause, all contributions 
                        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 distributions 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 increase in the balance of the account.
                    ``(D) Reduction in earnings and profits.--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 Settlement 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 subparagraph (A) 
                shall--
                            ``(i) be made to the Settlement Trust in 
                        writing, and
                            ``(ii) specify the percentage (not greater 
                        than 15 percent) of the distributions to be 
                        withheld.
                Such election may be revoked or modified with respect 
                to distributions made after the revocation 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 subsection:
    ``(f) Application to Alaska Settlement Trusts.--In the case of any 
distribution from a Settlement Trust (as defined in section 501(p)(6)) 
to a beneficiary, 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 information as to the 
        character of such distribution (if applicable) and the amount 
        of tax imposed by chapter 1 deducted and withheld from such 
        distribution, and
            ``(3) the filing of any return or statement required by 
        this section shall satisfy any requirement to file any other 
        form or schedule under this title with respect to distributive 
        share information (including 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 Settlement Trusts beginning after 
        December 31, 1996, and to contributions to such trusts after 
        such date.
            (2) Requirement for election.--An election 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 requirements 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.
                                 <all>