Tax treatment of income received in connection with the Exxon Valdez litigation

(a)

Income averaging of amounts received from the Exxon Valdez litigation

(1)

In general

At the election of a qualified taxpayer who receives qualified settlement income during a taxable year, the tax imposed by chapter 1 of the Internal Revenue Code of 1986 for such taxable year shall be equal to the sum of— (A)the tax which would be imposed under such chapter if— (i)no amount of elected qualified settlement income were included in gross income for such year, and (ii)no deduction were allowed for such year for expenses (otherwise allowable as a deduction to the taxpayer for such year) attributable to such elected qualified settlement income, plus (B)the increase in tax under such chapter which would result if taxable income for each of the years in the applicable period were increased by an amount equal to the applicable fraction of the elected qualified settlement income reduced by any expenses (otherwise allowable as a deduction to the taxpayer) attributable to such elected qualified settlement income.

Any adjustment under this section for any taxable year shall be taken into account in applying this section for any subsequent taxable year.

(2)

Coordination with farm income averaging

If a qualified taxpayer makes an election with respect to any qualified settlement income under paragraph (1) for any taxable year, such taxpayer may not elect to treat such amount as elected farm income under section 1301 of the Internal Revenue Code of 1986. (3)

Definitions

For purposes of this subsection— (A)

Applicable period

The term applicable period means the period beginning on January 1, 1994, and ending on December 31 of the year in which the elected qualified settlement income is received. (B)

Applicable fraction

The term applicable fraction means the fraction the numerator of which is one and the denominator of which is the number of years in the applicable period. (C)

Elected qualified settlement income

The term elected qualified settlement income means so much of the taxable income for the taxable year which is— (i)qualified settlement income, and (ii)specified under the election under paragraph (1). (b)

Contributions of amounts received to retirement accounts

(1)

In general

Any qualified taxpayer who receives qualified settlement income during the taxable year may, at any time before the end of the taxable year in which such income was received, make one or more contributions to an eligible retirement plan of which such qualified taxpayer is a beneficiary in an aggregate amount not to exceed the amount of qualified settlement income received during such year. (2)

Time when contributions deemed made

For purposes of paragraph (1), a qualified taxpayer shall be deemed to have made a contribution to an eligible retirement plan on the last day of the taxable year in which such income is received if the contribution is made on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (not including extensions thereof). (3)

Treatment of contributions to eligible retirement plans

For purposes of the Internal Revenue Code of 1986, if a contribution is made pursuant to paragraph (1) with respect to qualified settlement income, then— (A)except as provided in paragraph (4)— (i)to the extent of such contribution, the qualified settlement income shall not be included in taxable income, and (ii)for purposes of section 72 of such Code, such contribution shall not be considered to be investment in the contract, and (B)the qualified taxpayer shall, to the extent of the amount of the contribution, be treated— (i)as having received the qualified settlement income— (I)in the case of a contribution to an individual retirement plan (as defined under section 7701(a)(37) of such Code), in a distribution described in section 408(d)(3) of such Code, and (II)in the case of any other eligible retirement plan, in an eligible rollover distribution (as defined under section 402(f)(2) of such Code), and (ii)as having transferred the amount to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution. (4)

Special rule for Roth IRAs and Roth 401(k)s

For purposes of the Internal Revenue Code of 1986, if a contribution is made pursuant to paragraph (1) with respect to qualified settlement income to a Roth IRA (as defined under section 408A(b) of such Code) or as a designated Roth contribution to an applicable retirement plan (within the meaning of section 402A of such Code), then— (A)the qualified settlement income shall be includible in taxable income, and (B)for purposes of section 72 of such Code, such contribution shall be considered to be investment in the contract. (5)

Eligible retirement plan

For purpose of this subsection, the term eligible retirement plan has the meaning given such term under section 402(c)(8)(B) of the Internal Revenue Code of 1986. (c)

Qualified settlement income not included in SECA

For purposes of chapter 2 of the Internal Revenue Code of 1986 and section 211 of the Social Security Act, no portion of qualified settlement income received by a qualified taxpayer shall be treated as self-employment income. (d)

Qualified taxpayer

For purposes of this section, the term qualified taxpayer means— (1)any plaintiff in the civil action In re Exxon Valdez, No. 89–095–CV (HRH) (Consolidated) (D. Alaska); or (2)any beneficiary of the estate of such a plaintiff who— (A)acquired the right to receive qualified settlement income from that plaintiff; and (B)was the spouse or an immediate relative of that plaintiff. (e)

Qualified settlement income

For purposes of this section, the term qualified settlement income means income received (whether as lump sums or periodic payments) in connection with the civil action In re Exxon Valdez, No. 89–095–CV (HRH) (Consolidated) (D. Alaska), including interest (whether pre- or post judgment and whether related to a settlement or judgment).