[Congressional Record Volume 144, Number 59 (Tuesday, May 12, 1998)]
[Senate]
[Pages S4714-S4715]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. MURKOWSKI (for himself and Mr. Stevens):
  S. 2065. 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; to the Committee on Finance.


             alaska native settlement trust tax legislation

  Mr. MURKOWSKI. Mr. President, I am pleased to be joined by Senator 
Stevens in introducing legislation that will allow Alaska Native 
Corporations to establish settlement trusts designed to promote the 
health, education, welfare and cultural heritage of Alaska Natives.
  Mr. President, in 1987, the Alaska Native Claims Settlement Act was 
amended to permit Native Corporations to establish settlement trusts to 
hold lands and investments for the benefit of current and future 
generations of Alaska Natives. Assets in these trusts are insulated 
from business exposure and risks and can be invested to provide 
distributions of income to Native shareholders and their future 
generations.
  Although the 1987 amendments were designed to facilitate the 
development of settlement trusts, many Native Corporations have been 
stymied in their efforts because the tax law, in many cases, imposes 
onerous penalties on the Native shareholders when the trusts are 
created. For example, when assets are transferred to the trust, they 
are treated as a de facto distribution of assets directly to the 
shareholders themselves to the extent of the corporation's earnings and 
profits.
  Even though the current shareholders receive no actual income at the 
time of the transfer into the trust, they are liable for income taxes 
as if they received an actual distribution. This not only requires the 
shareholder to come up with money to pay taxes on a distribution he or 
she never received, but also can result in a situation where a trust 
fund beneficiary is required to prepay taxes on his share of the entire 
trust corpus, which may be substantially more in taxes than the amount 
of cash benefits he or she will actually receive in the future.
  Our legislation remedies this inequity by requiring that a 
beneficiary of a settlement trust will be subject to taxation with 
respect to assets conveyed to the trust only when the actual 
distribution is received by the beneficiary. Moreover, the legislation 
provides that distributions from the trust will be taxable as ordinary 
income even if the distribution represents a return of capital. In 
addition, to ensure that these trusts do not accumulate excessive 
levels of the corporation's earnings, the legislation requires that the 
trust must annually distribute at least 55 percent of their taxable 
income.
  Mr. President, Alaska Native Corporations are unique entities. Unlike 
Native American tribes in the lower 48, Alaska Native corporations are 
subject to income tax. But unlike ordinary C corporations, Alaska 
Native corporations have diverse purposes, one of which is to preserve 
and protect the heritage of the Native shareholders. The settlement 
trust concept is well suited to the special needs of Alaska's Natives. 
As the Conference Committee Report to ANSCA amendments of 1987 stated:
       Trust distributions may be used to fight poverty, provide 
     food, shelter and clothing and served comparable economic 
     welfare purposes. Additionally, cash distributions of trust 
     income may be made on an across-the-board basis to the 
     beneficiary population as part of the economic welfare 
     function.

[[Page S4715]]

  Settlement trusts will ensure that for generations to come, Native 
Alaskans will have a steady stream of income on which to continue 
building an economic base. The current tax rules discourage the 
creation of such trusts with the result that Native corporations are 
under extreme pressure to distribute all current earnings rather than 
prudently reinvesting for the future.
  Mr. President, it is my hope that we will be able to see this 
legislation adopted into law this year. For the long-term benefit of 
Alaska Natives, this tax law change is fundamentally necessary.
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