[Congressional Record Volume 147, Number 49 (Thursday, April 5, 2001)]
[Senate]
[Pages S3536-S3537]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. MURKOWSKI (for himself and Mr. Stevens):
  S. 709. A bill to amend the Internal Revenue Code of 1986 to clarify 
the tax treatment of Alaska Native Settlement Trusts; to the Committee 
on Finance.
  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 allowing an Alaska Native 
Corporation to transfer property to an electing trust without tax to 
the beneficiaries. Electing trusts would annually pay tax on their and 
future distributions to beneficiaries would be taxable only to the 
extent such distributions exceeded the taxable income of the trust in 
that year and all prior years for which an election was in effect.
  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.''
  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.
  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.
  I ask unanimous consent that the text of the legislation be printed 
in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 709

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Alaska Native Settlement 
     Trust Tax Fairness Act of 2001''.

     SEC. 2. TAX TREATMENT AND INFORMATION REQUIREMENTS OF ALASKA 
                   NATIVE SETTLEMENT TRUSTS.

       (a) Treatment of Alaska Native Settlement Trusts.--Subpart 
     A of part I of subchapter J of chapter 1 of the Internal 
     Revenue Code of 1986 (relating to general rules for taxation 
     of trusts and estates) is amended by adding at the end the 
     following new section:

     ``SEC. 646. TAX TREATMENT OF ALASKA NATIVE SETTLEMENT TRUSTS.

       ``(a) In General.--Except as otherwise provided in this 
     section, the provisions of this subchapter and section 1(e) 
     shall apply to all Settlement Trusts.
       ``(b) Taxation of Income of Trust.--Except as provided in 
     subsection (f)(1)(B)(ii)--
       ``(1) In general.--There is hereby imposed on the taxable 
     income of an electing Settlement Trust, other than its net 
     capital gain, a tax at the lowest rate specified in section 
     1.
       ``(2) Capital gain.--In the case of an electing Settlement 
     Trust with a net capital gain for the taxable year, a tax is 
     hereby imposed on such gain at the rate of tax which would 
     apply to such gain if the taxpayer were subject to a tax on 
     its other taxable income at only the lowest rate specified in 
     section 1.
       ``(c) One-Time Election.--
       ``(1) In general.--A Settlement Trust may elect to have the 
     provisions of this section apply to the trust and its 
     beneficiaries.
       ``(2) Time and method of election.--An election under 
     paragraph (1) shall be made by the trustee of such trust--
       ``(A) on or before the due date (including extensions) for 
     filing the Settlement Trust's return of tax for the first 
     taxable year of such trust ending after the date of the 
     enactment of this section, and
       ``(B) by attaching to such return of tax a statement 
     specifically providing for such election.
       ``(3) Period election in effect.--Except as provided in 
     subsection (f), an election under this subsection--
       ``(A) shall apply to the first taxable year described in 
     paragraph (2)(A) and all subsequent taxable years, and
       ``(B) may not be revoked once it is made.
       ``(d) Contributions to Trust.--
       ``(1) Beneficiaries of electing trust not taxed on 
     contributions.--In the case of an electing Settlement Trust, 
     no amount shall be includible in the gross income of a 
     beneficiary of such trust by reason of a contribution to such 
     trust.
       ``(2) Earnings and profits.--The earnings and profits of 
     the sponsoring Native Corporation shall not be reduced on 
     account of any contribution to such Settlement Trust:
       ``(e) Tax Treatment of Distributions to Beneficiaries.--
     Amounts distributed by an electing Settlement Trust during 
     any taxable year shall be considered as having the following 
     characteristics in the hands of the recipient beneficiary:

[[Page S3537]]

       ``(1) First, as amounts excludable from gross income for 
     the taxable year to the extent of the taxable income of such 
     trust for such taxable year (decreased by any income tax paid 
     by the trust with respect to the income) plus any amount 
     excluded from gross income of the trust under section 103.
       ``(2) Second, as amounts excludable from gross income to 
     the extent of the amount described in paragraph (1) for all 
     taxable years for which an election is in effect under 
     subsection (c) with respect to the trust, and not previously 
     taken into account under paragraph (1).
       ``(3) Third, as amounts distributed by the sponsoring 
     Native Corporation with respect to its stock (within the 
     meaning of section 301(a)) during such taxable year and 
     taxable to the recipient beneficiary as amounts described in 
     section 301(c)(1), to the extent of current accumulated 
     earnings and profits of the sponsoring Native Corporation as 
     of the close of such taxable year after proper adjustment is 
     made for all distributions made by the sponsoring Native 
     Corporation during such taxable year.
       ``(4) Fourth, as amounts distributed by the trust in excess 
     of the distributable net income of such trust for such 
     taxable year.

     Amounts distributed to which paragraph (3) applies shall not 
     be treated as a corporate distribution subject to section 
     311(b), and for purposes of determining the amount of a 
     distribution for purposes of paragraph (3) and the basis to 
     the recipients, section 643(e) and not section 301(b) or (d) 
     shall apply.
       ``(f) Special Rules Where Transfer Restrictions Modified.--
       ``(1) Transfer of beneficial interests.--If, at any time, a 
     beneficial interest in an electing Settlement Trust may be 
     disposed of to a person in a manner which would not be 
     permitted by section 7(h) of the Alaska Native Claims 
     Settlement Act (43 U.S.C. 1606(h)) if such interest were 
     Settlement Common Stock--
       ``(A) no election may be made under subsection (c) with 
     respect to such trust, and
       ``(B) if such an election is in effect as of such time--
       ``(i) such election shall cease to apply as of the first 
     day of the taxable year in which such disposition is first 
     permitted,
       ``(ii) the provisions of this section shall not apply to 
     such trust for such taxable year and all taxable years 
     thereafter, and
       ``(iii) the distributable net income of such trust shall be 
     increased by the current and accumulated earnings and profits 
     of the sponsoring Native Corporation as of the close of such 
     taxable year after proper adjustment is made for all 
     distributions made by the sponsoring Native Corporation 
     during such taxable year.

     In no event shall the increase under clause (iii) exceed the 
     fair market value of the trust's assets as of the date the 
     beneficial interest of the trust first becomes so disposable. 
     The earnings and profits of the sponsoring Native Corporation 
     shall be adjusted as of the last day of such taxable year by 
     the amount of earnings and profits so included in the 
     distributable net income of the trust.
       ``(2) Stock in corporation.--If--
       ``(A) the Settlement Common Stock in the sponsoring Native 
     Corporation may be disposed of to a person in any manner not 
     permitted by section 7(h) of the Alaska Native Claims 
     Settlement Act (43 U.S.C. 1606(h)), and
       ``(B) at any time after such disposition of stock is first 
     permitted, such corporation transfers assets to a Settlement 
     Trust,

     paragraph (1)(B) shall be applied to such trust on and after 
     the date of the transfer in the same manner as if the trust 
     permitted dispositions of beneficial interests in the trust 
     in a manner not permitted by such section 7(h).
       ``(3) Certain distributions.--For purposes of this section, 
     the surrender of an interest in a Native Corporation or an 
     electing Settlement Trust in order to accomplish the whole or 
     partial redemption of the interest of a shareholder or 
     beneficiary in such corporation or trust, or to accomplish 
     the whole or partial liquidation of such corporation or 
     trust, shall be deemed to be a transfer permitted by section 
     7(h) of the Alaska Native Claims Settlement Act.
       ``(g) Taxable Income.--For purposes of this title, the 
     taxable income of an electing Settlement Trust shall be 
     determined under section 641(b) without regard to any 
     deduction under section 651 or 661.
       ``(h) Definitions.--For purposes of this section--
       ``(1) Electing settlement trust.--The term `electing 
     Settlement Trust' means a Settlement Trust which has made the 
     election, effective for a taxable year, described in 
     subsection (c).
       ``(2) 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)).
       ``(3) Settlement common stock.--The term `Settlement Common 
     Stock' has the meaning given such term by section 3(p) of the 
     Alaska Native Claims Settlement Act (43 U.S.C. 1602(p)).
       ``(4) Settlement trust.--The term `Settlement Trust' means 
     a trust that constitutes a settlement trust under section 
     3(t) of the Alaska Native Claims Settlement Act (43 U.S.C. 
     1602(t)).
       ``(5) Sponsoring native corporation.--The term `sponsoring 
     Native Corporation' means the Native Corporation which 
     transfers assets to an electing Settlement Trust.
       ``(i) Special Loss Disallowance Rule.--Any loss that would 
     otherwise be recognized by a shareholder upon a disposition 
     of a share of stock of a sponsoring Native Corporation shall 
     be reduced (but not below zero) by the per share loss 
     adjustment factor. The per share loss adjustment factor shall 
     be the aggregate of all contributions to all electing 
     Settlement Trusts sponsored by such Native Corporation made 
     on or after the first day each trust is treated as an 
     electing Settlement Trust expressed on a per share basis and 
     determined as of the day of each such contribution.
       ``(j) Cross Reference.--

  ``For information required with respect to electing Settlement Trusts 
and sponsoring Native Corporations, see section 6039H.''.

       (b) Reporting.--Subpart A of part III of subchapter A of 
     chapter 61 of subtitle F of such Code (relating to 
     information concerning persons subject to special provisions) 
     is amended by inserting after section 6039G the following new 
     section:

     ``SEC. 6039H. INFORMATION WITH RESPECT TO ALASKA NATIVE 
                   SETTLEMENT TRUSTS AND SPONSORING NATIVE 
                   CORPORATIONS.

       ``(a) Requirement.--The fiduciary of an electing Settlement 
     Trust (as defined in section 646(h)(1)) shall include with 
     the return of income of the trust a statement containing the 
     information required under subsection (c).
       ``(b) Application With Other Requirements.--The filing of 
     any statement under this section shall be in lieu of the 
     reporting requirements under section 6034A to furnish any 
     statement to a beneficiary regarding amounts distributed to 
     such beneficiary (and such other reporting rules as the 
     Secretary deems appropriate).
       ``(c) Required Information.--The information required under 
     this subsection shall include--
       ``(1) the amount of distributions made during the taxable 
     year to each beneficiary,
       ``(2) the treatment of such distribution under the 
     applicable provision of section 646, including the amount 
     that is excludable from the recipient beneficiary's gross 
     income under section 646, and
       ``(3) the amount (if any) of any distribution during such 
     year that is deemed to have been made by the sponsoring 
     Native Corporation (as defined in section 646(h)(5)).
       ``(d) Sponsoring Native Corporation.--
       ``(1) In general.--The electing Settlement Trust shall, on 
     or before the date on which the statement under subsection 
     (a) is required to be filed, furnish such statement to the 
     sponsoring Native Corporation (as so defined).
       ``(2) Distributees.--The sponsoring Native Corporation 
     shall furnish each recipient of a distribution described in 
     section 646(e)(3) a statement containing the amount deemed to 
     have been distributed to such recipient by such corporation 
     for the taxable year.''.
       (c) Clerical Amendment.--
       (1) The table of sections for subpart A of part I of 
     subchapter J of chapter 1 of such Code is amended by adding 
     at the end the following new item:

``Sec. 646. Tax treatment of Alaska Native Settlement Trusts.''.

       (2) The table of sections for subpart A of part III of 
     subchapter A of chapter 61 of subtitle F of such Code is 
     amended by inserting after the item relating to section 6039G 
     the following new item:

``Sec. 6039H. Information with respect to Alaska Native Settlement 
              Trusts and sponsoring Native Corporations.''.

       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after the date of the 
     enactment of this Act and to contributions made to electing 
     Settlement Trusts for such year or any subsequent year.
                                 ______