§247 Contributions to Alaska Native Settlement Trusts

Summary

A Native Corporation can deduct amounts it gives to a Settlement Trust for a tax year if the corporation makes an election on its tax return for that year. Cash gifts are deductible for the full cash amount. Gifts of property are deductible up to the smaller of the corporation’s adjusted basis in the property or the property’s fair market value. The deduction cannot be larger than the corporation’s taxable income for that year before the deduction. Any amount over that limit is treated as a contribution in each of the next 15 years, in order. The corporation must reduce its earnings and profits by the deduction. The corporation does not recognize gain or loss when it gives the property. The Settlement Trust must include in income the amount of the deduction in the year it actually receives the gift, though the trust can elect to defer income on non‑cash property until it sells or exchanges that property. If deferred, the part of any later gain equal to the income that would have been taxed at contribution is ordinary income; any extra gain keeps its normal character. The trust’s holding period includes the time the corporation held the property, and the trust’s basis is the smaller of the corporation’s adjusted basis or the property’s fair market value immediately before the gift. No deduction is allowed for contributions that violate the Alaska Native Claims Settlement Act rules. A trust that defers and then disposes of the property within the next year must treat the election as not made and pay tax, interest, and an extra 10%, and the IRS may assess that amount within 4 years after the return was filed. Definitions: Native Corporation — the Alaska Native corporation; Settlement Trust — the trust set up under the Alaska Native settlement rules.