§646 Tax treatment of electing Alaska Native Settlement Trusts

Summary

Lets a Settlement Trust choose special tax rules for the trust and its beneficiaries if the trustee files an election on the trust’s tax return by the due date (including extensions) for the trust’s first tax year ending after this law was passed. An electing trust pays tax on its taxable income (except net capital gain) at the lowest rate in section 1(c). Any net capital gain is taxed at the rate that would apply if the trust’s other income were taxed only at that lowest rate. Contributions to the trust are not taxable to beneficiaries, and the sponsoring Native Corporation’s earnings and profits are not reduced by those contributions. When the trust pays beneficiaries, the money is treated in order as: amounts excluded up to the trust’s taxable income (less the trust’s tax) and certain excluded amounts under section 103; then remaining excluded amounts from earlier years; then amounts treated as corporate distributions to the extent of the corporation’s earnings and profits; and finally amounts over the trust’s distributable net income. If ownership rules change so a trust interest could be transferred in ways not allowed by section 7(h) of the Alaska Native Claims Settlement Act, the election can’t be made or, if already made, ends at the start of the year that transfer becomes allowed. Taxable income is figured under section 641(b) without deductions under sections 651 or 661. Shareholder losses on sponsoring-corporation stock are reduced (not below zero) by a per-share adjustment equal to total qualifying contributions per share. Reporting rules are in section 6039H. Defined terms: electing Settlement Trust — a Settlement Trust that made the election; Native Corporation — as defined in ANCSA section 3(m); Settlement Common Stock — as defined in ANCSA section 3(p); Settlement Trust — as defined in ANCSA section 3(t); sponsoring Native Corporation — the Native Corporation that transfers assets to the trust.