§247 Contributions to Alaska Native Settlement Trusts

Summary

A Native Corporation can take a tax deduction for money or property it puts into a Settlement Trust if the corporation makes a yearly choice on its tax return to use this rule. Cash is deducted for the full amount given. For property, the deduction is the smaller of the corporation’s adjusted basis in the property or the property’s fair market value. The deduction cannot be bigger than the corporation’s taxable income for that year; any extra is treated as a contribution in each of the next 15 years in order. When the corporation claims the deduction, its earnings and profits go down by that amount, and the corporation does not report gain or loss on the property it gave. The Settlement Trust generally must include the deduction amount in its income when it actually gets the contribution, and the trust’s holding period and basis in the property follow the rules that use the corporation’s holding time and the lesser of the corporation’s adjusted basis or the property’s fair market value. For noncash property, the trust can choose to wait to report income until it sells the property. If it waits, some sale income may be treated as ordinary income up to the amount that would have been reported when contributed; any extra keeps its usual tax character. That trust election must be made on its return each year and can be revoked. If the trust sells the property within the first year after the contribution, the deferral is canceled, the income must be included in the contribution year, and the trust must pay the extra tax, interest, and an extra 10 percent of that tax increase; the government may assess that amount within 4 years after the return with the election was filed. Definitions: Native Corporation — an Alaska Native corporation; Settlement Trust — the trust set up under the Alaska Native Claims Settlement Act.