II
109th CONGRESS
2d Session
S. 3422
IN THE SENATE OF THE UNITED STATES
June 6, 2006
Ms. Murkowski introduced the following bill; which was read twice and referred to the Committee on Finance
A BILL
To provide for the tax treatment of income received in connection with the litigation concerning the Exxon Valdez oil spill.
Tax treatment of income received in connection with the Exxon Valdez litigation
Income averaging of amounts received from the Exxon Valdez litigation
In general
At the election of a qualified taxpayer who receives qualified settlement income during a taxable year, the tax imposed by chapter 1 of the Internal Revenue Code of 1986 for such taxable year shall be equal to the sum of—
the tax which would be imposed under such chapter if—
no amount of elected qualified settlement income were included in gross income for such year, and
no deduction were allowed for such year for expenses (otherwise allowable as a deduction to the taxpayer for such year) attributable to such elected qualified settlement income, plus
the increase in tax under such chapter which would result if taxable income for each of the years in the applicable period were increased by an amount equal to the applicable fraction of the elected qualified settlement income reduced by any expenses (otherwise allowable as a deduction to the taxpayer) attributable to such elected qualified settlement income.
Coordination with farm income averaging
If a qualified taxpayer makes an election with respect to any qualified settlement income under paragraph (1) for any taxable year, such taxpayer may not elect to treat such amount as elected farm income under section 1301 of the Internal Revenue Code of 1986.
Definitions
For purposes of this subsection—
Applicable period
The term applicable period means the period beginning on January 1, 1994, and ending on December 31 of the year in which the elected qualified settlement income is received.
Applicable fraction
The term applicable fraction means the fraction the numerator of which is one and the denominator of which is the number of years in the applicable period.
Elected qualified settlement income
The term elected qualified settlement income means so much of the taxable income for the taxable year which is—
qualified settlement income, and
specified under the election under paragraph (1).
Contributions of amounts received to retirement accounts
In general
Any qualified taxpayer who receives qualified settlement income during the taxable year may, at any time before the end of the taxable year in which such income was received, make one or more contributions to an eligible retirement plan of which such qualified taxpayer is a beneficiary in an aggregate amount not to exceed the amount of qualified settlement income received during such year.
Time when contributions deemed made
For purposes of paragraph (1), a qualified taxpayer shall be deemed to have made a contribution to an eligible retirement plan on the last day of the taxable year in which such income is received if the contribution is made on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (not including extensions thereof).
Treatment of contributions to eligible retirement plans
For purposes of the Internal Revenue Code of 1986, if a contribution is made pursuant to paragraph (1) with respect to qualified settlement income, then—
except as provided in paragraph (4)—
to the extent of such contribution, the qualified settlement income shall not be included in taxable income, and
for purposes of section 72 of such Code, such contribution shall not be considered to be investment in the contract, and
the qualified taxpayer shall, to the extent of the amount of the contribution, be treated—
as having received the qualified settlement income—
in the case of a contribution to an individual retirement plan (as defined under section 7701(a)(37) of such Code), in a distribution described in section 408(d)(3) of such Code, and
in the case of any other eligible retirement plan, in an eligible rollover distribution (as defined under section 402(f)(2) of such Code), and
as having transferred the amount to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution.
Special rule for Roth IRAs and Roth 401(k)s
For purposes of the Internal Revenue Code of 1986, if a contribution is made pursuant to paragraph (1) with respect to qualified settlement income to a Roth IRA (as defined under section 408A(b) of such Code) or as a designated Roth contribution to an applicable retirement plan (within the meaning of section 402A of such Code), then—
the qualified settlement income shall be includible in taxable income, and
for purposes of section 72 of such Code, such contribution shall be considered to be investment in the contract.
Eligible retirement plan
For purpose of this subsection, the term eligible retirement plan has the meaning given such term under section 402(c)(8)(B) of the Internal Revenue Code of 1986.
Qualified settlement income not included in SECA
For purposes of chapter 2 of the Internal Revenue Code of 1986 and section 211 of the Social Security Act, no portion of qualified settlement income shall be treated as gross income derived from a trade or business carried on by a qualified taxpayer.
Qualified taxpayer
For purposes of this section, the term qualified taxpayer means any plaintiff in the civil action In re Exxon Valdez, No. 89–095–CV (HRH) (Consolidated) (D. Alaska).
Qualified settlement income
For purposes of this section, the term qualified settlement income means income received (whether as lump sums or periodic payments) in connection with the civil action In re Exxon Valdez, No. 89–095–CV (HRH) (Consolidated) (D. Alaska).