Madam Speaker, recently, I introduced H.R. 1381, which would make permanent the provisions of Section 646 of the Internal Revenue Code. Currently, these provisions are slated to expire on December…
Madam Speaker, recently, I introduced H.R. 1381, which would make permanent the provisions of Section 646 of the Internal Revenue Code. Currently, these provisions are slated to expire on December 31, 2010.
In 1971 Congress passed, and President Nixon approved, landmark legislation known as the Alaska Native Claims Settlement Act (ANCSA). This legislation settled the aboriginal land claims of Native Alaskans in exchange for land selection rights and cash. The law was, and is, a bold and organic national experiment in Native land claims settlement. However, it has needed revision and refinement many times since 1971. I am proud to have worked with my Colleagues over the past several years to accomplish these improvements.
In 1988, Congress enacted legislation to authorize Alaska Native corporations to establish ``settlement trusts.'' Their purpose was to provide benefits to Alaska Natives and permit a legal structure that would protect and preserve, for current and future Alaska Native generations, much of the value of the land claims settlement. The original ANCSA required Native groups to form Alaska state law corporations to receive, administer, and distribute the ANSCA settlement, and the 1988 legislation was recognition that the corporate form had not always been well-suited to this task. In part, this was due to the federal tax problems that attend the corporate form, although ironically in the years after 1988, it became apparent that the federal tax rules relative to trusts present their own complexities and problems that discouraged the use of settlement trusts.
Congress enacted Section 646 of the Tax Code to address these problems. Section 646 provides for an elective regime for Alaska Native settlement trusts that (i) provides for a trust level tax at various rates ranging up to 10% in lieu of beneficiary level taxes; (ii) allows contributions to be made to these trusts on a tax favored basis; and (iii) streamlines administrative reporting for these trusts. When adopted, this elective treatment initially provided significant incentives to the use of settlement trusts to further the ANCSA settlement, and Alaska Native corporations utilized this provision to provide benefits through Alaska Native settlement trusts.
As I mentioned earlier, Section 646 is scheduled to sunset on December 31, 2010, despite the positive effects it has had for the Alaska Native community. The principal aim of settlement trusts is to provide funds to the Alaska Native beneficiaries. These beneficiaries are among the most economically disadvantaged persons in our country. Section 646 has worked well to provide an incentive for the use of settlement trusts, and must be continued.
However, the looming expiration of Section 646 has had a chilling effect in recent years upon the establishment of new Alaska Native settlement trusts. Alaska Native corporations have no desire to exchange the corporate tax problems they already face for the tax problems accompanying the trust form that they will face if Section 646 is allowed to sunset. In October 2008, the Alaska Federation of Natives formally endorsed the permanent extension of Section 646, and in December 2008 the Joint Committee on Taxation scored the permanent extension of Section 646 as costing approximately $33 million.
I introduced H.R. 1381, because a permanent extension of Section 646 will immediately remove the disincentive for Alaska Native corporations to use settlement trusts to provide benefits to their Alaska Native shareholders otherwise presented by the sunset of Section 646.
