26 U.S.C. § 247 — Contributions to Alaska Native Settlement Trusts

(a) In general A Native Corporation can deduct contributions it makes to a Settlement Trust — no matter whether a section 646 election is in effect for that Trust — but only if the Corporation has made the annual election described in (e). (b) Amount of deduction The deduction equals: (1) for a cash contribution, however it was paid (currency, coins, money order, or check), the amount given; or (2) for any other kind of contribution, the smaller of (A) the Corporation's adjusted basis in the property it gave, or (B) that property's fair market value. (c) Limitation and carryover (1) In general The deduction for a tax year cannot be more than the Corporation's taxable income for that year, figured without counting the deduction. (2) Carryover If a year's contributions go over that limit, the extra amount is treated as if it were contributed in each of the next 15 years, in order, until it is used up. (d) Definitions "Native Corporation" and "Settlement Trust" mean what section 646(h) says they mean. (e) Manner of making election (1) In general For each tax year, a Native Corporation can choose, on its tax return or an amended or supplemental return, to have this section apply for that year only. (2) Revocation The Corporation can cancel that choice with a timely amended or supplemental return. (f) Additional rules (1) Earnings and profits Even though section 646(d)(2) says otherwise, if a Corporation claims this deduction for a year, its earnings and profits for that year are reduced by the deduction amount. (2) Gain or loss The Corporation does not have to recognize gain or loss on property it contributes and deducts under this section. (3) Income Unless (g) applies, a Settlement Trust must count the deducted amount as its own income, in the year it actually receives the contribution. (4) Period The Trust's holding period for the contributed property includes the time the Corporation held it. (5) Basis The Trust's basis in the property equals the smaller of (A) the Corporation's adjusted basis right before the contribution, or (B) the property's fair market value right before the contribution. (6) Prohibition No deduction is allowed for a contribution that violates subsection (a)(2) or (c)(2) of section 39 of the Alaska Native Claims Settlement Act (43 U.S.C. 1629e). (g) Election by Settlement Trust to defer income recognition (1) In general For a contribution of property other than cash, a Settlement Trust can choose to delay recognizing the related income until it sells or exchanges that property, in whole or in part. (2) Treatment When the Trust later sells or exchanges that property, the gain is split: (A) the part of the gain up to the amount that would have counted as income at the time of contribution under (f)(3), if the Trust had not made this election, is treated as ordinary income; (B) any gain above that amount keeps whatever tax character it would have had if this election had never been made. (3) Election (A) In general For each tax year, the Trust can make this choice for property it received that year, describing the property clearly on its tax return or an amended or supplemental return, with the choice applying only to that year. (B) Revocation The Trust can cancel the choice with a timely amended or supplemental return. (C) Certain dispositions (i) If the Trust disposes of the property within the first tax year after the year it was contributed, this election is treated as if it had never been made: the deferred income is included in income for the year of the original contribution instead, and the Trust must pay the extra tax that results, plus interest, plus a 10 percent penalty on that extra tax, which also carries interest. (ii) Assessment Even though the ordinary time limit in section 6501(a) would otherwise apply, the government can assess this extra amount — or go to court over it without an assessment — within 4 years after the return that made the election was filed.