USC Subpart A

in effect

26 U.S.C. § 641 Imposition of tax

(a) Application of taxThe tax imposed by section 1(e) shall apply to the taxable income of estates or of any kind of property held in trust, including—(1) income accumulated in trust for the benefit of unborn or unascertained persons or persons with contingent interests, and income accumulated or held for future distribution under the terms of the will or trust; (2) income which is to be distributed currently by the fiduciary to the beneficiaries, and income collected by a guardian of an infant which is to be held or distributed as the court may direct; (3) income received by estates of deceased persons during the period of administration or settlement of the estate; and (4) income which, in the discretion of the fiduciary, may be either distributed to the beneficiaries or accumulated. (b) Computation and paymentThe taxable income of an estate or trust shall be computed in the same manner as in the case of an individual, except as otherwise provided in this part. The tax shall be computed on such taxable income and shall be paid by the fiduciary. For purposes of this subsection, a foreign trust or foreign estate shall be treated as a nonresident alien individual who is not present in the United States at any time. (c) Special rules for taxation of electing small business trusts(1) In generalFor purposes of this chapter—(A) the portion of any electing small business trust which consists of stock in 1 or more S corporations shall be treated as a separate trust, and (B) the amount of the tax imposed by this chapter on such separate trust shall be determined with the modifications of paragraph (2). (2) ModificationsFor purposes of paragraph (1), the modifications of this paragraph are the following:(A) Except as provided in section 1(h), the amount of the tax imposed by section 1(e) shall be determined by using the highest rate of tax set forth in section 1(e). (B) The exemption amount under section 55(d) shall be zero. (C) The only items of income, loss, deduction, or credit to be taken into account are the following:(i) The items required to be taken into account under section 1366. (ii) Any gain or loss from the disposition of stock in an S corporation. (iii) To the extent provided in regulations, State or local income taxes or administrative expenses to the extent allocable to items described in clauses (i) and (ii). (iv) Any interest expense paid or accrued on indebtedness incurred to acquire stock in an S corporation. No deduction or credit shall be allowed for any amount not described in this paragraph, and no item described in this paragraph shall be apportioned to any beneficiary. (D) No amount shall be allowed under paragraph (1) or (2) of section 1211(b). (E)(i) Section 642(c) shall not apply. (ii) For purposes of section 170(b)(1)(G), adjusted gross income shall be computed in the same manner as in the case of an individual, except that the deductions for costs which are paid or incurred in connection with the administration of the trust and which would not have been incurred if the property were not held in such trust shall be treated as allowable in arriving at adjusted gross income. (3) Treatment of remainder of trust and distributionsFor purposes of determining—(A) the amount of the tax imposed by this chapter on the portion of any electing small business trust not treated as a separate trust under paragraph (1), and (B) the distributable net income of the entire trust, the items referred to in paragraph (2)(C) shall be excluded. Except as provided in the preceding sentence, this subsection shall not affect the taxation of any distribution from the trust. (4) Treatment of unused deductions where termination of separate trustIf a portion of an electing small business trust ceases to be treated as a separate trust under paragraph (1), any carryover or excess deduction of the separate trust which is referred to in section 642(h) shall be taken into account by the entire trust. (5) Electing small business trustFor purposes of this subsection, the term “electing small business trust” has the meaning given such term by section 1361(e)(1).

26 U.S.C. § 642 Special rules for credits and deductions

(a) Foreign tax credit allowedAn estate or trust shall be allowed the credit against tax for taxes imposed by foreign countries and possessions of the United States, to the extent allowed by section 901, only in respect of so much of the taxes described in such section as is not properly allocable under such section to the beneficiaries. (b) Deduction for personal exemption(1) EstatesAn estate shall be allowed a deduction of $600. (2) Trusts(A) In generalExcept as otherwise provided in this paragraph, a trust shall be allowed a deduction of $100. (B) Trusts distributing income currentlyA trust which, under its governing instrument, is required to distribute all of its income currently shall be allowed a deduction of $300. (C) Disability trusts(i) In generalA qualified disability trust shall be allowed a deduction equal to the exemption amount under section 151(d), determined—(I) by treating such trust as an individual described in section 68(b)(1)(C),11 See References in Text note below. and (II) by applying section 67(e) (without the reference to section 642(b)) for purposes of determining the adjusted gross income of the trust. (ii) Qualified disability trustFor purposes of clause (i), the term “qualified disability trust” means any trust if—(I) such trust is a disability trust described in subsection (c)(2)(B)(iv) of section 1917 of the Social Security Act (42 U.S.C. 1396p), and (II) all of the beneficiaries of the trust as of the close of the taxable year are determined by the Commissioner of Social Security to have been disabled (within the meaning of section 1614(a)(3) of the Social Security Act, 42 U.S.C. 1382c(a)(3)) for some portion of such year. A trust shall not fail to meet the requirements of subclause (II) merely because the corpus of the trust may revert to a person who is not so disabled after the trust ceases to have any beneficiary who is so disabled. (iii) Years when personal exemption amount is zero(I) In generalIn the case of any taxable year in which the exemption amount under section 151(d) is zero, clause (i) shall be applied by substituting “$4,150” for “the exemption amount under section 151(d)”. (II) Inflation adjustmentIn the case of any taxable year beginning in a calendar year after 2018, the $4,150 amount in subparagraph (A) shall be increased in the same manner as provided in section 6334(d)(4)(C). (3) Deductions in lieu of personal exemptionThe deductions allowed by this subsection shall be in lieu of the deductions allowed under section 151 (relating to deduction for personal exemption). (c) Deduction for amounts paid or permanently set aside for a charitable purpose(1) General ruleIn the case of an estate or trust (other than a trust meeting the specifications of subpart B), there shall be allowed as a deduction in computing its taxable income (in lieu of the deduction allowed by section 170(a), relating to deduction for charitable, etc., contributions and gifts) any amount of the gross income, without limitation, which pursuant to the terms of the governing instrument is, during the taxable year, paid for a purpose specified in section 170(c) (determined without regard to section 170(c)(2)(A)). If a charitable contribution is paid after the close of such taxable year and on or before the last day of the year following the close of such taxable year, then the trustee or administrator may elect to treat such contribution as paid during such taxable year. The election shall be made at such time and in such manner as the Secretary prescribes by regulations. (2) Amounts permanently set asideIn the case of an estate, and in the case of a trust (other than a trust meeting the specifications of subpart B) required by the terms of its governing instrument to set aside amounts which was—(A) created on or before October 9, 1969, if—(i) an irrevocable remainder interest is transferred to or for the use of an organization described in section 170(c), or (ii) the grantor is at all times after October 9, 1969, under a mental disability to change the terms of the trust; or (B) established by a will executed on or before October 9, 1969, if—(i) the testator dies before October 9, 1972, without having republished the will after October 9, 1969, by codicil or otherwise, (ii) the testator at no time after October 9, 1969, had the right to change the portions of the will which pertain to the trust, or (iii) the will is not republished by codicil or otherwise before October 9, 1972, and the testator is on such date and at all times thereafter under a mental disability to republish the will by codicil or otherwise, there shall also be allowed as a deduction in computing its taxable income any amount of the gross income, without limitation, which pursuant to the terms of the governing instrument is, during the taxable year, permanently set aside for a purpose specified in section 170(c), or is to be used exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, or for the establishment, acquisition, maintenance, or operation of a public cemetery not operated for profit. In the case of a trust, the preceding sentence shall apply only to gross income earned with respect to amounts transferred to the trust before October 9, 1969, or transferred under a will to which subparagraph (B) applies. (3) Pooled income fundsIn the case of a pooled income fund (as defined in paragraph (5)), there shall also be allowed as a deduction in computing its taxable income any amount of the gross income attributable to gain from the sale of a capital asset held for more than 1 year, without limitation, which pursuant to the terms of the governing instrument is, during the taxable year, permanently set aside for a purpose specified in section 170(c). (4) AdjustmentsTo the extent that the amount otherwise allowable as a deduction under this subsection consists of gain described in section 1202(a), proper adjustment shall be made for any exclusion allowable to the estate or trust under section 1202. In the case of a trust, the deduction allowed by this subsection shall be subject to section 681 (relating to unrelated business income). (5) Definition of pooled income fundFor purposes of paragraph (3), a pooled income fund is a trust—(A) to which each donor transfers property, contributing an irrevocable remainder interest in such property to or for the use of an organization described in section 170(b)(1)(A) (other than in clauses (vii) or (viii)), and retaining an income interest for the life of one or more beneficiaries (living at the time of such transfer), (B) in which the property transferred by each donor is commingled with property transferred by other donors who have made or make similar transfers, (C) which cannot have investments in securities which are exempt from the taxes imposed by this subtitle, (D) which includes only amounts received from transfers which meet the requirements of this paragraph, (E) which is maintained by the organization to which the remainder interest is contributed and of which no donor or beneficiary of an income interest is a trustee, and (F) from which each beneficiary of an income interest receives income, for each year for which he is entitled to receive the income interest referred to in subparagraph (A), determined by the rate of return earned by the trust for such year. For purposes of determining the amount of any charitable contribution allowable by reason of a transfer of property to a pooled fund, the value of the income interest shall be determined on the basis of the highest rate of return earned by the fund for any of the 3 taxable years immediately preceding the taxable year of the fund in which the transfer is made. In the case of funds in existence less than 3 taxable years preceding the taxable year of the fund in which a transfer is made the rate of return shall be deemed to be 6 percent per annum, except that the Secretary may prescribe a different rate of return. (6) Taxable private foundationsIn the case of a private foundation which is not exempt from taxation under section 501(a) for the taxable year, the provisions of this subsection shall not apply and the provisions of section 170 shall apply. (d) Net operating loss deductionThe benefit of the deduction for net operating losses provided by section 172 shall be allowed to estates and trusts under regulations prescribed by the Secretary. (e) Deduction for depreciation and depletionAn estate or trust shall be allowed the deduction for depreciation and depletion only to the extent not allowable to beneficiaries under sections 167(d) and 611(b). (f) Amortization deductionsThe benefit of the deductions for amortization provided by sections 169 and 197 shall be allowed to estates and trusts in the same manner as in the case of an individual. The allowable deduction shall be apportioned between the income beneficiaries and the fiduciary under regulations prescribed by the Secretary. (g) Disallowance of double deductionsAmounts allowable under section 2053 or 2054 as a deduction in computing the taxable estate of a decedent shall not be allowed as a deduction (or as an offset against the sales price of property in determining gain or loss) in computing the taxable income of the estate or of any other person, unless there is filed, within the time and in the manner and form prescribed by the Secretary, a statement that the amounts have not been allowed as deductions under section 2053 or 2054 and a waiver of the right to have such amounts allowed at any time as deductions under section 2053 or 2054. Rules similar to the rules of the preceding sentence shall apply to amounts which may be taken into account under section 2621(a)(2) or 2622(b). This subsection shall not apply with respect to deductions allowed under part II (relating to income in respect of decedents). (h) Unused loss carryovers and excess deductions on termination available to beneficiariesIf on the termination of an estate or trust, the estate or trust has—(1) a net operating loss carryover under section 172 or a capital loss carryover under section 1212, or (2) for the last taxable year of the estate or trust deductions (other than the deductions allowed under subsections (b) or (c)) in excess of gross income for such year, then such carryover or such excess shall be allowed as a deduction, in accordance with regulations prescribed by the Secretary, to the beneficiaries succeeding to the property of the estate or trust. (i) Certain distributions by cemetery perpetual care fundsIn the case of a cemetery perpetual care fund which—(1) was created pursuant to local law by a taxable cemetery corporation for the care and maintenance of cemetery property, and (2) is treated for the taxable year as a trust for purposes of this subchapter, any amount distributed by such fund for the care and maintenance of gravesites which have been purchased from the cemetery corporation before the beginning of the taxable year of the trust and with respect to which there is an obligation to furnish care and maintenance shall be considered to be a distribution solely for purposes of sections 651 and 661, but only to the extent that the aggregate amount so distributed during the taxable year does not exceed $5 multiplied by the aggregate number of such gravesites.

26 U.S.C. § 643 Definitions applicable to subparts A, B, C, and D

(a) Distributable net incomeFor purposes of this part, the term “distributable net income” means, with respect to any taxable year, the taxable income of the estate or trust computed with the following modifications—(1) Deduction for distributionsNo deduction shall be taken under sections 651 and 661 (relating to additional deductions). (2) Deduction for personal exemptionNo deduction shall be taken under section 642(b) (relating to deduction for personal exemptions). (3) Capital gains and lossesGains from the sale or exchange of capital assets shall be excluded to the extent that such gains are allocated to corpus and are not (A) paid, credited, or required to be distributed to any beneficiary during the taxable year, or (B) paid, permanently set aside, or to be used for the purposes specified in section 642(c). Losses from the sale or exchange of capital assets shall be excluded, except to the extent such losses are taken into account in determining the amount of gains from the sale or exchange of capital assets which are paid, credited, or required to be distributed to any beneficiary during the taxable year. The exclusion under section 1202 shall not be taken into account. (4) Extraordinary dividends and taxable stock dividendsFor purposes only of subpart B (relating to trusts which distribute current income only), there shall be excluded those items of gross income constituting extraordinary dividends or taxable stock dividends which the fiduciary, acting in good faith, does not pay or credit to any beneficiary by reason of his determination that such dividends are allocable to corpus under the terms of the governing instrument and applicable local law. (5) Tax-exempt interestThere shall be included any tax-exempt interest to which section 103 applies, reduced by any amounts which would be deductible in respect of disbursements allocable to such interest but for the provisions of section 265 (relating to disallowance of certain deductions). (6) Income of foreign trustIn the case of a foreign trust—(A) There shall be included the amounts of gross income from sources without the United States, reduced by any amounts which would be deductible in respect of disbursements allocable to such income but for the provisions of section 265(a)(1) (relating to disallowance of certain deductions). (B) Gross income from sources within the United States shall be determined without regard to section 894 (relating to income exempt under treaty). (C) Paragraph (3) shall not apply to a foreign trust. In the case of such a trust, there shall be included gains from the sale or exchange of capital assets, reduced by losses from such sales or exchanges to the extent such losses do not exceed gains from such sales or exchanges. (7) Abusive transactionsThe Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this part, including regulations to prevent avoidance of such purposes. If the estate or trust is allowed a deduction under section 642(c), the amount of the modifications specified in paragraphs (5) and (6) shall be reduced to the extent that the amount of income which is paid, permanently set aside, or to be used for the purposes specified in section 642(c) is deemed to consist of items specified in those paragraphs. For this purpose, such amount shall (in the absence of specific provisions in the governing instrument) be deemed to consist of the same proportion of each class of items of income of the estate or trust as the total of each class bears to the total of all classes. (b) IncomeFor purposes of this subpart and subparts B, C, and D, the term “income”, when not preceded by the words “taxable”, “distributable net”, “undistributed net”, or “gross”, means the amount of income of the estate or trust for the taxable year determined under the terms of the governing instrument and applicable local law. Items of gross income constituting extraordinary dividends or taxable stock dividends which the fiduciary, acting in good faith, determines to be allocable to corpus under the terms of the governing instrument and applicable local law shall not be considered income. (c) BeneficiaryFor purposes of this part, the term “beneficiary” includes heir, legatee, devisee. (d) Coordination with back-up withholdingExcept to the extent otherwise provided in regulations, this subchapter shall be applied with respect to payments subject to withholding under section 3406—(1) by allocating between the estate or trust and its beneficiaries any credit allowable under section 31(c) (on the basis of their respective shares of any such payment taken into account under this subchapter), (2) by treating each beneficiary to whom such credit is allocated as if an amount equal to such credit has been paid to him by the estate or trust, and (3) by allowing the estate or trust a deduction in an amount equal to the credit so allocated to beneficiaries. (e) Treatment of property distributed in kind(1) Basis of beneficiaryThe basis of any property received by a beneficiary in a distribution from an estate or trust shall be—(A) the adjusted basis of such property in the hands of the estate or trust immediately before the distribution, adjusted for (B) any gain or loss recognized to the estate or trust on the distribution. (2) Amount of distributionIn the case of any distribution of property (other than cash), the amount taken into account under sections 661(a)(2) and 662(a)(2) shall be the lesser of—(A) the basis of such property in the hands of the beneficiary (as determined under paragraph (1)), or (B) the fair market value of such property. (3) Election to recognize gain(A) In generalIn the case of any distribution of property (other than cash) to which an election under this paragraph applies—(i) paragraph (2) shall not apply, (ii) gain or loss shall be recognized by the estate or trust in the same manner as if such property had been sold to the distributee at its fair market value, and (iii) the amount taken into account under sections 661(a)(2) and 662(a)(2) shall be the fair market value of such property. (B) ElectionAny election under this paragraph shall apply to all distributions made by the estate or trust during a taxable year and shall be made on the return of such estate or trust for such taxable year. Any such election, once made, may be revoked only with the consent of the Secretary. (4) Exception for distributions described in section 663(a)This subsection shall not apply to any distribution described in section 663(a). (f) Treatment of multiple trustsFor purposes of this subchapter, under regulations prescribed by the Secretary, 2 or more trusts shall be treated as 1 trust if—(1) such trusts have substantially the same grantor or grantors and substantially the same primary beneficiary or beneficiaries, and (2) a principal purpose of such trusts is the avoidance of the tax imposed by this chapter. For purposes of the preceding sentence, a husband and wife shall be treated as 1 person. (g) Certain payments of estimated tax treated as paid by beneficiary(1) In generalIn the case of a trust—(A) the trustee may elect to treat any portion of a payment of estimated tax made by such trust for any taxable year of the trust as a payment made by a beneficiary of such trust, (B) any amount so treated shall be treated as paid or credited to the beneficiary on the last day of such taxable year, and (C) for purposes of subtitle F, the amount so treated—(i) shall not be treated as a payment of estimated tax made by the trust, but (ii) shall be treated as a payment of estimated tax made by such beneficiary on January 15 following the taxable year. (2) Time for making electionAn election under paragraph (1) shall be made on or before the 65th day after the close of the taxable year of the trust and in such manner as the Secretary may prescribe. (3) Extension to last year of estateIn the case of a taxable year reasonably expected to be the last taxable year of an estate—(A) any reference in this subsection to a trust shall be treated as including a reference to an estate, and (B) the fiduciary of the estate shall be treated as the trustee. (h) Distributions by certain foreign trusts through nomineesFor purposes of this part, any amount paid to a United States person which is derived directly or indirectly from a foreign trust of which the payor is not the grantor shall be deemed in the year of payment to have been directly paid by the foreign trust to such United States person. (i) Loans from foreign trustsFor purposes of subparts B, C, and D—(1) General ruleExcept as provided in regulations, if a foreign trust makes a loan of cash or marketable securities (or permits the use of any other trust property) directly or indirectly to or by—(A) any grantor or beneficiary of such trust who is a United States person, or (B) any United States person not described in subparagraph (A) who is related to such grantor or beneficiary, the amount of such loan (or the fair market value of the use of such property) shall be treated as a distribution by such trust to such grantor or beneficiary (as the case may be). (2) Definitions and special rulesFor purposes of this subsection—(A) CashThe term “cash” includes foreign currencies and cash equivalents. (B) Related person(i) In generalA person is related to another person if the relationship between such persons would result in a disallowance of losses under section 267 or 707(b). In applying section 267 for purposes of the preceding sentence, section 267(c)(4) shall be applied as if the family of an individual includes the spouses of the members of the family. (ii) AllocationIf any person described in paragraph (1)(B) is related to more than one person, the grantor or beneficiary to whom the treatment under this subsection applies shall be determined under regulations prescribed by the Secretary. (C) Exclusion of tax-exemptsThe term “United States person” does not include any entity exempt from tax under this chapter. (D) Trust not treated as simple trustAny trust which is treated under this subsection as making a distribution shall be treated as not described in section 651. (E) Exception for compensated use of propertyIn the case of the use of any trust property other than a loan of cash or marketable securities, paragraph (1) shall not apply to the extent that the trust is paid the fair market value of such use within a reasonable period of time of such use. (3) Subsequent transactionsIf any loan (or use of property) is taken into account under paragraph (1), any subsequent transaction between the trust and the original borrower regarding the principal of the loan (by way of complete or partial repayment, satisfaction, cancellation, discharge, or otherwise) or the return of such property shall be disregarded for purposes of this title.

26 U.S.C. § 644 Taxable year of trusts

(a) In generalFor purposes of this subtitle, the taxable year of any trust shall be the calendar year. (b) Exception for trusts exempt from tax and charitable trustsSubsection (a) shall not apply to a trust exempt from taxation under section 501(a) or to a trust described in section 4947(a)(1).

26 U.S.C. § 645 Certain revocable trusts treated as part of estate

(a) General ruleFor purposes of this subtitle, if both the executor (if any) of an estate and the trustee of a qualified revocable trust elect the treatment provided in this section, such trust shall be treated and taxed as part of such estate (and not as a separate trust) for all taxable years of the estate ending after the date of the decedent’s death and before the applicable date. (b) DefinitionsFor purposes of subsection (a)—(1) Qualified revocable trustThe term “qualified revocable trust” means any trust (or portion thereof) which was treated under section 676 as owned by the decedent of the estate referred to in subsection (a) by reason of a power in the grantor (determined without regard to section 672(e)). (2) Applicable dateThe term “applicable date” means—(A) if no return of tax imposed by chapter 11 is required to be filed, the date which is 2 years after the date of the decedent’s death, and (B) if such a return is required to be filed, the date which is 6 months after the date of the final determination of the liability for tax imposed by chapter 11. (c) ElectionThe election under subsection (a) shall be made not later than the time prescribed for filing the return of tax imposed by this chapter for the first taxable year of the estate (determined with regard to extensions) and, once made, shall be irrevocable.

26 U.S.C. § 646 Tax treatment of electing Alaska Native Settlement Trusts

(a) In generalIf an election under this section is in effect with respect to any Settlement Trust, the provisions of this section shall apply in determining the income tax treatment of the Settlement Trust and its beneficiaries with respect to the Settlement Trust. (b) Taxation of income of trustExcept as provided in subsection (f)(1)(B)(ii)—(1) In generalThere is hereby imposed on the taxable income of an electing Settlement Trust, other than its net capital gain, a tax at the lowest rate specified in section 1(c).11 See References in Text note below. (2) Capital gainIn the case of an electing Settlement Trust with a net capital gain for the taxable year, a tax is hereby imposed on such gain at the rate of tax which would apply to such gain if the taxpayer were subject to a tax on its other taxable income at only the lowest rate specified in section 1(c). Any such tax shall be in lieu of the income tax otherwise imposed by this chapter on such income or gain. (c) One-time election(1) In generalA Settlement Trust may elect to have the provisions of this section apply to the trust and its beneficiaries. (2) Time and method of electionAn election under paragraph (1) shall be made by the trustee of such trust—(A) on or before the due date (including extensions) for filing the Settlement Trust’s return of tax for the first taxable year of such trust ending after the date of the enactment of this section, and (B) by attaching to such return of tax a statement specifically providing for such election. (3) Period election in effectExcept as provided in subsection (f), an election under this subsection—(A) shall apply to the first taxable year described in paragraph (2)(A) and all subsequent taxable years, and (B) may not be revoked once it is made. (d) Contributions to trust(1) Beneficiaries of electing trust not taxed on contributionsIn the case of an electing Settlement Trust, no amount shall be includible in the gross income of a beneficiary of such trust by reason of a contribution to such trust. (2) Earnings and profitsThe earnings and profits of the sponsoring Native Corporation shall not be reduced on account of any contribution to such Settlement Trust. (e) Tax treatment of distributions to beneficiariesAmounts distributed by an electing Settlement Trust during any taxable year shall be considered as having the following characteristics in the hands of the recipient beneficiary:(1) First, as amounts excludable from gross income for the taxable year to the extent of the taxable income of such trust for such taxable year (decreased by any income tax paid by the trust with respect to the income) plus any amount excluded from gross income of the trust under section 103. (2) Second, as amounts excludable from gross income to the extent of the amount described in paragraph (1) for all taxable years for which an election is in effect under subsection (c) with respect to the trust, and not previously taken into account under paragraph (1). (3) Third, as amounts distributed by the sponsoring Native Corporation with respect to its stock (within the meaning of section 301(a)) during such taxable year and taxable to the recipient beneficiary as amounts described in section 301(c)(1), to the extent of current or accumulated earnings and profits of the sponsoring Native Corporation as of the close of such taxable year after proper adjustment is made for all distributions made by the sponsoring Native Corporation during such taxable year. (4) Fourth, as amounts distributed by the trust in excess of the distributable net income of such trust for such taxable year. Amounts distributed to which paragraph (3) applies shall not be treated as a corporate distribution subject to section 311(b), and for purposes of determining the amount of a distribution for purposes of paragraph (3) and the basis to the recipients, section 643(e) and not section 301(b) or (d) shall apply. (f) Special rules where transfer restrictions modified(1) Transfer of beneficial interestsIf, at any time, a beneficial interest in an electing Settlement Trust may be disposed of to a person in a manner which would not be permitted by section 7(h) of the Alaska Native Claims Settlement Act (43 U.S.C. 1606(h)) if such interest were Settlement Common Stock—(A) no election may be made under subsection (c) with respect to such trust, and (B) if such an election is in effect as of such time—(i) such election shall cease to apply as of the first day of the taxable year in which such disposition is first permitted, (ii) the provisions of this section shall not apply to such trust for such taxable year and all taxable years thereafter, and (iii) the distributable net income of such trust shall be increased by the current or accumulated earnings and profits of the sponsoring Native Corporation as of the close of such taxable year after proper adjustment is made for all distributions made by the sponsoring Native Corporation during such taxable year. In no event shall the increase under clause (iii) exceed the fair market value of the trust’s assets as of the date the beneficial interest of the trust first becomes so disposable. The earnings and profits of the sponsoring Native Corporation shall be adjusted as of the last day of such taxable year by the amount of earnings and profits so included in the distributable net income of the trust. (2) Stock in corporationIf—(A) stock in the sponsoring Native Corporation may be disposed of to a person in a manner which would not be permitted by section 7(h) of the Alaska Native Claims Settlement Act (43 U.S.C. 1606(h)) if such stock were Settlement Common Stock, and (B) at any time after such disposition of stock is first permitted, such corporation transfers assets to a Settlement Trust, paragraph (1)(B) shall be applied to such trust on and after the date of the transfer in the same manner as if the trust permitted dispositions of beneficial interests in the trust in a manner not permitted by such section 7(h). (3) Certain distributionsFor purposes of this section, the surrender of an interest in a Native Corporation or an electing Settlement Trust in order to accomplish the whole or partial redemption of the interest of a shareholder or beneficiary in such corporation or trust, or to accomplish the whole or partial liquidation of such corporation or trust, shall be deemed to be a transfer permitted by section 7(h) of the Alaska Native Claims Settlement Act. (g) Taxable incomeFor purposes of this title, the taxable income of an electing Settlement Trust shall be determined under section 641(b) without regard to any deduction under section 651 or 661. (h) DefinitionsFor purposes of this section—(1) Electing Settlement TrustThe term “electing Settlement Trust” means a Settlement Trust which has made the election, effective for a taxable year, described in subsection (c). (2) Native CorporationThe term “Native Corporation” has the meaning given such term by section 3(m) of the Alaska Native Claims Settlement Act (43 U.S.C. 1602(m)). (3) Settlement Common StockThe term “Settlement Common Stock” has the meaning given such term by section 3(p) of the Alaska Native Claims Settlement Act (43 U.S.C. 1602(p)). (4) Settlement TrustThe term “Settlement Trust” means a trust that constitutes a settlement trust under section 3(t) of the Alaska Native Claims Settlement Act (43 U.S.C. 1602(t)). (5) Sponsoring Native CorporationThe term “sponsoring Native Corporation” means the Native Corporation which transfers assets to an electing Settlement Trust. (i) Special loss disallowance ruleAny loss that would otherwise be recognized by a shareholder upon a disposition of a share of stock of a sponsoring Native Corporation shall be reduced (but not below zero) by the per share loss adjustment factor. The per share loss adjustment factor shall be the aggregate of all contributions to all electing Settlement Trusts sponsored by such Native Corporation made on or after the first day each trust is treated as an electing Settlement Trust expressed on a per share basis and determined as of the day of each such contribution. (j) Cross referenceFor information required with respect to electing Settlement Trusts and sponsoring Native Corporations, see section 6039H.