General Instructions

Use this revision for tax years beginning after 2013.

Purpose of Form

Under section 646, an Alaska Native Settlement Trust (ANST) may elect to apply special income tax treatment to the trust and its beneficiaries. This one-time election is made by filing Form 1041-N in the first tax year of the trust. Form 1041-N is used to report an ANST's income, deductions, gains, losses, etc., and to compute and pay any income tax due. Form 1041-N is also used to report special information applicable to an ANST's filing requirements.

Definitions

An ANST is a settlement trust within the meaning of section 3(t) of the Alaska Native Claims Settlement Act (ANCSA).

An Alaska Native Corporation (ANC) has the same meaning as the term "Native Corporation" has under section 3(m) of the ANCSA.

A sponsoring ANC means the ANC that transfers assets to an electing ANST.

A trustee is a fiduciary of the trust. Any reference in these instructions to “you” means the trustee of the trust.

Tax Treatment of an Electing ANST

Taxable Income

In general, an electing ANST's taxable income is computed in the same manner as any other taxable trust (See Internal Revenue Code Subchapter J). However, the electing ANST is not allowed to take an income distribution deduction, though it can claim an exemption deduction, the amount of which depends on the terms of the trust.

See the Schedule K instructions for information on the beneficiaries' tax treatment of distributions received from the ANST.

Tax

An electing ANST pays tax on its taxable income at the lowest rate specified for single individuals (10%). If the ANST has net capital gain or qualified dividends, use the tax computation on Part IV of Schedule D which applies a zero percent rate on its adjusted net capital gain.

Disqualifying Acts

If, at any time, a beneficial interest in an ANST may be disposed of to a person in a manner that is not permitted by section 7(h) of ANCSA (if the interest were settlement common stock), then:

  • If no election has previously been made, the ANST may not elect special tax treatment under section 646 for the trust and its beneficiaries.

  • If the election is in effect at that time:

    1. The election will not apply as of the first day of the tax year in which a prohibited disposition is first allowed,

    2. The section 646 tax treatment will not apply to the trust for that tax year or in any subsequent tax years, and

    3. The distributable net income of the trust will be increased by the current or accumulated earnings and profits of the sponsoring ANC as of the close of the tax year, after adjustment is made for all distributions made by the sponsoring ANC during the taxable year. However, this increase is limited to the fair market value (FMV) of the trust's assets as of the date the beneficial interest of the trust first becomes disposable.

If stock in the sponsoring ANC may be disposed of to a person in a manner that is not allowed by section 7(h) of ANCSA (if the stock were settlement common stock) and at any time after such disposition of stock is first allowed, the corporation transfers assets to an ANST, then Items 1, 2, and 3 above will apply to the ANST in the same manner as if the ANST allowed dispositions of beneficial interests in the ANST in a manner not allowed by section 7(h) of ANCSA.

The surrender of an interest in an ANC or an electing ANST by the shareholder or beneficiary, for a whole or partial redemption or for the whole or partial liquidation of the corporation or trust, will be considered a transfer allowed by section 7(h) of the ANCSA.

Information Reporting Requirements

Electing ANSTs must complete Schedule K and file it with Form 1041-N. The ANST must also provide a copy of Schedule K to the sponsoring ANC by the date Form 1041-N is required to be filed with the IRS. The ANST is not required to provide information to the beneficiaries on distributions made to them. The sponsoring ANC will provide the beneficiaries with any required information.

Who Must File

The trustee of any electing ANST having any taxable income, or having gross income of at least $600 for the tax year, must file Form 1041-N for that year.

Making the Election

The trustee of an ANST must make this election by the due date (including extensions) for filing the ANST's tax return for its first taxable year.

The trustee makes the election for the ANST by signing Form 1041-N in the signature block on page 1. The return must be filed by the due date (including extensions) for filing the ANST's tax return for its first taxable year. Once the election is made, it applies to all subsequent years and may not be revoked.

When To File

ANSTs file Form 1041-N by the 15th day of the 4th month following the close of the tax year. If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day.

Private Delivery Services

You can use certain private delivery services designated by the IRS to meet the "timely mailing as timely filing/paying" rule for tax returns and payments. These private delivery services include only the following.

  • Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First.

  • United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express.

Private delivery services cannot deliver items to P.O. boxes. You must use the U.S. Postal Service to mail any item to an IRS P.O. box address.

The private delivery service can tell you how to get written proof of the mailing date.

Any changes to this list will be published in the Internal Revenue Bulletin.

Extension of Time To File

Use Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns, to request an automatic 6-month extension of time to file.

An extension of time to file does not extend the time to pay the tax.

Where To File

File Form 1041-N at the following address: 
 
Department of the Treasury 
Internal Revenue Service 
Ogden, UT 84201–0027

Who Must Sign

The trustee or an authorized representative must sign Form 1041-N.

Paid Preparer

Generally, anyone who is paid to prepare a tax return must sign the return and provide the information requested in the Paid Preparer Use Only area of the return. The person required to sign the return must:

  • Complete the required preparer information,

  • Sign it in the space provided for the preparer's signature, and

  • Give you a copy of the return for your records, in addition to the copy to be filed with the IRS.

Paid Preparer Authorization

If the trustee wants to allow the IRS to discuss the ANST's tax return with the paid preparer who signed it, check the “Yes” box in the signature area of the return. This authorization applies only to the individual whose signature appears in the Paid Preparer Use Only section of the ANST's return. It does not apply to the firm, if any, shown in that section.

If the “Yes” box is checked, the trustee is authorizing the IRS to call the paid preparer to answer any questions that may arise during the processing of the ANST's return. The trustee is also authorizing the paid preparer to:

  • Give the IRS any information that is missing from the ANST's return,

  • Call the IRS for information about the processing of the ANST's return or the status of its refund or payment(s), and

  • Respond to certain IRS notices that the trustee has shared with the preparer about math errors, offsets, and return preparation. The notices will not be sent to the preparer.

The trustee is not authorizing the paid preparer to receive any refund, enter into any agreement (including those regarding additional tax liability), or otherwise represent the ANST before the IRS. If the trustee wants to expand the paid preparer's authorization, see Pub. 947, Practice Before the IRS and Power of Attorney.

The authorization cannot be revoked. However, the authorization will automatically end no later than the due date (without regard to extensions) for filing the ANST's next tax return.

Accounting Methods

Figure taxable income using the method of accounting regularly used in keeping the ANST's books and records. Generally, permissible methods include the cash method, the accrual method, or any other method authorized by the Internal Revenue Code. In all cases, the method used must clearly reflect income.

Generally, the ANST may change its accounting method (overall method or for any material item) only by getting consent on Form 3115, Application for Change in Accounting Method. For more information, see Pub. 538, Accounting Periods and Methods.

Accounting Periods

All electing ANSTs must adopt a calendar year.

Rounding Off to Whole Dollars

You may round off cents to whole dollars on the ANST's return and schedules. If you do round to whole dollars, you must round all amounts. To round, drop amounts under 50 cents and increase amounts from 50 to 99 cents to the next dollar. For example, $1.39 becomes $1 and $2.50  
becomes $3.

If you have to add two or more amounts to figure the amount to enter on a line, include cents when adding the amounts and round off only the total.

Estimated Tax

Generally, an ANST must pay estimated income tax if it expects to owe at least $1,000, after subtracting withholding and credits. For details and exceptions, see Form 1041-ES, Estimated Income Tax for Estates and Trusts.

Interest and Penalties

Interest

Interest is charged on taxes not paid by the due date, even if an extension of time to file is granted. Interest is also charged on the failure-to-file penalty, the accuracy-related penalty, and the fraud penalty. The interest charge is figured at a rate determined under section 6621.

Late Filing of Return

The law provides a penalty of 5% of the tax due for each month, or part of a month, that the return is not filed up to a maximum of 25% of the tax due. If the return is more than 60 days late, the minimum penalty is the smaller of $135 or the tax due. The penalty will not be imposed if you can show that the failure to file on time is due to reasonable cause. If you receive a notice about penalty and interest after you file this return, send us an explanation and we will determine if you meet reasonable-cause criteria. Do not attach an explanation when you file Form 1041-N.

Late Payment of Tax

Generally, the penalty for not paying the tax when due is 1/2 of 1% of the unpaid amount for each month or part of a month it remains unpaid. The maximum penalty is 25% of the unpaid amount. The penalty is imposed on the net amount due. Any penalty is in addition to interest charges on late payments.

If you include interest or either of these penalties with your payment, identify and enter these amounts in the bottom margin of Form 1041-N. Do not include the interest or penalty amount in the balance of tax due on line 18.

Underpaid Estimated Tax

If the trustee underpaid estimated tax, use Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, to figure any penalty due. Enter the amount of the penalty in the bottom margin of Form 1041-N. Do not include it in the balance of tax due on line 18.

Other Penalties

Other penalties can be imposed for negligence, substantial understatement of tax, and fraud. See Pub. 17, Your Federal Income Tax, for details on these penalties.


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