IRS Form 1041-N – U.S. Income Tax Return for Electing Alaska Native Settlement Trusts

IRS Form 1041-N – Alaska Native Settlement Trusts (ANSTs) play a vital role in managing assets for Alaska Native beneficiaries under the Alaska Native Claims Settlement Act (ANCSA). Trustees of these trusts who want special tax treatment must file IRS Form 1041-N, the U.S. Income Tax Return for Electing Alaska Native Settlement Trusts.

This comprehensive guide explains what Form 1041-N is, who must file it, the benefits of the Section 646 election, filing deadlines, how to complete the form, beneficiary reporting, and more. It draws from official IRS sources for accuracy and currency.

Download the official IRS Form 1041-N PDF here: https://www.irs.gov/pub/irs-pdf/f1041n.pdf (latest revision: December 2025). Always use the most current version from IRS.gov. The instructions are available at https://www.irs.gov/pub/irs-pdf/i1041n.pdf.

What Is an Alaska Native Settlement Trust (ANST)?

An ANST is a settlement trust established under section 3(t) of the Alaska Native Claims Settlement Act (ANCSA). Alaska Native Corporations (ANCs) transfer assets—such as land, cash, or other property—into these trusts to benefit Native shareholders and their descendants. The sponsoring ANC is the Native Corporation that creates and funds the trust.

These trusts help preserve and distribute benefits in ways that align with cultural and economic goals while providing specific federal tax advantages when the proper election is made.

Understanding the IRC Section 646 Election

Internal Revenue Code (IRC) Section 646 allows an ANST to elect special income tax treatment for the trust and its beneficiaries. This is a one-time, irrevocable election made by filing Form 1041-N for the trust’s first taxable year (or by the due date including extensions).

Key effects of the election:

  • The trust receives favorable tax rates.
  • Most distributions to beneficiaries are excluded from their gross income (with specific tiered rules).
  • The election applies to all subsequent tax years unless disqualified (e.g., due to prohibited dispositions of beneficial interests violating ANCSA rules).

If the election is not made or becomes void, the trust is taxed under standard subchapter J rules for trusts.

What Is IRS Form 1041-N?

Form 1041-N serves three main purposes:

  1. To make the Section 646 election.
  2. To report the ANST’s income, deductions, gains, losses, and compute any income tax due.
  3. To fulfill special information reporting requirements unique to electing ANSTs.

Unlike the standard Form 1041 (used by most estates and trusts), Form 1041-N is tailored for electing ANSTs and includes provisions for the special tax treatment and Schedule K for distribution reporting.

Who Must File Form 1041-N?

The trustee of an electing ANST must file Form 1041-N if the trust has:

  • Any taxable income, or
  • Gross income of $600 or more for the tax year.

All electing ANSTs must use a calendar year as their accounting period. The form is filed by the trustee (or authorized representative).

Tax Benefits of the Section 646 Election

Electing ANSTs enjoy significant advantages:

  • Trust-level tax rate — Taxed at the lowest rate applicable to unmarried individuals (currently 10% on ordinary income).
  • Capital gains and qualified dividends — Often taxed at 0% using Schedule D, Part IV.
  • No income distribution deduction — The trust cannot deduct distributions to beneficiaries for tax purposes.
  • Beneficiary treatment — Distributions are generally excluded from beneficiaries’ income under a four-tier system (detailed below), promoting tax-efficient wealth transfer.

These rules simplify taxation and reduce overall tax burden compared to standard trust taxation.

Key Tax Rules and Computation

Under the election:

  • Income — Includes interest, dividends, capital gains, and other income (including certain contributions or assignments from the sponsoring ANC).
  • Deductions — Administrative expenses directly related to holding ANST property are deductible. No miscellaneous itemized deductions subject to the 2% floor (for applicable years). Qualified business income deduction may apply via Form 8995 or 8995-A.
  • Exemption — $300 if all income must be distributed currently; otherwise $100.
  • Taxable income — Total income minus allowable deductions and exemption. No distribution deduction.
  • Tax calculation — 10% on ordinary taxable income; use Schedule D for preferential rates on capital gains/qualified dividends.
  • Other considerations include at-risk rules, passive activity limitations, and potential additional taxes (e.g., from early dispositions).

The trust pays its own tax; beneficiaries generally do not report most distributions.

Filing Deadlines and Requirements

  • Due date — The 15th day of the 4th month after the close of the tax year (typically April 15 for calendar-year trusts). Adjust for weekends/holidays.
  • Extension — File Form 7004 for an automatic extension (does not extend payment deadline).
  • Where to file — Department of the Treasury, Internal Revenue Service, Ogden, UT 84201-0027.
  • Estimated taxes — Pay quarterly via Form 1041-ES if expecting to owe $1,000 or more.
  • Electronic payments — Strongly encouraged through EFTPS or other approved methods.

Sign the return (trustee or authorized person) and include any required schedules and attachments.

How to Complete Form 1041-N: Key Sections Overview?

Entity Information — Name, address, EIN, date created, and details of the sponsoring ANC.

Income Section:

  • Line 1: Interest income
  • Line 2a: Total ordinary dividends
  • Line 2b: Qualified dividends
  • Line 3: Capital gain or (loss) (attach Schedule D)
  • Line 4: Other income (e.g., from ANC assignments, GILTI, etc.)
  • Line 5: Total income

Deductions:

  • Administrative costs, other deductions (including QBI), exemption.

Tax Computation:

  • Taxable income, tax (10% or via Schedule D), credits, total tax, payments, tax due or overpayment.

Schedule K (Distributions to Beneficiaries) — Critical for reporting tiers of distributions to the sponsoring ANC.

Part III — Other Information — Questions on assignments, foreign accounts (FBAR/Form 8938), foreign trusts (Form 3520), and Section 643(e)(3) elections.

Attachments — Schedule D (Form 1041), Form 8995/8995-A if applicable, statements for assignments or dispositions, etc.

Note: Detailed line-by-line instructions are in the official IRS instructions PDF.

Beneficiary Reporting: The Four-Tier System

The ANST does not issue K-1s directly to beneficiaries. Instead:

  • Complete Schedule K on Form 1041-N.
  • Provide a copy to the sponsoring ANC by the filing due date.
  • The ANC then informs beneficiaries.

Tiers (under Section 646(e)):

  • Tier I — From current taxable income (reduced by tax paid); excluded from beneficiary income.
  • Tier II — Undistributed prior Tier I amounts; excluded.
  • Tier III — Treated as dividends from the sponsoring ANC (to the extent of earnings and profits); taxable to beneficiaries.
  • Tier IV — Remainder; excluded.

This structure minimizes tax at the beneficiary level.

Common Questions and Tips

  • Can the election be revoked? No, it is irrevocable (unless disqualified by prohibited acts).
  • What if the trust has no taxable income? Still file if gross income ≥ $600.
  • Penalties — Late filing (5% per month, up to 25%), late payment, failure to pay estimated tax, etc.
  • Professional help — Tax rules for ANSTs are specialized. Consult a tax professional familiar with Alaska Native entities and a qualified attorney for trust compliance.
  • Recordkeeping — Maintain detailed records of income sources, distributions, basis in assets, and any ANC assignments.

Download and Resources

For the latest updates, visit IRS.gov/Form1041N or consult the instructions.

Important Disclaimer: This article provides general information based on current IRS guidance and is not tax or legal advice. Tax laws can change, and individual circumstances vary. Trustees of Alaska Native Settlement Trusts should consult a qualified tax professional or attorney experienced in ANCSA and federal tax matters for personalized guidance.

This guide helps trustees, beneficiaries, and advisors navigate Form 1041-N efficiently while maximizing the benefits of the Section 646 election. For questions on specific lines or situations, refer directly to the IRS instructions or seek professional assistance.