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§ 1160. Acquisition of obsolete vessels

(a) Definitions
When used in this section—
(1) The term “obsolete vessel” means a vessel or vessels, each of which
(A) is of not less than one thousand three hundred and fifty gross tons,
(B) in the judgment of the Secretary of Transportation, should, by reason of age, obsolescence, or otherwise, be replaced in the public interest and
(C) has been owned by a citizen or citizens of the United States for at least three years immediately prior to the date of acquisition hereunder.
(2) The term “new vessel” means a vessel or vessels, each of which
(A) is constructed under the provisions of this chapter, and is acquired within two years from the date of completion of such vessel, or is purchased under section 1204 of this Appendix, as amended, by the person turning in an obsolete vessel under this section, or
(B) is hereafter constructed in a domestic shipyard on private account and not under the provisions of this chapter, and documented under the laws of the United States.
(b) Promotion of construction of new vessels; allowance on obsolete vessels
In order to promote the construction of new, safe, and efficient vessels to carry the domestic and foreign waterborne commerce of the United States, the Secretary of Transportation is authorized, subject to the provisions of this section, to acquire any obsolete vessel in exchange for an allowance of credit. The obsolete vessel shall be acquired by the Secretary of Transportation, if the owner so requests, either at the time the owner contracts for the construction or purchase of a new vessel or within five days of the actual date of delivery of the new vessel to the owner. The amount of the allowance shall be determined at the time of the acquisition of the obsolete vessel by the Secretary of Transportation. In the event the obsolete vessel is acquired by the Secretary of Transportation at the time the owner contracts for the construction or purchase of the new vessel, the allowance shall not be paid to the owner of the obsolete vessel, but shall be applied upon the purchase price of a new vessel. In the case of a new vessel constructed under the provisions of this chapter, such allowance may, under such terms and conditions as the Secretary of Transportation may prescribe, be applied upon the cash payments required under this chapter. In case the new vessel is not constructed under the provisions of this chapter, the allowance shall, upon acquisition of the obsolete vessel by the Secretary of Transportation, be paid, for the account of the owner, to the shipbuilder constructing such new vessel. In the event that title to the obsolete vessel is acquired by the Secretary of Transportation at the time of delivery of the new vessel, the allowance shall be deposited in the owner’s capital construction fund. This subsection shall apply to obsolete vessels exchanged for new vessels hereafter contracted to be built, or eligible for such exchange but not exchanged in connection with a contract for new vessels executed prior to October 1, 1960.
(c) Utility value of new vessel; gross tonnage
The utility value of the new vessel for operation in the domestic or foreign commerce of the United States shall not be substantially less than that of the obsolete vessel. The gross tonnage of the obsolete vessel may exceed the gross tonnage of the new vessel in a ratio not in excess of three to one, if the Secretary of Transportation finds that the new vessel, although of lesser tonnage, will provide utility value equivalent to or greater than that of the obsolete vessel.
(d) Amount of allowance on obsolete vessel; determination of amount
The allowance for an obsolete vessel shall be the fair and reasonable value of such vessel as determined by the Secretary of Transportation. In making such determination the Secretary of Transportation shall consider:
(1) the scrap value of the obsolete vessel both in American and foreign markets,
(2) the depreciated value based on a twenty or twenty-five year life, whichever is applicable to the obsolete vessel, and
(3) the market value thereof for operation in the world trade or in the foreign or domestic trade of the United States. In the event the obsolete vessel is acquired by the Secretary of Transportation at the time the owner contracts for the construction of the new vessel, and the owner uses such vessel during the period of construction of the new vessel, the allowance shall be reduced by an amount representing the fair value of such use. The rate for the use of the obsolete vessel shall be fixed by the Secretary of Transportation for the entire period of such use at the time of execution of the contract for the construction of the new vessel.
(e) Recognition of gain for income tax purposes; basis for gain or loss
No gain shall be recognized to the owner for the purpose of Federal income taxes in the case of a transfer of an obsolete vessel to the Secretary of Transportation under the provisions of this section. The basis for gain or loss upon a sale or exchange and for depreciation under the applicable Federal income-tax laws of a new vessel acquired as contemplated in this section shall be the same as the basis of the obsolete vessel or vessels exchanged for credit upon the acquisition of such new vessel, increased in the amount of the cost of such vessel (other than the cost represented by such obsolete vessel or vessels) and decreased in the amount of loss recognized upon such transfer.
(f) Report to Congress
The Secretary of Transportation shall include in his annual report to Congress a detailed statement of all transactions consummated under the provisions of the preceding subsections during the period covered by such report.
(g) Use of vessels 25 years old or more
An obsolete vessel acquired by the Secretary of Transportation under this section which is or becomes twenty-five years old or more, and vessels presently in the Secretary’s laid-up fleet which are or become twenty-five years old or more, shall in no case be used for commercial operation, except that any such obsolete vessel, or any such vessel in the laid-up fleet may be used during any period in which vessels may be requisitioned under section 1242 of this Appendix, as amended, and except as otherwise provided in this chapter for the employment of the Secretary’s vessels in steamship lines on trade routes exclusively serving the foreign trade of the United States.
(h) Repealed. Pub. L. 101–225, title III, § 307(7), Dec. 12, 1989, 103 Stat. 1925
(i) Exchange of vessels; valuation; scrapping of traded out vessels
The Secretary of Transportation is authorized to acquire suitable documented vessels, as defined in section 2101 of title 46, with funds in the Vessel Operations Revolving Fund derived from the sale of obsolete vessels in the National Defense Reserve Fleet. For purposes of this subsection, the acquired and obsolete vessels shall be valued at their scrap value in domestic or foreign markets as of the date of the acquisition for or sale from the National Defense Reserve Fleet; except that, in a transaction subject to this section, the value assigned to those vessels will be determined on the same basis, with consideration given to the fair value of the cost of positioning the traded-out vessel to the place of scrapping. All costs incident to the lay-up of the vessel acquired under this subsection may be paid from balances in the Fund. Notwithstanding the provisions of sections 808 and 835 of this Appendix, vessels sold from the National Defense Reserve Fleet under this subsection may be scrapped in approved foreign markets.
(j) Placement in national defense reserve fleet of acquired vessels
Any vessel heretofore or hereafter acquired under this section, or otherwise acquired by the Maritime Administration of the Department of Transportation under any other authority shall be placed in the national defense reserve fleet established under authority of section 11 of the Merchant Ship Sales Act of 1946 [50 App. U.S.C. 1744] and shall not be traded out or sold from such reserve fleet, except as provided for in subsections (g) and (i) of this section. This limitation shall not affect the rights of the Secretary of Transportation to dispose of a vessel as provided in other sections of this subchapter or in subchapters VII or XI of this chapter.

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