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NOTES:


Source

(June 29, 1936, ch. 858, title VI, § 607, 49 Stat. 2005; June 23, 1938, ch. 600, §§ 23–28, 52 Stat. 960, 961; Aug. 4, 1939, ch. 417, § 10, 53 Stat. 1185; July 17, 1952, ch. 939, §§ 17–19, 66 Stat. 764, 765; Pub. L. 85–637, Aug. 14, 1958, 72 Stat. 592; Pub. L. 86–518, § 1, June 12, 1960, 74 Stat. 216; Pub. L. 87–45, § 6, May 27, 1961, 75 Stat. 91; Pub. L. 87–271, Sept. 21, 1961, 75 Stat. 570; Pub. L. 91–469, § 21(a), Oct. 21, 1970, 84 Stat. 1026; Pub. L. 93–116, Oct. 1, 1973, 87 Stat. 421; Pub. L. 97–31, § 12(97), Aug. 6, 1981, 95 Stat. 162; Pub. L. 99–514, § 2, title II, § 261(d), (e), Oct. 22, 1986, 100 Stat. 2095, 2214; Pub. L. 100–647, title I, § 1002(m)(2), Nov. 10, 1988, 102 Stat. 3382; Pub. L. 101–508, title XI, § 11101(d)(7)(B), Nov. 5, 1990, 104 Stat. 1388–405; Pub. L. 105–34, title III, § 311(c)(2), Aug. 5, 1997, 111 Stat. 835; Pub. L. 108–27, title III, § 301(a)(2)(E), May 28, 2003, 117 Stat. 758.)

Amendment of Section

For termination of amendment by section 303 of Pub. L. 108–27, see Effective and Termination Dates of 2003 Amendment note below.

References in Text

The Internal Revenue Code of 1986, referred to in subsecs. (d)(1) and (h)(3), is classified generally to Title 26, Internal Revenue Code.
Section 103, referred to in subsec. (e)(2)(D), which related to interest on certain governmental obligations was amended generally by Pub. L. 99–514, title XIII, § 1301(a), Oct. 22, 1986, 100 Stat. 2602, and as so amended relates to interest on State and local bonds.

Amendments

2003—Subsec. (h)(6)(A). Pub. L. 108–27, §§ 301(a)(2)(E), 303, temporarily substituted “15 percent” for “20 percent” in concluding provisions. See Effective and Termination Dates of 2003 Amendment note below.
1997—Subsec. (h)(6)(A). Pub. L. 105–34 substituted “20 percent” for “28 percent” in concluding provisions.
1990—Subsec. (h)(6)(A). Pub. L. 101–508 substituted “section 1 (h)” for “section 1 (j)”.
1988—Subsec. (h)(6)(A). Pub. L. 100–647 substituted “section 1 (j)” for “section 1 (i)”.
1986—Subsec. (b)(1)(A), (B). Pub. L. 99–514, § 2, substituted “Internal Revenue Code of 1986” for “Internal Revenue Code of 1954”.
Subsec. (d)(1). Pub. L. 99–514, § 2, substituted “Internal Revenue Code of 1986” for “Internal Revenue Code of 1954”.
Subsec. (d)(1)(A), (D). Pub. L. 99–514, § 261(e)(1), (2), inserted “and section 7518 of such Code”.
Subsec. (e)(2)(C). Pub. L. 99–514, § 261(e)(3), substituted “the percentage applicable under section 243(a)(1) of the Internal Revenue Code of 1986” for “85 percent”.
Pub. L. 99–514, § 2, substituted “section 243 of the Internal Revenue Code of 1986” for “section 243 of the Internal Revenue Code of 1954”.
Subsec. (e)(4)(E). Pub. L. 99–514, § 261(e)(4), amended subpar. (E) generally. Prior to amendment, subpar. (E) read as follows: “15 percent of any dividend referred to in paragraph (2)(C).”
Subsec. (g)(3). Pub. L. 99–514, § 261(e)(5), amended par. (3) generally. Prior to amendment, par. (3) read as follows: “If any portion of a qualified withdrawal for a vessel, barge, or container is made out of the capital gain account, the basis of such vessel, barge, or container shall be reduced by an amount equal to—
“(A) Five-eighths of such portion, in the case of a corporation (other than an electing small business corporation, as defined in section 1371 of the Internal Revenue Code of 1954, or
“(B) One-half of such portion, in the case of any other person.”
Subsec. (h)(3). Pub. L. 99–514, § 2, substituted “Internal Revenue Code of 1986” for “Internal Revenue Code of 1954”.
Subsec. (h)(5), (6). Pub. L. 99–514, § 261(e)(6), added pars. (5) and (6).
Subsec. (i)(1). Pub. L. 99–514, § 2, substituted “Internal Revenue Code of 1986” for “Internal Revenue Code of 1954”.
Subsec. (m). Pub. L. 99–514, § 261(d), added subsec. (m).
1981—Subsecs. (a), (c), (f), (h)(4). Pub. L. 97–31, § 12(97)(A), substituted “Secretary” for “Secretary of Commerce” wherever appearing.
Subsec. (k). Pub. L. 97–31, § 12(97), substituted in pars. (2)(C) and (7) “Secretary” for “Secretary of Commerce” and added par. (9).
Subsec. (l). Pub. L. 97–31, § 12(97)(A), substituted “Secretary” for “Secretary of Commerce” wherever appearing.
1973—Subsec. (k)(8). Pub. L. 93–116 substituted “(ii) trade from any point in Alaska, Hawaii, Puerto Rico, and such territories and possessions to any other point in Alaska, Hawaii, Puerto Rico, and such territories and possessions.” for “(ii) trade between Alaska, Hawaii, and Puerto Rico and such territories and possessions and (iii) trade between the islands of Hawaii.”
1970—Pub. L. 91–469 revised tax deferred reserve fund provisions generally, extended tax deferral privilege to vessels operated in nonsubsidized foreign trade, noncontiguous domestic trade, Great Lakes trade, and in fisheries, built in the United States, and documented under her laws, and substituted a new statutory framework consisting of subsecs. (a) to (l) for determination of tax status of deposits into and withdrawals from the fund for former subsecs. (a) to (h) and providing as follows:
Subsec. (a), a capital construction fund, agreement rules, persons eligible, replacement, additional, or reconstructed vessels for prescribed trade and fishery operations, amount of deposits, annual limitation, and conditions and requirements for deposits and withdrawals, subsec. (a) formerly permitting a 10 percent distribution of net profits;
Subsec. (b), ceiling on deposits, deposits of lessees, and definition of “agreement vessel”, subsec. (b) formerly providing for a capital reserve fund, deposits, and allowable disbursements;
Subsec. (c), investment requirements, depositories, fiduciary requirements, investment in interest-bearing certificates (formerly provided in former subsec. (d)(2) of this section), stock investments, including common stock treatment of preferred issues, percentage for domestic issues, listing and registration, prudent man acquisitions (provisions formerly covered in former subsec. (d)(3)(A) of this section), and value and percentage equilibrium, subsec. (c) formerly providing for creation of a special reserve fund, deposits, and allowable disbursements;
Subsec. (d), nontaxability of deposits and eligible deposits, subsec. (d) formerly providing rules and regulations for administration of reserve funds and investment of funds, now covered in subsec. (c) of this section;
Subsec. (e), capital account, capital gain account, and ordinary income account within the capital construction fund and limitation on losses, subsec. (e) formerly providing for withdrawals from capital reserve fund to meet needs due to operating losses;
Subsec. (f), purposes of qualified withdrawals and nonqualified withdrawal treatment for nonfulfillment of substantial obligations, subsec. (f) formerly providing for title to reserve funds on termination of contract;
Subsec. (g), tax treatment of qualified withdrawals and reduction of basis, subsec. (g) formerly providing for increase and transfer of reserve funds and interest on overpayment of taxes;
Subsec. (h), tax treatment of nonqualified withdrawals, FIFO and LIFO bases, and interest rate, subsec. (h) formerly providing for exemption of reserve funds from taxation, in effect a tax deferral;
Subsec. (i), corporate reorganizations and partnership changes;
Subsec. (j), treatment of existing funds and relation of old to new funds;
Subsec. (k), definitions; and
Subsec. (l), records, reports, rules, and regulations, and termination of agreement upon changes in regulations with substantial effect on rights or obligations.
1961—Subsec. (b). Pub. L. 87–271 authorized the contractor, upon consent of the Secretary of Commerce, to pay amounts from the capital reserve fund for research, development, and design expenses for new and advanced ship design machinery and equipment, purchase of cargo containers delivered after June 30, 1959, payment of principal on indebtedness incurred for containers, and for reimbursing the contractor’s general funds for expenditures for such purchases or payments, and required such cargo containers, to the extent paid for out of the capital reserve fund, to be treated as vessels for purpose of deposits and withdrawals from the fund, except that depreciation thereon shall be based on life expectancy used for such containers in determination of “net earnings” in subsec. (d)(1) of this section.
Pub. L. 87–45 inserted “and on cruises, if any, authorized under section 1183 of this Appendix” after “route or service approved by the Secretary” in second par.
1960—Subsec. (b). Pub. L. 86–518 substituted “twenty-five-year life expectancy” for “twenty-year life expectancy”.
1958—Subsec. (d). Pub. L. 85–637 designated first and second paragraphs as subdivisions (1) and (2), and added subdivision (3).
1952—Subsec. (b). Act July 17, 1952, § 17, permitted recomputation of life-expectancy of a reconstructed or reconditioned vessel in use under an operating-differential subsidy contract, and provided for recomputation of depreciation changes.
Subsec. (d). Act July 17, 1952, § 18, substituted “as provided for in section 1177 (b) of this Appendix” after “life of the vessel” for “being twenty years”.
Subsec. (g). Act July 17, 1952, § 19, barred payment of interest by Government on overpayment of taxes resulting from voluntary deposits of earnings.
1939—Subsec. (c)(3). Act Aug. 4, 1939, permitted payment from the capital reserve fund, and authorized payment from other assets of the contractor if assets have not been repaid to the reserve funds, or if prepayments of amounts not due before one year after the date of termination of the contract have been made from the capital reserve funds.
1938—Subsec. (b). Act June 23, 1938, §§ 23, 24, substituted “insurance and indemnities” for “insurance indemnities” in first par., and inserted provisions requiring deposit of proceeds of any sale or other disposition of a vessel in the capital reserve funds, and to permit the contractor to pay from the fund any sums owing but not yet due on notes secured by mortgages on subsidized vessels.
Subsec. (c). Act June 23, 1938, § 25, substituted “If the profits, without regard to capital gains and capital losses, earned by the business of the subsidized vessels and services incident thereto exceed 10 per centum per annum and exceed the percentage of profits deposited in the capital reserve fund, as provided in subsection (b) of this section, the contractor shall deposit annually such excess profits in this reserve fund” for “In this reserve fund, the contractor shall deposit annually the profits earned by the business of the subsidized vessels and services incident thereto in excess of 10 per centum per annum and in excess of the percentage of profits deposited in the capital reserve fund, as provided in subsection (b) of this section”, in second par.
Subsec. (c)(2). Act June 23, 1938, § 26, substituted “will be made up” for “will not be made up”.
Subsecs. (f), (g). Act June 23, 1938, § 27, added subsecs. (f) and (g). Former subsec. (f) redesignated (h).
Subsec. (h). Act June 23, 1938, § 28, redesignated former subsec. (f) as subsec. (h) and made earnings withdrawn from the special reserve fund taxable as if earned during the year of withdrawal from the fund.

Effective and Termination Dates of 2003 Amendment

Amendment by Pub. L. 108–27 applicable to taxable years ending on or after May 6, 2003, see section 301(d) of Pub. L. 108–27, set out as a note under section 1 of Title 26, Internal Revenue Code.
Amendment by Pub. L. 108–27 inapplicable to taxable years beginning after Dec. 31, 2008, and the Internal Revenue Code of 1986 to be applied and administered to such years as if such amendment had never been enacted, see section 303 of Pub. L. 108–27, set out as a note under section 1 of Title 26, Internal Revenue Code.

Effective Date of 1997 Amendment

Amendment by Pub. L. 105–34 applicable to taxable years ending after May 6, 1997, see section 311(d) of Pub. L. 105–34, set out as a note under section 1 of Title 26, Internal Revenue Code.

Effective Date of 1990 Amendment

Amendment by Pub. L. 101–508 applicable to taxable years beginning after Dec. 31, 1990, see section 11101(e) of Pub. L. 101–508, set out as a note under section 1 of Title 26, Internal Revenue Code.

Effective Date of 1988 Amendment

Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of Title 26, Internal Revenue Code.

Effective Date of 1986 Amendment

Amendment by section 261(d), (e) of Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, see section 261(g) of Pub. L. 99–514, set out as an Effective Date note under section 7518 of Title 26, Internal Revenue Code.

Effective Date of 1970 Amendment

Section 21(b) of Pub. L. 91–469 provided that: “The amendment made by subsection (a) [amending this section] shall apply to taxable years beginning after December 31, 1969.”

Effective Date of 1960 Amendment

Amendment by Pub. L. 86–518 applicable only to vessels delivered by the shipbuilder on or after Jan. 1, 1946, and with respect to such vessels shall become effective on Jan. 1, 1960, and with respect to vessels delivered by the shipbuilder before Jan. 1, 1946, the provisions of this chapter existing immediately before June 12, 1960, shall continue in effect, see section 8(a) of Pub. L. 86–518, set out as a note under section 1125 of this Appendix.

Merchant Marine Capital Construction Funds

For coordination of application of Internal Revenue Code of 1986 with capital construction program under this chapter, see section 261(a) of Pub. L. 99–514, set out as a note under section 7518 of Title 26, Internal Revenue Code.

Deposits Into Capital Reserve Fund

Pub. L. 92–507, § 6, Oct. 19, 1972, 86 Stat. 917, provided that: “Nothing in this Act [enacting this note and amending subchapter XI of this chapter] shall limit or affect the right of an obligor who maintains a capital reserve fund under section 607 of the Merchant Marine Act, 1936 [this section] to make deposits of the proceeds of guaranteed obligations into such capital reserve fund as provided in subparagraph (c) of condition (6) of section 1107 of the Merchant Marine Act, 1936 [subparagraph (c) of condition (6) of section 1276a of former Title 46, Shipping], as in effect prior to the effective date of this Act [Oct. 9, 1972].”

Rate of Depreciation for Vessels Delivered by Shipbuilder On or After January 1, 1946, and Before January 1, 1960

For provisions relating to computation of depreciation with respect to vessels delivered by the shipbuilder on or after Jan. 1, 1946, and before Jan. 1, 1960, see section 8(b) of Pub. L. 86–518, set out as a note under section 1125 of this Appendix.

Revision of Contracts, Commitments To Insure Mortgages, Mortgages, and Mortgage Insurance Contracts Entered Into Prior to June 12, 1960

For provisions authorizing revision, see section 8(c) of Pub. L. 86–518, set out as a note under section 1125 of this Appendix.

Commercial Expectancy or Period of Depreciation of Tankers and Other Liquid Bulk Carriers

Nothing in any amendment made by Pub. L. 86–518 to operate or be interpreted to change from 20 to 25 years the provisions of this chapter relating to the commercial expectancy or period of depreciation of any tanker or other liquid bulk carrier, see section 9 of Pub. L. 86–518, set out as a note under section 1125 of this Appendix.

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