26 U.S. Code § 7518 - Tax incentives relating to merchant marine capital construction funds
In the case of a lessee, the maximum amount which may be deposited with respect to an agreement vessel by reason of paragraph (1)(B) for any period shall be reduced by any amount which, under an agreement entered into under chapter 535 of title 46, United States Code, the owner is required or permitted to deposit for such period with respect to such vessel by reason of paragraph (1)(B).
Amounts in any capital construction fund shall be kept in the depository or depositories specified in the agreement and shall be subject to such trustee and other fiduciary requirements as may be specified by the Secretary.
Amounts in any capital construction fund may be invested only in interest-bearing securities approved by the Secretary; except that, if such Secretary consents thereto, an agreed percentage (not in excess of 60 percent) of the assets of the fund may be invested in the stock of domestic corporations. Such stock must be currently fully listed and registered on an exchange registered with the Securities and Exchange Commission as a national securities exchange, and must be stock which would be acquired by prudent men of discretion and intelligence in such matters who are seeking a reasonable income and the preservation of their capital. If at any time the fair market value of the stock in the fund is more than the agreed percentage of the assets in the fund, any subsequent investment of amounts deposited in the fund, and any subsequent withdrawal from the fund, shall be made in such a way as to tend to restore the fund to a situation in which the fair market value of the stock does not exceed such agreed percentage.
For purposes of this subsection, if the common stock of a corporation meets the requirements of this subsection and if the preferred stock of such corporation would meet such requirements but for the fact that it cannot be listed and registered as required because it is nonvoting stock, such preferred stock shall be treated as meeting the requirements of this subsection.
Under joint regulations, if the Secretary determines that any substantial obligation under any agreement is not being fulfilled, he may, after notice and opportunity for hearing to the person maintaining the fund, treat the entire fund or any portion thereof as an amount withdrawn from the fund in a nonqualified withdrawal.
If any portion of a qualified withdrawal for a vessel, barge, or container is made out of the ordinary income account, the basis of such vessel, barge, or container shall be reduced by an amount equal to such portion.
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 such portion.
If any portion of a qualified withdrawal to pay the principal on any indebtedness is made out of the ordinary income account or the capital gain account, then an amount equal to the aggregate reduction which would be required by paragraphs (2) and (3) if this were a qualified withdrawal for a purpose described in such paragraphs shall be applied, in the order provided in joint regulations, to reduce the basis of vessels, barges, and containers owned by the person maintaining the fund. Any amount of a withdrawal remaining after the application of the preceding sentence shall be treated as a nonqualified withdrawal.
If any property the basis of which was reduced under paragraph (2), (3), or (4) is disposed of, any gain realized on such disposition, to the extent it does not exceed the aggregate reduction in the basis of such property under such paragraphs, shall be treated as an amount referred to in subsection (g)(3)(A) which was withdrawn on the date of such disposition. Subject to such conditions and requirements as may be provided in joint regulations, the preceding sentence shall not apply to a disposition where there is a redeposit in an amount determined under joint regulations which will, insofar as practicable, restore the fund to the position it was in before the withdrawal.
Except as provided in subsection (h), any withdrawal from a capital construction fund which is not a qualified withdrawal shall be treated as a nonqualified withdrawal.
For purposes of paragraph (3)(C)(ii), the applicable rate of interest for any nonqualified withdrawal shall be determined and published jointly by the Secretary of the Treasury or his delegate and the applicable Secretary and shall bear a relationship to 8 percent which the Secretaries determine under joint regulations to be comparable to the relationship which the money rates and investment yields for the calendar year immediately preceding the beginning of the taxable year bear to the money rates and investment yields for the calendar year 1970.
The applicable percentage of any amount which remains in a capital construction fund at the close of the 26th, 27th, 28th, 29th, or 30th taxable year following the taxable year for which such amount was deposited shall be treated as a nonqualified withdrawal in accordance with the following table:
If the amount remains in the fund
at the close of the—
The applicable percentage is—
26th taxable year
27th taxable year
28th taxable year
29th taxable year
30th taxable year
The earnings of any capital construction fund for any taxable year (other than net gains) shall be treated for purposes of this paragraph as an amount deposited for such taxable year.
For purposes of subparagraph (A), an amount shall not be treated as remaining in a capital construction fund at the close of any taxable year to the extent there is a binding contract at the close of such year for a qualified withdrawal of such amount with respect to an identified item for which such withdrawal may be made.
If the Secretary determines that the balance in any capital construction fund exceeds the amount which is appropriate to meet the vessel construction program objectives of the person who established such fund, the amount of such excess shall be treated as a nonqualified withdrawal under subparagraph (A) unless such person develops appropriate program objectives within 3 years to dissipate such excess.
For purposes of this section, any term defined in section 607(k) of the Merchant Marine Act, 1936 which is also used in this section (including the definition of “Secretary”) shall have the meaning given such term by such section 607(k) as in effect on the date of the enactment of this section.
Section 606(5) of the Merchant Marine Act, 1936, as in effect on December 31, 1969, referred to in subsec. (g)(3)(C)(iii), was section 606(5) of act June 29, 1936, ch. 858, title VI, 49 Stat. 2004, as amended by acts June 23, 1938, ch. 600, § 22, 52 Stat. 960; July 17, 1952, ch. 939, § 16, 66 Stat. 764; and May 10, 1956, ch. 247, § 1, 70 Stat. 148, which was classified to section 1176(5) of former Title 46, Shipping, and was repealed by Pub. L. 91–469, § 20(4), Oct. 21, 1970, 84 Stat. 1026. Section 606 of the Merchant Marine Act, 1936 was subsequently transferred to section 1176 of the former Appendix to Title 46 and is now set out as a note under section 53101 of Title 46, Shipping.
Section 607(k) of the Merchant Marine Act, 1936, referred to in subsec. (i), was classified to section 1177(k) of the former Appendix to Title 46, Shipping, and was repealed and partially restated in section 53501 of Title 46, Shipping, by Pub. L. 109–304, §§ 8(c), 19, Oct. 6, 2006, 120 Stat. 1586, 1710. For disposition of sections of the former Appendix to Title 46, see Disposition Table preceding section 101 of Title 46.
The date of the enactment of this section, referred to in subsec. (i), is the date of enactment of Pub. L. 99–514, which was approved Oct. 22, 1986.
2014—Subsec. (g)(4). Pub. L. 113–295, which directed substitution of “any nonqualified withdrawal shall be determined” for “any nonqualified withdrawal” and all that followed through “ ‘shall be determined”, was executed by substituting “any nonqualified withdrawal shall be determined” for “any nonqualified withdrawal—
“(A) made in a taxable year beginning in 1970 or 1971 is 8 percent, or
“(B) made in a taxable year beginning after 1971, shall be determined”
to reflect the probable intent of Congress.
2013—Subsec. (g)(6)(A). Pub. L. 112–240 substituted “20 percent” for “15 percent” in concluding provisions.
2006—Subsec. (a)(1). Pub. L. 109–304, § 17(e)(6)(A), substituted “chapter 535 of title 46 of the United States Code” for “section 607 of the Merchant Marine Act, 1936”.
Subsec. (g)(3)(C)(iii). Pub. L. 109–304, § 17(e)(6)(C), substituted “Merchant Marine Act, 1936,” for “Merchant Marine Act of 1936”.
2003—Subsec. (g)(6)(A). Pub. L. 108–27 substituted “15 percent” for “20 percent” in concluding provisions.
1997—Subsec. (g)(6)(A). Pub. L. 105–34 substituted “20 percent” for “28 percent” in concluding provisions.
1990—Subsec. (g)(6)(A). Pub. L. 101–508 substituted “section 1(h)” for “section 1(j)” in last sentence.
1988—Subsec. (g)(1). Pub. L. 100–647, § 1018(u)(23), substituted “not a qualified withdrawal” for “not qualified withdrawal”.
Subsec. (g)(6)(A). Pub. L. 100–647, § 1002(m)(1), substituted “section 1(j)” for “section 1(i)”.
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 an Effective and Termination Dates of 2003 Amendment note under section 1 of this title.
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 this title.
Written determinations for this section
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