National Security Sealift Enhancement Act of 1999

Summary: Title II: Election to Expense United States Flag Vessels
 - Permits, under the IRC, a taxpayer to elect to treat the cost of any vessel that is a qualified U. S. flag vessel as an expense which is not chargeable to its capital account.
Title III: Income Exclusion for Merchant Seamen
 - Permits the income of certain merchant seaman to be excluded from gross income under IRC provisions permitting such exclusion for U.S. citizens or residents living abroad.
Title IV: Exemption from Alternative Minimum Tax
 - Provides that the tentative minimum tax shall be zero for certain corporations which derive substantially all of their assets from the operation of U.S. flag vessels.
Title V: Conventions on United States-Flag Cruise Ships
 - Eliminates the requirements that a cruise ship be U.S. registered and that all points of call be in the U.S. or its possessions in order to qualify for the deduction allowed for the attendance of a convention on a cruise ship.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``National Security Sealift 
Enhancement Act of 1999''.

SEC. 2. TABLE OF CONTENTS.

    The table of contents for this Act is as follows:

Sec. 1. Short title.
Sec. 2. Table of contents.
                   TITLE I--CAPITAL CONSTRUCTION FUND

Sec. 101. Amendments of Internal Revenue Code of 1986.
Sec. 102. Amendment to the Tariff Act of 1930.
Sec. 103. Effective date.
        TITLE II--ELECTION TO EXPENSE UNITED STATES FLAG VESSELS

Sec. 201. Election to expense certain United States flag vessels.
            TITLE III--INCOME EXCLUSION FOR MERCHANT SEAMEN

Sec. 301. Income of merchant seaman excludable from gross income as 
                            foreign earned income.
            TITLE IV--EXEMPTION FROM ALTERNATIVE MINIMUM TAX

Sec. 401. Exemption from alternative minimum tax for corporations that 
                            operate United States flag vessels.
        TITLE V--CONVENTIONS ON UNITED STATES-FLAG CRUISE SHIPS

Sec. 501. Conventions on United States-flag cruise ships.

                   TITLE I--CAPITAL CONSTRUCTION FUND

SEC. 101. AMENDMENTS OF INTERNAL REVENUE CODE OF 1986.

    (a) Treatment of Certain Lease Payments.--
            (1) Paragraph (1) of section 7518(e) of the Internal 
        Revenue Code of 1986 is amended by striking ``or'' at the end 
        of subparagraph (B), by striking the period at the end of 
        subparagraph (C) and inserting ``, or'', and by inserting after 
        subparagraph (C) the following new subparagraph:
                    ``(D) the payments of amounts which reduce the 
                principal amount (as determined under regulations) of a 
                qualified lease of a qualified vessel or container 
                which is part of the complement of an eligible 
                vessel.''.
            (2) Paragraph (4) of section 7518(f) of such Code is 
        amended by inserting ``or to reduce the principal amount of any 
        qualified lease'' after ``indebtedness''.
    (b) Authority To Make Deposits Under The Tariff Act of 1930.--
            (1) Paragraph (1) of section 7518(a) of such Code is 
        amended by striking ``and'' at the end of subparagraph (C), by 
        striking the period at the end of subparagraph (D) and 
        inserting ``, and'', and by adding at the end the following new 
        subparagraph:
                    ``(E) the amount elected for deposit under 
                subsection (i) of section 466 of the Tariff Act of 1930 
                (19 U.S.C. 1466).''.
            (2) Subparagraph (A) of section 7518(d)(2) of such Code is 
        amended to read as follows:
                    ``(A) amounts referred to in subsections (a)(1)(B) 
                and (E).''.
    (c) Authority To Make Deposits for Prior Years Based on Audit 
Adjustments.--Subsection (a) of section 7518 of such Code is amended by 
adding at the end thereof the following new paragraph:
            ``(4) Deposits for prior years.--To the extent permitted by 
        joint regulations, deposits may be made in excess of the 
        limitation described in paragraph (1) (and any limitation 
        specified in the agreement) for the taxable year if, by reason 
        of a change in taxable income for a prior taxable year that has 
        become final pursuant to a closing agreement or other similar 
        agreement entered into during the taxable year, the amount of 
        the deposit could have been made for such prior taxable 
        year.''.
    (d) Treatment of Capital Gains and Losses.--
            (1) Paragraph (3) of section 7518(d) of such Code is 
        amended to read as follows:
            ``(3) Capital gain account.--The capital gain account shall 
        consist of--
                    ``(A) amounts representing long-term capital gains 
                (as defined in section 1222) on assets held in the 
                fund, reduced by
                    ``(B) amounts representing long-term capital losses 
                (as defined in such section) on assets held in the 
                fund.''.
            (2) Subparagraph (B) of section 7518(d)(4) of such Code is 
        amended to read as follows:
                    ``(B)(i) amounts representing short-term capital 
                gains (as defined in section 1222) on assets held in 
                the fund, reduced by
                    ``(ii) amounts representing short-term capital 
                losses (as defined in such section) on assets held in 
                the fund,''.
            (3) Subparagraph (B) of section 7518(g)(3) of such Code is 
        amended by striking ``gain'' and all that follows and inserting 
        ``long-term capital gain (as defined in section 1222), and''.
            (4) The last sentence of subparagraph (A) of section 
        7518(g)(6) of such Code is amended by striking ``20 percent (34 
        percent in the case of a corporation)'' and inserting ``the 
        rate applicable to net capital gain under such section 
        1(h)(1)(C) or 1201(a), as the case may be''.
    (e) Computation of Interest With Respect to Nonqualified 
Withdrawals.--
            (1) Subparagraph (C) of section 7518(g)(3) of such Code is 
        amended--
                    (A) by striking clause (i) and inserting the 
                following new clause:
                            ``(i) no addition to the tax shall be 
                        payable under section 6651, and'', and
                    (B) by striking ``paid at the applicable rate (as 
                defined in paragraph (4))'' in clause (ii) and 
                inserting ``paid in accordance with section 6601''.
            (2) Subsection (g) of section 7518 of such Code is amended 
        by striking paragraph (4) and by redesignating paragraphs (5) 
        and (6) as paragraphs (4) and (5), respectively.
            (3) Subparagraph (A) of section 7518(g)(5) of such Code, as 
        redesignated by paragraph (2), is amended by striking 
        ``paragraph (5)'' and inserting ``paragraph (4)''.
    (f) Other Changes.--
            (1) Paragraph (2) of section 7518(b) of such Code is 
        amended by striking ``interest-bearing securities approved by 
        the Secretary'' and inserting ``interest-bearing securities and 
        other income-producing assets (including accounts receivable) 
        approved by the Secretary''.
            (2) The last sentence of paragraph (1) of section 7518(e) 
        of such Code is amended by striking ``and containers'' each 
        place it appears.
            (3) Subparagraph (B) of section 543(a)(1) of such Code is 
        amended to read as follows:
                    ``(B) interest on amounts set aside in a capital 
                construction fund under section 607 of the Merchant 
                Marine Act, 1936 (46 App. U.S.C. 1177), or in a 
                construction reserve fund under section 511 of such Act 
                (46 App. U.S.C. 1161),''.
            (4) Subsection (c) of section 56 of such Code is amended by 
        striking paragraph (2) and by redesignating paragraph (3) as 
        paragraph (2).
            (5) Section 7518(e) is amended by adding at the end the 
        following new paragraph:
            ``(3) Qualified withdrawal.--In the case of amounts in any 
        fund as of the date of the enactment of this paragraph, and any 
        earnings thereon, for purposes of this subsection, the term 
        `qualified withdrawal' has the meaning given such term by 
        applying subsection (i)(2) as of such date.''
    (g) Definitions.--Subsection (i) of section 7518 of such Code is 
amended to read as follows:
    ``(i) Definitions.--
            ``(1) In general.--Except as provided in paragraph (2), 
        terms used in this section shall have the same meaning as in 
        section 607(k) of the Merchant Marine Act, 1936.
            ``(2) Other definitions.--For the purposes of this 
        section--
                    ``(A) The term `eligible vessel' means any vessel--
                            ``(i) documented under the laws of the 
                        United States, and
                            ``(ii) operated in the foreign or domestic 
                        commerce of the United States or in the 
                        fisheries of the United States.
                    ``(B) Qualified vessel.--The term `qualified 
                vessel' means any vessel--
                            ``(i) constructed in the United States and, 
                        if reconstructed, reconstructed in the United 
                        States,
                            ``(ii) documented under the laws of the 
                        United States, and
                            ``(iii) which the person maintaining the 
                        fund agrees with the Secretary will be operated 
                        in the fisheries of the United States, or in 
                        the United States foreign, Great Lakes, 
                        noncontiguous domestic trade, or other 
                        oceangoing domestic trade between two coastal 
                        points in the United States or in support of 
                        operations conducted on the Outer Continental 
                        Shelf.
                    ``(C) Vessel.--The term `vessel' includes 
                containers or trailers intended for use as part of the 
                complement of one or more eligible vessels and cargo 
                handling equipment which the Secretary determines is 
                intended for use primarily on the vessel. The term 
                `vessel' also includes an ocean-going towing vessel or 
                an ocean-going barge or comparable towing vessel or 
                barge operated on the Great Lakes.
                    ``(D) Foreign commerce.--The terms `foreign 
                commerce' and `foreign trade' have the meanings given 
                such terms in section 905 of the Merchant Marine Act, 
                1936, except that these terms shall include commerce or 
                trade between foreign ports.
                    ``(E) Qualified lease.--The term `qualified lease' 
                means any lease with a term of at least 5 years.''

SEC. 102. AMENDMENT TO THE TARIFF ACT OF 1930.

    Section 466 of the Tariff Act of 1930 (19 U.S.C. 1466) is amended 
by adding at the end the following new subsection:
    ``(i) Election To Deposit Duty Into a Capital Construction Fund In 
Lieu of Payment to the Secretary of the Treasury.--At the election of 
the owner or master of any vessel referred to in subsection (a) of this 
section which is an eligible vessel (as defined in section 7518(i)(2) 
of the Internal Revenue Code of 1986), the portion of any duty imposed 
by subsection (a) which is deposited in a fund established under 
section 607 of the Merchant Marine Act, 1936 shall be treated as paid 
to the Secretary of the Treasury in satisfaction of the liability for 
such duty.''

SEC. 103. EFFECTIVE DATE.

    (a) In General.--Except as otherwise provided in this section, the 
amendments made by this title shall apply to taxable years ending after 
the date of the enactment of this Act.
    (b) Changes in Computation of Interest.--The amendments made by 
section 101(e) shall apply to withdrawals made after December 31, 1998, 
including for purposes of computing interest on such a withdrawal for 
periods on or before such date.
    (c) Qualified Leases.--The amendments made by section 101(a) shall 
apply to leases in effect on, or entered into after, December 31, 1998.
    (d) Amendment to the Tariff Act of 1930.--The amendment made by 
section 102 shall apply with respect to entries not yet liquidated by 
December 31, 1998, and to entries made on or after such date.

        TITLE II--ELECTION TO EXPENSE UNITED STATES FLAG VESSELS

SEC. 201. ELECTION TO EXPENSE CERTAIN UNITED STATES FLAG VESSELS.

    (a) In General.--Part VI of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 is amended by inserting after section 
179A the following new section:

``SEC. 179B. DEDUCTION FOR UNITED STATES FLAG VESSELS.

    ``(a) Treatment as Expenses.--A taxpayer may elect to treat the 
cost of any vessel that is a qualified United States flag vessel as an 
expense which is not chargeable to its capital account.
    ``(b) Year in Which Deduction Allowed.--The deduction under 
subsection (a) shall be allowed for the taxable year in which the 
vessel first becomes a qualified United States flag vessel.
    ``(c) Definitions.--
            ``(1) Qualified united states flag vessel.--For purposes of 
        this section, the term `qualified United States flag vessel' 
        means a United States flag vessel that is operated exclusively 
        in the foreign trade of the United States.
            ``(2) Cost.--For purposes of this section, the term `cost' 
        means an amount equal to the lesser of--
                    ``(A) the purchase price of the vessel, or
                    ``(B) the adjusted basis of the vessel, determined 
                under section 1011, at the time that the vessel becomes 
                a qualified United States flag vessel.
    ``(d) Basis Reduction.--
            ``(1) In general.--For purposes of this title, the basis of 
        any property shall be reduced by the portion of the cost of 
        such property taken into account under subsection (a).
            ``(2) Ordinary income recapture.--For purposes of section 
        1245, the amount of the deduction allowable under subsection 
        (a) with respect to any property which is of a character 
        subject to the allowance for depreciation shall be treated as a 
        deduction allowed for depreciation under section 167.''
    (b) Conforming Amendments.--
            (1) Paragraph (1) of section 263(a) of such Code is amended 
        by striking ``or'' at the end of subparagraph (G), by striking 
        the period at the end of subparagraph (H) and inserting ``; 
        or'', and by adding at the end the following new subparagraph:
                    ``(I) expenditures for which a deduction is allowed 
                under section 179B.''.
            (2) Subparagraph (B) of section 312(k)(3) of such Code is 
        amended by striking ``or 179A'' each place it appears and 
        inserting ``, 179A, or 179B''.
            (3) Subparagraph (C) of section 1245(a)(2) of such Code is 
        amended by inserting ``179B,'' after ``179A,''.
            (4) The table of sections for part VI of subchapter B of 
        chapter 1 of such Code is amended by inserting after the item 
        relating to section 179A the following new item:

                              ``Sec. 179B. Deduction for United States 
                                        flag vessels.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.

            TITLE III--INCOME EXCLUSION FOR MERCHANT SEAMEN

SEC. 301. INCOME OF MERCHANT SEAMAN EXCLUDABLE FROM GROSS INCOME AS 
              FOREIGN EARNED INCOME.

    (a) Section 911 Exclusion.--Section 911(d) of the Internal Revenue 
Code of 1986 (relating to citizens or residents of the United States 
living abroad) is amended by redesignating paragraph (9) as paragraph 
(10) and by inserting after paragraph (8) the following:
            ``(9) Application to certain merchant marine crews.--In 
        applying this section to an individual who is a citizen or 
        resident of the United States and who is employed for a minimum 
        of 90 days during a taxable year as a regular member of the 
        crew of a vessel or vessels owned, operated, or chartered by a 
        United States citizen--
                    ``(A) the individual shall be treated as a 
                qualified individual without regard to the requirements 
                of paragraph (1); and
                    ``(B) any earned income attributable to services 
                performed by that individual so employed on such a 
                vessel while it is engaged in transportation between 
                the United States and a foreign country or possession 
                of the United States shall be treated (except as 
                provided by subsection (b)(1)(B)) as foreign earned 
                income regardless of where payments of such income are 
                made.''
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years ending after the date of the enactment of this Act.

            TITLE IV--EXEMPTION FROM ALTERNATIVE MINIMUM TAX

SEC. 401. EXEMPTION FROM ALTERNATIVE MINIMUM TAX FOR CORPORATIONS THAT 
              OPERATE UNITED STATES FLAG VESSELS.

    (a) In General.--Section 55 of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new subsection:
    ``(f) Exemption for Corporations That Operate United States Flag 
Vessels.--
            ``(1) In General.--The tentative minimum tax of a 
        corporation shall be zero for any taxable year in which the 
        corporation is a qualified corporation.
            ``(2) Definitions.--For purposes of this subsection--
                    ``(A) Qualified corporation.--The term `qualified 
                corporation' means any domestic corporation if--
                            ``(i) substantially all of the assets of 
                        such corporation are related to the maritime 
                        transportation business, and
                            ``(ii) such corporation owns or demise 
                        charters a fleet of 4 or more qualified United 
                        States flag vessels.
                    ``(B) Qualified united states flag vessel.--The 
                term `qualified United States flag vessel' means a 
                United States flag vessel having a deadweight tonnage 
                of not less than 10,000 deadweight tons that is 
                operated exclusively in the foreign trade of the United 
                States during each of the 360 days immediately 
                preceding the last day of the taxable year. Days during 
                which the vessel is drydocked, surveyed, inspected, or 
                repaired shall be considered days of operation for 
                purposes of this subsection.
                    ``(C) Foreign trade.--The term `foreign trade' has 
                the meaning given to such term by section 7518(i)(2).''
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years ending after the date of the enactment of this Act.

        TITLE V--CONVENTIONS ON UNITED STATES-FLAG CRUISE SHIPS

SEC. 501. CONVENTIONS ON UNITED STATES-FLAG CRUISE SHIPS.

    (a) In General.--Section 274(h)(2) of the Internal Revenue Code of 
1986 (relating to conventions on cruise ships) is amended by striking 
``that--'' and all that follows through ``possessions of the United 
States.'' and inserting ``that the cruise ship is a vessel registered 
in the United States.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years ending after the date of the enactment of this 
Act.