Capital Construction Fund Penalty Relief Act

Summary: Capital Construction Fund Penalty Relief Act - Permits any person who entered into a capital construction fund agreement (an agreement to provide replacement vessels, additional vessels, or reconstructed vessels) with respect to certain vessels operated in the fisheries of the United States to make an election to terminate the capital construction fund established under such agreement. Amends the Internal Revenue Code to prescribe requirements regarding the effect of such an election, including the distribution and taxation of such funds, on individuals and entities.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Capital Construction Fund Penalty 
Relief Act''.

SEC. 2. ELECTION TO TERMINATE CERTAIN CAPITAL CONSTRUCTION FUNDS.

    (a) Amendments to Chapter 535 of Title 46, United States Code.--
            (1) In general.--Chapter 535 of title 46, United States 
        Code, is amended by adding at the end the following new 
        section:
``Sec. 53518. Election to terminate
    ``(a) In General.--
            ``(1) Election.--Any person who has entered into an 
        agreement under this chapter with respect to a vessel operated 
        in the fisheries of the United States may make an election 
        under this paragraph to terminate the capital construction fund 
        established under such agreement.
            ``(2) Effect of election on individuals.--In the case of an 
        individual who makes an election under paragraph (1) with 
        respect to a capital construction fund--
                    ``(A) any amount remaining in such capital 
                construction fund on the date of such election shall be 
                distributed to such individual as a nonqualified 
                withdrawal, except that--
                            ``(i) in computing the tax on such 
                        withdrawal, except as provided in paragraph 
                        (4), subsections (c)(3)(B) and (f) of section 
                        53511 shall not apply; and
                            ``(ii) the taxpayer may elect to average 
                        the income from such withdrawal as provided in 
                        subsection (b); and
                    ``(B) such individual shall not be eligible to 
                enter into, directly or indirectly, any future 
                agreement to establish a capital construction fund 
                under this chapter with respect to a vessel operated in 
                the fisheries of the United States.
            ``(3) Effect of election for entities.--
                    ``(A) In general.--In the case of a person (other 
                than an individual) who makes an election under 
                paragraph (1)--
                            ``(i) the total amount in the capital 
                        construction fund on the date of such election 
                        shall be distributed to the shareholders, 
                        partners, or members of such person in 
                        accordance with the terms of the instruments 
                        setting forth the ownership interests of such 
                        shareholders, partners, or members;
                            ``(ii) each shareholder, partner, or member 
                        shall be treated as having established a 
                        special temporary capital construction fund and 
                        having deposited amounts received in the 
                        distribution into such special temporary 
                        capital construction fund;
                            ``(iii) no gain or loss shall be recognized 
                        with respect to such distribution;
                            ``(iv) the basis of any shareholder, 
                        partner, or member in the person shall not be 
                        reduced as a result of such distribution;
                            ``(v) any amounts not distributed pursuant 
                        to clause (i) shall be distributed in a 
                        nonqualified withdrawal; and
                            ``(vi) such person shall not be eligible to 
                        enter into, directly or indirectly, any future 
                        agreement to establish a capital construction 
                        fund under this chapter with respect to a 
                        vessel operated in the fisheries of the United 
                        States.
                    ``(B) Special temporary capital construction 
                funds.--For purposes of this chapter, a special 
                temporary capital construction fund shall be treated in 
                the same manner as a capital construction fund 
                established under section 53503, except that the 
                following rules shall apply:
                            ``(i) A special temporary capital 
                        construction fund shall be established without 
                        regard to any agreement under section 53503 and 
                        without regard to any eligible or qualified 
                        vessel.
                            ``(ii) Section 53505 shall not apply and no 
                        amounts may be deposited into a special 
                        temporary capital construction fund other than 
                        amounts received pursuant to a distribution 
                        described in subparagraph (A)(i).
                            ``(iii) In the case of any amounts 
                        distributed from a special temporary capital 
                        construction fund directly to a capital 
                        construction fund of the taxpayer established 
                        under section 53505--
                                    ``(I) no gain or loss shall be 
                                recognized;
                                    ``(II) the limitation under section 
                                53505 shall not apply with respect to 
                                any amount so transferred;
                                    ``(III) such amounts shall not 
                                reduce taxable income under section 
                                53507(a)(1); and
                                    ``(IV) for purposes of section 
                                53511(e), such amounts shall be treated 
                                as deposited in the capital 
                                construction fund on the date that such 
                                funds were deposited in the capital 
                                construction fund with respect to which 
                                the election under paragraph (1) was 
                                made.
                            ``(iv) In the case of any amounts 
                        distributed from a special temporary capital 
                        construction fund pursuant to an election under 
                        paragraph (1), clauses (i) and (ii) of 
                        paragraph (2)(A) shall not apply to so much of 
                        such amounts as are attributable to earnings 
                        accrued after the date of the establishment of 
                        such special temporary capital construction 
                        fund.
                            ``(v) Any amount not distributed from a 
                        special temporary capital construction fund 
                        before the due date of the tax return 
                        (including extension) for the last taxable year 
                        of the individual ending before January 1, 
                        2019, shall be treated as distributed to the 
                        taxpayer on the day before such due date as if 
                        an election under paragraph (1) were made by 
                        the taxpayer on such day.
                    ``(C) Regulations.--The joint regulations shall 
                provide rules for--
                            ``(i) assigning the amounts received by the 
                        shareholders, partners, or members in a 
                        distribution described in subparagraph (A)(i) 
                        to the accounts described in section 53508(a) 
                        in special temporary capital construction 
                        funds; and
                            ``(ii) preventing the abuse of the purposes 
                        of this section.
            ``(4) Tax benefit rule.--Rules similar to the rules under 
        section 53511(f)(3) shall apply for purposes of determining tax 
        liability on any nonqualified withdrawal under paragraph 
        (2)(A), (3)(A)(v), or (3)(B)(v).
            ``(5) Election.--Any election under paragraph (1)--
                    ``(A) may only be made--
                            ``(i) by a person who maintains a capital 
                        construction fund with respect to a vessel 
                        operated in the fisheries of the United States 
                        on the date of the enactment of this section; 
                        or
                            ``(ii) by a person who maintains a capital 
                        construction fund which was established 
                        pursuant to paragraph (3)(A)(ii) as a result of 
                        an election made by an entity in which such 
                        person was a shareholder, partner, or member;
                    ``(B) shall be made not later than the due date of 
                the tax return (including extensions) for the person's 
                last taxable year ending on or before December 31, 
                2018; and
                    ``(C) shall apply to all amounts in the capital 
                construction fund with respect to which the election is 
                made.
    ``(b) Election to Average Income.--At the election of an individual 
who has received a distribution described in subsection (a), for 
purposes of section 1301 of the Internal Revenue Code of 1986--
            ``(1) such individual shall be treated as engaged in a 
        fishing business, and
            ``(2) such distribution shall be treated as income 
        attributable to a fishing business for such taxable year.''.
            (2) Conforming amendments.--
                    (A) Section 53511 of title 46, United States Code, 
                is amended by striking ``section 53513'' and inserting 
                ``sections 53513 and 53518''.
                    (B) The table of sections for chapter 535 of title 
                46, United States Code, is amended by inserting after 
                the item relating to section 53517 the following new 
                item:

``53518. Election to terminate.''.
    (b) Amendments to the Internal Revenue Code of 1986.--
            (1) In general.--Section 7518 of the Internal Revenue Code 
        of 1986 is amended by adding at the end the following new 
        subsection:
    ``(j) Election To Terminate Capital Construction Funds.--
            ``(1) In general.--Any person who has entered into an 
        agreement under chapter 535 of title 46 of the United States 
        Code, with respect to a vessel operated in the fisheries of the 
        United States may make an election under this paragraph to 
        terminate the capital construction fund established under such 
        agreement.
            ``(2) Effect of election on individuals.--In the case of an 
        individual who makes an election under paragraph (1) with 
        respect to a capital construction fund, any amount remaining in 
        such capital construction fund on the date of such election 
        shall be distributed to such individual as a nonqualified 
        withdrawal, except that--
                    ``(A) in computing the tax on such withdrawal, 
                except as provided in paragraph (4), paragraphs 
                (3)(C)(ii) and (6) of subsection (g) shall not apply, 
                and
                    ``(B) the taxpayer may elect to average the income 
                from such withdrawal as provided in paragraph (6).
            ``(3) Effect of election for entities.--
                    ``(A) In general.--In the case of a person (other 
                than an individual) who makes an election under 
                paragraph (1)--
                            ``(i) the total amount in the capital 
                        construction fund on the date of such election 
                        shall be distributed to the shareholders, 
                        partners, or members of such person in 
                        accordance with the terms of the instruments 
                        setting forth the ownership interests of such 
                        shareholders, partners, or members,
                            ``(ii) each shareholder, partner, or member 
                        shall be treated as having established a 
                        special temporary capital construction fund and 
                        having deposited amounts received in the 
                        distribution into such special temporary 
                        capital construction fund,
                            ``(iii) no gain or loss shall be recognized 
                        with respect to such distribution,
                            ``(iv) the basis of any shareholder, 
                        partner, or member in the person shall not be 
                        reduced as a result of such distribution, and
                            ``(v) any amounts not distributed pursuant 
                        to clause (i) shall be distributed as a 
                        nonqualified withdrawal.
                    ``(B) Special temporary capital construction 
                funds.--For purposes of this section, a special 
                temporary capital construction fund shall be treated in 
                the same manner as a capital construction fund 
                established under section 53503 of title 46, United 
                States Code, except that the following rules shall 
                apply:
                            ``(i) Subsection (a) shall not apply and no 
                        amounts may be deposited into a special 
                        temporary capital construction fund other than 
                        amounts received pursuant to a distribution 
                        described in subparagraph (A)(i).
                            ``(ii) In the case of any amounts 
                        distributed from a special temporary capital 
                        construction fund directly to a capital 
                        construction fund of the taxpayer established 
                        under section 53505 of title 46, United States 
                        Code--
                                    ``(I) no gain or loss shall be 
                                recognized;
                                    ``(II) the limitation under 
                                subsection (a) shall not apply with 
                                respect to any amount so transferred;
                                    ``(III) such amounts shall not 
                                reduce taxable income under subsection 
                                (c)(1)(A); and
                                    ``(IV) for purposes of subsection 
                                (g)(5), such amounts shall be treated 
                                as deposited in the capital 
                                construction fund on the date that such 
                                funds were deposited in the capital 
                                construction fund with respect to which 
                                the election under paragraph (1) was 
                                made.
                            ``(iii) In the case of any amounts 
                        distributed from a special temporary capital 
                        construction fund pursuant to an election under 
                        paragraph (1), subparagraphs (A) and (B) of 
                        paragraph (2) shall not apply to so much of 
                        such amounts as are attributable to earnings 
                        accrued after the date of the establishment of 
                        such special temporary capital construction 
                        fund.
                            ``(iv) Any amount not distributed from a 
                        special temporary capital construction fund 
                        before the due date of the tax return 
                        (including extension) for the last taxable year 
                        of the individual ending before January 1, 
                        2019, shall be treated as distributed to the 
                        taxpayer on the day before such due date as if 
                        an election under paragraph (1) were made by 
                        the taxpayer on such day.
                    ``(C) Regulations.--The joint regulations shall 
                provide rules for--
                            ``(i) assigning the amounts received by the 
                        shareholders, partners, or members in a 
                        distribution described in subparagraph (A)(i) 
                        to the accounts described in subsection (d)(1) 
                        in special temporary capital construction 
                        funds; and
                            ``(ii) preventing the abuse of the purposes 
                        of this section.
            ``(4) Tax benefit rule.--Rules similar to the rules under 
        subsection (g)(6)(B) shall apply for purposes of determining 
        tax liability on any nonqualified withdrawal under paragraph 
        (2), (3)(A)(v), or (3)(B)(iv).
            ``(5) Election.--Any election under paragraph (1)--
                    ``(A) may only be made--
                            ``(i) by a person who maintains a capital 
                        construction fund with respect to a vessel 
                        operated in the fisheries of the United States 
                        on the date of the enactment of this 
                        subsection, or
                            ``(ii) by a person who maintains a capital 
                        construction fund which was established 
                        pursuant to subparagraph (3)(A)(ii) as a result 
                        of an election made by an entity in which such 
                        person was a shareholder, partner, or member,
                    ``(B) shall be made not later than the due date of 
                the tax return (including extensions) for the person's 
                last taxable year ending on or before December 31, 
                2018, and
                    ``(C) shall apply to all amounts in the capital 
                construction fund with respect to which the election is 
                made.
            ``(6) Election to average income.--At the election of an 
        individual who has received a distribution described in 
        paragraph (2), for purposes of section 1301--
                    ``(A) such individual shall be treated as engaged 
                in a fishing business, and
                    ``(B) such distribution shall be treated as income 
                attributable to a fishing business for such taxable 
                year.''.
            (2) Conforming amendment.--Section 7518(g)(1) of such Code 
        is amended by striking ``subsection (h)'' and inserting 
        ``subsections (h) and (j)''.