II 

113TH CONGRESS 

1ST SESSION S. 551 

To provide an election to terminate certain capital construction funds without 

penalties. 

IN THE SENATE OF THE UNITED STATES 

MARCH 13, 2013 

Mr. WYDEN (for himself, Ms. MURKOWSKI, Mr. BEGICH, Ms. CANTWELL, 

Mrs. MURRAY, and Mr. MERKLEY) introduced the following bill; which 

was read twice and referred to the Committee on Finance 

A BILL 

To provide an election to terminate certain capital 

construction funds without penalties. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Capital Construction 

5 Fund Penalty Relief Act’’. 

6 SEC. 2. ELECTION TO TERMINATE CERTAIN CAPITAL CON7 STRUCTION FUNDS. 

8 (a) AMENDMENTS TO CHAPTER 535 OF TITLE 46, 

9 UNITED STATES CODE.— 


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1 (1) IN GENERAL.—Chapter 535 of title 46, 

2 United States Code, is amended by adding at the 

3 end the following new section: 

4 ‘‘§ 53518. Election to terminate 

5 ‘‘(a) IN GENERAL.— 

6 ‘‘(1) ELECTION.—Any person who has entered 

7 into an agreement under this chapter with respect to 

8 a vessel operated in the fisheries of the United 

9 States may make an election under this paragraph 

10 to terminate the capital construction fund estab11 lished under such agreement. 

12 ‘‘(2) EFFECT OF ELECTION ON INDIVIDUALS.— 

13 In the case of an individual who makes an election 

14 under paragraph (1) with respect to a capital con15 struction fund— 

16 ‘‘(A) any amount remaining in such capital 

17 construction fund on the date of such election 

18 shall be distributed to such individual as a non19 qualified withdrawal, except that— 

20 ‘‘(i) in computing the tax on such 

21 withdrawal, except as provided in para22 graph (4), subsections (c)(3)(B) and (f) of 

23 section 53511 shall not apply; and 


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1 ‘‘(ii) the taxpayer may elect to aver2 age the income from such withdrawal as 

3 provided in subsection (b); and 

4 ‘‘(B) such individual shall not be eligible to 

5 enter into, directly or indirectly, any future 

6 agreement to establish a capital construction 

7 fund under this chapter with respect to a vessel 

8 operated in the fisheries of the United States. 

9 ‘‘(3) EFFECT OF ELECTION FOR ENTITIES.— 

10 ‘‘(A) IN GENERAL.—In the case of a per11 son (other than an individual) who makes an 

12 election under paragraph (1)— 

13 ‘‘(i) the total amount in the capital 

14 construction fund on the date of such elec15 tion shall be distributed to the share16 holders, partners, or members of such per17 son in accordance with the terms of the in18 struments setting forth the ownership in19 terests of such shareholders, partners, or 

20 members; 

21 ‘‘(ii) each shareholder, partner, or 

22 member shall be treated as having estab23 lished a special temporary capital construc24 tion fund and having deposited amounts 


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1 received in the distribution into such spe2 cial temporary capital construction fund; 

3 ‘‘(iii) no gain or loss shall be recog4 nized with respect to such distribution; 

5 ‘‘(iv) the basis of any shareholder, 

6 partner, or member in the person shall not 

7 be reduced as a result of such distribution; 

8 ‘‘(v) any amounts not distributed pur9 suant to clause (i) shall be distributed in 

10 a nonqualified withdrawal; and 

11 ‘‘(vi) such person shall not be eligible 

12 to enter into, directly or indirectly, any fu13 ture agreement to establish a capital con14 struction fund under this chapter with re15 spect to a vessel operated in the fisheries 

16 of the United States. 

17 ‘‘(B) SPECIAL TEMPORARY CAPITAL CON18 STRUCTION FUNDS.—For purposes of this chap19 ter, a special temporary capital construction 

20 fund shall be treated in the same manner as a 

21 capital construction fund established under sec22 tion 53503, except that the following rules shall 

23 apply: 

24 ‘‘(i) A special temporary capital con25 struction fund shall be established without 


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1 regard to any agreement under section 

2 53503 and without regard to any eligible 

3 or qualified vessel. 

4 ‘‘(ii) Section 53505 shall not apply 

5 and no amounts may be deposited into a 

6 special temporary capital construction fund 

7 other than amounts received pursuant to a 

8 distribution described in subparagraph 

9 (A)(i). 

10 ‘‘(iii) In the case of any amounts dis11 tributed from a special temporary capital 

12 construction fund directly to a capital con13 struction fund of the taxpayer established 

14 under section 53505— 

15 ‘‘(I) no gain or loss shall be rec16 ognized; 

17 ‘‘(II) the limitation under section 

18 53505 shall not apply with respect to 

19 any amount so transferred; 

20 ‘‘(III) such amounts shall not re21 duce taxable income under section 

22 53507(a)(1); and 

23 ‘‘(IV) for purposes of section 

24 53511(e), such amounts shall be 

25 treated as deposited in the capital 


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1 construction fund on the date that 

2 such funds were deposited in the cap3 ital construction fund with respect to 

4 which the election under paragraph 

5 (1) was made. 

6 ‘‘(iv) In the case of any amounts dis7 tributed from a special temporary capital 

8 construction fund pursuant to an election 

9 under paragraph (1), clauses (i) and (ii) of 

10 paragraph (2)(A) shall not apply to so 

11 much of such amounts as are attributable 

12 to earnings accrued after the date of the 

13 establishment of such special temporary 

14 capital construction fund. 

15 ‘‘(v) Any amount not distributed from 

16 a special temporary capital construction 

17 fund before the due date of the tax return 

18 (including extension) for the last taxable 

19 year of the individual ending before Janu20 ary 1, 2019, shall be treated as distributed 

21 to the taxpayer on the day before such due 

22 date as if an election under paragraph (1) 

23 were made by the taxpayer on such day. 

24 ‘‘(C) REGULATIONS.—The joint regula25 tions shall provide rules for— 


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1 ‘‘(i) assigning the amounts received by 

2 the shareholders, partners, or members in 

3 a distribution described in subparagraph 

4 (A)(i) to the accounts described in section 

5 53508(a) in special temporary capital con6 struction funds; and 

7 ‘‘(ii) preventing the abuse of the pur8 poses of this section. 

9 ‘‘(4) TAX BENEFIT RULE.—Rules similar to the 

10 rules under section 53511(f)(3) shall apply for pur11 poses of determining tax liability on any nonqualified 

12 withdrawal under paragraph (2)(A), (3)(A)(v), or 

13 (3)(B)(v). 

14 ‘‘(5) ELECTION.—Any election under paragraph 

15 (1)— 

16 ‘‘(A) may only be made— 

17 ‘‘(i) by a person who maintains a cap18 ital construction fund with respect to a 

19 vessel operated in the fisheries of the 

20 United States on the date of the enactment 

21 of this section; or 

22 ‘‘(ii) by a person who maintains a 

23 capital construction fund which was estab24 lished pursuant to paragraph (3)(A)(ii) as 

25 a result of an election made by an entity 


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1 in which such person was a shareholder, 

2 partner, or member; 

3 ‘‘(B) shall be made not later than the due 

4 date of the tax return (including extensions) for 

5 the person’s last taxable year ending on or be6 fore December 31, 2018; and 

7 ‘‘(C) shall apply to all amounts in the cap8 ital construction fund with respect to which the 

9 election is made. 

10 ‘‘(b) ELECTION TO AVERAGE INCOME.—At the elec11 tion of an individual who has received a distribution de12 scribed in subsection (a), for purposes of section 1301 of 

13 the Internal Revenue Code of 1986— 

14 ‘‘(1) such individual shall be treated as engaged 

15 in a fishing business, and 

16 ‘‘(2) such distribution shall be treated as in17 come attributable to a fishing business for such tax18 able year.’’. 

19 (2) CONFORMING AMENDMENTS.— 

20 (A) Section 53511 of title 46, United 

21 States Code, is amended by striking ‘‘section 

22 53513’’ and inserting ‘‘sections 53513 and 

23 53518’’. 

24 (B) The table of sections for chapter 535 

25 of title 46, United States Code, is amended by 


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1 inserting after the item relating to section 

2 53517 the following new item: 

‘‘53518. Election to terminate.’’. 

3 (b) AMENDMENTS TO THE INTERNAL REVENUE

4 CODE OF 1986.— 

5 (1) IN GENERAL.—Section 7518 of the Internal 

6 Revenue Code of 1986 is amended by adding at the 

7 end the following new subsection: 

8 ‘‘(j) ELECTION TO TERMINATE CAPITAL CONSTRUC9 TION FUNDS.— 

10 ‘‘(1) IN GENERAL.—Any person who has en11 tered into an agreement under chapter 535 of title 

12 46 of the United States Code, with respect to a ves13 sel operated in the fisheries of the United States 

14 may make an election under this paragraph to ter15 minate the capital construction fund established 

16 under such agreement. 

17 ‘‘(2) EFFECT OF ELECTION ON INDIVIDUALS.— 

18 In the case of an individual who makes an election 

19 under paragraph (1) with respect to a capital con20 struction fund, any amount remaining in such cap21 ital construction fund on the date of such election 

22 shall be distributed to such individual as a non23 qualified withdrawal, except that— 

24 ‘‘(A) in computing the tax on such with25 drawal, except as provided in paragraph (4), 


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1 paragraphs (3)(C)(ii) and (6) of subsection (g) 

2 shall not apply, and 

3 ‘‘(B) the taxpayer may elect to average the 

4 income from such withdrawal as provided in 

5 paragraph (6). 

6 ‘‘(3) EFFECT OF ELECTION FOR ENTITIES.— 

7 ‘‘(A) IN GENERAL.—In the case of a per8 son (other than an individual) who makes an 

9 election under paragraph (1)— 

10 ‘‘(i) the total amount in the capital 

11 construction fund on the date of such elec12 tion shall be distributed to the share13 holders, partners, or members of such per14 son in accordance with the terms of the in15 struments setting forth the ownership in16 terests of such shareholders, partners, or 

17 members, 

18 ‘‘(ii) each shareholder, partner, or 

19 member shall be treated as having estab20 lished a special temporary capital construc21 tion fund and having deposited amounts 

22 received in the distribution into such spe23 cial temporary capital construction fund, 

24 ‘‘(iii) no gain or loss shall be recog25 nized with respect to such distribution, 


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1 ‘‘(iv) the basis of any shareholder, 

2 partner, or member in the person shall not 

3 be reduced as a result of such distribution, 

4 and 

5 ‘‘(v) any amounts not distributed pur6 suant to clause (i) shall be distributed as 

7 a nonqualified withdrawal. 

8 ‘‘(B) SPECIAL TEMPORARY CAPITAL CON9 STRUCTION FUNDS.—For purposes of this sec10 tion, a special temporary capital construction 

11 fund shall be treated in the same manner as a 

12 capital construction fund established under sec13 tion 53503 of title 46, United States Code, ex14 cept that the following rules shall apply: 

15 ‘‘(i) Subsection (a) shall not apply 

16 and no amounts may be deposited into a 

17 special temporary capital construction fund 

18 other than amounts received pursuant to a 

19 distribution described in subparagraph 

20 (A)(i). 

21 ‘‘(ii) In the case of any amounts dis22 tributed from a special temporary capital 

23 construction fund directly to a capital con24 struction fund of the taxpayer established 


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1 under section 53505 of title 46, United 

2 States Code— 

3 ‘‘(I) no gain or loss shall be rec4 ognized; 

5 ‘‘(II) the limitation under sub6 section (a) shall not apply with re7 spect to any amount so transferred; 

8 ‘‘(III) such amounts shall not re9 duce taxable income under subsection 

10 (c)(1)(A); and 

11 ‘‘(IV) for purposes of subsection 

12 (g)(5), such amounts shall be treated 

13 as deposited in the capital construc14 tion fund on the date that such funds 

15 were deposited in the capital construc16 tion fund with respect to which the 

17 election under paragraph (1) was 

18 made. 

19 ‘‘(iii) In the case of any amounts dis20 tributed from a special temporary capital 

21 construction fund pursuant to an election 

22 under paragraph (1), subparagraphs (A) 

23 and (B) of paragraph (2) shall not apply 

24 to so much of such amounts as are attrib25 utable to earnings accrued after the date 


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1 of the establishment of such special tem2 porary capital construction fund. 

3 ‘‘(iv) Any amount not distributed 

4 from a special temporary capital construc5 tion fund before the due date of the tax re6 turn (including extension) for the last tax7 able year of the individual ending before 

8 January 1, 2019, shall be treated as dis9 tributed to the taxpayer on the day before 

10 such due date as if an election under para11 graph (1) were made by the taxpayer on 

12 such day. 

13 ‘‘(C) REGULATIONS.—The joint regula14 tions shall provide rules for— 

15 ‘‘(i) assigning the amounts received by 

16 the shareholders, partners, or members in 

17 a distribution described in subparagraph 

18 (A)(i) to the accounts described in sub19 section (d)(1) in special temporary capital 

20 construction funds; and 

21 ‘‘(ii) preventing the abuse of the pur22 poses of this section. 

23 ‘‘(4) TAX BENEFIT RULE.—Rules similar to the 

24 rules under subsection (g)(6)(B) shall apply for pur25 poses of determining tax liability on any nonqualified 


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1 withdrawal under paragraph (2), (3)(A)(v), or 

2 (3)(B)(iv). 

3 ‘‘(5) ELECTION.—Any election under paragraph 

4 (1)— 

5 ‘‘(A) may only be made— 

6 ‘‘(i) by a person who maintains a cap7 ital construction fund with respect to a 

8 vessel operated in the fisheries of the 

9 United States on the date of the enactment 

10 of this subsection, or 

11 ‘‘(ii) by a person who maintains a 

12 capital construction fund which was estab13 lished pursuant to subparagraph (3)(A)(ii) 

14 as a result of an election made by an enti15 ty in which such person was a shareholder, 

16 partner, or member, 

17 ‘‘(B) shall be made not later than the due 

18 date of the tax return (including extensions) for 

19 the person’s last taxable year ending on or be20 fore December 31, 2018, and 

21 ‘‘(C) shall apply to all amounts in the cap22 ital construction fund with respect to which the 

23 election is made. 

24 ‘‘(6) ELECTION TO AVERAGE INCOME.—At the 

25 election of an individual who has received a distribuVerDate Mar 14 2013 02:58 Mar 20, 2013 Jkt 029200 PO 00000 Frm 00014 Fmt 6652 Sfmt 6201 E:\BILLS\S551.IS S551

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1 tion described in paragraph (2), for purposes of sec2 tion 1301— 

3 ‘‘(A) such individual shall be treated as en4 gaged in a fishing business, and 

5 ‘‘(B) such distribution shall be treated as 

6 income attributable to a fishing business for 

7 such taxable year.’’. 

8 (2) CONFORMING AMENDMENT.—Section 

9 7518(g)(1) of such Code is amended by striking 

10 ‘‘subsection (h)’’ and inserting ‘‘subsections (h) and 

11 (j)’’. 

Æ 


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