II

106TH CONGRESS

1ST SESSION S. 1858

To revitalize the international competitiveness of the United States-flag

maritime industry through tax relief.

IN THE SENATE OF THE UNITED STATES

NOVEMBER 4, 1999

Mr. BREAUX introduced the following bill; which was read twice and referred

to the Committee on Finance

A BILL

To revitalize the international competitiveness of the United

States-flag maritime industry through tax relief.

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 ‘‘National Security Sea5 lift Enhancement Act of 1999’’.

6 SEC. 2. TABLE OF CONTENTS.

7 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.
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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.

1 TITLE I—CAPITAL

2 CONSTRUCTION FUND

3 SEC. 101. AMENDMENTS OF INTERNAL REVENUE CODE OF

4 1986.

5 (a) TREATMENT OF CERTAIN LEASE PAYMENTS.—

6 (1) Paragraph (1) of section 7518(e) of the In7 ternal Revenue Code of 1986 is amended by striking

8 ‘‘or’’ at the end of subparagraph (B), by striking the

9 period at the end of subparagraph (C) and inserting

10 ‘‘, or’’, and by inserting after subparagraph (C) the

11 following new subparagraph:

12 ‘‘(D) the payments of amounts which re13 duce the principal amount (as determined under

14 regulations) of a qualified lease of a qualified

15 vessel or container which is part of the com16 plement of an eligible vessel.’’.
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1 (2) Paragraph (4) of section 7518(f) of such

2 Code is amended by inserting ‘‘or to reduce the prin3 cipal amount of any qualified lease’’ after ‘‘indebted4 ness’’.

5 (b) AUTHORITY TO MAKE DEPOSITS UNDER THE

6 TARIFF ACT OF 1930.—

7 (1) Paragraph (1) of section 7518(a) of such

8 Code is amended by striking ‘‘and’’ at the end of

9 subparagraph (C), by striking the period at the end

10 of subparagraph (D) and inserting ‘‘, and’’, and by

11 adding at the end the following new subparagraph:

12 ‘‘(E) the amount elected for deposit under

13 subsection (i) of section 466 of the Tariff Act

14 of 1930 (19 U.S.C. 1466).’’.

15 (2) Subparagraph (A) of section 7518(d)(2) of

16 such Code is amended to read as follows:

17 ‘‘(A) amounts referred to in subsections

18 (a)(1)(B) and (E).’’.

19 (c) AUTHORITY TO MAKE DEPOSITS FOR PRIOR

20 YEARS BASED ON AUDIT ADJUSTMENTS.—Subsection (a)

21 of section 7518 of such Code is amended by adding at

22 the end thereof the following new paragraph:

23 ‘‘(4) DEPOSITS FOR PRIOR YEARS.—To the ex24 tent permitted by joint regulations, deposits may be

25 made in excess of the limitation described in para-
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1 graph (1) (and any limitation specified in the agree2 ment) for the taxable year if, by reason of a change

3 in taxable income for a prior taxable year that has

4 become final pursuant to a closing agreement or

5 other similar agreement entered into during the tax6 able year, the amount of the deposit could have been

7 made for such prior taxable year.’’.

8 (d) TREATMENT OF CAPITAL GAINS AND LOSSES.—

9 (1) Paragraph (3) of section 7518(d) of such

10 Code is amended to read as follows:

11 ‘‘(3) CAPITAL GAIN ACCOUNT.—The capital

12 gain account shall consist of—

13 ‘‘(A) amounts representing long-term cap14 ital gains (as defined in section 1222) on assets

15 held in the fund, reduced by

16 ‘‘(B) amounts representing long-term cap17 ital losses (as defined in such section) on assets

18 held in the fund.’’.

19 (2) Subparagraph (B) of section 7518(d)(4) of

20 such Code is amended to read as follows:

21 ‘‘(B)(i) amounts representing short-term

22 capital gains (as defined in section 1222) on as23 sets held in the fund, reduced by
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1 ‘‘(ii) amounts representing short-term cap2 ital losses (as defined in such section) on assets

3 held in the fund,’’.

4 (3) Subparagraph (B) of section 7518(g)(3) of

5 such Code is amended by striking ‘‘gain’’ and all

6 that follows and inserting ‘‘long-term capital gain

7 (as defined in section 1222), and’’.

8 (4) The last sentence of subparagraph (A) of

9 section 7518(g)(6) of such Code is amended by

10 striking ‘‘20 percent (34 percent in the case of a

11 corporation)’’ and inserting ‘‘the rate applicable to

12 net capital gain under such section 1(h)(1)(C) or

13 1201(a), as the case may be’’.

14 (e) COMPUTATION OF INTEREST WITH RESPECT TO

15 NONQUALIFIED WITHDRAWALS.—

16 (1) Subparagraph (C) of section 7518(g)(3) of

17 such Code is amended—

18 (A) by striking clause (i) and inserting the

19 following new clause:

20 ‘‘(i) no addition to the tax shall be

21 payable under section 6651, and’’, and

22 (B) by striking ‘‘paid at the applicable rate

23 (as defined in paragraph (4))’’ in clause (ii) and

24 inserting ‘‘paid in accordance with section

25 6601’’.
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1 (2) Subsection (g) of section 7518 of such Code

2 is amended by striking paragraph (4) and by redes3 ignating paragraphs (5) and (6) as paragraphs (4)

4 and (5), respectively.

5 (3) Subparagraph (A) of section 7518(g)(5) of

6 such Code, as redesignated by paragraph (2), is

7 amended by striking ‘‘paragraph (5)’’ and inserting

8 ‘‘paragraph (4)’’.

9 (f) OTHER CHANGES.—

10 (1) Paragraph (2) of section 7518(b) of such

11 Code is amended by striking ‘‘interest-bearing secu12 rities approved by the Secretary’’ and inserting ‘‘in13 terest-bearing securities and other income-producing

14 assets (including accounts receivable) approved by

15 the Secretary’’.

16 (2) The last sentence of paragraph (1) of sec17 tion 7518(e) of such Code is amended by striking

18 ‘‘and containers’’ each place it appears.

19 (3) Subparagraph (B) of section 543(a)(1) of

20 such Code is amended to read as follows:

21 ‘‘(B) interest on amounts set aside in a

22 capital construction fund under section 607 of

23 the Merchant Marine Act, 1936 (46 App.

24 U.S.C. 1177), or in a construction reserve fund
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1 under section 511 of such Act (46 App. U.S.C.

2 1161),’’.

3 (4) Subsection (c) of section 56 of such Code

4 is amended by striking paragraph (2) and by redes5 ignating paragraph (3) as paragraph (2).

6 (5) Section 7518(e) is amended by adding at

7 the end the following new paragraph:

8 ‘‘(3) QUALIFIED WITHDRAWAL.—In the case of

9 amounts in any fund as of the date of the enactment

10 of this paragraph, and any earnings thereon, for

11 purposes of this subsection, the term ‘qualified with12 drawal’ has the meaning given such term by apply13 ing subsection (i)(2) as of such date.’’

14 (g) DEFINITIONS.—Subsection (i) of section 7518 of

15 such Code is amended to read as follows:

16 ‘‘(i) DEFINITIONS.—

17 ‘‘(1) IN GENERAL.—Except as provided in para18 graph (2), terms used in this section shall have the

19 same meaning as in section 607(k) of the Merchant

20 Marine Act, 1936.

21 ‘‘(2) OTHER DEFINITIONS.—For the purposes

22 of this section—

23 ‘‘(A) The term ‘eligible vessel’ means any

24 vessel—
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1 ‘‘(i) documented under the laws of the

2 United States, and

3 ‘‘(ii) operated in the foreign or domes4 tic commerce of the United States or in

5 the fisheries of the United States.

6 ‘‘(B) QUALIFIED VESSEL.—The term

7 ‘qualified vessel’ means any vessel—

8 ‘‘(i) constructed in the United States

9 and, if reconstructed, reconstructed in the

10 United States,

11 ‘‘(ii) documented under the laws of

12 the United States, and

13 ‘‘(iii) which the person maintaining

14 the fund agrees with the Secretary will be

15 operated in the fisheries of the United

16 States, or in the United States foreign,

17 Great Lakes, noncontiguous domestic

18 trade, or other oceangoing domestic trade

19 between two coastal points in the United

20 States or in support of operations con21 ducted on the Outer Continental Shelf.

22 ‘‘(C) VESSEL.—The term ‘vessel’ includes

23 containers or trailers intended for use as part

24 of the complement of one or more eligible ves25 sels and cargo handling equipment which the
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1 Secretary determines is intended for use pri2 marily on the vessel. The term ‘vessel’ also in3 cludes an ocean-going towing vessel or an

4 ocean-going barge or comparable towing vessel

5 or barge operated on the Great Lakes.

6 ‘‘(D) FOREIGN COMMERCE.—The terms

7 ‘foreign commerce’ and ‘foreign trade’ have the

8 meanings given such terms in section 905 of

9 the Merchant Marine Act, 1936, except that

10 these terms shall include commerce or trade be11 tween foreign ports.

12 ‘‘(E) QUALIFIED LEASE.—The term ‘quali13 fied lease’ means any lease with a term of at

14 least 5 years.’’

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

16 Section 466 of the Tariff Act of 1930 (19 U.S.C.

17 1466) is amended by adding at the end the following new

18 subsection:

19 ‘‘(i) ELECTION TO DEPOSIT DUTY INTO A CAPITAL

20 CONSTRUCTION FUND IN LIEU OF PAYMENT TO THE

21 SECRETARY OF THE TREASURY.—At the election of the

22 owner or master of any vessel referred to in subsection

23 (a) of this section which is an eligible vessel (as defined

24 in section 7518(i)(2) of the Internal Revenue Code of

25 1986), the portion of any duty imposed by subsection (a)
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1 which is deposited in a fund established under section 607

2 of the Merchant Marine Act, 1936 shall be treated as paid

3 to the Secretary of the Treasury in satisfaction of the li4 ability for such duty.’’

5 SEC. 103. EFFECTIVE DATE.

6 (a) IN GENERAL.—Except as otherwise provided in

7 this section, the amendments made by this title shall apply

8 to taxable years ending after the date of the enactment

9 of this Act.

10 (b) CHANGES IN COMPUTATION OF INTEREST.—The

11 amendments made by section 101(e) shall apply to with12 drawals made after December 31, 1998, including for pur13 poses of computing interest on such a withdrawal for peri14 ods on or before such date.

15 (c) QUALIFIED LEASES.—The amendments made by

16 section 101(a) shall apply to leases in effect on, or entered

17 into after, December 31, 1998.

18 (d) AMENDMENT TO THE TARIFF ACT OF 1930.—

19 The amendment made by section 102 shall apply with re20 spect to entries not yet liquidated by December 31, 1998,

21 and to entries made on or after such date.
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1 TITLE II—ELECTION TO EX2 PENSE UNITED STATES FLAG

3 VESSELS

4 SEC. 201. ELECTION TO EXPENSE CERTAIN UNITED STATES

5 FLAG VESSELS.

6 (a) IN GENERAL.—Part VI of subchapter B of chap7 ter 1 of the Internal Revenue Code of 1986 is amended

8 by inserting after section 179A the following new section:

9 ‘‘SEC. 179B. DEDUCTION FOR UNITED STATES FLAG VES10 SELS.

11 ‘‘(a) TREATMENT AS EXPENSES.—A taxpayer may

12 elect to treat the cost of any vessel that is a qualified

13 United States flag vessel as an expense which is not

14 chargeable to its capital account.

15 ‘‘(b) YEAR IN WHICH DEDUCTION ALLOWED.—The

16 deduction under subsection (a) shall be allowed for the

17 taxable year in which the vessel first becomes a qualified

18 United States flag vessel.

19 ‘‘(c) DEFINITIONS.—

20 ‘‘(1) QUALIFIED UNITED STATES FLAG VES21 SEL.—For purposes of this section, the term ‘quali22 fied United States flag vessel’ means a United

23 States flag vessel that is operated exclusively in the

24 foreign trade of the United States.
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1 ‘‘(2) COST.—For purposes of this section, the

2 term ‘cost’ means an amount equal to the lesser

3 of—

4 ‘‘(A) the purchase price of the vessel, or

5 ‘‘(B) the adjusted basis of the vessel, de6 termined under section 1011, at the time that

7 the vessel becomes a qualified United States

8 flag vessel.

9 ‘‘(d) BASIS REDUCTION.—

10 ‘‘(1) IN GENERAL.—For purposes of this title,

11 the basis of any property shall be reduced by the

12 portion of the cost of such property taken into ac13 count under subsection (a).

14 ‘‘(2) ORDINARY INCOME RECAPTURE.—For

15 purposes of section 1245, the amount of the deduc16 tion allowable under subsection (a) with respect to

17 any property which is of a character subject to the

18 allowance for depreciation shall be treated as a de19 duction allowed for depreciation under section 167.’’

20 (b) CONFORMING AMENDMENTS.—

21 (1) Paragraph (1) of section 263(a) of such

22 Code is amended by striking ‘‘or’’ at the end of sub23 paragraph (G), by striking the period at the end of

24 subparagraph (H) and inserting ‘‘; or’’, and by add25 ing at the end the following new subparagraph:
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1 ‘‘(I) expenditures for which a deduction is

2 allowed under section 179B.’’.

3 (2) Subparagraph (B) of section 312(k)(3) of

4 such Code is amended by striking ‘‘or 179A’’ each

5 place it appears and inserting ‘‘, 179A, or 179B’’.

6 (3) Subparagraph (C) of section 1245(a)(2) of

7 such Code is amended by inserting ‘‘179B,’’ after

8 ‘‘179A,’’.

9 (4) The table of sections for part VI of sub10 chapter B of chapter 1 of such Code is amended by

11 inserting after the item relating to section 179A the

12 following new item:

‘‘Sec. 179B. Deduction for United States flag vessels.’’

13 (c) EFFECTIVE DATE.—The amendments made by

14 this section shall apply to taxable years ending after the

15 date of the enactment of this Act.

16 TITLE III—INCOME EXCLUSION

17 FOR MERCHANT SEAMEN

18 SEC. 301. INCOME OF MERCHANT SEAMAN EXCLUDABLE

19 FROM GROSS INCOME AS FOREIGN EARNED

20 INCOME.

21 (a) SECTION 911 EXCLUSION.—Section 911(d) of the

22 Internal Revenue Code of 1986 (relating to citizens or

23 residents of the United States living abroad) is amended

24 by redesignating paragraph (9) as paragraph (10) and by

25 inserting after paragraph (8) the following:
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1 ‘‘(9) APPLICATION TO CERTAIN MERCHANT MA2 RINE CREWS.—In applying this section to an indi3 vidual who is a citizen or resident of the United

4 States and who is employed for a minimum of 90

5 days during a taxable year as a regular member of

6 the crew of a vessel or vessels owned, operated, or

7 chartered by a United States citizen—

8 ‘‘(A) the individual shall be treated as a

9 qualified individual without regard to the re10 quirements of paragraph (1); and

11 ‘‘(B) any earned income attributable to

12 services performed by that individual so em13 ployed on such a vessel while it is engaged in

14 transportation between the United States and a

15 foreign country or possession of the United

16 States shall be treated (except as provided by

17 subsection (b)(1)(B)) as foreign earned income

18 regardless of where payments of such income

19 are made.’’

20 (b) EFFECTIVE DATE.—The amendment made by

21 this section shall apply to taxable years ending after the

22 date of the enactment of this Act.
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1 TITLE IV—EXEMPTION FROM

2 ALTERNATIVE MINIMUM TAX

3 SEC. 401. EXEMPTION FROM ALTERNATIVE MINIMUM TAX

4 FOR CORPORATIONS THAT OPERATE UNITED

5 STATES FLAG VESSELS.

6 (a) IN GENERAL.—Section 55 of the Internal Rev7 enue Code of 1986 is amended by adding at the end the

8 following new subsection:

9 ‘‘(f) EXEMPTION FOR CORPORATIONS THAT OPER10 ATE UNITED STATES FLAG VESSELS.—

11 ‘‘(1) IN GENERAL.—The tentative minimum tax

12 of a corporation shall be zero for any taxable year

13 in which the corporation is a qualified corporation.

14 ‘‘(2) DEFINITIONS.—For purposes of this

15 subsection—

16 ‘‘(A) QUALIFIED CORPORATION.—The

17 term ‘qualified corporation’ means any domestic

18 corporation if—

19 ‘‘(i) substantially all of the assets of

20 such corporation are related to the mari21 time transportation business, and

22 ‘‘(ii) such corporation owns or demise

23 charters a fleet of 4 or more qualified

24 United States flag vessels.
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1 ‘‘(B) QUALIFIED UNITED STATES FLAG

2 VESSEL.—The term ‘qualified United States

3 flag vessel’ means a United States flag vessel

4 having a deadweight tonnage of not less than

5 10,000 deadweight tons that is operated exclu6 sively in the foreign trade of the United States

7 during each of the 360 days immediately pre8 ceding the last day of the taxable year. Days

9 during which the vessel is drydocked, surveyed,

10 inspected, or repaired shall be considered days

11 of operation for purposes of this subsection.

12 ‘‘(C) FOREIGN TRADE.—The term ‘foreign

13 trade’ has the meaning given to such term by

14 section 7518(i)(2).’’

15 (b) EFFECTIVE DATE.—The amendment made by

16 this section shall apply to taxable years ending after the

17 date of the enactment of this Act.

18 TITLE V—CONVENTIONS ON

19 UNITED STATES-FLAG CRUISE

20 SHIPS

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

22 SHIPS.

23 (a) IN GENERAL.—Section 274(h)(2) of the Internal

24 Revenue Code of 1986 (relating to conventions on cruise

25 ships) is amended by striking ‘‘that—’’ and all that follows
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1 through ‘‘possessions of the United States.’’ and inserting

2 ‘‘that the cruise ship is a vessel registered in the United

3 States.’’

4 (b) EFFECTIVE DATE.—The amendment made by

5 subsection (a) shall apply to taxable years ending after

6 the date of the enactment of this Act.

Æ