II 

111TH CONGRESS 

2D SESSION S. 3276 

To provide an election to terminate certain capital construction funds without 

penalties. 

IN THE SENATE OF THE UNITED STATES 

APRIL 28, 2010 

Mr. WYDEN (for himself and Ms. MURKOWSKI) 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. ELECTION TO TERMINATE CERTAIN CAPITAL 

4 CONSTRUCTION FUNDS. 

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

6 UNITED STATES CODE.— 

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

8 United States Code, is amended by adding at the 

9 end the following new section: 


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1 ‘‘§ 53518. Election to terminate 

2 ‘‘(a) IN GENERAL.— 

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

4 into an agreement under this chapter with respect to 

5 a vessel operated in the fisheries of the United 

6 States may make an election under this paragraph 

7 to terminate the capital construction fund estab8 lished under such agreement. 

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

10 In the case of an individual who makes an election 

11 under paragraph (1) with respect to a capital con12 struction fund— 

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

14 construction fund on the applicable date shall 

15 be distributed to such individual as a non16 qualified withdrawal, except that— 

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

18 withdrawal, except as provided in para19 graph (4), subsections (c)(3)(B) and (f) of 

20 section 53511 shall not apply; and 

21 ‘‘(ii) the taxpayer may elect to aver22 age the income from such withdrawal as 

23 provided in subsection (b); and 

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

25 enter into, directly or indirectly, any future 

26 agreement to establish a capital construction 


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1 fund under this chapter with respect to a vessel 

2 operated in the fisheries of the United States. 

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

4 ‘‘(A) IN GENERAL.—In the case of a per5 son (other than an individual) who makes an 

6 election under paragraph (1)— 

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

8 construction fund on the applicable date 

9 shall be distributed to the shareholders, 

10 partners, or members of such person in ac11 cordance with the terms of the instruments 

12 setting forth the ownership interests of 

13 such shareholders, partners, or members; 

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

15 member shall be treated as having estab16 lished a special temporary capital construc17 tion fund and having deposited amounts 

18 received in the distribution into such spe19 cial temporary capital construction fund; 

20 ‘‘(iii) no gain or loss shall be recog21 nized with respect to such distribution; 

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

23 partner, or member in the person shall not 

24 be reduced as a result of such distribution; 


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1 ‘‘(v) any amounts not distributed pur2 suant to clause (i) shall be distributed in 

3 a nonqualified withdrawal; and 

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

5 to enter into, directly or indirectly, any fu6 ture agreement to establish a capital con7 struction fund under this chapter with re8 spect to a vessel operated in the fisheries 

9 of the United States. 

10 ‘‘(B) SPECIAL TEMPORARY CAPITAL CON11 STRUCTION FUNDS.—For purposes of this chap12 ter, a special temporary capital construction 

13 fund shall be treated in the same manner as a 

14 capital construction fund established under sec15 tion 53503, except that the following rules shall 

16 apply: 

17 ‘‘(i) A special temporary capital con18 struction fund shall be established without 

19 regard to any agreement under section 

20 53503 and without regard to any eligible 

21 or qualified vessel. 

22 ‘‘(ii) Section 53505 shall not apply 

23 and no amounts may be deposited into a 

24 special temporary capital construction fund 

25 other than amounts received pursuant to a 


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1 distribution described in subparagraph 

2 (A)(i). 

3 ‘‘(iii) In the case of any amounts dis4 tributed from a special temporary capital 

5 construction fund directly to a capital con6 struction fund of the taxpayer established 

7 under section 53505— 

8 ‘‘(I) no gain or loss shall be rec9 ognized; 

10 ‘‘(II) the limitation under section 

11 53505 shall not apply with respect to 

12 any amount so transferred; 

13 ‘‘(III) such amounts shall not re14 duce taxable income under section 

15 53507(a)(1); and 

16 ‘‘(IV) for purposes of section 

17 53511(e), such amounts shall be 

18 treated as deposited in the capital 

19 construction fund on the date that 

20 such funds were deposited in the cap21 ital construction fund with respect to 

22 which the election under paragraph 

23 (1) was made. 

24 ‘‘(iv) In the case of any amounts dis25 tributed from a special temporary capital 


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1 construction fund pursuant to an election 

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

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

4 much of such amounts as are attributable 

5 to earnings accrued after the date of the 

6 establishment of such special temporary 

7 capital construction fund. 

8 ‘‘(v) Any amount not distributed from 

9 a special temporary capital construction 

10 fund before the due date of the tax return 

11 (including extension) for the last taxable 

12 year of the individual ending before Janu13 ary 1, 2012, shall be treated as distributed 

14 to the taxpayer on the day before such due 

15 date as if an election under paragraph (1) 

16 were made by the taxpayer on such day. 

17 ‘‘(C) REGULATIONS.—The joint regula18 tions shall provide rules for— 

19 ‘‘(i) assigning the amounts received by 

20 the shareholders, partners, or members in 

21 a distribution described in subparagraph 

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

23 53508(a) in special temporary capital con24 struction funds; and 


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1 ‘‘(ii) preventing the abuse of the pur2 poses of this section. 

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

4 rules under section 53511(f)(3) shall apply for pur5 poses of determining tax liability on any nonqualified 

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

7 (3)(B)(v). 

8 ‘‘(5) APPLICABLE DATE.—For purposes of this 

9 subsection, the term ‘applicable date’ means— 

10 ‘‘(A) with respect to any capital construc11 tion fund which has a balance of less than 

12 $1,000,000 on the date that an election under 

13 paragraph (1) was made, the date of such elec14 tion; and 

15 ‘‘(B) with respect to any other capital con16 struction fund, the last day of the taxable year 

17 which includes the date of the enactment of this 

18 section. 

19 ‘‘(6) ELECTION.—Any election under paragraph 

20 (1)— 

21 ‘‘(A) may only be made— 

22 ‘‘(i) by a person who maintains a cap23 ital construction fund with respect to a 

24 vessel operated in the fisheries of the 


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1 United States on the date of the enactment 

2 of this section; or 

3 ‘‘(ii) by a person who maintains a 

4 capital construction fund which was estab5 lished pursuant to paragraph (3)(A)(ii) as 

6 a result of an election made by an entity 

7 in which such person was a shareholder, 

8 partner, or member; 

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

10 date of the tax return (including extensions) for 

11 the person’s last taxable year ending on or be12 fore December 31, 2012; and 

13 ‘‘(C) shall apply to all amounts in the cap14 ital construction fund with respect to which the 

15 election is made. 

16 ‘‘(b) ELECTION TO AVERAGE INCOME.—At the elec17 tion of an individual who has received a distribution de18 scribed in subsection (a), for purposes of section 1301 of 

19 the Internal Revenue Code of 1986— 

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

21 in a fishing business, and 

22 ‘‘(A) such distribution shall be treated as 

23 income attributable to a fishing business for 

24 such taxable year.’’. 

25 (2) CONFORMING AMENDMENTS.— 


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1 (A) Section 53511 of title 46, United 

2 States Code, is amended by striking ‘‘section 

3 53513’’ and inserting ‘‘sections 53513 and 

4 53518’’. 

5 (B) The table of sections for chapter 535 

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

7 inserting after the item relating to section 

8 53517 the following new item: 

‘‘53518. Election to terminate.’’. 

9 (b) AMENDMENTS TO THE INTERNAL REVENUE

10 CODE OF 1986.— 

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

12 Revenue Code of 1986 is amended by adding at the 

13 end the following new subsection: 

14 ‘‘(j) ELECTION TO TERMINATE CAPITAL CONSTRUC15 TION FUNDS.— 

16 ‘‘(1) IN GENERAL.—Any person who has en17 tered into an agreement under chapter 535 of title 

18 46 of the United States Code, with respect to a ves19 sel operated in the fisheries of the United States 

20 may make an election under this paragraph to ter21 minate the capital construction fund established 

22 under such agreement. 

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

24 In the case of an individual who makes an election 

25 under paragraph (1) with respect to a capital conVerDate Mar 15 2010 01:02 Apr 29, 2010 Jkt 089200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S3276.IS S3276

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1 struction fund, any amount remaining in such cap2 ital construction fund on the applicable date shall be 

3 distributed to such individual as a nonqualified with4 drawal, except that— 

5 ‘‘(A) in computing the tax on such with6 drawal, except as provided in paragraph (4), 

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

8 shall not apply, and 

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

10 income from such withdrawal as provided in 

11 paragraph (7). 

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

13 ‘‘(A) IN GENERAL.—In the case of a per14 son (other than an individual) who makes an 

15 election under paragraph (1)— 

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

17 construction fund on the applicable date 

18 shall be distributed to the shareholders, 

19 partners, or members of such person in ac20 cordance with the terms of the instruments 

21 setting forth the ownership interests of 

22 such shareholders, partners, or members, 

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

24 member shall be treated as having estab25 lished a special temporary capital construcVerDate Mar 15 2010 01:02 Apr 29, 2010 Jkt 089200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S3276.IS S3276

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1 tion fund and having deposited amounts 

2 received in the distribution into such spe3 cial temporary capital construction fund, 

4 ‘‘(iii) no gain or loss shall be recog5 nized with respect to such distribution, 

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

7 partner, or member in the person shall not 

8 be reduced as a result of such distribution, 

9 and 

10 ‘‘(v) any amounts not distributed pur11 suant to clause (i) shall be distributed as 

12 a nonqualified withdrawal. 

13 ‘‘(B) SPECIAL TEMPORARY CAPITAL CON14 STRUCTION FUNDS.—For purposes of this sec15 tion, a special temporary capital construction 

16 fund shall be treated in the same manner as a 

17 capital construction fund established under sec18 tion 53503 of title 46, United States Code, ex19 cept that the following rules shall apply: 

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

21 and no amounts may be deposited into a 

22 special temporary capital construction fund 

23 other than amounts received pursuant to a 

24 distribution described in subparagraph 

25 (A)(i). 


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1 ‘‘(ii) In the case of any amounts dis2 tributed from a special temporary capital 

3 construction fund directly to a capital con4 struction fund of the taxpayer established 

5 under section 53505 of title 46, United 

6 States Code— 

7 ‘‘(I) no gain or loss shall be rec8 ognized; 

9 ‘‘(II) the limitation under sub10 section (a) shall not apply with re11 spect to any amount so transferred; 

12 ‘‘(III) such amounts shall not re13 duce taxable income under subsection 

14 (c)(1)(A); and 

15 ‘‘(IV) for purposes of subsection 

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

17 as deposited in the capital construc18 tion fund on the date that such funds 

19 were deposited in the capital construc20 tion fund with respect to which the 

21 election under paragraph (1) was 

22 made. 

23 ‘‘(iii) In the case of any amounts dis24 tributed from a special temporary capital 

25 construction fund pursuant to an election 


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1 under paragraph (1), subparagraphs (A) 

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

3 to so much of such amounts as are attrib4 utable to earnings accrued after the date 

5 of the establishment of such special tem6 porary capital construction fund. 

7 ‘‘(iv) Any amount not distributed 

8 from a special temporary capital construc9 tion fund before the due date of the tax re10 turn (including extension) for the last tax11 able year of the individual ending before 

12 January 1, 2012, shall be treated as dis13 tributed to the taxpayer on the day before 

14 such due date as if an election under para15 graph (1) were made by the taxpayer on 

16 such day the date. 

17 ‘‘(C) REGULATIONS.—The joint regula18 tions shall provide rules for— 

19 ‘‘(i) assigning the amounts received by 

20 the shareholders, partners, or members in 

21 a distribution described in subparagraph 

22 (A)(i) to the accounts described in sub23 section (d)(1) in special temporary capital 

24 construction funds; and 


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1 ‘‘(ii) preventing the abuse of the pur2 poses of this section. 

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

4 rules under subsection (g)(6)(B) shall apply for pur5 poses of determining tax liability on any nonqualified 

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

7 (3)(B)(iv). 

8 ‘‘(5) APPLICABLE DATE.—For purposes of this 

9 subsection, the term ‘applicable date’ means— 

10 ‘‘(A) with respect to any capital construc11 tion fund which has a balance of less than 

12 $1,000,000 on the date that an election under 

13 paragraph (1) was made, the date of such elec14 tion; and 

15 ‘‘(B) with respect to any other capital con16 struction fund, the last day of the taxable year 

17 which includes the date of the enactment of this 

18 subsection. 

19 ‘‘(6) ELECTION.—Any election under paragraph 

20 (1)— 

21 ‘‘(A) may only be made— 

22 ‘‘(i) by a person who maintains a cap23 ital construction fund with respect to a 

24 vessel operated in the fisheries of the 


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1 United States on the date of the enactment 

2 of this subsection, or 

3 ‘‘(ii) by a person who maintains a 

4 capital construction fund which was estab5 lished pursuant to subparagraph (3)(A)(ii) 

6 as a result of an election made by an enti7 ty in which such person was a shareholder, 

8 partner, or member, 

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

10 date of the tax return (including extensions) for 

11 the person’s last taxable year ending on or be12 fore December 31, 2012, and 

13 ‘‘(C) shall apply to all amounts in the cap14 ital construction fund with respect to which the 

15 election is made. 

16 ‘‘(7) ELECTION TO AVERAGE INCOME.—At the 

17 election of an individual who has received a distribu18 tion described in paragraph (2), for purposes of sec19 tion 1301— 

20 ‘‘(A) such individual shall be treated as en21 gaged in a fishing business, and 

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

23 income attributable to a fishing business for 

24 such taxable year.’’. 


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1 (2) CONFORMING AMENDMENT.—Section 

2 7518(g)(1) of such Code is amended by striking 

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

4 (j)’’. 

Æ 


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