125 
‘‘(1) if the net proceeds of a sale or the net indemnity for a loss is 
deposited in more than one deposit, the amount consisting of the gain 
shall be deemed to be deposited first; 
‘‘(2) amounts expended, obligated, or otherwise withdrawn shall be 
applied against the amounts deposited in the fund in the order of de-
posit; and 
‘‘(3) if a deposit consists in part of a gain not recognized under sec-
tion 53306 of this title, any expenditure, obligation, or withdrawal ap-
plied against that deposit shall be deemed to be a gain in the propor-
tion that the part of the deposit consisting of a gain bears to the total 
amount of the deposit. 
‘‘§ 53309. Accumulation of deposits 
‘‘For any taxable year, amounts on deposit in a construction reserve fund 
on the last day of the taxable year, for which the requirements of section 
53310 of this title have been satisfied (to the extent they apply on the last 
day of the taxable year), are deemed to have been retained for the reason-
able needs of the business within the meaning of section 537(a) of the Inter-
nal Revenue Code of 1986 (26 U.S.C. 537(a)). 
‘‘§ 53310. Obligation of deposits and period for construction 
of certain vessels 
‘‘(a) APPLICATION OF SECTIONS 53306 AND 53309.—Sections 53306 and 
53309 of this title apply to a deposit in a construction reserve fund only 
if, within 3 years after the date of the deposit (and any extension under 
subsection (c))— 
‘‘(1)(A) a contract is made for the construction or acquisition of a 
new vessel or, with the approval of the Secretary of Transportation, for 
a part interest in a new vessel or for the reconstruction or recondi-
tioning of a new vessel; 
‘‘(B) the deposit is expended or obligated for expenditure under that 
contract; 
‘‘(C) at least 12.5 percent of the construction or contract price of 
the vessel is paid or irrevocably committed for payment; and 
‘‘(D) the plans and specifications for the vessel are approved by the 
Secretary to the extent the Secretary considers necessary; or 
‘‘(2) the deposit is expended or obligated for expenditure for the liq-
uidation of existing or subsequently incurred purchase-money indebted-
ness to a person not a parent company of, or a company affiliated or 
associated with, the mortgagor on a new vessel. 
‘‘(b) ADDITIONAL REQUIREMENTS FOR CERTAIN VESSELS.—In addition 
to the requirements of subsection (a)(1), for a vessel not constructed under 
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a construction-differential subsidy contract or not bought from the Sec-
retary of Transportation— 
‘‘(1) at least 5 percent of the construction (or, if the contract covers 
more than one vessel, at least 5 percent of the construction of the first 
vessel) must be completed within 6 months after the date of the con-
struction contract (or within the period of an extension under sub-
section (c)), as estimated by the Secretary and certified by the Sec-
retary to the Secretary of the Treasury; and 
‘‘(2) construction under the contract must be completed with reason-
able dispatch thereafter. 
‘‘(c) EXTENSIONS.—The Secretary of Transportation may grant exten-
sions of the period within which the deposits must be expended or obligated 
or within which the construction must have progressed to the extent of 5 
percent completion under this section. However, the extensions may not be 
for a total of more than 2 years for the expenditure or obligation of deposits 
or one year for the progress of construction. 
‘‘§ 53311. Taxation of deposits on failure of conditions 
‘‘A deposited gain, if otherwise taxable income under the law applicable 
to the taxable year in which the gain was realized, shall be included in gross 
income for that taxable year, except for purposes of the declared value ex-
cess profits tax and the capital stock tax, if— 
‘‘(1) the deposited gain is not expended or obligated within the ap-
propriate period under section 53310 of this title; 
‘‘(2) the deposited gain is withdrawn before the end of that period; 
‘‘(3) the construction related to that deposited gain has not pro-
gressed to the extent of 5 percent of completion within the appropriate 
period under section 53310 of this title; or 
‘‘(4) the Secretary of Transportation finds and certifies to the Sec-
retary of the Treasury that, for causes within the control of the tax-
payer, the entire construction related to that deposited gain is not com-
pleted with reasonable dispatch. 
‘‘§ 53312. Assessment and collection of deficiency tax 
‘‘Notwithstanding any other provision of law, a deficiency in tax for a tax-
able year resulting from the inclusion of an amount in gross income as pro-
vided by section 53311 of this title, and the amount to be treated as a defi-
ciency under section 53311 instead of as an adjustment for the declared 
value excess profits tax, may be assessed or a civil action may be brought 
to collect the deficiency without assessment, at any time. Interest on a defi-
ciency or amount to be treated as a deficiency does not begin until the date 
the deposited gain or part of the deposited gain in question is required to 
be included in gross income under section 51111. 
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‘‘CHAPTER 535—CAPITAL CONSTRUCTION FUNDS 
‘‘Sec. 
‘‘53501.
Definitions. 
‘‘53502.
Regulations. 
‘‘53503.
Establishing a capital construction fund. 
‘‘53504.
Deposits and withdrawals. 
‘‘53505.
Ceiling on deposits. 
‘‘53506.
Investment and fiduciary requirements. 
‘‘53507.
Nontaxation of deposits. 
‘‘53508.
Separate accounts within a fund. 
‘‘53509.
Qualified withdrawals. 
‘‘53510.
Tax treatment of qualified withdrawals and basis of property. 
‘‘53511.
Tax treatment of nonqualified withdrawals. 
‘‘53512.
FIFO and LIFO withdrawals. 
‘‘53513.
Corporate reorganizations and partnership changes. 
‘‘53514.
Relationship of old fund to new fund. 
‘‘53515.
Records and reports. 
‘‘53516.
Termination of agreement after change in regulations. 
‘‘53517.
Reports. 
‘‘§ 53501. Definitions 
‘‘In this chapter: 
‘‘(1) AGREEMENT VESSEL.—The term ‘agreement vessel’ means— 
‘‘(A) an eligible vessel or a qualified vessel that is subject to an 
agreement under this chapter; and 
‘‘(B) a barge or container that is part of the complement of a 
vessel described in subparagraph (A) if provided for in the agree-
ment. 
‘‘(2) ELIGIBLE VESSEL.—The term ‘eligible vessel’ means— 
‘‘(A) a vessel— 
‘‘(i) constructed in the United States (and, if recon-
structed, reconstructed in the United States), constructed 
outside the United States but documented under the laws of 
the United States on April 15, 1970, or constructed outside 
the United States for use in the United States foreign trade 
pursuant to a contract made before April 15, 1970; 
‘‘(ii) documented under the laws of the United States; and 
‘‘(iii) operated in the foreign or domestic trade of the 
United States or in the fisheries of the United States; and 
‘‘(B) a commercial fishing vessel— 
‘‘(i) constructed in the United States and, if reconstructed, 
reconstructed in the United States; 
‘‘(ii) of at least 2 net tons but less than 5 net tons; 
‘‘(iii) owned by a citizen of the United States; 
‘‘(iv) having its home port in the United States; and 
‘‘(v) operated in the commercial fisheries of the United 
States. 
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128 
‘‘(3) JOINT REGULATIONS.—The term ‘joint regulations’ means reg-
ulations prescribed jointly by the Secretary and the Secretary of the 
Treasury under section 53502(b) of this title. 
‘‘(4) NONCONTIGUOUS
TRADE.—The term ‘noncontiguous trade’ 
means— 
‘‘(A) trade between— 
‘‘(i) one of the contiguous 48 States; and 
‘‘(ii) Alaska, Hawaii, Puerto Rico, or an insular territory 
or possession of the United States; and 
‘‘(B) trade between— 
‘‘(i) a place in Alaska, Hawaii, Puerto Rico, or an insular 
territory or possession of the United States; and 
‘‘(ii) another place in Alaska, Hawaii, Puerto Rico, or an 
insular territory or possession of the United States. 
‘‘(5) QUALIFIED VESSEL.—The term ‘qualified vessel’ means— 
‘‘(A) a vessel— 
‘‘(i) constructed in the United States (and, if recon-
structed, reconstructed in the United States), constructed 
outside the United States but documented under the laws of 
the United States on April 15, 1970, or constructed outside 
the United States for use in the United States foreign trade 
pursuant to a contract made before April 15, 1970; 
‘‘(ii) documented under the laws of the United States; and 
‘‘(iii) agreed, between the Secretary and the person main-
taining the capital construction fund established under sec-
tion 53503 of this title, to be operated in the United States 
foreign, Great Lakes, or noncontiguous domestic trade or in 
the fisheries of the United States; and 
‘‘(B) a commercial fishing vessel— 
‘‘(i) constructed in the United States and, if reconstructed, 
reconstructed in the United States; 
‘‘(ii) of at least 2 net tons but less than 5 net tons; 
‘‘(iii) owned by a citizen of the United States; 
‘‘(iv) having its home port in the United States; and 
‘‘(v) operated in the commercial fisheries of the United 
States. 
‘‘(6) SECRETARY.—The term ‘Secretary’ means— 
‘‘(A) the Secretary of Commerce with respect to an eligible ves-
sel or a qualified vessel operated or to be operated in the fisheries 
of the United States; and 
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‘‘(B) the Secretary of Transportation with respect to other ves-
sels. 
‘‘(7) UNITED STATES FOREIGN TRADE.—The term ‘United States 
foreign trade’ includes those areas in domestic trade in which a vessel 
built with a construction-differential subsidy is allowed to operate 
under the first sentence of section 506 of the Merchant Marine Act, 
1936. 
‘‘(8) VESSEL.—The term ‘vessel’ includes— 
‘‘(A) cargo handling equipment that the Secretary determines is 
intended for use primarily on the vessel; and 
‘‘(B) an ocean-going towing vessel, an ocean-going barge, or a 
comparable towing vessel or barge operated on the Great Lakes. 
‘‘§ 53502. Regulations 
‘‘(a) IN GENERAL.—Except as provided in subsection (b), the Secretary 
shall prescribe regulations to carry out this chapter. 
‘‘(b) TAX LIABILITY.—The Secretary and the Secretary of the Treasury 
shall prescribe joint regulations for the determination of tax liability under 
this chapter. 
‘‘§ 53503. Establishing a capital construction fund 
‘‘(a) IN GENERAL.—A citizen of the United States owning or leasing an 
eligible vessel may make an agreement with the Secretary under this chap-
ter to establish a capital construction fund for the vessel. 
‘‘(b) ALLOWABLE PURPOSE.—The purpose of the agreement shall be to 
provide replacement vessels, additional vessels, or reconstructed vessels, 
built in the United States and documented under the laws of the United 
States, for operation in the United States foreign, Great Lakes, or non-
contiguous domestic trade or in the fisheries of the United States. 
‘‘§ 53504. Deposits and withdrawals 
‘‘(a) REQUIRED DEPOSITS.—An agreement to establish a capital con-
struction fund shall provide for the deposit in the fund of the amounts 
agreed to be appropriate to provide for qualified withdrawals under section 
53509 of this title. 
‘‘(b) APPLICABLE REQUIREMENTS.—Deposits in and withdrawals from 
the fund are subject to the requirements included in the agreement or pre-
scribed by the Secretary by regulation. However, the Secretary may not re-
quire a person to deposit in the fund for a taxable year more than 50 per-
cent of that portion of the person’s taxable income for that year (as deter-
mined under section 53505(a)(1) of this title) that is attributable to the op-
eration of an agreement vessel. 
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‘‘§ 53505. Ceiling on deposits 
‘‘(a) MAXIMUM DEPOSITS.—The amount deposited in a capital construc-
tion fund for a taxable year may not exceed the sum of— 
‘‘(1) that portion of the taxable income of the owner or lessee for 
the taxable year (computed under chapter 1 of the Internal Revenue 
Code of 1986 (26 U.S.C. ch. 1) but without regard to the carryback 
of net operating loss or net capital loss or this chapter) that is attrib-
utable to the operation of agreement vessels in the foreign or domestic 
trade of the United States or in the fisheries of the United States; 
‘‘(2) the amount allowable as a deduction under section 167 of such 
Code (26 U.S.C. 167) for the taxable year for agreement vessels; 
‘‘(3) if the transaction is not taken into account for purposes of 
paragraph (1), the net proceeds (as defined in joint regulations) from 
the disposition of an agreement vessel or from insurance or indemnity 
attributable to an agreement vessel; and 
‘‘(4) the receipts from the investment or reinvestment of amounts 
held in the fund. 
‘‘(b) REDUCTIONS FOR LESSEES.—For a lessee, the maximum amount 
that may be deposited for an agreement vessel under subsection (a)(2) for 
any period shall be reduced by any amount the owner is required or per-
mitted, under the capital construction fund agreement, to deposit for that 
period for the vessel under subsection (a)(2). 
‘‘§ 53506. Investment and fiduciary requirements 
‘‘(a) IN GENERAL.—Amounts in a capital construction fund shall be kept 
in the depository specified in the agreement and shall be subject to trustee 
and other fiduciary requirements prescribed by the Secretary. Except as 
provided in subsection (b), amounts in the fund may be invested only in in-
terest-bearing securities approved by the Secretary. 
‘‘(b) STOCK INVESTMENTS.— 
‘‘(1) IN GENERAL.—With the approval of the Secretary, an agreed 
percentage (but not more than 60 percent) of the assets of the fund 
may be invested in the stock of domestic corporations that— 
‘‘(A) is fully listed and registered on an exchange registered 
with the Securities and Exchange Commission as a national secu-
rities exchange; and 
‘‘(B) would be acquired by a prudent investor seeking a reason-
able income and the preservation of capital. 
‘‘(2) PREFERRED STOCK.—The preferred stock of a corporation is 
deemed to satisfy the requirements of this subsection, even though it 
may not be registered and listed because it is nonvoting stock, if the 
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common stock of the corporation satisfies the requirements and the 
preferred stock otherwise would satisfy the requirements. 
‘‘(c) MAINTAINING AGREED PERCENTAGE.—If at any time the fair mar-
ket value of the stock in the fund is more than the agreed percentage of 
the assets in the fund, any subsequent investment of amounts deposited in 
the fund, and any subsequent withdrawal from the fund, shall be made in 
a way that tends to restore the fair market value of the stock to not more 
than the agreed percentage. 
‘‘§ 53507. Nontaxation of deposits 
‘‘(a) TAX TREATMENT.—Subject to subsection (b), under the Internal 
Revenue Code of 1986 (26 U.S.C. 1 et seq.)— 
‘‘(1) taxable income (determined without regard to this chapter and 
section 7518 of such Code (26 U.S.C. 7518)) for the taxable year shall 
be reduced by the amount deposited for the taxable year out of 
amounts referred to in section 53505(a)(1) of this title; 
‘‘(2) a gain from a transaction referred to in section 53505(a)(3) of 
this title shall not be taken into account if an amount equal to the net 
proceeds (as defined in joint regulations) from the transaction is depos-
ited in the fund; 
‘‘(3) the earnings (including gains and losses) from the investment 
and reinvestment of amounts held in the fund shall not be taken into 
account; 
‘‘(4) the earnings and profits of a corporation (within the meaning 
of section 316 of such Code (26 U.S.C. 316)) shall be determined with-
out regard to this chapter and section 7518 of such Code (26 U.S.C. 
7518); and 
‘‘(5) in applying the tax imposed by section 531 of such Code (26 
U.S.C. 531), amounts held in the fund shall not be taken into account. 
‘‘(b) CONDITION.—This section applies to an amount only if the amount 
is deposited in the fund under the agreement within the time provided in 
joint regulations. 
‘‘§ 53508. Separate accounts within a fund 
‘‘(a) IN GENERAL.—A capital construction fund shall have three ac-
counts: 
‘‘(1) The capital account. 
‘‘(2) The capital gain account. 
‘‘(3) The ordinary income account. 
‘‘(b) CAPITAL ACCOUNT.—The capital account shall consist of— 
‘‘(1) amounts referred to in section 53505(a)(2) of this title; 
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132 
‘‘(2) amounts referred to in section 53505(a)(3) of this title, except 
that portion representing a gain not taken into account because of sec-
tion 53507(a)(2) of this title; 
‘‘(3) the percentage applicable under section 243(a)(1) of the Inter-
nal Revenue Code of 1986 (26 U.S.C. 243(a)(1)) of any dividend re-
ceived by the fund for which the person maintaining the fund would 
be allowed (were it not for section 53507(a)(3) of this title) a deduction 
under section 243 of such Code (26 U.S.C. 243); and 
‘‘(4) interest income exempt from taxation under section 103 of such 
Code (26 U.S.C. 103). 
‘‘(c) CAPITAL GAIN ACCOUNT.—The capital gain account shall consist 
of— 
‘‘(1) amounts representing capital gains on assets held for more than 
6 months and referred to in section 53505(a)(3) or (4) of this title; 
minus 
‘‘(2) amounts representing capital losses on assets held in the fund 
for more than 6 months. 
‘‘(d) ORDINARY INCOME ACCOUNT.—The ordinary income account shall 
consist of— 
‘‘(1) amounts referred to in section 53505(a)(1) of this title; 
‘‘(2)(A) amounts representing capital gains on assets held for not 
more than 6 months and referred to in section 53505(a)(3) or (4) of 
this title; minus 
‘‘(B) amounts representing capital losses on assets held in the fund 
for not more than 6 months; 
‘‘(3) interest (except tax-exempt interest referred to in subsection 
(b)(4)) and other ordinary income (except any dividend referred to in 
paragraph (5)) received on assets held in the fund; 
‘‘(4) ordinary income from a transaction described in section 
53505(a)(3) of this title; and 
‘‘(5) that portion of any dividend referred to in subsection (b)(3) not 
taken into account under subsection (b)(3). 
‘‘(e) WHEN LOSSES ALLOWED.—Except on termination of a fund, capital 
losses referred to in subsection (c) or (d)(2) shall be allowed only as an off-
set to gains referred to in subsection (c) or (d)(2), respectively. 
‘‘§ 53509. Qualified withdrawals 
‘‘(a) IN GENERAL.—Subject to subsection (b), a withdrawal from a cap-
ital construction fund is a qualified withdrawal if it is made under the terms 
of the agreement and is for— 
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133 
‘‘(1) the acquisition, construction, or reconstruction of a qualified 
vessel or a barge or container that is part of the complement of a quali-
fied vessel; or 
‘‘(2) the payment of the principal on indebtedness incurred in the 
acquisition, construction, or reconstruction of a qualified vessel or a 
barge or container that is part of the complement of a qualified vessel. 
‘‘(b) BARGES AND CONTAINERS.—Except as provided in regulations pre-
scribed by the Secretary, subsection (a) applies to a barge or container only 
if it is constructed in the United States. 
‘‘(c) TREATMENT AS NONQUALIFIED WITHDRAWAL.—Under joint regula-
tions, if the Secretary determines that a substantial obligation under an 
agreement is not being fulfilled, the Secretary, after notice and opportunity 
for a hearing to the person maintaining the fund, may treat any amount 
in the fund as an amount withdrawn from the fund in a nonqualified with-
drawal. 
‘‘§ 53510. Tax treatment of qualified withdrawals and basis 
of property 
‘‘(a) ORDER OF WITHDRAWALS.—A qualified withdrawal from a capital 
construction fund shall be treated as made— 
‘‘(1) first from the capital account; 
‘‘(2) second from the capital gain account; and 
‘‘(3) third from the ordinary income account. 
‘‘(b) ORDINARY INCOME ACCOUNT WITHDRAWALS.—If a portion of a 
qualified withdrawal for a vessel, barge, or container is made from the ordi-
nary income account, the basis of the vessel, barge, or container shall be 
reduced by an amount equal to that portion. 
‘‘(c) CAPITAL GAIN ACCOUNT WITHDRAWALS.—If a portion of a qualified 
withdrawal for a vessel, barge, or container is made from the capital gain 
account, the basis of the vessel, barge, or container shall be reduced by an 
amount equal to that portion. 
‘‘(d) WITHDRAWALS TO PAY PRINCIPAL.—If a portion of a qualified 
withdrawal to pay the principal on indebtedness is made from the ordinary 
income account or the capital gain account, an amount equal to the total 
reduction that would be required by subsections (b) and (c) if the with-
drawal were a qualified withdrawal for a purpose described in those sub-
sections shall be applied, in the order provided in joint regulations, to re-
duce the basis of vessels, barges, and containers owned by the person main-
taining the fund. The remaining amount of the withdrawal shall be treated 
as a nonqualified withdrawal. 
‘‘(e) GAIN ON PROPERTY WITH REDUCED BASIS.—If property, the basis 
of which was reduced under subsection (b), (c), or (d), is disposed of, any 
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134 
gain realized on the disposition, to the extent it does not exceed the total 
reduction in the basis of the property under those subsections, shall be 
treated as an amount referred to in section 53511(c)(1) of this title with-
drawn on the date of disposition of the property. Subject to conditions pre-
scribed in joint regulations, this subsection does not apply to a disposition 
if there is a redeposit, in an amount determined under joint regulations, 
that restores the fund as far as practicable to the position it was in before 
the withdrawal. 
‘‘§ 53511. Tax treatment of nonqualified withdrawals 
‘‘(a) IN GENERAL.—Except as provided in section 53513 of this title, a 
withdrawal from a fund that is not a qualified withdrawal shall be treated 
as a nonqualified withdrawal. 
‘‘(b) ORDER
OF WITHDRAWALS.—A nonqualified withdrawal shall be 
treated as made— 
‘‘(1) first from the ordinary income account; 
‘‘(2) second from the capital gain account; and 
‘‘(3) third from the capital account. 
‘‘(c) TAX TREATMENT.—For purposes of the Internal Revenue Code of 
1986 (26 U.S.C. 1 et seq.)— 
‘‘(1) a nonqualified withdrawal from the ordinary income account 
shall be included in income as an item of ordinary income for the tax-
able year in which the withdrawal is made; 
‘‘(2) a nonqualified withdrawal from the capital gain account shall 
be included in income for the taxable year in which the withdrawal is 
made as an item of gain realized during that year from the disposition 
of an asset held for more than 6 months; and 
‘‘(3) for the period through the last date prescribed for payment of 
tax for the taxable year in which the withdrawal is made— 
‘‘(A) no interest shall be payable under section 6601 of such 
Code (26 U.S.C. 6601) and no addition to the tax shall be payable 
under section 6651 of such Code (26 U.S.C. 6651); 
‘‘(B) interest on the amount of the additional tax attributable 
to an amount treated as a nonqualified withdrawal from the ordi-
nary income account or the capital gain account shall be paid at 
the rate determined under subsection (d) from the last date pre-
scribed for payment of the tax for the taxable year for which the 
amount was deposited in the fund; and 
‘‘(C) no interest shall be payable on amounts treated as with-
drawn on a last-in-first-out basis under section 53512 of this title. 
‘‘(d) INTEREST RATE.—The rate of interest under subsection (c)(3)(B) 
for a nonqualified withdrawal made in a taxable year beginning after 1971 
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shall be determined and published jointly by the Secretary and the Secretary 
of the Treasury. The rate shall be such that its relationship to 8 percent 
is comparable, as determined by the Secretaries under joint regulations, to 
the relationship between— 
‘‘(1) the money rates and investment yields for the calendar year im-
mediately before the beginning of the taxable year; and 
‘‘(2) the money rates and investment yields for the calendar year 
1970. 
‘‘(e) NONQUALIFIED WITHDRAWALS.— 
‘‘(1) IN
GENERAL.—The following applicable percentage of any 
amount that remains in a capital construction fund at the close of the 
following specified taxable year following the taxable year for which the 
amount was deposited shall be treated as a nonqualified withdrawal: 
‘‘If the amount remains in the fund at 
The applicable 
the close of the— 
percentage is— 
‘‘26th taxable year ...........................................................................................
20 percent
‘‘27th taxable year ...........................................................................................
40 percent
‘‘28th taxable year ...........................................................................................
60 percent
‘‘29th taxable year ...........................................................................................
80 percent
‘‘30th taxable year ...........................................................................................
100 percent. 
‘‘(2) EARNINGS.—The earnings of a capital construction fund for 
any taxable year (except net gains) shall be treated under this sub-
section as an amount deposited for the taxable year. 
‘‘(3) CONTRACT FOR QUALIFIED WITHDRAWAL.—Under paragraph 
(1), an amount shall not be treated as remaining in a capital construc-
tion fund at the close of a taxable year to the extent there is a binding 
contract at the close of the taxable year for a qualified withdrawal of 
the amount for an identified item for which the withdrawal may be 
made. 
‘‘(4) EXCESS EARNINGS.—If the Secretary determines that the bal-
ance in a capital construction fund exceeds the amount appropriate to 
meet the vessel construction program objectives of the person that es-
tablished the fund, the amount of the excess shall be treated as a non-
qualified withdrawal under paragraph (1) unless the person develops 
appropriate program objectives within 3 years to dissipate the excess. 
‘‘(5) AMOUNTS IN FUND ON JANUARY 1, 1987.—Under this sub-
section, amounts in a capital construction fund on January 1, 1987, 
shall be treated as having been deposited in that fund on that date. 
‘‘(f) TAX DETERMINATIONS.— 
‘‘(1) IN GENERAL.—For a taxable year for which there is a non-
qualified withdrawal (including an amount treated as a nonqualified 
withdrawal under subsection (e)), the tax imposed by chapter 1 of the 
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136 
Internal Revenue Code of 1986 (26 U.S.C. ch. 1) shall be determined 
by— 
‘‘(A) excluding the withdrawal from gross income; and 
‘‘(B) increasing the tax imposed by chapter 1 of such Code by 
the product of the amount of the withdrawal and the highest tax 
rate specified in section 1 (or section 11 for a corporation) of such 
Code (26 U.S.C. 1, 11). 
‘‘(2) MAXIMUM TAX RATE.—For that portion of a nonqualified with-
drawal made from the capital gain account during a taxable year to 
which section 1(h) or 1201(a) of such Code (26 U.S.C. 1(h), 1201(a)) 
applies, the tax rate used under paragraph (1)(B) may not exceed 15 
percent (or 34 percent for a corporation). 
‘‘(3) TAX BENEFIT RULE.—If any portion of a nonqualified with-
drawal is properly attributable to deposits (except earnings on deposits) 
made by the taxpayer in a taxable year that did not reduce the tax-
payer’s liability for tax under chapter 1 of such Code (26 U.S.C. ch. 
1) for a taxable year before the taxable year in which the withdrawal 
occurs— 
‘‘(A) that portion shall not be taken into account under para-
graph (1); and 
‘‘(B) an amount equal to that portion shall be allowed as a de-
duction under section 172 of such Code (26 U.S.C. 172) for the 
taxable year in which the withdrawal occurs. 
‘‘(4) COORDINATION
WITH
DEDUCTION
FOR
NET
OPERATING 
LOSSES.—A nonqualified withdrawal excluded from gross income under 
paragraph (1) shall be excluded in determining taxable income under 
section 172(b)(2) of such Code (26 U.S.C. 172(b)(2)). 
‘‘§ 53512. FIFO and LIFO withdrawals 
‘‘(a) FIFO.—Except as provided in subsection (b), an amount withdrawn 
from an account under this chapter shall be treated as withdrawn on a first- 
in-first-out basis. 
‘‘(b) LIFO.—An amount withdrawn from an account under this chapter 
shall be treated as withdrawn on a last-in-first-out basis if it is— 
‘‘(1) a nonqualified withdrawal for research, development, and design 
expenses incident to new and advanced vessel design, machinery, and 
equipment; or 
‘‘(2) an amount treated as a nonqualified withdrawal under section 
53510(d) of this title. 
‘‘§ 53513. Corporate 
reorganizations 
and 
partnership 
changes 
‘‘Under joint regulations— 
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‘‘(1) a transfer of a capital construction fund from one person to an-
other person in a transaction to which section 381 of the Internal Rev-
enue Code of 1986 (26 U.S.C. 381) applies may be treated as if the 
transaction is not a nonqualified withdrawal; and 
‘‘(2) a similar rule shall be applied to a continuation of a partnership 
(within the meaning of subchapter K of chapter 1 of such Code (26 
U.S.C. 701 et seq.)). 
‘‘§ 53514. Relationship of old fund to new fund 
‘‘(a) DEFINITION.—In this section, the term ‘old fund’ means a capital 
construction fund maintained before October 21, 1970. 
‘‘(b) ELECTION TO MAINTAIN OLD FUND.—A person maintaining an old 
fund may elect to continue the old fund, but may not— 
‘‘(1) hold amounts in the old fund beyond the expiration date pro-
vided in the agreement under which the old fund is maintained (deter-
mined without regard to an extension or renewal made after April 14, 
1970); or 
‘‘(2) maintain simultaneously the old fund and a new fund estab-
lished under this chapter. 
‘‘(c) APPLICATION
OF
NEW
FUND
AGREEMENT
TO
OLD
FUND 
AMOUNTS.—If a person makes an agreement under this chapter to establish 
a new fund, the person may agree to extend the agreement to some or all 
of the amounts in an old fund. Each item in the old fund to be transferred 
shall be transferred in a nontaxable transaction to the appropriate account 
in the new fund. For purposes of section 53511(c)(3) of this title, the date 
of the deposit of an item so transferred shall be July 1, 1971, or the date 
of the deposit in the old fund, whichever is later. 
‘‘§ 53515. Records and reports 
‘‘A person maintaining a fund under this chapter shall keep records and 
make reports as required by the Secretary or the Secretary of the Treasury. 
‘‘§ 53516. Termination of agreement after change in regula-
tions 
‘‘If, after an agreement has been made under this chapter, a change is 
made either in the joint regulations or in the regulations prescribed by the 
Secretary under this chapter that could have a substantial effect on the 
rights or duties of a person maintaining a fund under this chapter, that per-
son may terminate the agreement. 
‘‘§ 53517. Reports 
‘‘(a) IN GENERAL.—Within 120 days after the close of each calendar 
year, the Secretary of Transportation and the Secretary of Commerce each 
shall provide the Secretary of the Treasury a written report on the capital 
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138 
construction funds under the particular Secretary’s jurisdiction for the cal-
endar year. 
‘‘(b) CONTENTS.—The report shall state the name and taxpayer identi-
fication number of each person— 
‘‘(1) establishing a capital construction fund during the calendar 
year; 
‘‘(2) maintaining a capital construction fund on the last day of the 
calendar year; 
‘‘(3) terminating a capital construction fund during the calendar 
year; 
‘‘(4) making a deposit to or withdrawal from a capital construction 
fund during the calendar year, and the amount of the deposit or with-
drawal; or 
‘‘(5) having been determined during the calendar year to have failed 
to fulfill a substantial obligation under a capital construction fund 
agreement to which the person is a party. 
‘‘CHAPTER 537—LOANS AND GUARANTEES 
‘‘SUBCHAPTER I—GENERAL 
‘‘Sec. 
‘‘53701.
Definitions. 
‘‘53702.
General authority. 
‘‘53703.
Application procedures. 
‘‘53704.
Funding limits. 
‘‘53705.
Pledge of United States Government. 
‘‘53706.
Eligible purposes of obligations. 
‘‘53707.
Findings related to obligors and operators. 
‘‘53708.
Findings related to economic soundness. 
‘‘53709.
Amount of obligations. 
‘‘53710.
Contents of obligations. 
‘‘53711.
Security interest. 
‘‘53712.
Monitoring financial condition and operations of obligor. 
‘‘53713.
Administrative fees. 
‘‘53714.
Guarantee fees. 
‘‘53715.
Escrow fund. 
‘‘53716.
Deposit fund. 
‘‘53717.
Management of funds in the Treasury. 
‘‘53718.
Annual report to Congress. 
‘‘SUBCHAPTER II—DEFAULT PROVISIONS 
‘‘53721.
Rights of obligee. 
‘‘53722.
Actions by Secretary. 
‘‘53723.
Payments by Secretary and issuance of obligations. 
‘‘53724.
Rights to secured property. 
‘‘53725.
Actions against obligor. 
‘‘SUBCHAPTER III—PARTICULAR PROJECTS 
‘‘53731.
Commercial demonstration ocean thermal energy conversion facilities and plantships. 
‘‘53732.
Eligible export vessels. 
‘‘53733.
Shipyard modernization and improvement. 
‘‘53734.
Replacement of vessels because of changes in operating standards. 
‘‘53735.
Fisheries financing and capacity reduction. 
‘‘SUBCHAPTER I—GENERAL 
‘‘§ 53701. Definitions 
‘‘In this chapter: 
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‘‘(1) ACTUAL COST.—The term ‘actual cost’ means the sum of— 
‘‘(A) all amounts paid by or for the account of the obligor as 
of the date on which a determination is made under section 
53715(d)(1) of this title; and 
‘‘(B) all amounts that the Secretary reasonably estimates the 
obligor will become obligated to pay from time to time thereafter, 
for the construction, reconstruction, or reconditioning of the ves-
sel, including guarantee fees that will become payable under sec-
tion 53714 of this title in connection with all obligations issued 
for construction, reconstruction, or reconditioning of the vessel or 
equipment to be delivered, and all obligations issued for the deliv-
ered vessel or equipment. 
‘‘(2) CONSTRUCTION, RECONSTRUCTION, AND
RECONDITIONING.— 
The terms ‘construction’, ‘reconstruction’, and ‘reconditioning’ include 
designing, inspecting, outfitting, and equipping. 
‘‘(3) DEPRECIATED ACTUAL COST.—The term ‘depreciated actual 
cost’ of a vessel means— 
‘‘(A) if the vessel was not reconstructed or reconditioned, the 
actual cost of the vessel depreciated on a straight line basis over 
the useful life of the vessel as determined by the Secretary, not 
to exceed 25 years from the date of delivery by the builder; or 
‘‘(B) if the vessel was reconstructed or reconditioned, the sum 
of— 
‘‘(i) the actual cost of the vessel depreciated on a straight 
line basis from the date of delivery by the builder to the date 
of the reconstruction or reconditioning, using the original use-
ful life of the vessel, and from the date of the reconstruction 
or reconditioning, using a useful life of the vessel determined 
by the Secretary; and 
‘‘(ii) any amount paid or obligated to be paid for the recon-
struction or reconditioning, depreciated on a straight line 
basis using a useful life of the vessel determined by the Sec-
retary. 
‘‘(4) ELIGIBLE EXPORT VESSEL.—The term ‘eligible export vessel’ 
means a vessel that— 
‘‘(A) is constructed, reconstructed, or reconditioned in the 
United States for use in world-wide trade; and 
‘‘(B) will, on delivery or redelivery, become or remain docu-
mented under the laws of a country other than the United States. 
‘‘(5) FISHERY FACILITY.— 
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‘‘(A) IN
GENERAL.—Subject to subparagraph (B), the term 
‘fishery facility’ means— 
‘‘(i) for operations on land— 
‘‘(I) a structure or appurtenance thereto designed for 
the unloading and receiving from vessels, the processing, 
the holding pending processing, the distribution after 
processing, or the holding pending distribution, of fish 
from a fishery; 
‘‘(II) the land necessary for the structure or appur-
tenance; and 
‘‘(III) equipment that is for use with the structure or 
appurtenance and that is necessary for performing a 
function referred to in subclause (I); 
‘‘(ii) for operations not on land, a vessel built in the United 
States and used for, equipped to be used for, or of a type nor-
mally used for, the processing of fish; or 
‘‘(iii) for aquaculture, including operations on land or else-
where— 
‘‘(I) a structure or appurtenance thereto designed for 
aquaculture; 
‘‘(II) the land necessary for the structure or appur-
tenance; 
‘‘(III) equipment that is for use with the structure or 
appurtenance and that is necessary for performing a 
function referred to in subclause (I); and 
‘‘(IV) a vessel built in the United States and used for, 
equipped to be used for, or of a type normally used for, 
aquaculture. 
‘‘(B) REQUIRED
OWNERSHIP.—Under subparagraph (A), the 
structure, appurtenance, land, equipment, or vessel must be owned 
by— 
‘‘(i) an individual who is a citizen of the United States; or 
‘‘(ii) an entity that is a citizen of the United States under 
section 50501 of this title and that is at least 75 percent 
owned (as determined under that section) by citizens of the 
United States. 
‘‘(6) FISHING VESSEL.—The term ‘fishing vessel’ has the meaning 
given that term in section 3 of the Magnuson-Stevens Fishery Con-
servation and Management Act (16 U.S.C. 1802), and any reference 
in this chapter to a vessel designed principally for commercial use in 
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141 
the fishing trade or industry is deemed to be a reference to a fishing 
vessel. 
‘‘(7) MORTGAGE.—The term ‘mortgage’ includes— 
‘‘(A) a preferred mortgage as defined in section 31301 of this 
title; and 
‘‘(B) a mortgage on a vessel that will become a preferred mort-
gage when filed or recorded under chapter 313 of this title. 
‘‘(8) OBLIGATION.—The term ‘obligation’ means an instrument of 
indebtedness issued for a purpose described in section 53706 of this 
title, except— 
‘‘(A) an obligation issued by the Secretary under section 53723 
of this title; and 
‘‘(B) an obligation eligible for investment of funds under section 
53715(f) or 53717 of this title. 
‘‘(9) OBLIGEE.—The term ‘obligee’ means the holder of an obliga-
tion. 
‘‘(10) OBLIGOR.—The term ‘obligor’ means a party primarily liable 
for payment of the principal of or interest on an obligation. 
‘‘(11) OCEAN
THERMAL
ENERGY
CONVERSION
FACILITY
OR 
PLANTSHIP.—The term ‘ocean thermal energy conversion facility or 
plantship’ means an at-sea facility or vessel, whether mobile, floating 
unmoored, moored, or standing on the seabed, that uses temperature 
differences in ocean water to produce electricity or another form of en-
ergy capable of being used directly to perform work, and includes— 
‘‘(A) equipment installed on the facility or vessel to use the elec-
tricity or other form of energy to produce, process, refine, or man-
ufacture a product; 
‘‘(B) a cable or pipeline used to deliver the electricity, fresh-
water, or product to shore; and 
‘‘(C) other associated equipment and appurtenances of the facil-
ity or vessel to the extent they are located seaward of the high 
water mark. 
‘‘(12) SECRETARY.—The term ‘Secretary’ means— 
‘‘(A) the Secretary of Commerce with respect to fishing vessels 
and fishery facilities; and 
‘‘(B) the Secretary of Transportation with respect to other ves-
sels and general shipyard facilities (as defined in section 53733(a) 
of this title). 
‘‘(13) VESSEL.—The term ‘vessel’ means any type of vessel, whether 
in existence or under construction, including— 
‘‘(A) a cargo vessel; 
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142 
‘‘(B) a passenger vessel; 
‘‘(C) a combination cargo and passenger vessel; 
‘‘(D) a tanker; 
‘‘(E) a tug or towboat; 
‘‘(F) a barge; 
‘‘(G) a dredge; 
‘‘(H) a floating drydock with a capacity of at least 35,000 lift-
ing tons and a beam of at least 125 feet between the wing walls; 
‘‘(I) an oceanographic research vessel; 
‘‘(J) an instruction vessel; 
‘‘(K) a pollution treatment, abatement, or control vessel; 
‘‘(L) a fishing vessel whose ownership meets the citizenship re-
quirements under section 50501 of this title for documenting ves-
sels to operate in the coastwise trade; and 
‘‘(M) an ocean thermal energy conversion facility or plantship 
that is or will be documented under the laws of the United States. 
‘‘§ 53702. General authority 
‘‘(a) IN GENERAL.—The Secretary, on terms the Secretary may pre-
scribe, may guarantee or make a commitment to guarantee the payment of 
the principal of and interest on an obligation eligible to be guaranteed under 
this chapter. A guarantee or commitment to guarantee shall cover 100 per-
cent of the principal and interest. 
‘‘(b) DIRECT LOANS FOR FISHERIES.— 
‘‘(1) IN
GENERAL.—Notwithstanding any other provision of this 
chapter, any obligation involving a fishing vessel, fishery facility, aqua-
culture facility, individual fishing quota, or fishing capacity reduction 
program issued under this chapter after October 11, 1996, shall be a 
direct loan obligation for which the Secretary shall be the obligee, rath-
er than an obligation issued to an obligee other than the Secretary and 
guaranteed by the Secretary. A direct loan obligation under this sub-
section shall be treated in the same manner and to the same extent 
as an obligation guaranteed under this chapter except with respect to 
provisions of this chapter that by their nature can only be applied to 
obligations guaranteed under this chapter. 
‘‘(2) INTEREST RATE.—Notwithstanding any other provision of this 
chapter, the annual rate of interest an obligor shall pay on a direct 
loan obligation under this subsection is 2 percent plus the additional 
percent the Secretary must pay as interest to borrow from the Treas-
ury the funds to make the loan. 
‘‘§ 53703. Application procedures 
‘‘(a) TIME FOR DECISION.— 
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‘‘(1) IN GENERAL.—The Secretary shall approve or deny an applica-
tion for a loan guarantee under this chapter within 270 days after the 
date on which the signed application is received by the Secretary. 
‘‘(2) EXTENSION.—On request by an applicant, the Secretary may 
extend the 270-day period in paragraph (1) to a date not later than 
2 years after the date on which the signed application was received by 
the Secretary. 
‘‘(b) CERTIFICATION OF REVIEW.—The Secretary may not guarantee or 
make a commitment to guarantee an obligation under this chapter unless 
the Secretary certifies that a full and fair consideration of all the regulatory 
requirements, including economic soundness and financial requirements ap-
plicable to the obligor and related parties, and a thorough assessment of the 
technical, economic, and financial aspects of the loan application, has been 
made. 
‘‘§ 53704. Funding limits 
‘‘(a) GENERAL LIMITATIONS.—The total unpaid principal amount of obli-
gations guaranteed under this chapter and outstanding at one time may not 
exceed $12,000,000,000. Of that amount— 
‘‘(1) $850,000,000 shall be limited to obligations related to fishing 
vessels and fishery facilities; and 
‘‘(2) $3,000,000,000 shall be limited to obligations related to eligible 
export vessels. 
‘‘(b) ADDITIONAL LIMITATIONS.—Additional limitations may not be im-
posed on new commitments to guarantee loans for any fiscal year, except 
in amounts established in advance by annual authorization laws. A vessel 
eligible for a guarantee under this chapter may not be denied eligibility be-
cause of its type. 
‘‘(c) LIMITS BASED ON RISK FACTORS.— 
‘‘(1) DEFINITION.—In this subsection, the term ‘cost’ has the mean-
ing given that term in section 502 of the Federal Credit Reform Act 
of 1990 (2 U.S.C. 661a). 
‘‘(2) SYSTEM OF RISK CATEGORIES.—The Secretary shall— 
‘‘(A) establish, and update annually, a system of risk categories 
for obligations guaranteed under this chapter that categorizes the 
relative risk of guarantees based on the risk factors set forth in 
paragraph (4); 
‘‘(B) determine annually for each risk category a subsidy rate 
equivalent to the cost of obligations in the category, expressed as 
a percentage of the amount guaranteed for obligations in the cat-
egory; and 
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‘‘(C) ensure that each risk category is comprised of loans that 
are relatively homogeneous in cost and share characteristics pre-
dictive of defaults and other costs, given the facts known at the 
time of obligation or commitment, using a risk category system 
that is based on historical analysis of program data and statistical 
evidence concerning the likely costs of defaults or other costs that 
are expected to be associated with the loans in the category. 
‘‘(3) USE OF SYSTEM.— 
‘‘(A) PLACING OBLIGATION IN CATEGORY.—Before making a 
guarantee under this chapter for an obligation, and annually for 
projects subject to a guarantee, the Secretary shall apply the risk 
factors specified in paragraph (4) to place the obligation in a risk 
category established under paragraph (2). 
‘‘(B) REDUCTION OF AVAILABLE AMOUNT.—The Secretary shall 
consider the total amount available to the Secretary for making 
guarantees under this chapter to be reduced by the amount deter-
mined by multiplying— 
‘‘(i) the amount guaranteed under this chapter for an obli-
gation; by 
‘‘(ii) the subsidy rate for the category in which the obliga-
tion is placed under subparagraph (A). 
‘‘(C) ESTIMATED
COST.—The estimated cost to the United 
States Government of a guarantee under this chapter for an obli-
gation is deemed to be the amount determined under subpara-
graph (B) for the obligation. 
‘‘(D) RESTRICTION ON FURTHER GUARANTEES.—The Secretary 
may not guarantee obligations under this chapter after the total 
amount available to the Secretary under appropriations laws for 
the cost of loan guarantees is considered to be reduced to zero 
under subparagraph (B). 
‘‘(4) RISK FACTORS.—The risk factors referred to in this subsection 
are— 
‘‘(A) if applicable, the country risk for each eligible export vessel 
financed or to be financed by an obligation; 
‘‘(B) the period for which an obligation is guaranteed or to be 
guaranteed; 
‘‘(C) the amount of an obligation guaranteed or to be guaran-
teed in relation to the total cost of the project financed or to be 
financed by the obligation; 
‘‘(D) the financial condition of an obligor or applicant for a 
guarantee; 
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145 
‘‘(E) if applicable, other guarantees related to the project; 
‘‘(F) if applicable, the projected employment of each vessel or 
equipment to be financed with an obligation; 
‘‘(G) if applicable, the projected market that will be served by 
each vessel or equipment to be financed with an obligation; 
‘‘(H) the collateral provided for a guarantee for an obligation; 
‘‘(I) the management and operating experience of an obligor or 
applicant for a guarantee; 
‘‘(J) whether a guarantee under this chapter is or will be in ef-
fect during the construction period of the project; and 
‘‘(K) the concentration risk presented by an unduly large per-
centage of loans outstanding by any one borrower or group of af-
filiated borrowers. 
‘‘§ 53705. Pledge of United States Government 
‘‘(a) FULL FAITH AND CREDIT.—The full faith and credit of the United 
States Government is pledged to the payment of a guarantee made under 
this chapter, for both principal and interest, including interest (as may be 
provided for in the guarantee) accruing between the date of default under 
a guaranteed obligation and the date of payment in full of the guarantee. 
‘‘(b) INCONTESTABILITY.—A guarantee or commitment to guarantee 
made under this chapter is conclusive evidence of the eligibility of the obli-
gation for the guarantee. The validity of a guarantee or commitment to 
guarantee made under this chapter is incontestable. 
‘‘§ 53706. Eligible purposes of obligations 
‘‘(a) IN GENERAL.—To be eligible for a guarantee under this chapter, an 
obligation must aid in any of the following: 
‘‘(1)(A) Financing (including reimbursement of an obligor for ex-
penditures previously made for) the construction, reconstruction, or re-
conditioning of a vessel (including an eligible export vessel) designed 
principally for research, or for commercial use— 
‘‘(i) in the coastwise or intercoastal trade; 
‘‘(ii) on the Great Lakes, or on bays, sounds, rivers, harbors, 
or inland lakes of the United States; 
‘‘(iii) in foreign trade as defined in section 109(b) of this title; 
‘‘(iv) as an ocean thermal energy conversion facility or 
plantship; 
‘‘(v) as a floating drydock in the construction, reconstruction, 
reconditioning, or repair of vessels; or 
‘‘(vi) as an eligible export vessel in worldwide trade. 
‘‘(B) A guarantee under subparagraph (A) may not be made more 
than one year after delivery of the vessel (or redelivery if the vessel was 
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146 
reconstructed or reconditioned) unless the proceeds of the obligation 
are used to finance the construction, reconstruction, or reconditioning 
of a vessel or of facilities or equipment related to marine operations. 
‘‘(2) Financing (including reimbursement of an obligor for expendi-
tures previously made for) the construction, reconstruction, recondi-
tioning, or purchase of a vessel owned by citizens of the United States 
and designed principally for research, or for commercial use in the fish-
ing industry. 
‘‘(3) Financing the purchase, reconstruction, or reconditioning of a 
vessel or fishery facility— 
‘‘(A) for which an obligation was guaranteed under this chapter; 
and 
‘‘(B) that, under subchapter II of this chapter— 
‘‘(i) is a vessel or fishery facility for which an obligation 
was accelerated and paid; 
‘‘(ii) was acquired by the Federal Ship Financing Fund or 
successor account under section 53717 of this title; or 
‘‘(iii) was sold at foreclosure begun or intervened in by the 
Secretary. 
‘‘(4) Financing any part of the repayment to the United States Gov-
ernment of any amount of a construction-differential subsidy paid for 
a vessel. 
‘‘(5) Refinancing an existing obligation (regardless of whether guar-
anteed under this chapter) issued for a purpose described in para-
graphs (1)–(4), including a short-term obligation incurred to obtain 
temporary funds with the intention of refinancing. 
‘‘(6) Financing or refinancing (including reimbursement of an obli-
gor for expenditures previously made for) the construction, reconstruc-
tion, reconditioning, or purchase of a fishery facility. 
‘‘(7) Financing or refinancing (including reimbursement of an obli-
gor for expenditures previously made for) the purchase of an individual 
fishing quota in accordance with section 303(d)(4) of the Magnuson- 
Stevens Fishery Conservation and Management Act (16 U.S.C. 
1853(d)(4)). 
‘‘(b) NON-VESSELS TREATED AS VESSELS.—An obligation guaranteed 
under subsection (a)(6) or (7) shall be treated, for purposes of this chapter, 
in the same manner and to the same extent as an obligation that aids in 
financing the construction, reconstruction, reconditioning, or purchase of a 
vessel, except with respect to provisions that by their nature can only be 
applied to vessels. 
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‘‘(c) PRIORITIES FOR CERTAIN VESSELS.—In guaranteeing or making a 
commitment to guarantee an obligation under this chapter, the Secretary 
shall give priority to— 
‘‘(1) a vessel that is otherwise eligible for a guarantee and is con-
structed with assistance under subtitle D of the Maritime Security Act 
of 2003 (46 U.S.C. 53101 note); and 
‘‘(2) after applying paragraph (1), a vessel that is otherwise eligible 
for a guarantee and that the Secretary of Defense determines— 
‘‘(A) is suitable for service as a naval auxiliary in time of war 
or national emergency; and 
‘‘(B) meets a shortfall in sealift capacity or capability. 
‘‘§ 53707. Findings related to obligors and operators 
‘‘(a) RESPONSIBLE OBLIGOR.—The Secretary may not guarantee or make 
a commitment to guarantee an obligation under this chapter unless the Sec-
retary finds that the obligor is responsible and has the ability, experience, 
financial resources, and other qualifications necessary for the adequate oper-
ation and maintenance of each vessel that will serve as security for the 
guarantee. 
‘‘(b) OPERATORS OF LINER VESSELS.—The Secretary of Transportation 
may not guarantee or make a commitment to guarantee a loan for the con-
struction, reconstruction, or reconditioning of a liner vessel under this chap-
ter unless the Chairman of the Federal Maritime Commission certifies that 
the operator of the vessel has not been found by the Commission to have 
committed, within the previous 5 years— 
‘‘(1) a violation of part A of subtitle IV of this title that involves 
unjust or unfair discriminatory treatment or undue or unreasonable 
prejudice or disadvantage with respect to a United States shipper, 
ocean transportation intermediary, ocean common carrier, or port; or 
‘‘(2) a violation of part B of subtitle IV of this title. 
‘‘(c) OPERATORS OF FISHING VESSELS.—The Secretary of Commerce 
may not guarantee or make a commitment to guarantee a loan for the con-
struction, reconstruction, or reconditioning of a fishing vessel under this 
chapter if the operator of the vessel has been— 
‘‘(1) held liable, or the vessel has been held liable in rem, for a civil 
penalty under section 308 of the Magnuson-Stevens Fishery Conserva-
tion and Management Act (16 U.S.C. 1858) and the operator has not 
paid the penalty; 
‘‘(2) found guilty of an offense under section 309 of the Magnuson- 
Stevens Fishery Conservation and Management Act (16 U.S.C. 1859) 
and not paid the assessed fine or served the assessed sentence; 
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148 
‘‘(3) held liable for a civil or criminal penalty under section 105 of 
the Marine Mammal Protection Act of 1972 (16 U.S.C. 1375) and not 
paid the assessed fine or served the assessed sentence; or 
‘‘(4) held liable for a civil penalty by the Coast Guard under this 
title or title 33 and not paid the assessed fine. 
‘‘(d) WAIVERS CONCERNING FINANCIAL CONDITION.—The Secretary 
shall prescribe regulations concerning circumstances under which waivers of, 
or exceptions to, otherwise applicable regulatory requirements concerning fi-
nancial condition can be made. The regulations shall require that— 
‘‘(1) the economic soundness requirements in section 53708(a) of 
this title are met after the waiver of the financial condition require-
ment; and 
‘‘(2) the waiver shall provide for the imposition of other requirements 
on the obligor designed to compensate for the increased risk associated 
with the obligor’s failure to meet regulatory requirements applicable to 
financial condition. 
‘‘§ 53708. Findings related to economic soundness 
‘‘(a) BY SECRETARY OF TRANSPORTATION.—The Secretary of Transpor-
tation may not guarantee or make a commitment to guarantee an obligation 
under this chapter unless the Secretary finds that the property or project 
for which the obligation will be executed will be economically sound. In mak-
ing that finding, the Secretary shall consider— 
‘‘(1) the need in the particular segment of the maritime industry for 
new or additional capacity, including any impact on existing equipment 
for which a guarantee under this chapter is in effect; 
‘‘(2) the market potential for employment of the vessel over the life 
of the guarantee; 
‘‘(3) projected revenues and expenses associated with employment of 
the vessel; 
‘‘(4) any charter, contract of affreightment, transportation agree-
ment, or similar agreement or undertaking relevant to the employment 
of the vessel; 
‘‘(5) other relevant criteria; and 
‘‘(6) for inland waterways, the need for technical improvements, in-
cluding increased fuel efficiency or improved safety. 
‘‘(b) BY SECRETARY OF COMMERCE.—The Secretary of Commerce may 
not guarantee or make a commitment to guarantee an obligation under this 
chapter unless the Secretary finds, at or prior to the time the commitment 
is made or the guarantee becomes effective, that— 
‘‘(1) the property or project for which the obligation will be executed 
will be economically sound; and 
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