I 
112TH CONGRESS 
1ST SESSION H. R. 2241 
To provide an election to terminate certain capital construction funds without 
penalties. 
IN THE HOUSE OF REPRESENTATIVES 
JUNE 16, 2011 
Mr. YOUNG of Alaska (for himself, Mr. MCDERMOTT, and Mr. INSLEE) intro-
duced the following bill; which was referred to the Committee on Ways 
and Means, and in addition to the Committee on Transportation and In-
frastructure, for a period to be subsequently determined by the Speaker, 
in each case for consideration of such provisions as fall within the juris-
diction of the committee concerned 
A BILL 
To provide an election to terminate certain capital 
construction funds without penalties. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. ELECTION TO TERMINATE CERTAIN CAPITAL 
CONSTRUCTION FUNDS. 
(a) AMENDMENTS TO CHAPTER 535 OF TITLE 46, 
UNITED STATES CODE.— 
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(1) IN
GENERAL.—Chapter 535 of title 46, 
United States Code, is amended by adding at the 
end the following new section: 
‘‘§ 53518. Election to terminate 
‘‘(a) IN GENERAL.— 
‘‘(1) ELECTION.—Any person who has entered 
into an agreement under this chapter with respect to 
a vessel operated in the fisheries of the United 
States may make an election under this paragraph 
to terminate the capital construction fund estab-
lished under such agreement. 
‘‘(2) EFFECT OF ELECTION ON INDIVIDUALS.— 
In the case of an individual who makes an election 
under paragraph (1) with respect to a capital con-
struction fund— 
‘‘(A) any amount remaining in such capital 
construction fund on the date of such election 
shall be distributed to such individual as a non-
qualified withdrawal, except that— 
‘‘(i) in computing the tax on such 
withdrawal, except as provided in para-
graph (4), subsections (c)(3)(B) and (f) of 
section 53511 shall not apply; and 
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‘‘(ii) the taxpayer may elect to aver-
age the income from such withdrawal as 
provided in subsection (b); and 
‘‘(B) such individual shall not be eligible to 
enter into, directly or indirectly, any future 
agreement to establish a capital construction 
fund under this chapter with respect to a vessel 
operated in the fisheries of the United States. 
‘‘(3) EFFECT OF ELECTION FOR ENTITIES.— 
‘‘(A) IN GENERAL.—In the case of a per-
son (other than an individual) who makes an 
election under paragraph (1)— 
‘‘(i) the total amount in the capital 
construction fund on the date of such elec-
tion shall be distributed to the share-
holders, partners, or members of such per-
son in accordance with the terms of the in-
struments setting forth the ownership in-
terests of such shareholders, partners, or 
members; 
‘‘(ii) each shareholder, partner, or 
member shall be treated as having estab-
lished a special temporary capital construc-
tion fund and having deposited amounts 
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received in the distribution into such spe-
cial temporary capital construction fund; 
‘‘(iii) no gain or loss shall be recog-
nized with respect to such distribution; 
‘‘(iv) the basis of any shareholder, 
partner, or member in the person shall not 
be reduced as a result of such distribution; 
‘‘(v) any amounts not distributed pur-
suant to clause (i) shall be distributed in 
a nonqualified withdrawal; and 
‘‘(vi) such person shall not be eligible 
to enter into, directly or indirectly, any fu-
ture agreement to establish a capital con-
struction fund under this chapter with re-
spect to a vessel operated in the fisheries 
of the United States. 
‘‘(B) SPECIAL TEMPORARY CAPITAL CON-
STRUCTION FUNDS.—For purposes of this chap-
ter, a special temporary capital construction 
fund shall be treated in the same manner as a 
capital construction fund established under sec-
tion 53503, except that the following rules shall 
apply: 
‘‘(i) A special temporary capital con-
struction fund shall be established without 
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regard to any agreement under section 
53503 and without regard to any eligible 
or qualified vessel. 
‘‘(ii) Section 53505 shall not apply 
and no amounts may be deposited into a 
special temporary capital construction fund 
other than amounts received pursuant to a 
distribution described in subparagraph 
(A)(i). 
‘‘(iii) In the case of any amounts dis-
tributed from a special temporary capital 
construction fund directly to a capital con-
struction fund of the taxpayer established 
under section 53505— 
‘‘(I) no gain or loss shall be rec-
ognized; 
‘‘(II) the limitation under section 
53505 shall not apply with respect to 
any amount so transferred; 
‘‘(III) such amounts shall not re-
duce taxable income under section 
53507(a)(1); and 
‘‘(IV) for purposes of section 
53511(e), such amounts shall be 
treated as deposited in the capital 
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‘‘(i) assigning the amounts received by 
the shareholders, partners, or members in 
a distribution described in subparagraph 
(A)(i) to the accounts described in section 
53508(a) in special temporary capital con-
struction funds; and 
‘‘(ii) preventing the abuse of the pur-
poses of this section. 
‘‘(4) TAX BENEFIT RULE.—Rules similar to the 
rules under section 53511(f)(3) shall apply for pur-
poses of determining tax liability on any nonqualified 
withdrawal under paragraph (2)(A), (3)(A)(v), or 
(3)(B)(v). 
‘‘(5) ELECTION.—Any election under paragraph 
(1)— 
‘‘(A) may only be made— 
‘‘(i) by a person who maintains a cap-
ital construction fund with respect to a 
vessel operated in the fisheries of the 
United States on the date of the enactment 
of this section; or 
‘‘(ii) by a person who maintains a 
capital construction fund which was estab-
lished pursuant to paragraph (3)(A)(ii) as 
a result of an election made by an entity 
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in which such person was a shareholder, 
partner, or member; 
‘‘(B) shall be made not later than the due 
date of the tax return (including extensions) for 
the person’s last taxable year ending on or be-
fore December 31, 2016; and 
‘‘(C) shall apply to all amounts in the cap-
ital construction fund with respect to which the 
election is made. 
‘‘(b) ELECTION TO AVERAGE INCOME.—At the elec-
tion of an individual who has received a distribution de-
scribed in subsection (a), for purposes of section 1301 of 
the Internal Revenue Code of 1986— 
‘‘(1) such individual shall be treated as engaged 
in a fishing business, and 
‘‘(2) such distribution shall be treated as in-
come attributable to a fishing business for such tax-
able year.’’. 
(2) CONFORMING AMENDMENTS.— 
(A) Section 53511 of title 46, United 
States Code, is amended by striking ‘‘section 
53513’’ and inserting ‘‘sections 53513 and 
53518’’. 
(B) The table of sections for chapter 535 
of title 46, United States Code, is amended by 
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inserting after the item relating to section 
53517 the following new item: 
‘‘53518. Election to terminate.’’. 
(b) AMENDMENTS
TO
THE INTERNAL REVENUE 
CODE OF 1986.— 
(1) IN GENERAL.—Section 7518 of the Internal 
Revenue Code of 1986 is amended by adding at the 
end the following new subsection: 
‘‘(j) ELECTION TO TERMINATE CAPITAL CONSTRUC-
TION FUNDS.— 
‘‘(1) IN GENERAL.—Any person who has en-
tered into an agreement under chapter 535 of title 
46 of the United States Code, with respect to a ves-
sel operated in the fisheries of the United States 
may make an election under this paragraph to ter-
minate the capital construction fund established 
under such agreement. 
‘‘(2) EFFECT OF ELECTION ON INDIVIDUALS.— 
In the case of an individual who makes an election 
under paragraph (1) with respect to a capital con-
struction fund, any amount remaining in such cap-
ital construction fund on the date of such election 
shall be distributed to such individual as a non-
qualified withdrawal, except that— 
‘‘(A) in computing the tax on such with-
drawal, except as provided in paragraph (4), 
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paragraphs (3)(C)(ii) and (6) of subsection (g) 
shall not apply, and 
‘‘(B) the taxpayer may elect to average the 
income from such withdrawal as provided in 
paragraph (6). 
‘‘(3) EFFECT OF ELECTION FOR ENTITIES.— 
‘‘(A) IN GENERAL.—In the case of a per-
son (other than an individual) who makes an 
election under paragraph (1)— 
‘‘(i) the total amount in the capital 
construction fund on the date of such elec-
tion shall be distributed to the share-
holders, partners, or members of such per-
son in accordance with the terms of the in-
struments setting forth the ownership in-
terests of such shareholders, partners, or 
members, 
‘‘(ii) each shareholder, partner, or 
member shall be treated as having estab-
lished a special temporary capital construc-
tion fund and having deposited amounts 
received in the distribution into such spe-
cial temporary capital construction fund, 
‘‘(iii) no gain or loss shall be recog-
nized with respect to such distribution, 
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‘‘(iv) the basis of any shareholder, 
partner, or member in the person shall not 
be reduced as a result of such distribution, 
and 
‘‘(v) any amounts not distributed pur-
suant to clause (i) shall be distributed as 
a nonqualified withdrawal. 
‘‘(B) SPECIAL TEMPORARY CAPITAL CON-
STRUCTION FUNDS.—For purposes of this sec-
tion, a special temporary capital construction 
fund shall be treated in the same manner as a 
capital construction fund established under sec-
tion 53503 of title 46, United States Code, ex-
cept that the following rules shall apply: 
‘‘(i) Subsection (a) shall not apply 
and no amounts may be deposited into a 
special temporary capital construction fund 
other than amounts received pursuant to a 
distribution described in subparagraph 
(A)(i). 
‘‘(ii) In the case of any amounts dis-
tributed from a special temporary capital 
construction fund directly to a capital con-
struction fund of the taxpayer established 
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under section 53505 of title 46, United 
States Code— 
‘‘(I) no gain or loss shall be rec-
ognized; 
‘‘(II) the limitation under sub-
section (a) shall not apply with re-
spect to any amount so transferred; 
‘‘(III) such amounts shall not re-
duce taxable income under subsection 
(c)(1)(A); and 
‘‘(IV) for purposes of subsection 
(g)(5), such amounts shall be treated 
as deposited in the capital construc-
tion fund on the date that such funds 
were deposited in the capital construc-
tion fund with respect to which the 
election under paragraph (1) was 
made. 
‘‘(iii) In the case of any amounts dis-
tributed from a special temporary capital 
construction fund pursuant to an election 
under paragraph (1), subparagraphs (A) 
and (B) of paragraph (2) shall not apply 
to so much of such amounts as are attrib-
utable to earnings accrued after the date 
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of the establishment of such special tem-
porary capital construction fund. 
‘‘(iv) Any amount not distributed 
from a special temporary capital construc-
tion fund before the due date of the tax re-
turn (including extension) for the last tax-
able year of the individual ending before 
January 1, 2017, shall be treated as dis-
tributed to the taxpayer on the day before 
such due date as if an election under para-
graph (1) were made by the taxpayer on 
such day. 
‘‘(C) REGULATIONS.—The joint regula-
tions shall provide rules for— 
‘‘(i) assigning the amounts received by 
the shareholders, partners, or members in 
a distribution described in subparagraph 
(A)(i) to the accounts described in sub-
section (d)(1) in special temporary capital 
construction funds; and 
‘‘(ii) preventing the abuse of the pur-
poses of this section. 
‘‘(4) TAX BENEFIT RULE.—Rules similar to the 
rules under subsection (g)(6)(B) shall apply for pur-
poses of determining tax liability on any nonqualified 
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withdrawal under paragraph (2), (3)(A)(v), or 
(3)(B)(iv). 
‘‘(5) ELECTION.—Any election under paragraph 
(1)— 
‘‘(A) may only be made— 
‘‘(i) by a person who maintains a cap-
ital construction fund with respect to a 
vessel operated in the fisheries of the 
United States on the date of the enactment 
of this subsection, or 
‘‘(ii) by a person who maintains a 
capital construction fund which was estab-
lished pursuant to subparagraph (3)(A)(ii) 
as a result of an election made by an enti-
ty in which such person was a shareholder, 
partner, or member, 
‘‘(B) shall be made not later than the due 
date of the tax return (including extensions) for 
the person’s last taxable year ending on or be-
fore December 31, 2016, and 
‘‘(C) shall apply to all amounts in the cap-
ital construction fund with respect to which the 
election is made. 
‘‘(6) ELECTION TO AVERAGE INCOME.—At the 
election of an individual who has received a distribu-
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tion described in paragraph (2), for purposes of sec-
tion 1301— 
‘‘(A) such individual shall be treated as en-
gaged in a fishing business, and 
‘‘(B) such distribution shall be treated as 
income attributable to a fishing business for 
such taxable year.’’. 
(2) 
CONFORMING
AMENDMENT.—Section 
7518(g)(1) of such Code is amended by striking 
‘‘subsection (h)’’ and inserting ‘‘subsections (h) and 
(j)’’. 
Æ 
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