ated group (within the meaning of section
1504(a)) shall be treated as one corpora-
tion, except that—
‘‘(I) section 1504(a)(2) shall be
applied by substituting 50 percent for
80 percent; and
‘‘(II) section 1504(b)(3) shall not
apply.
‘‘(E) DEFINITION OF QUALIFIED U.S.-FLAG
FLEET.—For purposes of this paragraph—
‘‘(i) QUALIFIED U.S.-FLAG FLEET.—
The term ‘qualified U.S. flag fleet’ means
a fleet of four or more U.S.-flag cargo ves-
sels or two or more U.S.-flag passenger
vessels, each such vessel having a dead-
weight tonnage of not less than 10,000
deadweight tons and, in the case of a pas-
senger vessel, having berth or stateroom
accommodations for at least 275 pas-
sengers, for which a member of the con-
trolled group of which the controlled for-
eign corporation is a member is the owner
(or demise charterer) and which vessels
have been placed in service and operated
for at least 320 days in the preceding tax-
able year with days during which the vessel
is drydocked or undergoing survey, inspec-
tion or repair considered to be days on
which the vessel is operated;
‘‘(ii) U.S.-FLAG
VESSEL.—The term
‘U.S.-flag vessel’ means any vessel which is
documented under the laws of the United
States and is subject to the provisions of
section 8103 of title 46, United States
Code, relating to manning by citizens of
the United States.
‘‘(iii) 
CONTROLLED
GROUP.—The
term ‘controlled group’ has the meaning
given such term by section 1563(a) except
that—
‘‘(I) section 1563(a) shall be ap-
plied by substituting 50 percent for
80 percent; and
‘‘(II) section 1563(b)(2)(C) shall
not apply.
‘‘(iv) SPECIAL RULES.—In determin-
ing the qualified U.S.-flag fleet of a con-
trolled group—
‘‘(I) if a U.S.-flag vessel which is
part of a qualified U.S.-flag fleet is
destroyed by casualty or purchased by
requisition pursuant to section 1242
of title 46, United States Code, it may
continue to be included in such quali-
fied U.S.-flag fleet during the replace-
ment period, but only if a member of
the controlled group is or becomes the
owner (or demise charterer) of a re-
placement U.S.-flag vessel which is
placed in service (and not retired from
service) within the replacement period;
and
‘‘(II) if a member of the con-
trolled group owns (directly or indi-
rectly) at least 25 percent (by value)
of the stock of another corporation, or
at least 25 percent of the interest in
the capital or profits of a partnership,
such member shall be treated as if it
were the owner (or demise charterer)
of its proportionate share of the U.S.
flag vessels of which such corporation
or partnership is the owner (or demise
charterer).
‘‘(v) 
REPLACEMENT
PERIOD.—The
term ‘replacement period’ means the period
beginning on the date on which the cas-
ualty or purchase by requisition occurs and
ending on the earlier of the date—
‘‘(I) on which a replacement
U.S.-flag vessel is placed in service, or
‘‘(II) which is four years after
the close of the taxable year in which
the casualty or purchase by requisi-
tion occurs.
‘‘(vi) REPLACEMENT
U.S.-FLAG
VES-
SEL.—The term ‘replacement U.S.-flag
vessel’ means a U.S. flag vessel for which
a member of the controlled group has en-
tered into a binding contract for the pur-
chase or construction of such vessel during
the period—
‘‘(I) beginning on the day follow-
ing the date on which there is a loss
by casualty or purchase by requisition
pursuant to section 1242 of title 46,
United States Code, of a vessel in-
cluded in such controlled group’s
qualified U.S.-flag fleet, and
‘‘(II) ending on the date which is
two years after the date of such cas-
ualty or such purchase, but only if
such U.S.-flag vessel would be in-
cluded in the controlled group’s quali-
fied U.S.-flag fleet when it is placed
in service.’’
SEC. 3. REINVESTMENT IN U.S.-FLAG SHIPS.
Paragraph (2) of section 956(c) is amended—
(1) by striking ‘‘and’’ at the end of subpara-
graph (J), by striking the period at the end of sub-
paragraph (K) and inserting ‘‘; and’’, and by insert-
ing after subparagraph (K) the following new sub-
paragraph:
‘‘(L) any amount of funds loaned to a
United States person for the acquisition, con-
struction, or reconstruction of a vessel docu-
mented under the laws of the United States.’’,
and
(2) by adding at the end the following new
flush sentence:
‘‘Any interest payable on indebtedness described in
(L) shall be free from U.S. income tax withholding
under sections 1441 and 1442 if such interest is
paid to an individual resident in or corporation or
other entity organized under the laws of The Baha-
mas, Honduras, the Republic of Liberia, the Repub-
lic of Panama, the Republic of the Marshall Islands,
or such other country as the Secretary of Transpor-
tation certifies.’’
SEC. 4. EFFECTIVE DATE.
The amendments made by this Act shall apply to tax-
able years beginning after the date of enactment of this
Act.
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