132 
‘‘(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— 
‘‘(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in the fund as an amount withdrawn from the fund in a nonqualified with-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
133 
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 
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);
134 
‘‘(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 
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-
135 
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 
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.
136 
‘‘(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— 
‘‘(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.
137 
‘‘§ 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 
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.
138 
‘‘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: 
‘‘(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
139 
‘‘(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.— 
‘‘(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.
140 
‘‘(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 
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
141 
‘‘(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; 
‘‘(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