I
106TH CONGRESS
1ST SESSION
H. R. 3225
To revitalize the international competitiveness of the United States-flag
maritime industry through tax relief.
IN THE HOUSE OF REPRESENTATIVES
NOVEMBER 4, 1999
Mr. MCCRERY (for himself and Mr. JEFFERSON) introduced the following bill;
which was referred to the Committee on Ways and Means
A BILL
To revitalize the international competitiveness of the United
States-flag maritime industry through tax relief.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘National Security Sea-
lift Enhancement Act of 1999’’.
SEC. 2. TABLE OF CONTENTS.
The table of contents for this Act is as follows:
Sec. 1. Short title.
Sec. 2. Table of contents.
TITLE I—CAPITAL CONSTRUCTION FUND
Sec. 101. Amendments of Internal Revenue Code of 1986.
Sec. 102. Amendment to the Tariff Act of 1930.
Sec. 103. Effective date.
TITLE II—ELECTION TO EXPENSE UNITED STATES FLAG
VESSELS
Sec. 201. Election to expense certain United States flag vessels.
TITLE III—INCOME EXCLUSION FOR MERCHANT SEAMEN
Sec. 301. Income of merchant seaman excludable from gross income as foreign
earned income.
TITLE IV—EXEMPTION FROM ALTERNATIVE MINIMUM TAX
Sec. 401. Exemption from alternative minimum tax for corporations that oper-
ate United States flag vessels.
TITLE V—CONVENTIONS ON UNITED STATES-FLAG CRUISE SHIPS
Sec. 501. Conventions on United States-flag cruise ships.
TITLE I—CAPITAL
CONSTRUCTION FUND
SEC. 101. AMENDMENTS OF INTERNAL REVENUE CODE OF
1986.
(a) TREATMENT OF CERTAIN LEASE PAYMENTS.—
(1) Paragraph (1) of section 7518(e) of the In-
ternal Revenue Code of 1986 is amended by striking
‘‘or’’ at the end of subparagraph (B), by striking the
period at the end of subparagraph (C) and inserting
‘‘, or’’, and by inserting after subparagraph (C) the
following new subparagraph:
‘‘(D) the payments of amounts which re-
duce the principal amount (as determined under
regulations) of a qualified lease of a qualified
vessel or container which is part of the com-
plement of an eligible vessel.’’.
(2) Paragraph (4) of section 7518(f) of such
Code is amended by inserting ‘‘or to reduce the prin-
cipal amount of any qualified lease’’ after ‘‘indebted-
ness’’.
(b) AUTHORITY TO MAKE DEPOSITS UNDER THE
TARIFF ACT OF 1930.—
(1) Paragraph (1) of section 7518(a) of such
Code is amended by striking ‘‘and’’ at the end of
subparagraph (C), by striking the period at the end
of subparagraph (D) and inserting ‘‘, and’’, and by
adding at the end the following new subparagraph:
‘‘(E) the amount elected for deposit under
subsection (i) of section 466 of the Tariff Act
of 1930 (19 U.S.C. 1466).’’.
(2) Subparagraph (A) of section 7518(d)(2) of
such Code is amended to read as follows:
‘‘(A) amounts referred to in subsections
(a)(1)(B) and (E).’’.
(c) AUTHORITY TO MAKE DEPOSITS
FOR PRIOR
YEARS BASED ON AUDIT ADJUSTMENTS.—Subsection (a)
of section 7518 of such Code is amended by adding at
the end thereof the following new paragraph:
‘‘(4) DEPOSITS FOR PRIOR YEARS.—To the ex-
tent permitted by joint regulations, deposits may be
made in excess of the limitation described in para-
graph (1) (and any limitation specified in the agree-
ment) for the taxable year if, by reason of a change
in taxable income for a prior taxable year that has
become final pursuant to a closing agreement or
other similar agreement entered into during the tax-
able year, the amount of the deposit could have been
made for such prior taxable year.’’.
(d) TREATMENT OF CAPITAL GAINS AND LOSSES.—
(1) Paragraph (3) of section 7518(d) of such
Code is amended to read as follows:
‘‘(3) CAPITAL
GAIN
ACCOUNT.—The capital
gain account shall consist of—
‘‘(A) amounts representing long-term cap-
ital gains (as defined in section 1222) on assets
held in the fund, reduced by
‘‘(B) amounts representing long-term cap-
ital losses (as defined in such section) on assets
held in the fund.’’.
(2) Subparagraph (B) of section 7518(d)(4) of
such Code is amended to read as follows:
‘‘(B)(i) amounts representing short-term
capital gains (as defined in section 1222) on as-
sets held in the fund, reduced by
‘‘(ii) amounts representing short-term cap-
ital losses (as defined in such section) on assets
held in the fund,’’.
(3) Subparagraph (B) of section 7518(g)(3) of
such Code is amended by striking ‘‘gain’’ and all
that follows and inserting ‘‘long-term capital gain
(as defined in section 1222), and’’.
(4) The last sentence of subparagraph (A) of
section 7518(g)(6) of such Code is amended by
striking ‘‘20 percent (34 percent in the case of a
corporation)’’ and inserting ‘‘the rate applicable to
net capital gain under such section 1(h)(1)(C) or
1201(a), as the case may be’’.
(e) COMPUTATION OF INTEREST WITH RESPECT TO
NONQUALIFIED WITHDRAWALS.—
(1) Subparagraph (C) of section 7518(g)(3) of
such Code is amended—
(A) by striking clause (i) and inserting the
following new clause:
‘‘(i) no addition to the tax shall be
payable under section 6651, and’’, and
(B) by striking ‘‘paid at the applicable rate
(as defined in paragraph (4))’’ in clause (ii) and
inserting ‘‘paid in accordance with section
6601’’.
(2) Subsection (g) of section 7518 of such Code
is amended by striking paragraph (4) and by redes-
ignating paragraphs (5) and (6) as paragraphs (4)
and (5), respectively.
(3) Subparagraph (A) of section 7518(g)(5) of
such Code, as redesignated by paragraph (2), is
amended by striking ‘‘paragraph (5)’’ and inserting
‘‘paragraph (4)’’.
(f) OTHER CHANGES.—
(1) Paragraph (2) of section 7518(b) of such
Code is amended by striking ‘‘interest-bearing secu-
rities approved by the Secretary’’ and inserting ‘‘in-
terest-bearing securities and other income-producing
assets (including accounts receivable) approved by
the Secretary’’.
(2) The last sentence of paragraph (1) of sec-
tion 7518(e) of such Code is amended by striking
‘‘and containers’’ each place it appears.
(3) Subparagraph (B) of section 543(a)(1) of
such Code is amended to read as follows:
‘‘(B) interest on amounts set aside in a
capital construction fund under section 607 of
the Merchant Marine Act, 1936 (46 App.
U.S.C. 1177), or in a construction reserve fund
under section 511 of such Act (46 App. U.S.C.
1161),’’.
(4) Subsection (c) of section 56 of such Code
is amended by striking paragraph (2) and by redes-
ignating paragraph (3) as paragraph (2).
(5) Section 7518(e) is amended by adding at
the end the following new paragraph:
‘‘(3) QUALIFIED WITHDRAWAL.—In the case of
amounts in any fund as of the date of the enactment
of this paragraph, and any earnings thereon, for
purposes of this subsection, the term ‘qualified with-
drawal’ has the meaning given such term by apply-
ing subsection (i)(2) as of such date.’’
(g) DEFINITIONS.—Subsection (i) of section 7518 of
such Code is amended to read as follows:
‘‘(i) DEFINITIONS.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), terms used in this section shall have the
same meaning as in section 607(k) of the Merchant
Marine Act, 1936.
‘‘(2) OTHER DEFINITIONS.—For the purposes
of this section—
‘‘(A) The term ‘eligible vessel’ means any
vessel—
‘‘(i) documented under the laws of the
United States, and
‘‘(ii) operated in the foreign or domes-
tic commerce of the United States or in
the fisheries of the United States.
‘‘(B) 
QUALIFIED
VESSEL.—The 
term
‘qualified vessel’ means any vessel—
‘‘(i) constructed in the United States
and, if reconstructed, reconstructed in the
United States,
‘‘(ii) documented under the laws of
the United States, and
‘‘(iii) which the person maintaining
the fund agrees with the Secretary will be
operated in the fisheries of the United
States, or in the United States foreign,
Great 
Lakes, 
noncontiguous 
domestic
trade, or other oceangoing domestic trade
between two coastal points in the United
States or in support of operations con-
ducted on the Outer Continental Shelf.
‘‘(C) VESSEL.—The term ‘vessel’ includes
containers or trailers intended for use as part
of the complement of one or more eligible ves-
sels and cargo handling equipment which the
Secretary determines is intended for use pri-
marily on the vessel. The term ‘vessel’ also in-
cludes an ocean-going towing vessel or an
ocean-going barge or comparable towing vessel
or barge operated on the Great Lakes.
‘‘(D) FOREIGN
COMMERCE.—The terms
‘foreign commerce’ and ‘foreign trade’ have the
meanings given such terms in section 905 of
the Merchant Marine Act, 1936, except that
these terms shall include commerce or trade be-
tween foreign ports.
‘‘(E) QUALIFIED LEASE.—The term ‘quali-
fied lease’ means any lease with a term of at
least 5 years.’’
SEC. 102. AMENDMENT TO THE TARIFF ACT OF 1930.
Section 466 of the Tariff Act of 1930 (19 U.S.C.
1466) is amended by adding at the end the following new
subsection:
‘‘(i) Election to Deposit Duty Into a Capital Con-
struction Fund In Lieu of Payment to The Secretary of
The Treasury.—At the election of the owner or master
of any vessel referred to in subsection (a) of this section
which is an eligible vessel (as defined in section 7518(i)(2)
of the Internal Revenue Code of 1986), the portion of any
duty imposed by subsection (a) which is deposited in a
fund established under section 607 of the Merchant Ma-
rine Act, 1936 shall be treated as paid to the Secretary
of the Treasury in satisfaction of the liability for such
duty.’’
SEC. 103. EFFECTIVE DATE.
(a) IN GENERAL.—Except as otherwise provided in
this section, the amendments made by this title shall apply
to taxable years ending after the date of the enactment
of this Act.
(b) CHANGES IN COMPUTATION OF INTEREST.—The
amendments made by section 101(e) shall apply to with-
drawals made after December 31, 1998, including for pur-
poses of computing interest on such a withdrawal for peri-
ods on or before such date.
(c) QUALIFIED LEASES.—The amendments made by
section 101(a) shall apply to leases in effect on, or entered
into after, December 31, 1998.
(d) AMENDMENT TO THE TARIFF ACT OF 1930.—
The amendment made by section 102 shall apply with re-
spect to entries not yet liquidated by December 31, 1998,
and to entries made on or after such date.
TITLE 
II—ELECTION 
TO 
EX-
PENSE UNITED STATES FLAG
VESSELS
SEC. 201. ELECTION TO EXPENSE CERTAIN UNITED STATES
FLAG VESSELS.
(a) IN GENERAL.—Part VI of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 is amended
by inserting after section 179A the following new section:
‘‘SEC. 
179B. 
DEDUCTION 
FOR 
UNITED 
STATES 
FLAG
VESSELS.
‘‘(a) TREATMENT AS EXPENSES.—A taxpayer may
elect to treat the cost of any vessel that is a qualified
United States flag vessel as an expense which is not
chargeable to its capital account.
‘‘(b) YEAR IN WHICH DEDUCTION ALLOWED.—The
deduction under subsection (a) shall be allowed for the
taxable year in which the vessel first becomes a qualified
United States flag vessel.
‘‘(c) DEFINITIONS.—
‘‘(1) QUALIFIED
UNITED
STATES
FLAG
VES-
SEL.—For purposes of this section, the term ‘quali-
fied United States flag vessel’ means a United
States flag vessel that is operated exclusively in the
foreign trade of the United States.
‘‘(2) COST.—For purposes of this section, the
term ‘cost’ means an amount equal to the lesser
of—
‘‘(A) the purchase price of the vessel, or
‘‘(B) the adjusted basis of the vessel, de-
termined under section 1011, at the time that
the vessel becomes a qualified United States
flag vessel.
‘‘(d) BASIS REDUCTION.—
‘‘(1) IN GENERAL.—For purposes of this title,
the basis of any property shall be reduced by the
portion of the cost of such property taken into ac-
count under subsection (a).
‘‘(2) ORDINARY
INCOME
RECAPTURE.—For
purposes of section 1245, the amount of the deduc-
tion allowable under subsection (a) with respect to
any property which is of a character subject to the
allowance for depreciation shall be treated as a de-
duction allowed for depreciation under section 167.’’
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (1) of section 263(a) of such
Code is amended by striking ‘‘or’’ at the end of sub-
paragraph (G), by striking the period at the end of
subparagraph (H) and inserting ‘‘; or’’, and by add-
ing at the end the following new subparagraph:
‘‘(I) expenditures for which a deduction is
allowed under section 179B.’’.
(2) Subparagraph (B) of section 312(k)(3) of
such Code is amended by striking ‘‘or 179A’’ each
place it appears and inserting ‘‘, 179A, or 179B’’.
(3) Subparagraph (C) of section 1245(a)(2) of
such Code is amended by inserting ‘‘179B,’’ after
‘‘179A,’’.
(4) The table of sections for part VI of sub-
chapter B of chapter 1 of such Code is amended by
inserting after the item relating to section 179A the
following new item:
‘‘Sec. 179B. Deduction for United States flag vessels.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending after the
date of the enactment of this Act.
TITLE III—INCOME EXCLUSION
FOR MERCHANT SEAMEN
SEC. 301. INCOME OF MERCHANT SEAMAN EXCLUDABLE
FROM GROSS INCOME AS FOREIGN EARNED
INCOME.
(a) SECTION 911 EXCLUSION.—Section 911(d) of the
Internal Revenue Code of 1986 (relating to citizens or
residents of the United States living abroad) is amended
by redesignating paragraph (9) as paragraph (10) and by
inserting after paragraph (8) the following:
TITLE IV—EXEMPTION FROM
ALTERNATIVE MINIMUM TAX
SEC. 401. EXEMPTION FROM ALTERNATIVE MINIMUM TAX
FOR CORPORATIONS THAT OPERATE UNITED
STATES FLAG VESSELS.
(a) IN GENERAL.—Section 55 of the Internal Rev-
enue Code of 1986 is amended by adding at the end the
following new subsection:
‘‘(f) EXEMPTION FOR CORPORATIONS THAT OPER-
ATE UNITED STATES FLAG VESSELS.—
‘‘(1) IN GENERAL.—The tentative minimum tax
of a corporation shall be zero for any taxable year
in which the corporation is a qualified corporation.
‘‘(2) DEFINITIONS.—For purposes of this
subsection—
‘‘(A) 
QUALIFIED
CORPORATION.—The
term ‘qualified corporation’ means any domestic
corporation if—
‘‘(i) substantially all of the assets of
such corporation are related to the mari-
time transportation business, and
‘‘(ii) such corporation owns or demise
charters a fleet of 4 or more qualified
United States flag vessels.
‘‘(B) QUALIFIED
UNITED
STATES
FLAG
VESSEL.—The term ‘qualified United States
flag vessel’ means a United States flag vessel
having a deadweight tonnage of not less than
10,000 deadweight tons that is operated exclu-
sively in the foreign trade of the United States
during each of the 360 days immediately pre-
ceding the last day of the taxable year. Days
during which the vessel is drydocked, surveyed,
inspected, or repaired shall be considered days
of operation for purposes of this subsection.
‘‘(C) FOREIGN TRADE.—The term ‘foreign
trade’ has the meaning given to such term by
section 7518(i)(2).’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years ending after the
date of the enactment of this Act.
TITLE 
V—CONVENTIONS 
ON
UNITED STATES-FLAG CRUISE
SHIPS
SEC. 501. CONVENTIONS ON UNITED STATES-FLAG CRUISE
SHIPS.
(a) IN GENERAL.—Section 274(h)(2) of the Internal
Revenue Code of 1986 (relating to conventions on cruise
ships) is amended by striking ‘‘that—’’ and all that follows
through ‘‘possessions of the United States.’’ and inserting
‘‘that the cruise ship is a vessel registered in the United
States.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years ending after
the date of the enactment of this Act.
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