I
106TH CONGRESS
1ST SESSION
H. R. 3392
To provide tax incentives for the construction of seagoing cruise ships in
United States shipyards, and to facilitate the development of a United
States-flag, United States-built cruise industry, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
NOVEMBER 16, 1999
Mr. HUNTER introduced the following bill; which was referred to the Com-
mittee on Ways and Means, and in addition to the Committees on Armed
Services, and Transportation and Infrastructure, for a period to be subse-
quently determined by the Speaker, in each case for consideration of such
provisions as fall within the jurisdiction of the committee concerned
A BILL
To provide tax incentives for the construction of seagoing
cruise ships in United States shipyards, and to facilitate
the development of a United States-flag, United States-
built cruise industry, and for other purposes.
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 ‘‘All American Cruise
Act of 1999’’.
TITLE I—TAX INCENTIVES FOR
CRUISE SHIP CONSTRUCTION
AND OPERATION
SEC. 101. TAX TREATMENT OF UNITED STATES-BUILT
CRUISE SHIPS DURING CONSTRUCTION PE-
RIOD.
(a) AMENDMENT.—Section 460(e) of the Internal
Revenue Code of 1986 (relating to special rules for long-
term contracts) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(7) SPECIAL
RULE
FOR
CRUISE
SHIP
CON-
STRUCTION CONTRACTS.—In the case of any con-
tract for the construction or overhaul of an ocean-
going cruise ship of at least 20,000 gross tons, a
contractor may, at the contractor’s election, use the
completed contract method of accounting for each
ship that is constructed or overhauled, provided
that—
‘‘(A) the construction or overhaul of the
ship will take more than 12 months to complete
from the contract commencement date to the
date that the ship is delivered or returned to
the owner,
‘‘(B) the reporting of revenue and costs for
each ship may not be deferred beyond the date
of delivery or return of the ship to the owner,
and
‘‘(C) when a contract provides for the con-
struction or overhaul of more than 1 ship, each
ship covered by the contract will be treated as
an individual ship contract for the purpose of
applying the completed contract method of ac-
counting, and the reporting of revenue and
costs for each ship may not be deferred beyond
the date on which the ship is delivered or re-
turned to the owner.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1999.
SEC. 102. GROSS INCOME EXCLUSION FOR CRUISE SHIP OP-
ERATIONS.
(a) AMENDMENTS.—Part III of subchapter B of
chapter 1 of the Internal Revenue Code of 1986 (relating
to amounts specifically excluded from gross income) is
amended by redesignating section 139 as section 140 and
by inserting after section 138 the following new section:
‘‘SEC. 139. AMOUNTS DERIVED FROM CRUISE SHIP OPER-
ATIONS.
‘‘(a) GENERAL RULE.—Gross income of a corpora-
tion organized in the United States shall not include
amounts derived by the corporation from the operation of
a cruise ship which was built in the United States and
has a certificate of documentation issued under chapter
121 of title 46, United States Code.
‘‘(b) DEFINITION.—For purposes of subsection (a),
the term ‘cruise ship’ means a seagoing passenger vessel
of at least 20,000 gross tons that provides a full range
of overnight accommodations, entertainment, dining, and
other services for its passengers.’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1999.
SEC. 103. CREDIT FOR INCOME FROM CRUISE SHIP CON-
STRUCTION CONTRACTS.
(a) AMENDMENT.—Subpart D of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of
1986 (relating to credits against tax) is amended by add-
ing at the end the following new section:
‘‘SEC. 45D. CRUISE SHIP CONSTRUCTION CREDIT.
‘‘(a) GENERAL RULE.—In the case of a taxpayer de-
scribed in subsection (b), there shall be allowed a credit
against the taxes imposed by this chapter for the taxable
year an amount equal to the amount of any income taxes
that would be paid or accrued during the taxable year (but
for this section) to the United States on the income real-
ized from any construction contract described in sub-
section (c).
‘‘(b) TAXPAYER DESCRIBED.—The taxpayer referred
to in subsection (a) is a resident of the United States,
or a corporation organized in the United States, whose
average annual gross receipts for the 3 taxable years pre-
ceding the taxable year in which such construction con-
tract is entered into are not less than $30,000,000.
‘‘(c) CONSTRUCTION CONTRACT.—The construction
contract referred to in subsection (a) is any contract for
the construction of a cruise ship entered into by the tax-
payer, in a case where the taxpayer estimates (at the time
such contract is entered into) that the ship construction
under the contract will be completed within the 2-year pe-
riod beginning on the contract commencement date.
‘‘(d) DEFINITION.—The term ‘cruise ship’ means a
seagoing passenger vessel of at least 20,000 gross tons
that provides a full range of overnight accommodations,
entertainment, dining, and other services for its pas-
sengers.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1999.
SEC. 104. ACCELERATED DEPRECIATION.
(a) AMENDMENTS.—Section 168(e)(3)(C) of the In-
ternal Revenue Code of 1986 (relating to accelerated cost
recovery) is amended—
(1) by striking ‘‘and’’ at the end of clause (i),
(2) by redesignating clause (ii) as clause (iii),
and
(3) by inserting after clause (i) the following
new clause:
‘‘(ii) a seagoing passenger vessel of at
least 20,000 gross tons that provides a full
range of overnight accommodations, enter-
tainment, dining, and other services for its
passengers, and’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1999.
SEC. 105. DEDUCTION FOR CERTAIN BUSINESS EXPENSES
ON CRUISE SHIPS.
(a) IN GENERAL.—Section 274(h) of the Internal
Revenue Code of 1986 (relating to certain entertainment
expenses) is amended—
(1) in paragraph (2)—
(A) by striking ‘‘meets the requirements of
paragraph (5) and’’, and
(B) by striking all after ‘‘trade or busi-
ness’’ and inserting ‘‘and that the cruise ship is
a United States-built vessel registered in the
United States, or a foreign-built vessel reg-
istered in the United States under section 8109
of Public Law 105–56 or title III of the All
American Cruise Act of 1999.’’,
(2) by striking paragraph (5) of subsection (h),
and
(3) by striking paragraph (1) of subsection (m).
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1999.
SEC. 106. CREDIT FOR USE OF CLEAN-BURNING GAS EN-
GINES.
(a) AMENDMENT.—Subpart B of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of
1986 (relating to foreign tax credit, etc.) is amended by
adding at the end the following new section:
‘‘SEC. 30B. CREDIT FOR USE OF CLEAN-BURNING ENGINES.
‘‘(a) ALLOWANCE OF CREDIT.—There shall be al-
lowed as a credit against the tax imposed by this chapter
for the taxable year an amount equal to 20 percent of the
annual cost of fuel consumed by clean-burning engines on
a cruise ship that was built in the United States and is
documented under the laws of the United States.
‘‘(b) ADJUSTMENTS.—The credit allowed by sub-
section (a) of this section for any taxable year shall not
exceed the excess (if any) of—
‘‘(1) the regular tax for the taxable year re-
duced by the sum of the credits allowable under sub-
part A and section 27, over
‘‘(2) the tentative minimum tax for the taxable
year.
‘‘(c) DEFINITIONS.—For purposes of this section:
‘‘(1) 
CLEAN-BURNING
ENGINE.—The 
term
‘clean-burning engine’ means a gas turbine engine,
manufactured in the United States or a possession
of the United States, that burns 100 percent dis-
tillate fuel with less than 1.5 percent sulfur.
‘‘(2) CRUISE
SHIP.—The term ‘cruise ship’
means a seagoing passenger vessel of at least 20,000
gross tons that provides a full range of overnight ac-
commodations, entertainment, dining, and other
services for its passengers.’’.
(b) CLERICAL AMENDMENT.—The table of sections
for subpart B of part IV of subchapter A of chapter 1
of such Code is amended by adding at the end the fol-
lowing new item:
‘‘Sec. 30B. Credit for use of clean-burning engines.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1999.
TITLE II—CAPITAL CONSTRUC-
TION FUNDS FOR PASSENGER
VESSEL CONSTRUCTION
SEC. 201. AMENDMENTS TO MERCHANT MARINE ACT, 1936.
(a) CHANGES IN VESSELS TO WHICH CAPITAL CON-
STRUCTION FUNDS APPLY.—
(1) The second sentence of subsection (a) of
section 607 of the Merchant Marine Act, 1936 (46
U.S.C. App. 1177) is amended by striking ‘‘for oper-
ation in the United States foreign, Great Lakes, or
noncontiguous domestic trade or in the fisheries of
the United States’’ and inserting ‘‘for operation in
the fisheries of the United States, or in the United
States foreign, Great Lakes, or noncontiguous do-
mestic trade, or for operation as a passenger vessel
in the oceangoing domestic trade,’’.
(2) Paragraph (1) of section 607(k) of such Act
(defining eligible vessel) is amended to read as fol-
lows:
‘‘(1) The term ‘eligible vessel’ means any
vessel—
‘‘(A) constructed in the United States, and
if reconstructed, reconstructed in the United
States;
‘‘(B) documented under the laws of the
United States; and
‘‘(C) operated in the foreign or domestic
commerce of the United Sates or in the fish-
eries of the United States.
A foreign-built passenger vessel temporarily docu-
mented with a coastwise trade endorsement under
section 8109 of Public Law 105–56 or title III of
the All American Cruise Act of 1999 shall be treated
as satisfying the requirements of subparagraph (A)
of this paragraph.’’.
(3) Paragraph (2)(C) of section 607(k) of such
Act is amended to read as follows:
‘‘(C) which the person maintaining the
fund agrees with the Secretary will be operated
in the fisheries of the United States, in the
United States foreign, Great Lakes, or non-
contiguous domestic trade, or (only in the case
of a passenger vessel) in the oceangoing domes-
tic trade.’’.
(4) Subsection (f) of section 607 of such Act is
amended by adding at the end thereof the following
new paragraph:
‘‘(3) 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 sub-
section, the term ‘qualified withdrawal’ has the
meaning given such term by applying subsection
(k)(2) as of the date of enactment of the All Amer-
ican Cruise Act of 1999.’’.
(5) Subsection (k) of section 607 of such Act
is amended by adding at the end thereof the fol-
lowing new paragraphs:
‘‘(10) The terms ‘foreign commerce’ and ‘for-
eign trade’ have the meanings given such terms in
section 905 of this Act, except that in the case of
passenger vessels, these terms shall include com-
merce or trade between foreign ports.
‘‘(11) The term ‘passenger vessel’ means a sea-
going passenger vessel of at least 20,000 gross tons
that provides a full range of overnight accommoda-
tions, entertainment, dining, and other services for
its passengers.
‘‘(12) The term ‘oceangoing domestic trade’
means—
‘‘(A) the operation of a passenger vessel on
a coastwise voyage between points in the United
States; or
‘‘(B) the operation of a passenger vessel on
a voyage to transport passengers to the high
seas beginning at a point in the United States
and returning to the same point without stop-
ping at any other point.’’.
(b) TREATMENT OF CERTAIN LEASE PAYMENTS.—
(1) Paragraph (1) of section 607(f) of such Act
is amended by striking ‘‘or’’ at the end of subpara-
graph (B), by striking the period at the end of sub-
paragraph (C) and inserting ‘‘, or’’, and by inserting
after subparagraph (C) the following new subpara-
graph:
‘‘(D) the payment of amounts which re-
duce the principal amount (as determined under
regulations promulgated by the Secretary) of a
qualified lease of a qualified vessel or container
which is part of the complement of an eligible
vessel.’’.
(2) Paragraph (4) of section 607(g) of such Act
is amended by inserting ‘‘or to reduce the principal
amount of any qualified lease’’ after ‘‘indebtedness’’.
(3) Subsection (k) of section 607 of such Act
is further amended by adding at the end thereof the
following new paragraph:
‘‘(13) the term ‘qualified lease’ means any lease
with a term of at least 5 years.’’.
(c) AUTHORITY TO MAKE DEPOSITS
FOR PRIOR
YEARS BASED ON AUDIT ADJUSTMENTS.—Subsection (b)
of section 607 of such Act is amended by adding at the
end the following new paragraph:
‘‘(4) To the extent permitted by joint regula-
tions, deposits may be made in excess of the limita-
tion described in paragraph (1) (and any limitation
specified in the agreement) 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 en-
tered into during the taxable 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 607(e) of such Act
is amended to read as follows:
‘‘(3) The capital gain account shall consist of—
‘‘(A) amounts representing long-term cap-
ital gains (as defined in section 1222 of such
Code) on assets referred to in subsection
(b)(1)(C), 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 607(e)(4) of
such Act is amended to read as follows:
‘‘(B)(i) amounts representing short-term capital
gains (as defined in section 1222 of such Code) on
assets referred to in subsection (b)(1)(C), reduced
by
‘‘(ii) amounts representing short-term capital
losses (as defined in such section) on assets held in
the fund,’’.
(3) Subparagraph (B) of section 607(h)(3) of
such Act is amended by striking ‘‘gain’’ and all that
follows and inserting ‘‘long-term capital gain (as de-
fined in section 1222 of such Code), and’’.
(4) The last sentence of subparagraph (A) of
section 607(h)(6) of such Act is amended by striking
‘‘20 percent (34 percent in the case of a corpora-
tion)’’ and inserting ‘‘the rate applicable to net cap-
ital gain under section 1(h) or 1201(a) of such
Code, as the case may be’’.
(e) COMPUTATION OF INTEREST WITH RESPECT TO
NONQUALIFIED WITHDRAWALS.—
(1) Subparagraph (C) of section 607(h)(3) of
such Act 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 of such
Code,’’, 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
of such Code’’.
(2) Subsection (h) of section 607 of such Act
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 607(h)(5) of
such Act, as redesignated by paragraph (2) of this
subsection, is amended by striking ‘‘paragraph (5)’’
and inserting ‘‘paragraph (4)’’.
(f) OTHER CHANGES.—
(1) Section 607 of such Act is amended by
striking ‘‘the Internal Revenue Code of 1954’’ each
place it appears and inserting ‘‘the Internal Revenue
Code of 1986’’.
(2) Subsection (c) of section 607 of such Act is
amended by striking ‘‘interest-bearing securities ap-
proved by the Secretary’’ and inserting ‘‘interest-
bearing securities and other income-producing assets
(including accounts receivable) approved by the Sec-
retary’’.
SEC. 202. 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 (relating to purposes
of qualified withdrawals) 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.’’.
(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
FOR PRIOR
YEARS BASED ON AUDIT ADJUSTMENTS.—Subsection (a)
of section 7518 of such Code is amended by adding at
the end the following new paragraph:
‘‘(4) To the extent permitted by joint regula-
tions, deposits may be made in excess of the limita-
tions described in paragraph (1) (and any limitation
specified in the agreement) 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 en-
tered into during the taxable year, the amount of the
deposit could have been made for such prior taxable
year.’’.
(c) 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) amount representing long-term cap-
ital gains (as defined in section 1222) on assets
referred to in subsection (a)(1)(C), reduced by
second cruise ship be delivered no later than 5 years
after the contract is entered into;
(3) each cruise ship to be constructed under the
contract is different from any cruise ship to be con-
structed under a contract that serves as the basis
for the issuance under this section of a certificate of
documentation for another foreign-built cruise ship;
and
(4) in the case of a contract for more than 2
ships in a series, the average period between the de-
livery dates of the ships under the contract does not
exceed 24 months.
(b) EXPIRATION.—A certificate of documentation
issued under subsection (a) shall expire and cease to be
valid on the date that is 12 months after the projected
delivery date for the last cruise ship to be built under the
construction contract furnished by the owner or operator
upon applying for documentation. The Secretary shall
specify the expiration date on the face of the certificate
of documentation.
(c) TRANSFER OF REGISTRY.—Notwithstanding sec-
tion 9(c) of the Shipping Act, 1916 (46 U.S.C. App.
808(c)), a person may—
(1) sell, lease, charter, deliver, or in any man-
ner transfer, or agree to sell, lease, charter, deliver,