‘‘(A) IN
GENERAL.—An election under
subsection (a) may be terminated by revocation.
‘‘(B) WHEN EFFECTIVE.—Except as pro-
vided in subparagraph (C)—
‘‘(i) a revocation made during the tax-
able year and on or before the 15th day of
the 3d month thereof shall be effective on
the 1st day of such taxable year, and
‘‘(ii) a revocation made during the
taxable year but after such 15th day shall
be effective on the 1st day of the following
taxable year.
‘‘(C) REVOCATION MAY SPECIFY PROSPEC-
TIVE DATE.—If the revocation specifies a date
for revocation which is on or after the day on
which the revocation is made, the revocation
shall be effective on and after the date so speci-
fied.
‘‘(2) BY ENTITY CEASING TO BE QUALIFYING
ENTITY.—
‘‘(A) IN
GENERAL.—An election under
subsection (a) shall be terminated whenever (at
any time on or after the 1st day of the 1st tax-
able year for which the entity is an electing en-
tity) such entity ceases to be a qualifying enti-
ty.
‘‘(B) WHEN EFFECTIVE.—Any termination
under this paragraph shall be effective on and
after the date of cessation.
‘‘(f) ELECTION AFTER TERMINATION.—If a quali-
fying entity has made an election under subsection (a) and
if such election has been terminated under subsection (e),
such entity (and any successor entity) shall not be eligible
to make an election under subsection (a) for any taxable
year before its 5th taxable year which begins after the 1st
taxable year for which such termination is effective, unless
the Secretary consents to such election.
‘‘SEC. 1355. DEFINITIONS AND SPECIAL RULES.
‘‘(a) DEFINITIONS.—For purposes of this sub-
chapter:
‘‘(1) The term ‘controlled group’ means any
group of trusts and business entities whose members
would be treated as a single employer under the
rules of section 52(a) (without regard to paragraphs
(1) and (2) thereof) and section 52(b)(1).
‘‘(2) The term ‘corporate income percentage’
means the least aggregate share, expressed as a per-
centage, of any item of income or gain of an electing
corporation or electing group of which such corpora-
tion is a member from qualifying shipping activities
that would, but for an election in effect under this
subchapter, be required to be reported on the Fed-
eral income tax return of an electing corporation
during any taxable period. In the case of an electing
group which includes two or more electing corpora-
tions, the corporate income percentage of each such
corporation shall be determined on the basis of such
corporations’ direct and indirect ownership and
charter interests in qualifying vessels of the electing
group or on such other basis as the Secretary may
prescribe by regulations.
‘‘(3) The term ‘corporate loss percentage’
means the greatest aggregate share, expressed as a
percentage, of any item of loss, deduction or credit
of an electing corporation or electing group of which
such corporation is a member from qualifying ship-
ping activities that would, but for an election in ef-
fect under this subchapter, be required to be re-
ported on the Federal income tax return of an elect-
ing corporation during any taxable period.
‘‘(4) The term ‘corporate percentages’ means
the corporate income percentage and the corporate
loss percentage.
‘‘(5) The term ‘electing corporation’ means any
C corporation that is an electing entity or that
would, but for an election in effect under this sub-
chapter, be required to report any item of income,
gain, loss, deduction, or credit of an electing entity
on its Federal income tax return.
‘‘(6) The term ‘electing entity’ means any quali-
fying entity for which an election is in effect under
this subchapter.
‘‘(7) The term ‘electing group’ means a con-
trolled group of which one or more members is an
electing entity.
‘‘(8) The term ‘noncorporate percentage’ means
the difference between one hundred percent and the
corporate income percentage or corporate loss per-
centage, as applicable.
‘‘(9) The term ‘qualifying entity’ means a trust
or business entity that—
‘‘(A) operates one or more qualifying ves-
sels, and
‘‘(B) meets the shipping activity require-
ment in subsection (c).
‘‘(10) The term ‘qualifying shipping assets’
means any qualifying vessel and other assets which
are used in core qualifying activities as described in
section 1356(b).
‘‘(11) The term ‘qualifying vessel’ means a self-
propelled (or a combination self-propelled and non-
self-propelled) United States flag vessel of not less
than 10,000 deadweight tons used in the United
States foreign trade.
‘‘(12) The term ‘United States domestic trade’
means the transportation of goods or passengers be-
tween places in the United States.
‘‘(13) The term ‘United States flag vessel’
means any vessel documented under the laws of the
United States.
‘‘(14) The term ‘United States foreign trade’
means the transportation of goods or passengers be-
tween a place in the United States and a foreign
place or between foreign places.
‘‘(b) OPERATING A VESSEL.—For purposes of this
subchapter:
‘‘(1) Except as provided in paragraph (2), an
entity is treated as operating any vessel owned by,
or chartered (including a time charter) to, the enti-
ty.
‘‘(2) An entity is treated as operating a vessel
that it has chartered out on bareboat charter terms
only if the vessel is temporarily surplus to the enti-
ty’s requirements and the term of the charter does
not exceed three years.
‘‘(c) SHIPPING ACTIVITY REQUIREMENT.—For pur-
poses of this section, the shipping activity requirement is
met for a taxable year only by an entity described in para-
graph (1), (2), or (3).
‘‘(1) An entity in the first taxable year of its
qualifying shipping tax election if, for the preceding
taxable year, the test in paragraph (4) is met.
‘‘(2) An entity in the second or any subsequent
taxable year of its qualifying shipping tax election if,
for each of the two preceding taxable years, the test
in paragraph (4) is met.
‘‘(3) An entity that would be described in para-
graph (1) or (2) if the test in paragraph (4) were
applied on an aggregate basis to the controlled
group of which such entity is a member, and vessel
charters between members of the controlled group
were disregarded.
‘‘(4) The test in this paragraph is met if on av-
erage at least 10 percent of the aggregate tonnage
of qualifying vessels operated by the entity were
owned by the entity or chartered to the entity on
bareboat charter terms. For purposes of the pre-
ceding sentence, vessels chartered to an entity by a
member of a controlled group which includes the en-
tity shall be treated as chartered to the entity on
bareboat charter terms.
‘‘(d) EFFECT OF TEMPORARILY CEASING TO OPER-
ATE A QUALIFYING VESSEL.—
‘‘(1) A temporary cessation by an electing enti-
ty in operation of a qualifying vessel shall be dis-
regarded for purposes of subsections (b) and (c)
until an occurrence described in paragraph (3) if the
electing entity gives timely notice to the Secretary
stating—
‘‘(A) that it has temporarily ceased to op-
erate the qualifying vessel, and
‘‘(B) its intention to resume operating the
qualifying vessel.
‘‘(2) Notice shall be deemed timely if given not
later than the due date (including extensions) for
the electing entity’s tax return (as set forth in sec-
tion 6072(b)) for the taxable year in which the tem-
porary cessation begins.
‘‘(3) The disregard provided by paragraph (1)
continues until the earlier to occur of—
‘‘(A) the electing entity abandoning its in-
tention to resume operation of the qualifying
vessel, or
‘‘(B) the electing entity resuming operation
of the qualifying vessel.
‘‘(e) EFFECT
OF
TEMPORARILY
OPERATING
A
QUALIFYING VESSEL IN THE UNITED STATES DOMESTIC
TRADE.—
‘‘(1) The temporary operation in the United
States domestic trade of any qualifying vessel which
had been used in the United States foreign trade
shall be disregarded for purposes of this subchapter
until an occurrence described in paragraph (3) if the
electing entity gives timely notice to the Secretary
stating—
‘‘(A) that it temporarily operates or has
operated in the United States domestic trade a
qualifying vessel which had been used in the
United States foreign trade, and
‘‘(B) its intention to resume operation of
the vessel in the United States foreign trade.
‘‘(2) Notice shall be deemed timely if given not
later than the due date (including extensions) for
the electing entity’s tax return (as set forth in sec-
tion 6072(b)) for the taxable year in which the tem-
porary cessation begins.
‘‘(3) The disregard provided by paragraph (1)
continues until the earlier to occur of—
‘‘(A) the electing entity abandoning its in-
tention to resume operations of the vessel in the
United States foreign trade, or
‘‘(B) the electing entity resuming operation
of the vessel in the United States foreign trade.
‘‘(f) EFFECT OF CHANGE IN USE.—
‘‘(1) Except as provided in subsection (e), a
vessel that is used other than for operations in the
United States foreign trade on other than a tem-
porary basis ceases to be a qualifying vessel when
such use begins.
‘‘(2) For purposes of this subsection, a change
in use of a vessel, other than a commencement of
operation in the United States domestic trade, is
taken to be permanent unless there are cir-
cumstances indicating that it is temporary.
‘‘(g) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section.
‘‘SEC. 1356. QUALIFYING SHIPPING ACTIVITIES.
‘‘(a) QUALIFYING SHIPPING ACTIVITIES.—For pur-
poses of this subchapter the ‘qualifying shipping activities’
of an electing entity consist of—
‘‘(1) its core qualifying activities,
‘‘(2) its qualifying secondary activities, and
‘‘(3) its qualifying incidental activities.
‘‘(b) CORE QUALIFYING ACTIVITIES.—
‘‘(1) The ‘core qualifying activities’ of an elect-
ing entity are its—
‘‘(A) activities in operating qualifying ves-
sels in United States foreign trade, and
‘‘(B) other vessel-related activities of the
electing entity and other members of its electing
group that are a necessary and integral part of
its business of operating qualifying vessels in
United States foreign trade, including owner-
ship and operation of barges and containers
that are the complement of a qualifying vessel
and terminal facilities.
‘‘(2) ‘Core qualifying activities’ do not include
the provision by an entity of facilities or services to
any person other than another member of such enti-
ty’s electing group.
‘‘(c) QUALIFYING
SECONDARY
ACTIVITIES.—For
purposes of this subsection—
‘‘(1) the term ‘secondary activities’ means the
active management or operation of vessels in the
United States foreign trade and such other activities
as may be prescribed by the Secretary pursuant to
regulations, and
‘‘(2) the term ‘qualified secondary activities’
means the secondary activities of an electing entity,
but only to the extent that, without regard to this
subchapter, the gross income derived by such entity
from such activities does not exceed 20 percent of
the gross income derived by such entity from its core
qualifying activities.
‘‘(d) QUALIFYING INCIDENTAL ACTIVITIES.—Ship-
ping-related activities carried on by an electing entity are
qualified incidental activities if—
‘‘(1) they are incidental to its core qualifying
activities,
‘‘(2) they are not qualifying secondary activi-
ties, and
‘‘(3) without regard to this subchapter, the
gross income derived by such entity from such activi-
ties does not exceed 0.1 percent of the entity’s gross
income from its core qualifying activities.
‘‘SEC. 1357. ITEMS NOT SUBJECT TO REGULAR TAX; DEPRE-
CIATION; INTEREST.
‘‘(a) EXCLUSION FROM GROSS INCOME.—Gross in-
come of an electing entity shall not include the corporate
income percentage of—
‘‘(1) its income from qualifying shipping activi-
ties in the United States foreign trade,
‘‘(2) its income from money, bank deposits and
other temporary investments which are reasonably
necessary to meet the working capital requirements
of its qualifying shipping activities, and
‘‘(3) its income from money or other intangible
assets accumulated pursuant to a plan to purchase
qualifying shipping assets.
‘‘(b) ELECTING GROUP MEMBER.—Gross income of
a member of an electing group that is not an electing enti-
ty shall not include the corporate income percentage of
its income from qualifying shipping activities that are
taken into account under this subchapter as qualifying
shipping activities of an electing entity.
‘‘(c) DENIAL OF LOSSES, DEDUCTIONS, AND CRED-
ITS.—
‘‘(1) GENERAL
RULE.—Subject to paragraph
(2), the corporate loss percentage of each item of
loss, deduction (other than for interest expense), or
credit of any taxpayer with respect to any activity
the income from which is excluded from gross in-
come under this section shall be disallowed.
‘‘(2) DEPRECIATION.—Notwithstanding para-
graph (1), an owner but not operator of qualifying
shipping assets shall be allowed the deduction for de-
preciation.
‘‘(A) Except as provided in subparagraph
(B), the straight line method of depreciation
shall apply to the corporate income percentage
of qualifying shipping assets the income from
operation of which is excluded from gross in-
come under this section.
‘‘(B) Subparagraph (A) shall not apply to
any qualifying shipping asset which is subject
to a charter entered into prior to the effective
date of this subchapter.
‘‘(3) INTEREST.—The corporate loss percentage
of an electing entity’s interest expense shall be dis-
allowed in the ratio that the fair market value of its
qualifying vessel assets bears to the fair market
value of its total assets.
‘‘SEC. 1358. ALLOCATION OF CREDITS, INCOME, AND DE-
DUCTIONS.
‘‘(a) QUALIFYING SHIPPING ACTIVITIES.—For pur-
poses of this chapter the qualifying shipping activities of
an electing entity shall be treated as a separate trade or
business activity distinct from all other activities con-
ducted by the entity.
‘‘(b) EXCLUSION OF CREDITS OR DEDUCTIONS.—
‘‘(1) No deduction shall be allowed against the
taxable income of an electing corporation from quali-
fying shipping activities, and no credit shall be al-
lowed against the tax imposed by section 1352(b).
‘‘(2) No deduction shall be allowed for any net
operating loss attributable to the qualifying shipping
activities of a corporation to the extent that such
loss is carried forward by the corporation from a
taxable year preceding the first taxable year for
which such corporation was an electing corporation.
‘‘(c) TRANSACTIONS NOT AT ARM’S LENGTH.—Sec-
tion 482 applies in accordance with this subsection to a
transaction or series of transactions—
‘‘(1) as between an electing entity and another
person, or
‘‘(2) as between an entity’s qualifying shipping
activities and other activities carried on by it.
‘‘SEC. 1359. DISPOSITION OF QUALIFYING SHIPPING AS-
SETS.
‘‘(a) IN GENERAL.—If an electing entity sells or dis-
poses of qualifying shipping assets (as defined in sub-
section (c)) in an otherwise taxable transaction, at the
election of the entity no gain shall be recognized if replace-
ment qualifying shipping assets are acquired during the
period specified in subsection (b), except to the extent that
the amount realized upon such sale or disposition exceeds
the cost of the replacement qualifying shipping assets.
‘‘(b) PERIOD WITHIN WHICH PROPERTY MUST BE
REPLACED.—The period referred to in subsection (a) shall
be the period beginning one year prior to the disposition
of the qualifying shipping assets and ending—
‘‘(1) 3 years after the close of the first taxable
year in which the gain is realized, or
‘‘(2) subject to such terms and conditions as
may be specified by the Secretary, on such later date
as the Secretary may designate on application by the
taxpayer. Such application shall be made at such
time and in such manner as the Secretary may by
regulations prescribe.
‘‘(c) TIME FOR ASSESSMENT OF DEFICIENCY AT-
TRIBUTABLE TO GAIN.—If an electing entity has made the
election provided in subsection (a), then—
‘‘(1) the statutory period for the assessment of
any deficiency, for any taxable year in which any
part of the gain is realized, attributable to such gain
shall not expire prior to the expiration of 3 years
from the date the Secretary is notified by the entity
(in such manner as the Secretary may by regulations
prescribe) of the replacement tonnage tax property
or of an intention not to replace, and
‘‘(2) such deficiency may be assessed before the
expiration of such 3-year period notwithstanding the
provisions of section 6212(c) or the provisions of any
other law or rule of law which would otherwise pre-
vent such assessment.
‘‘(d) BASIS OF REPLACEMENT QUALIFYING SHIP-
PING ASSETS.—In the case of replacement qualifying ship-
ping assets purchased by an electing entity which resulted
in the nonrecognition of any part of the gain realized as
the result of a sale or other disposition of qualifying ship-
ping assets, the basis shall be the cost of such property
decreased in the amount of the gain not so recognized;
and if the property purchased consists of more than one
piece of property, the basis determined under this sentence
shall be allocated to the purchased properties in propor-
tion to their respective costs.
‘‘(e) REPLACEMENT QUALIFYING SHIPPING ASSETS
MUST BE ACQUIRED FROM UNRELATED PERSON IN CER-
TAIN CASES.—
‘‘(1) IN
GENERAL.—Subsection (a) shall not
apply if the replacement qualifying shipping assets
are acquired from a related person except to the ex-
tent that the related person acquired the replace-
ment qualifying shipping assets from an unrelated
person during the period applicable under subsection
(b).
‘‘(2) RELATED PERSON.—For purposes of this
subsection, a person is related to another person if
the person bears a relationship to the other person
described in section 267(b) or 707(b)(1).’’
(b) TECHNICAL AND CONFORMING AMENDMENT.—
The second sentence of section 56(g)(4)(B)(i) is amended
by striking ‘‘or under section 114.’’ and inserting ‘‘, under
section 114 or under section 1357.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
SEC. 102. 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:
‘‘(9) APPLICATION TO CERTAIN MERCHANT MA-
RINE CREWS.—In applying this section to an indi-
vidual who is a citizen or resident of the United
States and who is employed for a minimum of 90
days during a taxable year as a regular member of
the crew of a qualified vessel (as defined in section
1355)—
‘‘(A) the individual shall be treated as a
qualified individual without regard to the re-
quirements of paragraph (1), and
‘‘(B) any earned income attributable to
services performed by that individual so em-
ployed on such a vessel while it is engaged in
transportation between the United States and a
foreign country or possession of the United
States shall be treated (except as provided by
subsection (b)(1)(B)) as foreign earned income
regardless of where payments of such income
are made.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
TITLE II—INSPECTION AND
INSURANCE PARITY
SEC. 201. CERTIFICATE OF INSPECTION.
Section 3309 of title 46, United States Code, is
amended by adding at the end the following:
‘‘(d) CERTIFICATE OF INSPECTION.—
‘‘(1) IN GENERAL.—A qualified vessel (as de-
fined in section 1355 of the Internal Revenue Code
of 1986) shall be eligible for a certificate of inspec-
tion if the Secretary determines that—
‘‘(A) the vessel is classed by and designed in ac-
cordance with the rules of the American Bureau of
Shipping or another classification society accepted
by the Secretary;
‘‘(B) the vessel complies with applicable inter-
national agreements and associated guidelines, as
determined by the country in which the vessel was
documented immediately before becoming a docu-
mented vessel (as defined in that section); and
‘‘(C) that country has not been identified by the
Secretary as inadequately enforcing international
vessel regulations as to that vessel.
‘‘(2) CONTINUED
ELIGIBILITY
FOR
CERTIFI-
CATE.—Paragraph (1) does not apply to a vessel
after any date on which the vessel fails to comply
with the applicable international agreements and as-
sociated guidelines referred to in paragraph (1)(B).’’
SEC. 202. AGREEMENTS REGARDING INJURY OR DEATH OF
CREW.
(a) AGREEMENTS.—Notwithstanding the Death on
the High Seas Act (46 U.S.C. App. 761 et seq.) or any
other provision of law (other than subsection (b)), includ-
ing general maritime law—
(1) the operator of a qualified vessel (as defined
in section 1355 of the Internal Revenue Code of
1986) and the operating crew of such a vessel may
agree to any mutually-acceptable system limiting or
otherwise controlling liability and damages from
death or injury of a crew member; and
(2) the terms of any such agreement shall take
precedence over, and apply in lieu of, any otherwise
applicable provision of any law of the United States
with respect to the liability of the owner, employer,
and operator, and damages, for such injury or
death.
(b) EVIDENCE OF FINANCIAL RESPONSIBILITY RE-
QUIRED.—Subsection (a)(2) shall not apply to an agree-
ment under subsection (a)(1) unless the owner or oper-
ation of the vessel to which the agreement relates has in-
surance or other evidence of financial responsibility that
has been approved by the Secretary of Transportation to
provide for compensation in accordance with the agree-
ment for death or injury of seamen engaged on the vessel.
Æ