A bill to amend the Internal Revenue Code of 1986 to provide that income attributable to certain passenger cruise voyages beginning or ending in the United States shall be treated as effectively connected with the conduct of a trade or business within the United States.

SECTION 1. TAXATION OF UNITED STATES CRUISE INDUSTRY INCOME OF 
              NONRESIDENT ALIENS AND FOREIGN CORPORATIONS.

    (a) United States Cruise Industry Income Treated as Effectively 
Connected to the Conduct of a Trade or Business Within the United 
States.--
            (1) Income from sources without the united states.--
                    (A) In general.--Paragraph (4) of section 864(c) of 
                the Internal Revenue Code of 1986 is amended by 
                redesignating subparagraph (D) as subparagraph (E) and 
                by inserting after subparagraph (C) the following new 
                subparagraph:
                    ``(D) United states cruise industry income.--
                            ``(i) In general.--United States cruise 
                        industry income shall be treated as effectively 
                        connected with the conduct of a trade or 
                        business within the United States.
                            ``(ii) United states cruise industry 
                        income.--For purposes of this subparagraph, the 
                        term `United States cruise industry income' 
                        means income attributable to any covered 
                        passenger cruise (as defined in paragraph (8)), 
                        including income directly or indirectly 
                        attributable to the carriage of passengers and 
                        any on-board or off-board activities incidental 
                        to such covered passenger cruise.''.
                    (B) Covered passenger cruise.--Subsection (c) of 
                section 864 of such Code is amended by adding at the 
                end the following new paragraph:
            ``(8) Covered passenger cruise.--For purposes of paragraph 
        (4)(C)--
                    ``(A) Definition.--
                            ``(i) In general.--The term `covered 
                        passenger cruise' means a voyage of a 
                        commercial passenger cruise vessel--
                                    ``(I) that extends over 1 or more 
                                nights, and
                                    ``(II) during which passengers 
                                embark or disembark the vessel in the 
                                United States.
                            ``(ii) Exceptions for certain voyages.--
                        Such term shall not include any voyage--
                                    ``(I) on any vessel owned or 
                                operated by the United States, a State, 
                                or any subdivision thereof,
                                    ``(II) which occurs exclusively on 
                                the inland waterways of the United 
                                States, or
                                    ``(III) in which a vessel in the 
                                usual course of employment proceeds, 
                                without an intervening foreign port of 
                                call from one port or place in the 
                                United States to the same port or place 
                                or to another port or place in the 
                                United States.
                    ``(B) Passenger cruise vessel.--For purposes of 
                subparagraph (A)--
                            ``(i) In general.--The term `passenger 
                        cruise vessel' means any passenger vessel 
                        having berth or stateroom accommodations for at 
                        least 250 passengers.
                            ``(ii) Exceptions.--Such term shall not 
                        include any ferry, recreational vessel, sailing 
                        school vessel, small passenger vessel, offshore 
                        supply vessel, or any other vessel determined 
                        under regulations by the Secretary to be 
                        excluded from the application of this part.
                            ``(iii) Definitions.--Any term used in this 
                        section which is used in chapter 21 of title 
                        46, United States Code, shall have the meaning 
                        given such term under section 2101 of such 
                        title.''.
                    (C) Conforming amendment.--Subparagraph (A) of 
                section 864(c)(4) of such Code is amended by striking 
                ``subparagraphs (B) and (C)'' and inserting 
                ``subparagraphs (B), (C), and (D)''.
            (2) Income from sources within the united states.--
        Paragraph (4) of section 887(b) of such Code is amended by 
        adding at the end the following flush sentence:
``The preceding sentence shall not apply to with respect to any United 
States source gross transportation income which is United States cruise 
industry income (as defined in section 864(c)(4)(C)(ii)).''.
    (b) Repeal of Exemption From Gross Income for Certain Taxpayers.--
            (1) Nonresident aliens.--Paragraph (1) of section 872(b) of 
        the Internal Revenue Code of 1986 is amended by inserting 
        ``(other than United States cruise industry income (as defined 
        in section 864(c)(4)(C)))'' after ``or ships''.
            (2) Foreign corporations.--Paragraph (1) of section 883(a) 
        of such Code is amended by inserting ``(other than United 
        States cruise industry income (as defined in section 
        864(c)(4)(C)))'' after ``or ships''.
    (c) Income Tax Treaties.--Section 894 of the Internal Revenue Code 
of 1986 is amended by adding at the end the following new subsection:
    ``(d) Special Rule for United States Cruise Industry Income.--
Notwithstanding subsection (a), no tax exemption or reduced tax rate 
shall be permitted under any treaty of the United States with respect 
to United States cruise industry income (as defined in section 
864(c)(4)(C)).''.
    (d) Effective Date.--The amendments made by this section shall 
apply to income attributable to voyages made after the date of the 
enactment of this Act.

Summary: Amends the Internal Revenue Code to treat United States cruise industry income as effectively connected with the conduct of a trade or business within the United States (thus subjecting such income to U.S. income taxation). Defines &quot;United States cruise industry income&quot; as income attributable to a voyage of a commercial passenger cruise vessel (a passenger vessel having berth or stateroom accommodations for at least 250 passengers) that extends over 1 or more nights and during which passengers embark or disembark the vessel in the United States. Prohibits any tax exemption or reduced tax rate under any U.S. treaty with respect to United States cruise industry income.