To permit qualified withdrawals from a capital construction fund account for the maintenance or repair of United States-flag vessels provided that the maintenance or repair is performed within the United States.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Vessel Repair Enhancement Act of 
2009''.

SEC. 2. EXPANSION OF VESSEL CAPITAL CONSTRUCTION FUND.

    (a) Amendments to Title 46.--
            (1) Qualified vessel.--Paragraph (5) of section 53501(5) of 
        title 46, United States Code, is amended by striking ``and'' at 
        the end of subparagraph (A), by striking the period at the end 
        of subparagraph (B) and inserting a semicolon, and by adding at 
        the end the following new subparagraphs:
                    ``(C) a vessel--
                            ``(i) documented under the laws of the 
                        United States; and
                            ``(ii) maintained or repaired in a 
                        privately owned shipyard located in the United 
                        States; and
                    ``(D) any floating drydock and related shipyard 
                infrastructure (including marine railways)--
                            ``(i) located in the United States; and
                            ``(ii) used to build, maintain, or repair 
                        vessels documented under the laws of the United 
                        States.''.
            (2) Allowable purpose for fund.--Subsection (b) of section 
        53503 of title 46, United States Code, is amended by inserting 
        before the period at the end the following: ``or to provide 
        maintenance or repair of vessels documented under the laws of 
        the United States''.
            (3) Qualified withdrawals.--Subsection (a) of section 53509 
        of title 46, United States Code, is amended by striking ``and 
        is for--'' and all that follows through the period at the end 
        and inserting the following: ``and is for--
            ``(1) in the case of a qualified vessel described in 
        subparagraph (A), (B), or (D) of section 53501(5)--
                    ``(A) the acquisition, construction, or 
                reconstruction of such a qualified vessel or a barge or 
                container that is part of the complement of such a 
                qualified vessel; or
                    ``(B) the payment of the principal on indebtedness 
                incurred in the acquisition, construction, or 
                reconstruction of such a qualified vessel or container 
                that is part of the complement of such a qualified 
                vessel; or
            ``(2) in the case of a qualified vessel described in 
        subparagraph (C) of section 53501(5), maintenance or repairs of 
        such a qualified vessel.''.
            (4) Tax treatment of qualified withdrawals.--
                    (A) Ordering withdrawals.--Subsection (a) of 
                section 53510 of title 46, United States Code, is 
                amended--
                            (i) by redesignating paragraphs (1), (2), 
                        and (3) as subparagraphs (A), (B), and (C), 
                        respectively, and by moving such subparagraphs 
                        (as so redesignated) 2 ems to the right,
                            (ii) by striking ``(a) Order of 
                        Withdrawals.--A qualified withdrawal'' and 
                        inserting the following:
    ``(a) Order of Withdrawals.--
            ``(1) In general.--Except as provided in paragraph (2), a 
        qualified withdrawal'', and
                            (iii) by adding at the end the following 
                        new paragraph:
            ``(2) Special rule for certain maintenance and repair 
        withdrawals.--A qualified withdrawal described in section 
        53509(a)(2) shall be treated as made--
                    ``(A) first from the ordinary income account;
                    ``(B) second from the capital gain account; and
                    ``(C) third from the capital account.''.
                    (B) Basis reductions.--Section 53510 of title 46, 
                United States Code, is amended by adding at the end the 
                following new subsection:
    ``(f) No Basis Reduction for Certain Qualified Withdrawals.--
Subsections (b) and (c) shall not apply to qualified withdrawals 
described in section 53509(a)(2).''.
    (b) Amendments to Internal Revenue Code of 1986.--
            (1) Qualified withdrawals.--Paragraph (1) of section 
        7518(e) of the Internal Revenue Code of 1986 (relating to 
        purposes of qualified withdrawals) is amended by striking ``but 
        only if it is for:'' and all that follows through the period at 
        the end of subparagraph (C) and inserting the following: ``but 
        only if it is for:
                    ``(A) in the case of a qualified vessel described 
                in subparagraph (A), (B), or (D) of section 53501(5) of 
                title 46, United States Code--
                            ``(i) the acquisition, construction, or 
                        reconstruction of such a qualified vessel or a 
                        barge or container that is part of the 
                        complement of such a qualified vessel; or
                            ``(ii) the payment of the principal on 
                        indebtedness incurred in the acquisition, 
                        construction, or reconstruction of such a 
                        qualified vessel or container that is part of 
                        the complement of such a qualified vessel; or
                    ``(B) in the case of a qualified vessel described 
                in subparagraph (C) of section 53501(5) of title 46, 
                United States Code, maintenance or repairs of such a 
                qualified vessel.''.
            (2) Tax treatment of qualified withdrawals.--
                    (A) Ordering withdrawals.--(i) Paragraph (1) of 
                section 7518(f) of such Code is amended by 
                redesignating subparagraphs (A), (B), and (C) as 
                clauses (i), (ii), and (iii), respectively, and moving 
                such clauses, as so redesignated, 2 ems to the right,
                    (ii) by striking ``(1) Ordering rule.--Any 
                qualified withdrawal'' and inserting the following:
            ``(1) Ordering rule.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), any qualified withdrawal'', and
                    (iii) by adding at the end the following new 
                subparagraph:
                    ``(B) Special rule for certain maintenance and 
                repair withdrawals.--A qualified withdrawal described 
                in subsection (e)(1)(B) shall be treated as made--
                            ``(i) first from the ordinary income 
                        account;
                            ``(ii) second from the capital gain 
                        account; and
                            ``(iii) third from the capital account.''.
            (3) Basis reductions.--Subsection (f) of section 7518 of 
        such Code is amended by adding at the end the following new 
        paragraph:
            ``(6) No basis reduction for certain qualified 
        withdrawals.--Paragraphs (2) and (3) shall not apply to 
        qualified withdrawals described in subsection (e)(1)(B).''.
            (4) Technical amendment.--Subsection (i) of section 7518 of 
        such Code is amended--
                    (A) by striking ``section 607(k)'' each place it 
                appears and inserting ``section 53501'',
                    (B) by striking ``of the Merchant Marine Act, 
                1936'' and inserting ``of title 46, United States 
                Code,'', and
                    (C) by striking ``as in effect on the date of the 
                enactment of this section'' and inserting ``as in 
                effect on the date of the enactment of the Vessel 
                Repair Enhancement Act of 2009.''
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

Summary: Vessel Repair Enhancement Act of 2009 - Expands, for capital construction fund provisions, the definition of "qualified vessel" to include: (1) a vessel documented under U.S. laws and maintained or repaired in a privately owned shipyard in the United States; and (2) any floating dry dock and related shipyard infrastructure (including marine railways) located in the United States and used to build, maintain, or repair U.S.-documented vessels.

Amends federal merchant marine law and the Internal Revenue Code to: (1) allow capital construction funds to be used for maintenance or repair of vessels documented under the laws of the United States; (2) establish the order of withdrawal for purposes of the tax treatment of qualified withdrawals from such funds; and (3) disallow a basis reduction for maintenance or repair withdrawals.