determined thereunder, unless the Commission" and inserting in lieu thereof ", unless the Secretary of Commerce". SEC. 19. Section 605 (c) of the Merchant Marine Act, 1936 (46 U.S.C. 1175 (c)), is amended as follows: (1) By striking out of the first sentence the words "on a service, route, or line" and inserting in lieu thereof the words "in an essential service". (2) By striking out of the first sentence the words "in such service, route, or line". (3) By striking out of the first sentence the words "a service, route, or line" and inserting in lieu thereof the words "an essential service". (4) By striking out of the first sentence the words "competitive services, routes, or lines," and inserting in lieu thereof the words "such essential service". (5) By striking in the first sentence the words "line serving the route," and inserting in lieu thereof the words "operator serving such essential service,". SEC. 20. Section 606 of the Merchant Marine Act, 1936 (46 U.S.C. 1176), is amended as follows: 84 STAT. 1026 49 Stat. 2003. 70 Stat. 148; (1) By striking out of subdivision (3) the words "the service, route, 75 Stat. 91. or line" and inserting in lieu thereof the words "an essential service". (2) By striking out of subdivision (4) the words "on such service, route, or line" and inserting in lieu thereof the words, "in such an essential service,". (3) By striking out of subdivision (4) the words "service, route, or line", wherever they appear, and inserting in lieu thereof the words "essential service". (4) By striking out subdivision (5) in its entirety. (5) By redesignating subdivision (6) as subdivision (5). (6) By striking out of redesignated subdivision (5) the words "the vessel's services, routes, and lines" and inserting in lieu thereof the words "essential services". (7) By striking out of redesignated subdivision (5) the word "cruises" and inserting in lieu thereof the word "services". (8) By striking out of redesignated subdivision (5) the words "the most" and inserting in lieu thereof the word "an". (9) By striking out of redesignated subdivision (5) the words. "but with due regard to the wage and manning scales and working 1132. conditions prescribed by the Commission as provided in title III". 46 USC 1131, (10) By redesignating subdivision (7) as subdivision (6). (11) By striking out of redesignated subdivision (6) the words "the operator shall use" and inserting in lieu thereof the words "an operator who receives subsidy with respect to subsistence of officers and crews shall use as such subsistence items"; by striking out "505 (a)" and inserting in lieu thereof "505"; by striking out of that subdivision the words "and equipment"; by striking out of that subdivision the words "and the operator shall perform repairs to subsidized vessels within the continental limits of the United States," and inserting in lieu thereof the words "and an operator who receives subsidy with respect to repairs shall perform such repairs within any of the United States or the Commonwealth of Puerto Rico,"; and by striking the last sentence thereof. SEC. 21. (a) Section 607 of the Merchant Marine Act, 1936 (46 U.S.C. 1177), is amended to read as follows: "SEC. 607. (a) Agreement Rules. "Any citizen of the United States owning or leasing one or more eligible vessels (as defined in subsection (k)(1)) may enter into an 49 Stat. 2005; 52 Stat. 960. 84 STAT. 1027 Capital construction fund. 26 USC 1-1388. 68A Stat. 51; 83 Stat. 625, 649. 26 USC 167. "Agreement vessel." agreement with the Secretary of Commerce under, and as provided in, this section to establish a capital construction fund (hereinafter in this section referred to as the 'fund') with respect to any or all of such vessels. Any agreement entered into under this section shall be for the purpose of providing replacement vessels, additional vessels, or reconstructed vessels, built in the United States and documented under the laws of the United States for operation in the United States foreign, Great Lakes, or noncontiguous domestic trade or in the fisheries of the United States and shall provide for the deposit in the fund of the amounts agreed upon as necessary or appropriate to provide for qualified withdrawals under subsection (f). The deposits in the fund, and all withdrawals from the fund, whether qualified or nonqualified, shall be subject to such conditions and requirements as the Secretary of Commerce may by regulations prescribe or are set forth in such agreement; except that the Secretary of Commerce may not require any person to deposit in the fund for any taxable year more than 50 percent of that portion of such person's taxable income for such year (computed in the manner provided in subsection (b)(1) (A)) which is attributable to the operation of the agreement vessels. "(b) Ceiling on Deposits. "(1) The amount deposited under subsection (a) in the fund for any taxable year shall not exceed the sum of: "(A) that portion of the taxable income of the owner or lessee for such year (computed as provided in chapter 1 of the Internal Revenue Code of 1954 but without regard to the carryback of any net operating loss or net capital loss and without regard to this section) which is attributable to the operation of the agreement vessels in the foreign or domestic commerce of the United States or in the fisheries of the United States, "(B) the amount allowable as a deduction under section 167 of the Internal Revenue Code of 1954 for such year with respect to the agreement vessels, "(C) if the transaction is not taken into account for purposes of subparagraph (A), the net proceeds (as defined in joint regulations) from (i) the sale or other disposition of any agreement vessel, or (ii) insurance or indemnity attributable to any agreement vessel, and "(D) the receipts from the investment or reinvestment of amounts held in such fund. "(2) In the case of a lessee, the maximum amount which may be deposited with respect to an agreement vessel by reason of paragraph (1) (B) for any period shall be reduced by any amount which, under an agreement entered into under this section, the owner is required or permitted to deposit for such period with respect to such vessel by reason of paragraph (1)(B). "(3) For purposes of paragraph (1), the term 'agreement vessel' includes barges and containers which are part of the complement of such vessel and which are provided for in the agreement. "(c) Requirements as to Investments. "Amounts in any fund established under this section shall be kept in the depository or depositories specified in the agreement and shall be subject to such trustee and other fiduciary requirements as may be specified by the Secretary of Commerce. They may be invested only in interest-bearing securities approved by the Secretary of Commerce: except that, if the Secretary of Commerce consents thereto, an agreed percentage (not in excess of 60 percent) of the assets of the fund may be invested in the stock of domestic corporations. Such stock must be currently fully listed and registered on an exchange registered with the Securities and Exchange Commission as a national securities exchange, and must be stock which would be acquired by prudent men of discretion and intelligence in such matters who are seeking a reasonable income and the preservation of their capital. If at any time the fair market value of the stock in the fund is more than the agreed percentage of the assets in the fund, any subsequent investment of amounts deposited in the fund, and any subsequent withdrawal from the fund, shall be made in such a way as to tend to restore the fund to a situation in which the fair market value of the stock does not exceed such agreed percentage. For purposes of this subsection, if the common stock of a corporation meets the requirements of this subsection and if the preferred stock of such corporation would meet such requirements but for the fact that it cannot be listed and registered as required because it is nonvoting stock, such preferred stock shall be treated as meeting the requirements of this subsection. "(a) Nontaxability for Deposits. "(1) For purposes of the Internal Revenue Code of 1954– "(A) taxable income (determined without regard to this section) for the taxable year shall be reduced by an amount equal to the amount deposited for the taxable year out of amounts referred to in subsection (b) (1) (A), "(B) gain from a transaction referred to in subsection (b) (1) (C) shall not be taken into account if an amount equal to the net proceeds (as defined in joint regulations) from such transaction is deposited in the fund, "(C) the earnings (including gains and losses) from the investment and reinvestment of amounts held in the fund shall not be taken into account, "(D) the earnings and profits of any corporation (within the meaning of section 316 of such Code) shall be determined without regard to this section, and (E) in applying the tax imposed by section 531 of such Code (relating to the accumulated earnings tax), amounts while held in the fund shall not be taken into account. "(2) Paragraph (1) shall apply with respect to any amount only if such amount is deposited in the fund pursuant to the agreement and not later than the time provided in joint regulations. "(e) Establishment of Accounts. "For purposes of this section "(1) Within the fund established pursuant to this section three accounts shall be maintained: "(A) the capital account, "(B) the capital gain account, and "(2) The capital account shall consist of— "(A) amounts referred to in subsection (b)(1)(B), "(B) amounts referred to in subsection (b) (1) (C) other than that portion thereof which represents gain not taken into account by reason of subsection (d) (1) (B), "(C) 85 percent of any dividend received by the fund with respect to which the person maintaining the fund would (but for subsection (d) (1) (C)) be allowed a deduction under section 243 of the Internal Revenue Code of 1954, and 84 STAT. 1028 26 USC 1 et seg. 68A Stat. 98. 26 USC 316. 68A Stat. 179. 26 USC 531. 78 Stat. 52. "(D) interest income exempt from taxation under section 103 26 USC 243. of such Code. "(3) The capital gain account shall consist of 26 USC 103. 84 STAT. 1029 "(A) amounts representing capital gains on assets held for more than 6 months and referred to in subsection (b)(1)(C) or (b) (1) (D) reduced by "(B) amounts representing capital losses on assets held in the fund for more than 6 months. "(4) The ordinary income account shall consist of— "(A) amounts referred to in subsection (b) (1) (A), "(B) (i) amounts representing capital gains on assets held for 6 months or less and referred to in subsection (b)(1)(C) or (b) (1) (D), reduced by— "(ii) amounts representing capital losses on assets held in the fund for 6 months or less, "(C) interest (not including any tax-exempt interest referred to in paragraph (2) (D)) and other ordinary income (not including any dividend referred to in subparagraph (E)) received on assets held in the fund, "(D) ordinary income from a transaction described in subsection (b) (1) (C), and "(E) 15 percent of any dividend referred to in paragraph (2) (C). "(5) Except on termination of a fund, capital losses referred to in paragraph (3) (B) or in paragraph (4)(B)(ii) shall be allowed only as an offset to gains referred to in paragraph (3) (A) or (4) (B) (i), respectively. "(f) Purposes of Qualified Withdrawals. "(1) A qualified withdrawal from the fund is one made in accordance with the terms of the agreement but only if it is for: "(A) the acquisition, construction, or reconstruction of a qualified vessel, "(B) the acquisition, construction, or reconstruction of barges and containers which are part of the complement of a qualified vessel, or "(C) the payment of the principal on indebtedness incurred in connection with the acquisition, construction or reconstruction of a qualified vessel or a barge or container which is part of the complement of a qualified vessel. Except to the extent provided in regulations prescribed by the Secretary of Commerce, subparagraph (B), and so much of subparagraph (C) as relates only to barges and containers, shall apply only with respect to barges and containers constructed in the United States. (2) Under joint regulations, if the Secretary of Commerce determines that any substantial obligation under any agreement is not being fulfilled, he may, after notice and opportunity for hearing to the person maintaining the fund, treat the entire fund or any portion thereof as an amount withdrawn from the fund in a nonqualified withdrawal. "(g) Tax Treatment of Qualified Withdrawals. (1) Any qualified withdrawal from a fund shall be treated— "B) second as made out of the capital gain account, and "(2) If any portion of a qualified withdrawal for a vessel, barge, or container is made out of the ordinary income account, the basis of such vessel, barge, or container shall be reduced by an amount equal to such portion. "(3) If any portion of a qualified withdrawal for a vessel, barge, or container is made out of the capital gain account, the basis of such 84 STAT. 1030 vessel, barge, or container shall be reduced by an amount equal to— "(A) Five-eighths of such portion, in the case of a corporation (other than an electing small business corporation, as defined in section 1371 of the Internal Revenue Code of 1954), or 72 Stat. 1650. "(B) One-half of such portion, in the case of any other person. 26 USC 1371. "(4) If any portion of a qualified withdrawal to pay the principal on any indebtedness is made out of the ordinary income account or the capital gain account, then an amount equal to the aggregate reduction which would be required by paragraphs (2) and (3) if this were a qualified withdrawal for a purpose described in such paragraphs shall be applied, in the order provided in joint regulations, to reduce the basis of vessels, barges, and containers owned by the person maintaining the fund. Any amount of a withdrawal remaining after the application of the preceding sentence shall be treated as a nonqualified withdrawal. "(5) If any property the basis of which was reduced under paragraph (2), (3), or (4) is disposed of, any gain realized on such disposition, to the extent it does not exceed the aggregate reduction in the basis of such property under such paragraphs, shall be treated as an amount referred to in subsection (h) (3)(A) which was withdrawn on the date of such disposition. Subject to such conditions and requirements as may be provided in joint regulations, the preceding sentence shall not apply to a disposition where there is a redeposit in an amount determined under joint regulations which will, insofar as practicable, restore the fund to the position it was in before the withdrawal. "(h) Tax Treatment of Nonqualified Withdrawals. "(1) Except as provided in subsection (i), any withdrawal from a fund which is not a qualified withdrawal shall be treated as a nonqualified withdrawal. "(2) Any nonqualified withdrawal from a fund shall be treated- "B) second as made out of the capital gain account, and For purposes of this section, items withdrawn from any account shall "(3) For purposes of the Internal Revenue Code of 1954 "(A) any amount referred to in paragraph (2) (A) shall be included in income as an item of ordinary income for the taxable year in which the withdrawal is made, "(B) any amount referred to in paragraph (2) (B) shall be included in income for the taxable year in which the withdrawal is made as an item of gain realized during such year from the disposition of an asset held for more than 6 months, and "(C) for the period on or before the last date prescribed for payment of tax for the taxable year in which this withdrawal is made "(i) no interest shall be payable under section 6601 of such Code and no addition to the tax shall be payable under section 6651 of such Code, "(ii) interest on the amount of the additional tax attributable to any item referred to in subparagraph (A) or (B) shall be paid at the applicable rate (as defined in paragraph 68A Stat. 817. 26 USC 6601. 83 Stat. 727. 26 USC 6651. 86-974 O 73 - 4 |