46 Cfr 391

Pt. 391

46 CFR Ch. II (10–1–07 Edition)

Subscribed and sworn to before me, a Notary Public in and for the State, City and
County above named, this llllll day of
llllllll, 19ll.
(Notary Public)
My
commission
llllllllllll, 19ll

expires

[41 FR 39751, Sept. 16, 1976]

PART 391—FEDERAL INCOME TAX
ASPECTS OF THE CAPITAL CONSTRUCTION FUND
Sec.
391.0 Statutory provisions; section 607, Merchant Marine Act, 1936, as amended.
391.1 Scope of section 607 of the Act and the
regulations in this part.
391.2 Ceiling on deposits.
391.3 Nontaxability of deposits.
391.4 Establishment of accounts.
391.5 Qualified withdrawals.
391.6 Tax treatment of qualified withdrawals.
391.7 Tax treatment of nonqualified withdrawals.
391.8 Certain corporate reorganizations and
changes in partnerships, and certain
transfers on death. [Reserved]
391.9 Consolidated returns. [Reserved]
391.10 Transitional rules for existing funds.
391.11 Definitions.
AUTHORITY: Secs. 204(b) and 607(l), Merchant Marine Act, 1936, as amended (46
U.S.C. 1114, 1177), Reorganization Plans No.
21 of 1950 (64 Stat. 1273) and No. 7 of 1961 (75
Stat. 840) as amended by Pub. L. 91–469 (84
Stat. 1036), Dept. of Commerce Organization
Order 10–8 (38 FR 19707), July 23, 1973.
SOURCE: 41 FR 23960, June 14, 1976, unless
otherwise noted.

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§ 391.0 Statutory provisions; section
607, Merchant Marine Act, 1936, as
amended.
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
agreement with the Secretary of Transportation 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 fish-

eries 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
Transportation may by regulations prescribe
or are set forth in such agreement; except
that the Secretary of Transportation 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 Transportation.

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They may be invested only in interest-bearing securities approved by the Secretary of
Transportation; except that, if the Secretary
of Transportation 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.
(d) 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
(C) The ordinary income account.
(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
(D) Interest income exempt from taxation
under section 103 of such Code.
(3) The capital gain account shall consist
of—
(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

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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 Transportation, 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 Transportation 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—
(A) First as made out of the capital account.
(B) Second as made out of the capital gain
account, and
(C) Third as made out of the ordinary income account.
(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
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
(B) One-half of such portion, in the case of
any other person.
(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—
(A) First as be made out of the ordinary income account,
(B) Second as made out of the capital gain
account, and
(C) Third as made out of the capital account.
For purposes of this section, items withdrawn from any account shall be treated as
withdrawn on a first-in-first-out basis; except that (i) any nonqualified withdrawal for
research, development, and design expenses
incident to new and advanced ship design,
machinery and equipment, and (ii) any
amount treated as a nonqualified withdrawal
under the second sentence of subsection
(g)(4), shall be treated as withdrawn on a
last-in-first-out basis.
(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 f 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
(4)) from the last date prescribed for payment of the tax for the taxable year for
which such item was deposited in the fund,
and
(iii) No interest shall be payable on
amounts referred to in clauses (i) and (ii) of

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paragraph (2) or in the case of any nonqualified withdrawal arising from the application of the recapture provision of section
606(5) of the Merchant Marine Act of 1936 as
in effect on December 31, 1969.
(4) For purposes of paragraph (3)(C)(ii), the
applicable rate of interest for any nonqualified withdrawal—
(A) Made in a taxable year beginning in
1970 or 1971 is 8 percent, or
(B) Made in a taxable year beginning after
1971, shall be determined and published jointly by the Secretary of the Treasury and the
Secretary of Transportation and shall bear a
relationship to 8 percent which the Secretaries determine under joint regulations to
be comparable to the relationship which the
money rates and investment yields for the
calendar year immediately preceding the beginning of the taxable year bear to the
money rates and investment yields for the
calendar year 1970.
(i) Certain Corporate Reorganizations and
Changes in Partnerships.
Under joint regulations—
(1) A transfer of a fund from one person to
another person in a transaction to which section 381 of the Internal Revenue Code of 1954
applies may be treated as if such transaction
did not constitute a nonqualified withdrawal, and
(2) A similar rule shall be applied in the
case of a continuation of a partnership (within the meaning of subchapter K of such
Code).
(j) Treatment of Existing Funds.
(1) Any person who was maintaining a fund
or funds (hereinafter in this subsection referred to as ‘‘old fund’’) under this section
(as in effect before the enactment of this
subsection) may elect to continue such old
fund but—
(A) May not hold moneys in the old fund
beyond the expiration date provided in the
agreement under which such old fund is
maintained (determined without regard to
any extension or renewal entered into after
April 14, 1970),
(B) May not simultaneously maintain such
old fund and a new fund established under
this section, and
(C) If he enters into an agreement under
this section to establish a new fund, may
agree to the extension of such agreement to
some or all of the amounts in the old fund.
(2) In the case of any extension of an agreement pursuant to paragraph (1)(C), each item
in the old fund to be transferred shall be
transferred in a nontaxable transaction to
the appropriate account in the new fund established under this section. For purposes of
subsection (h)(3)(C), the date of the deposit
of any item so transferred shall be July 1,
1971, or the date of the deposit in the old
fund, whichever is the later.
(k) Definitions.
For purposes of this section—

(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 States or in the fisheries of the United States.
Any vessel which (i) was constructed outside
of the United States but documented under
the laws of the United States on April 15,
1970, or (ii) constructed outside the United
States for use in the United States foreign
trade pursuant to a contract entered into before April 15, 1970, shall be treated as satisfying the requirements of subparagraph (A)
of this paragraph and the requirements of
subparagraph (A) of paragraph (2).
(2) The term qualified 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) Which the person maintaining the fund
agrees with the Secretary of Transportation
will be operated in the United States foreign,
Great Lakes, or noncontiguous domestic
trade or in the fisheries of the United States.
(3) The term agreement vessel means any eligible vessel or qualified vessel which is subject to an agreement entered into under this
section.
(4) The term United States, when used in a
geographical sense, means the continental
United States including Alaska, Hawaii, and
Puerto Rico.
(5) The term United States foreign trade includes (but is not limited to) those areas in
domestic trade in which a vessel built with
construction-differential subsidy is permitted to operate under the first sentence of
section 506 of the Act.
(6) The term joint regulations means regulations prescribed under subsection (1).
(7) The term vessel includes cargo handling
equipment which the Secretary of Transportation determines is intended for use primarily on the vessel. The term vessel also includes an ocean-going towing vessel or an
ocean-going barge or comparable towing vessel or barge operated on the Great Lakes.
(8) The term noncontiguous trade means (i)
trade between the contiguous forty-eight
States on the one hand and Alaska, Hawaii,
Puerto Rico and the insular territories and
possessions of the United States on the other
hand, and (ii) trade from any point in Alaska, Hawaii, Puerto Rico, and such territories
and possessions to any other point in Alaska,
Hawaii, Puerto Rico, and such territories
and possessions.
(l) Records; Reports; Changes in Regulations.

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§ 391.1

46 CFR Ch. II (10–1–07 Edition)

Each person maintaining a fund under this
section shall keep such records and shall
make such reports as the Secretary of Transportation or the Secretary of the Treasury
shall require. The Secretary of the Treasury
and the Secretary of Transportation shall
jointly prescribe all rules and regulations,
not inconsistent with the foregoing provisions of this section, as may be necessary or
appropriate to the determination of tax liability under this section. If, after an agreement has been entered into under this section, a change is made either in the joint
regulations or in the regulations prescribed
by the Secretary of Transportation under
this section which could have a substantial
effect on the rights or obligations of any person maintaining a fund under this section,
such person may terminate such agreement.

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§ 391.1 Scope of section 607 of the Act
and the regulations in this part.
(a) In general. The regulations prescribed in this part provide rules for
determining the income tax liability of
any person a party to an agreement
with the Secretary of Transportation
establishing a capital construction
fund (for purposes of this part referred
to as the ‘‘fund’’) authorized by section
607 of the Merchant Marine Act, 1936,
as amended (for purposes of this part
referred to as the ‘‘Act’’). With respect
to such parties, section 607 of the Act
in general provides for the nontaxability of certain deposits of money or
other property into the fund out of
earnings or gains realized from the operation of vessels covered in an agreement, gains realized from the sale or
other disposition of agreement vessels
or proceeds from insurance for indemnification for loss of agreement vessels,
earnings from the investment or reinvestment of amounts held in a fund,
and gains with respect to amounts or
deposits in the fund. Transitional rules
are also provided for the treatment of
‘‘old funds’’ existing on or before the
effective date of the Merchant Marine
Act of 1970 (see § 391.10).
(b) Cross references. For rules relating
to eligibility for a fund, deposits, and
withdrawals and other aspects, see the
regulations prescribed by the Secretary
of Transportation in title 46 (Merchant
Marine) and by the Secretary of Commerce in title 50 (Fisheries) of the Code
of Federal Regulations.

(c) Code. For purposes of this part,
the term Code means the Internal Revenue Code of 1954, as amended.
§ 391.2

Ceiling on deposits.

(a) In general—(1) Total ceiling. Section 607(b) of the Act provides a ceiling
on the amount which may be deposited
by a party for a taxable year pursuant
to an agreement. The amount which a
party may deposit into a fund may not
exceed the sum of the following subceilings:
(i) The lower of (a) the taxable income (if any) of the party for such year
(computed as provided in chapter 1 of
the Code but without regard to the
carryback of any net operating loss or
net capital loss and without regard to
section 607 of the Act) or (b) taxable income (if any) of such party for such
year attributable under paragraph (b)
of this section to the operation of
agreement vessels (as defined in paragraph (f) of this section) in the foreign
or domestic commerce of the United
States or in the fisheries of the United
States (see section 607(b)(1)(A) of the
Act),
(ii) Amounts allowable as a deduction
under section 167 of the Code for such
year with respect to the agreement
vessels (see section 607(b)(1)(B) of the
Act),
(iii) The net proceeds (if not included
in paragraph (a)(i) of this section) from
(a) the sale or other disposition of any
agreement vessels or (b) insurance or
indemnity attributable to any agreement vessels (see section 607(b)(1)(C) of
the Act and paragraph (c) of this section), and
(iv) Earnings and gains from the investment or reinvestment of amounts
held in such fund (see section 607
(b)(1)(D) of the Act and paragraphs (d)
and (g) of this section).
(2) Overdeposits. (i) If for any taxable
year an amount is deposited into the
fund under a subceiling computed
under paragraph (a)(1) of this section
which is in excess of the amount of
such subceiling for such year, then at
the party’s option such excess (or any
portion thereof) may—
(a) Be treated as a deposit into the
fund for that taxable year under another available subceiling, or

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(b) Be treated as not having been deposited for the taxable year and thus,
at the party’s option, may be disposed
of either by it being—
(1) Treated as a deposit into the fund
under any subceiling available in the
first subsequent taxable year in which
a subceiling is available, in which case
such amount shall be deemed to have
been deposited on the first day of such
subsequent taxable year, or
(2) Repaid to the party from the fund.
(ii)(a) When a correction is made for
an overdeposit, proper adjustment
shall be made with respect to all items
for all taxable years affected by the
overdeposit, such as, for example,
amounts in each account described in
§ 391.4, treatment of nonqualified withdrawals, the consequences of qualified
withdrawals and the treatment of
losses realized or treated as realized by
the fund. Thus, for example, if the
party chooses to have the fund repay to
him the amount of an overdeposit,
amounts in each account, basis of assets, and any affected item will be determined as though no deposit and repayment had been made. Accordingly,
in such a case, if there are insufficient
amounts in an account to cover a repayment of an overdeposit (as determined before correcting the overdeposit), and the party had applied the
proceeds of a qualified withdrawal from
such account towards the purchase of a
qualified vessel (within the meaning of
§ 391.11(a)(2)), then such account and
the basis of the vessel shall be adjusted
as of the time such withdrawal was
made and proceeds were applied, and
repayment shall be made from such account as adjusted. If a party chooses to
treat the amount of an overdeposit as a
deposit under a subceiling for a subsequent year, similar adjustments to affected items shall be made. If the
amount of a withdrawal would have exceeded the amount in the fund (determined after adjusting all affected
amounts by reason of correcting the
overdeposit), the withdrawal to the extent of such excess shall be treated as
a repayment made at the time the
withdrawal was made.
(b) If the accounts (as defined in
§ 391.4) that were increased by reason of
excessive deposits contain sufficient
amounts at the time the overdeposit is

discovered to repay the party, the
party may, at his option, demand repayment of such excessive deposits
from such accounts in lieu of making
the adjustments required by paragraph
(a)(2)(ii)(a) of this section.
(iii) During the period beginning with
the day after the date an overdeposit
was actually made and ending with the
date it was disposed of in accordance
with paragraph (a)(2)(i)(b) of this section, there shall be included in the party’s gross income for each taxable year
the earnings attributed to any amount
of overdeposit on hand during such a
year. The earnings attributable to any
amount of overdeposit on hand during
a taxable year shall be an amount
equal to the product of—
(a) The average daily earnings for
each one dollar in the fund (as determined in paragraph (a)(2)(iv) of this
section),
(b) The amount of overdeposit (as determined in paragraph (a)(2)(vi) of this
section), and
(c) The number of days during the
taxable year the overdeposit existed.
(iv) For purposes of paragraph
(a)(2)(iii)(a) of this section, the average
daily earnings for each dollar in the
fund shall be determined by dividing
the total earnings of the fund for the
taxable year by the sum of the products of—
(a) Any amount on hand during the
taxable year (determined under paragraph (a)(2)(v) of this section), and
(b) The number of days during the
taxable year such amount was on hand
in the fund.
(v) For purposes of this paragraph—
(a) An amount on hand in the fund or
an overdeposit shall not be treated as
on hand on the day deposited but shall
be treated as on hand on the day withdrawn, and
(b) The fair market value of such
amounts on hand for purposes of this
subparagraph shall be determined as
provided in § 20.2031–2 of the Estate Tax
Regulations of this chapter but without applying the blockage and other
special rules contained in paragraph (e)
thereof.
(vi) For purposes of paragraph
(a)(2)(iii)(b) of this section, the amount
of overdeposit on hand at any time is
an amount equal to—

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(a) The amount deposited into the
fund under a subceiling computed
under paragraph (a)(1) of this section
which is in excess of the amount of
such subceiling, less
(b) The sum of—
(1) Amounts described in paragraph
(a)(2)(vi)(a) of this section treated as a
deposit under another subceiling for
the taxable year pursuant to paragraph
(a)(2)(i) of this section,
(2) Amounts described in paragraph
(a)(2)(vi)(a) of this section disposed of
(or treated as disposed of) in accordance with paragraphs (a)(2) (i) or (ii) of
this section prior to such time.
(vii) To the extent earnings attributed under paragraph (a)(2)(iii) of this
section represent a deposit for any taxable year in excess of the subceiling described in paragraph (a)(1)(iv) of this
section for receipts from the investment or reinvestment of amounts held
in the fund, such attributed earnings
shall be subject to the rules of this
paragraph for overdeposits.
(3) Underdeposit caused by audit adjustment. [Reserved]
(4) Requirements for deficiency deposits.
[Reserved]
(b) Taxable income attributable to the
operation of an agreement vessel—(1) In
general. For purposes of this section,
taxable income attributable to the operation of an agreement vessel means
the amount, if any, by which the gross
income of a party for the taxable year
from the operation of an agreement
vessel (as defined in paragraph (f) of
this section) exceeds the allowable deductions allocable to such operation
(as determined under paragraph (b)(3)
of this section). The term taxable income attributable to the operation of the
agreement vessels means the sum of the
amounts described in the preceding
sentence separately computed with respect to each agreement vessel (or
share therein) or, at the party’s option,
computed in the aggregate.
(2) Gross income. (i) Gross income
from the operation of agreement vessels means the sum of the revenues
which are derived during the taxable
year from the following:
(a) Revenues derived from the transportation of passengers, freight, or
mail
in
such
vessels,
including
amounts from contracts for the charter

of such vessels to others, from operating differential subsidies, from collections in accordance with pooling
agreements and from insurance or indemnity net proceeds relating to the
loss of income attributable to such
agreement vessels.
(b) Revenues derived from the operation of agreement vessels relating to
commercial fishing activities, including the transportation of fish, support
activities for fishing vessels, charters
for commercial fishing, and insurance
or indemnity net proceeds relating to
the loss of income attributable to such
agreement vessels.
(c) Revenues from the rental lease, or
use by others of terminal facilities,
revenues from cargo handling operations and tug and lighter operations,
and revenues from other services or operations which are incidental and directly related to the operation of an
agreement vessel. Thus, for example,
agency fees, commissions, and brokerage fees derived by the party at his
place of business for effecting transactions for services incidental and directly related to shipping for the accounts of other persons are includible
in gross income from the operation of
agreement vessels where the transaction is of a kind customarily consummated by the party for his own account at such place of business.
(d) Dividends, interest, and gains derived from assets set aside and reasonably retained to meet regularly occurring obligations relating to the shipping or fishing business directly connected with the agreement vessel
which obligations cannot at all times
be met from the current revenues of
the business because of layups or repairs, special surveys, fluctuations in
the business, and reasonably forseeable
strikes (whether or not a strike actually occurs), and security amounts retained by reason of participation in
conferences, pooling agreements, or
similar agreements.
(ii) The items of gross income described in paragraphs (b)(2)(i) (c) and
(d) of this section shall be considered
to be derived from the operations of a
particular agreement vessel in the
same proportion that the sum of the
items of gross income described in
paragraphs (b)(2)(i) (a) and (b) of this

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section which are derived from the operations of such agreement vessel bears
to the party’s total gross income for
the taxable year from operations described in paragraphs (b)(2)(i) (a) and
(b) of this section.
(iii) In the case of a party who uses
his own or leased agreement vessels to
transport his own products, the gross
income attributable to such vessel operations is an amount determined to be
an arm’s length charge for such transportation. The arm’s length charge
shall be determined by applying the
principles of section 482 of the Code and
the regulations thereunder as if the
party transporting the product and the
owner of the product were not the same
person but were controlled taxpayers
within the meaning of § 1.482–1(a)(4) of
the Income Tax Regulations of this
chapter. Gross income attributable to
the operation of agreement vessels does
not include amounts for which the
party is allowed a deduction for percentage depletion under sections 611
and 613 of the Code.
(3) Deductions. From the gross income
attributable to the operation of an
agreement vessel or vessels as determined under paragraph (b)(2) of this
section, there shall be deducted in accordance with the principles of § 1.861–8
of the Income Tax Regulations of this
chapter, the expenses, losses, and other
deductions definitely related and
therefore allocated and apportioned
thereto and a ratable part of any expenses, losses, or other deductions
which are not definitely related to any
gross income of the party. Thus, for example, if a party has gross income attributable to the operation of an agreement vessel and other gross income
and has a particular deduction definitely related to both types of gross income, such deductions must be apportioned between the two types of gross
income on a reasonable basis in determining the taxable income attributable to the operation of the agreement vessel.
(4) Net operating and capital loss deductions. The taxable income of a party
attributable to the operation of agreement vessels shall be computed without regard to the carryback of any net
operating loss deduction allowed by
section 172 of the Code, the carryback

of any net capital loss deduction allowed by section 165(f) of the Code, or
any reduction in taxable income allowed by section 607 of the Act.
(5) Method of accounting. Taxable income must be computed under the
method of accounting which the party
uses for Federal income tax purposes.
Such method may include a method of
reporting whereby items of revenue
and expense properly allocable to voyages in progress at the end of any accounting period are eliminated from
the computation of taxable income for
such accounting period and taken into
account in the accounting period in
which the voyage is completed.
(c) Net proceeds from transactions with
respect to agreement vessels. [Reserved]
(d) Earnings and gains from the investment or reinvestment of amounts held in a
fund—(1) In general. (i) Earnings and
gains received or accrued by a party
from the investment or reinvestment
of assets in a fund is the total amount
of any interest or dividends received or
accrued, and gains realized, by the
party with respect to assets deposited
in, or purchased with amounts deposited in, such fund. Such earnings and
gains are therefore required to be included in the gross income of the party
unless such amount, or a portion thereof, is not taken into account under section 607(d)(1)(C) of the Act and
§ 391.3(b)(2)(ii) by reason of a deposit or
deemed deposit into the fund. For rules
relating to receipts from the sale or
other disposition of nonmoney deposits
into the fund, see paragraph (g) of this
section.
(ii) Earnings received or accrued by a
party from investment or reinvestment
of assets in a fund include the ratable
monthly portion of original issue discount included in gross income pursuant to section 1232(a)(3) of the Code.
Such ratable monthly portion shall be
deemed to be deposited into the ordinary income account of the fund, but
an actual deposit representing such
ratable monthly portion shall not be
made. For basis of a bond or other evidence of indebtedness issued at a discount, see § 391.3(b)(2)(ii)(b).
(2) Gain realized. (i) The gain realized
with respect to assets in the fund is the
excess of the amount realized (as defined in section 1001(b) of the Code and

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46 CFR Ch. II (10–1–07 Edition)

the regulations thereunder) by the fund
on the sale or other disposition of a
fund asset over its adjusted basis (as
defined in section 1011 of the Code) to
the fund. For the adjusted basis of nonmoney deposits, see paragraph (g) of
this section.
(ii) Property purchased by the fund
(including property considered under
paragraph (g)(1)(iii) of this section as
purchased by the fund) which is withdrawn from the fund in a qualified
withdrawal (as defined in § 391.5) is
treated as a disposition to which subdivision (i) of this subparagraph applies. For purposes of determining the
amount by which the balance within a
particular account will be reduced in
the manner provided in § 391.6(b) (relating to order of application of qualified
withdrawals against accounts) and for
purposes of determining the reduction
in basis of a vessel, barge, or container
(or share therein) pursuant to § 391.6(c),
the value of the property is its fair
market value on the day of the qualified withdrawal.
(3) Holding Period. Except as provided
in paragraph (g) of this section, the
holding period of fund assets shall be
determined under section 1223 of the
Code.
(e) Leased vessels. In the case of a
party who is a lessee of an agreement
vessel, the maximum amount which
such lessee may deposit with respect to
any agreement vessel by reason of section 607(b)(1)(B) of the Act and paragraph (a)(1)(ii) of this section (relating
to depreciation allowable) for any period shall be reduced by the amount (if
any) which, under an agreement entered into under section 607 of the Act,
the owner is required or permitted to
deposit for such period with respect to
such vessel by reason of section
607(b)(1)(B) of the Act and paragraph
(a)(1)(ii) of this section. The amount of
depreciation depositable by the lessee
under this paragraph is the amount of
depreciation deductible by the lessor
on its income tax return, reduced by
the amount described in the preceding
sentence or the amount set forth in the
agreement, whichever is lower.
(f) Definition of agreement vessel. For
purposes of this section, the term
agreement vessel (as defined in § 391.11
(a)(3) and 46 CFR 390.6) includes barges

and containers which are the complement of an agreement vessel and
which are provided for in the agreements, agreement vessels which have
been contracted for or are in the process of construction, and any shares in
an agreement vessel. Solely for purposes of this section, a party is considered to have a ‘‘share’’ in an agreement
vessel if he has a right to use the vessel
to generate income from its use whether or not the party would be considered
as having a proprietary interest in the
vessel for purposes of State or Federal
law. Thus, a partner may enter into an
agreement with respect to his share of
the vessel owned by the partnership
and he may make deposits of his distributive share of the sum of the four
subceilings described in paragraph
(a)(1) of this section. Notwithstanding
the provisions of Subchapter K of the
Code (relating to the taxation of partners and partnerships), the Internal
Revenue Service will recognize, solely
for the purposes of applying this part,
an agreement by an owner of a share in
an agreement vessel even though the
‘‘share’’ arrangement is a partnership
for purposes of the Code.
(g) Special rules for nonmoney deposits
and withdrawals—(1) In general. (i) Deposits may be made in the form of
money or property of the type permitted to be deposited under the agreement. (For rules relating to the types
of property which may be deposited
into the fund, see 46 CFR 390.7(d), and
50 CFR Part 259.) For purposes of this
paragraph, the term property does not
include money.
(ii) Whether or not the election provided for in paragraph (g)(2) of this section is made—
(a) The amount of any property deposit, and the fund’s basis for property
deposited in the fund, is the fair market value of the property at the time
deposited, and
(b) The fund’s holding period for the
property begins on the day after the
deposit is made.
(iii) Unless such an election is made,
deposits of property into a fund are
considered to be a sale at fair market
value of the property, a deposit of cash
equal to such fair market value, and a
purchase by the fund of such property
for cash. Thus, in the absence of the

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election, the difference between the
fair market value of such property deposited and its adjusted basis shall be
taken into account as gain or loss for
purposes of computing the party’s income tax liability for the year of deposit.
(iv) For fund’s basis and holding period of assets purchased by the fund,
see paragraphs (d) (2) and (3) of this
section.
(2) Election not to treat deposits of
property other than money as a sale or exchange at the time of deposit. A party
may elect to treat a deposit of property
as if no sale or other taxable event had
occurred on the date of deposit. If such
election is made, in the taxable year
the fund disposes of the property, the
party shall recognize as gain or loss
the amount he would have recognized
on the day the property was deposited
into the fund had the election not been
made. The party’s holding period with
respect to such property shall not include the period of time such property
was held by the fund. The election
shall be made by a statement to that
effect, attached to the party’s Federal
income tax return for the taxable year
to which the deposit relates, or, if such
return is filed before such deposit is
made, attached to the party’s return
for the taxable year during which the
deposit is actually made.
(3) Effect of qualified withdrawal of
property deposited pursuant to election. If
property deposited into a fund, with respect to which an election under paragraph (g)(2) of this section is made, is
withdrawn from the fund in a qualified
withdrawal (as defined in § 391.5) such
withdrawal is treated as a disposition
of such property resulting in recognition by the party of gain or loss (if
any) as provided in paragraph (g)(2) of
this section with respect to nonfund
property. In addition, such withdrawal
is treated as a disposition of such property by the fund resulting in recognition of gain or loss by the party with
respect to fund property to the extent
the fair market value of the property
on the date of withdrawal is greater or
less (as the case may be) than the adjusted basis of the property to the fund
on such date. For purposes of determining the amount by which the balance within a particular account will

be reduced in the manner provided in
§ 391.6(b) (relating to order of application of qualified withdrawals against
accounts and for purposes of determining the reduction in basis of a vessel, barge, or container (or share therein) pursuant to § 391.6(c), the value of
the property is its fair market value on
the day of the qualified withdrawal.
For rules relating to the effect of a
qualified withdrawal of property purchased by the fund (including deposited
property considered under paragraph
(g)(1)(iii) of this section as purchased
by the fund), see paragraph (d)(2)(ii) of
this section.
(4) Effect of nonqualified withdrawal of
property deposited pursuant to election. If
property deposited into a fund with respect to which an election under paragraph (g)(2) of this section is made, is
withdrawn from the fund in a nonqualified withdrawal (as defined in
§ 391.7(b)), no gain or loss is to be recognized by the party with respect to fund
property or nonfund property but an
amount equal to the adjusted basis of
the property to the fund is to be treated as a nonqualified withdrawal. Thus,
such amount is to be applied against
the various accounts in the manner
provided in § 391.7(c), such amount is to
be taken into account in computing
the party’s taxable income as provided
in § 391.7(d), and such amount is to be
subject to interest to the extent provided for in § 391.7(e). In the case of
withdrawals to which this subparagraph applies, the adjusted basis of the
property in the hands of the party is
the adjusted basis on the date of deposit, increased or decreased by the adjustments made to such property while
held in the fund, and in determining
the period for which the party has held
the property there shall be included, in
addition to the period the fund held the
property, the period for which the
party held the property before the date
of deposit of the property into the
fund. For rules relating to the basis
and holding period of property purchased by the fund (including deposited
property considered under paragraph
(g)(1)(ii) of this section as purchased by
the fund) and withdrawn in a nonqualified withdrawal see § 391.7(f).

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46 CFR Ch. II (10–1–07 Edition)

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(5) Examples. The provisions of this
paragraph are illustrated by the following examples:
Example (1). X Corporation, which uses the
calendar year as its taxable year, maintains
a fund described in § 391.1 X’s taxable income
(determined without regard to section 607 of
the Act) is $100,000, of which $80,000 is taxable
income attributable to the operation of
agreement vessels (as determined under
paragraph (b)(1) of this section). Under the
agreement, X is required to deposit into the
fund all earnings and gains received from the
investment or reinvestment of amounts held
in the fund, an amount equal to the net proceeds from transactions referred to in
§ 391.2(c), and an amount equal to 50 percent
of its earnings attributable to the operation
of agreement vessels provided that such 50
percent does not exceed X’s taxable income
from all sources for the year of deposit. The
agreement permits X to make voluntary deposits of amounts equal to 100 percent of its
earnings attributable to the operation of
agreement vessels, subject to the limitation
with respect to taxable income from all
sources. The agreement also provides that
deposits attributable to such earnings may
be in the form of cash or other property. On
March 15, 1973, X deposits, with respect to its
1972 earnings attributable to the operation of
agreement vessels, stock with a fair market
value at the time of deposit of $80,000 and an
adjusted basis to X of $10,000. Such deposit
represents agreement vessel income of
$80,000. At the time of deposit, such stock
had been held by X for a period exceeding 6
months. X does not elect under subparagraph
(2) of this paragraph to defer recognition of
the gain. Accordingly, under subparagraph
(1)(iii) of this paragraph, the deposit is treated as a deposit of $80,000 and X realizes a
long-term capital gain of $70,000 on March 15,
1973.
Example (2). The facts are the same as in
example (1), except that X elects in accordance with subparagraph (2) of this paragraph
not to treat the deposit as a sale or exchange. On July 1, 1974, the fund sells the
stock for $85,000. The basis to the fund of the
stock is $80,000 (see subparagraph (1)(ii)(a) of
this paragraph). With respect to non fund
property, X recognizes $70,000 of long-term
capital gain on the sale includible in its
gross income for 1974. With respect to fund
property, X realizes $5,000 of long-term capital gain (the difference between the amount
received by the fund on the sale of the stock,
$85,000, and the basis to the fund of the
stock, $80,000), an amount equal to which is
required to be deposited into the fund with
respect to 1974, as a gain from the investment or reinvestment of amounts held in the
fund. Since the fund held the stock for a period exceeding 6 months, the $5,000 is allo-

cated to the fund’s capital gain account
under § 391.4(c).
Example (3). The facts are the same as in
example (2), except that the fund sells the
stock on July 1, 1974, for $75,000. As the basis
to the fund of the stock is $80,000 with respect to fund property, X realizes a longterm capital loss on the sale (the difference
between the amount received by the fund on
the sale of the stock, $75,000, and the basis to
the fund of the stock, $80,000), of $5,000, an
amount equal to which is required to be
charged against the fund’s capital gain account under § 391.4(e). Under subparagraph (2)
of this paragraph, X recognizes $70,000 of
long-term capital gain with respect to
nonfund property on the sale which is includible in its gross income for 1974.
Example (4). The facts are the same as in
example (2), except that on July 1, 1974, X
makes a qualified withdrawal (as defined in
§ 391.5(a)) of the stock and uses it to pay indebtedness pursuant to § 391.5(b). On the disposition by X considered to occur under subparagraph (3) of this paragraph on the qualified withdrawal, X recognizes $70,000 of longterm capital gain with respect to nonfund
property, which is includible in its gross income for 1974, and a long-term capital gain of
$5,000 with respect to fund property, an
amount equal to which is allocated to the
fund’s capital gain account under § 391.4(c).
The fund is treated as having a qualified
withdrawal of an amount equal to the fair
market value of the stock on the day of
withdrawal, $85,000 (see subparagraph (3) of
this paragraph). In addition, $85,000 is applied against the various accounts in the
order provided in § 391.6(b). The basis of the
vessel with respect to which the indebtedness was incurred is to be reduced as provided in § 391.6(c).
Example (5). The facts are the same as in
example (2), except that X withdraws the
stock from the fund in a nonqualified withdrawal (as defined in § 391.7(b)). Under subparagraph (4) of this paragraph, X recognizes
no gain or loss with respect to fund or
nonfund property on such withdrawal. An
amount equal to the basis of the stock to the
fund ($80,000) is applied against the various
accounts in the order provided in § 391.7(c),
and is taken into account in computing X’s
taxable income for 1974 as provided in
§ 391.7(d). In addition, X must pay interest on
the withdrawal as provided in § 391.7(e). The
basis to X of the stock is $10,000 notwithstanding the fact that the fair market value
of such stock was $85,000 on the day of withdrawal (see paragraph (g)(4) of this section).

§ 391.3 Nontaxability of deposits.
(a) In general. Section 607(d) of the
Act sets forth the rules concerning the
income tax effects of deposits made
with respect to ceilings described in

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section 607(b) and § 391.2. The specific
treatment of deposits with respect to
each of the subceilings is set forth in
paragraph (b) of this section.
(b) Treatment of deposits—(1) Earnings
of agreement vessels. Section 607
(d)(1)(A) of the Act provides that taxable income of the party (determined
without regard to section 607 of the
Act) shall be reduced by an amount
equal to the amount deposited for the
taxable year out of amounts referred to
in section 607(b)(1)(A) of the Act and
§ 391.2(a)(1)(i). For computation of the
foreign tax credit, see paragraph (i) of
this section.
(2) Net proceeds from agreement vessels
and fund earnings. (i)(a) Section
607(d)(1)(B) provides that gain from a
transaction referred to in section
607(b)(1)(C)
of
the
Act
and
§ 391.2(a)(1)(iii) (relating to ceilings on
deposits of net proceeds from the sale
or other disposition of agreement vessels) is not to be taken into account for
purposes of the Code if an amount
equal to the net proceeds from transactions referred to in such sections is
deposited in the fund. Such gain is to
be excluded from gross income of the
party for the taxable year to which
such deposit relates. Thus, the gain
will not be taken into account in applying section 1231 of the Code for the
year to which the deposit relates.
(b) [Reserved]
(ii)(a) Section 607(d)(1)(C) of the Act
provides that the earnings (including
gains and losses) from the investment
and reinvestment of amounts held in
the fund and referred to in section
607(b)(1)(D)
of
the
Act
and
§ 391.2(a)(1)(iv) shall not be taken into
account for purposes of the Code if an
amount equal to such earnings is deposited into the fund. Such earnings
are to be excluded from the gross income of the party for the taxable year
to which such deposit relates.
(b) However, for purposes of the basis
adjustment under section 1232(a)(3)(E)
of the Code, the ratable monthly portion of original issue discount included
in gross income shall be determined
without regard to section 607(d)(1)(C) of
the Act.
(iii) In determining the tax liability
of a party to whom paragraph (b)(1) of
this section applies, taxable income,

determined after application of paragraph (b)(1) of this section, is in effect
reduced by the portion of deposits
which represent gain or earnings respectively referred to in paragraph
(b)(2) (i) or (ii) of this section. The excess, if any, of such portion over taxable income determined after application of paragraph (b)(1) of this section
is taken into account in computing the
net operating loss (under section 172 of
the Code) for the taxable year to which
such deposits relate.
(3) Time for making deposits. (i) This
section applies with respect to an
amount only if such amount is deposited in the fund pursuant to the agreement and not later than the time provided in paragraph (b)(2) (ii), (iii), or
(iv) of this section for the making of
such deposit or the date the Secretary
of Transportation provides, whichever
is earlier.
(ii) Except as provided in paragraph
(b)(2) (iii) or (iv) of this section, a deposit may be made not later than the
last day prescribed by law (including
extensions thereof) for filing the party’s Federal income tax return for the
taxable year to which such deposit relates.
(iii) If the party is a subsidized operator under an operating-differential
subsidy contract, and does not receive
on or before the 59th day preceding
such last day, payment of all or part of
the accrued operating-differential subsidy payable for the taxable year, the
party may deposit an amount equivalent to the unpaid accrued operatingdifferential subsidy on or before the
60th day after receipt of payment of
the accrued operating-differential subsidy.
(iv)
A
deposit
pursuant
to
§ 391.2(a)(3)(i) (relating to underdeposits
caused by audit adjustments) must be
made on or before the date prescribed
for such a deposit in § 391.2(a)(4).
(4) Date of deposits. (i) Except as otherwise provided in paragraphs (b)(4) (ii)
and (iii) of this section (with respect to
taxable years beginning after December 31, 1969, and prior to January 1,
1972), in § 391.2(a)(2)(i), or in § 391.10(b),
deposits made in a fund within the
time specified in paragraph (b)(3) of
this section are deemed to have been
made on the date of actual deposit.

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46 CFR Ch. II (10–1–07 Edition)

(ii)(a) For taxable years beginning
after December 31, 1969, and prior to
January 1, 1971, where an application
for a fund is filed by a taxpayer prior
to January 1, 1972, and an agreement is
executed and entered into by the taxpayer prior to March 1, 1972,
(b) For taxable years beginning after
December 31, 1970, and prior to January
1, 1972, where an application for a fund
is filed by a taxpayer prior to January
1, 1973, and an agreement is executed
and entered into by the taxpayer prior
to March 1, 1973, and
(c) For taxable years beginning after
December 31, 1971, and prior to January
1, 1975, where an agreement is executed
and entered into by the taxpayer on or
prior to the due date, with extensions,
for the filing of his Federal income tax
return for such taxable year, deposits
in a fund which are made within 60
days after the date of execution of the
agreement, or on or before the due
date, with extensions thereof, for the
filing of his Federal income tax return
for such taxable year or years, whichever date shall be later, shall be
deemed to have been made on the date
of the actual deposit or as of the close
of business of the last regular business
day of each such taxable year or years
to which such deposits relate, whichever day is earlier.
(iii)
Notwithstanding
paragraph
(b)(4)(ii) of this section, for taxable
years beginning after December 31,
1970, and ending prior to January 1,
1972, deposits made later than the last
date
permitted
under
paragraph
(b)(4)(ii) but on or before January 9,
1973, in a fund pursuant to an agreement with the Secretary of Transportation acting by and through the Administrator of the National Oceanic
and Atmospheric Administration, shall
be deemed to have been made on the
date of the actual deposit or as of the
close of business of the last regular
business day of such taxable year,
whichever is earlier.
(c) Determination of earnings and profits. [Reserved]
(d) Accumulated earnings tax. As provided in section 607(d)(1)(E) of the Act
amounts, while held in the fund, are
not to be taken into account in computing the ‘‘accumulated taxable income’’ of the party within the meaning

of section 531 of the Code. Amounts
while held in the fund are considered
held for the purpose of acquiring, constructing, or reconstructing a qualified
vessel or barges and containers which
are part of the complement of a qualified vessel or the payment of the principal on indebtedness incurred in connection with any such acquisition, construction, or reconstruction. Thus, for
example, if the reasonable needs of the
business (within the meaning of section
537 of the Code) justify a greater
amount of accumulation for providing
replacement vessels than can be satisfied out of the fund, such greater
amount accumulated outside of the
fund shall be considered to be accumulated for the reasonable needs of the
business. For a further example, although amounts in the fund are not
taken into account in applying the tax
imposed by section 531 of the Code, to
the extent there are amounts in a fund
to provide for replacing a vessel,
amounts accumulated outside of the
fund to replace the same vessel are not
considered to be accumulated for the
reasonable needs of the business.
(e) Nonapplicability of section 1231. If
an amount equivalent to gain from a
transaction referred to in section
607(b)(1)(C) of the Act and § 391.2(c) (1)
and (5) is deposited into the fund and,
therefore, such gain is not taken into
account in computing gross income
under the provisions of paragraph (b)(2)
of this section, then such gain will not
be taken into account for purposes of
the computations under section 1231 of
the Code.
(f) Deposits of capital gains. In respect
of capital gains which are not included
in the gross income of the party by virtue of a deposit to which section 607(d)
of the Act and this section apply, the
following provisions of the Code do not
apply; the minimum tax for tax preferences imposed by section 56 of the
Code; the alternative tax imposed by
section 1201 of the Code on the excess
of the party’s net long-term capital
gain over his net short-term capital
loss; and, in the case of a taxpayer
other than a corporation, the deduction provided by section 1202 of the
Code of 50 percent of the amount of
such excess. However, section 56 may
apply upon a nonqualified withdrawal

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§ 391.4

with respect to amounts treated under
§ 391.7(d)(2) as being made out of the
capital gain account.
(g) Deposits of dividends. The deduction provided by section 243 of the Code
(relating to the deductions for dividends from a domestic corporation received by a corporation) shall not
apply in respect of dividends (earned on
assets held in the fund) which are deposited into a fund, and which, by virtue of such deposits and the provisions
of section 607(d) of the Act and this section, are not included in the gross income of the party.
(h) Presumption of validity of deposit.
All amounts deposited in the fund shall
be presumed to have been deposited
pursuant to an agreement unless, after
an examination of the facts upon the
request of the Commissioner of Internal Revenue or his delegate, the Secretary of Transportation determines
otherwise. The Commissioner or his
delegate will request such a determination where there is a substantial question as to whether a deposit is made in
accordance with an agreement.
(i) Special rules for application of the
foreign tax credit—(1) In general. For
purposes of computing the limitation
under section 904 of the Code on the
amount of the credit provided by section 901 of the Code (relating to the foreign tax credit), the party’s taxable income from any source without the
United States and the party’s entire
taxable income are to be determined
after application of section 607(d) of
the Act. Thus, amounts deposited for
the taxable year with respect to
amounts
referred
to
in
section
607(b)(1)(A) of the Act and § 391.2(a)(1)(i)
(relating to taxable income attributable to the operation of agreement
vessels) shall be treated as a deduction
in arriving at the party’s taxable income from sources without the United
States (subject to the apportionment
rules and paragraph (i)(2) of this section) and the party’s entire taxable income for the taxable year. Amounts deposited with respect to gain described
in section 607(d)(1)(B) of the Act and
§ 391.2(c) (relating to net proceeds from
the sale or other disposition of an
agreement vessel and net proceeds
from insurance or indemnity) and
amounts deposited with respect to

earnings
described
in
section
607(d)(1)(C) of the Act and paragraph
(b)(2)(ii) (relating to earnings from the
investment
and
reinvestment
of
amounts held in a fund) of this section
are not taken into account for purposes
of the Code and hence are not included
in the party’s taxable income from
sources without the United States or in
the party’s entire taxable income for
purposes of this paragraph.
(2) Apportionment of taxable income attributable to agreement vessels. For purposes of computing the overall limitation under section 904(a)(2) of the Code
the amount of the deposit made with
respect to taxable income attributable
to agreement vessels pursuant to
§ 391.2(a)(1)(i) which is allocable to
sources without the United States is
the total amount of such deposit multiplied by a fraction the numerator of
which is the gross income from sources
without the United States from the operation of agreement vessels and the
denominator of which is the total gross
income from the operation of agreement vessels computed as provided in
§ 391.2(b)(2). For purposes of this paragraph, gross income from sources without the United States attributable to
the operation of agreement vessels is
to be determined under sections 61
through 863 of the Code and under the
taxpayer’s usual method of accounting
provided such method is reasonable and
in keeping with sound accounting practice. Any computation under the percountry limitation of section 904(a)(1)
shall be made in the manner consistent
with the provisions of the preceding
sentences of this paragraph.
§ 391.4 Establishment of accounts.
(a) In general. Section 607(e)(1) of the
Act requires that three bookkeeping or
memorandum accounts are to be established and maintained within the fund:
The capital account, the capital gain
account, and the ordinary income account. Deposits of the amounts under
the subceilings in section 607(b) of the
Act and § 391.2 are allocated among the
accounts under section 607(e) of the Act
and this section.
(b) Capital account. The capital account shall consist of:
(1) Amounts referred to in section
607(b)(1)(B) of the Act and § 391.2

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46 CFR Ch. II (10–1–07 Edition)

(a)(1)(ii) (relating to deposits for depreciation),
(2) Amounts referred to in section
607(b)(1)(C)
of
the
Act
and
§ 391.2(a)(1)(iii) (relating to deposits of
net proceeds from the sale or other disposition of agreement vessels) other
than that portion thereof which represents gain not taken into account for
purposes of computing gross income by
reason of section 607(d)(1)(B) of the Act
and § 391.3(b)(2) (relating to nontaxability of gain from the sale or other
disposition of an agreement vessel),
(3) Amounts representing 85 percent
of any dividend received by the fund
with respect to which the party would,
but for section 607(d)(1)(C) of the Act
and § 391.3(b)(2)(ii) (relating to nontaxability of deposits of earnings from investment and reinvestment of amounts
held in a fund), be allowed a deduction
under section 243 of the Code, and
(4) Amounts received by the fund representing interest income which is exempt from taxation under section 103
of the Code.
(c) Capital gain account. The capital
gain account shall consist of amounts
which represent the excess of (1) deposits of long-term capital gains on property referred to in section 607(b)(1) (C)
and (D) of the Act and § 391.2(a)(1) (iii)
and (iv) (relating respectively to certain agreement vessels and fund assets), over (2) amounts representing
losses from the sale or exchange of assets held in the fund for more than 6
months (for purposes of this section referred
to
as
‘‘long-term
capital
losses’’). For purposes of this paragraph and paragraph (d)(2) of this section, an agreement vessel disposed of
at a gain shall be treated as a capital
asset to the extent that gain thereon is
not treated as ordinary income, including gain which is ordinary income
under section 607(g)(5) of the Act (relating to treatment of gain on disposition
of a vessel with a reduced basis) and
§ 391.6(e) or under section 1245 of the
Code (relating to gain from disposition
of certain depreciable property). For
provisions relating to the treatment of
short-term capital gains on certain
transactions involving agreement vessels or realized by the fund, see paragraph (d) of this section. For rules relating to the treatment of capital

losses on assets held in the fund, see
paragraph (e) of this section.
(d) Ordinary income account. The ordinary income account shall consist of:
(1) Amounts referred to in section
607(b)(1)(A) of the Act and § 391.2(a)(1)(i)
(relating to taxable income attributable to the operation of an agreement vessel),
(2) Amounts representing (i) deposits
of gains from the sale or exchange of
capital assets held for 6 months or less
(for purposes of this section referred to
as ‘‘short-term capital gains’’) referred
to in section 607(b)(1) (C) or (D) of the
Act and § 391.2(a)(1) (iii) and (iv) (relating respectively to certain agreement
vessels and fund assets), reduced by (ii)
amounts representing losses from the
sale or exchange of capital assets held
in the fund for 6 months or less (for
purposes of this section referred to as
‘‘short-term capital losses’’). For rules
relating to the treatment of certain
agreement vessels as capital assets, see
paragraph (c) of this section,
(3) Amounts representing interest
(not including any tax-exempt interest
referred to in section 607(e)(2)(D) of the
Act and paragraph (b)(4) of this section) and other ordinary income received on assets held in the fund (not
including any dividend referred to in
section 607(e)(2)(C) of the Act and paragraph (d)(5) of this section),
(4) Amounts representing ordinary
income from a transaction (involving
certain net proceeds with respect to an
agreement vessel) described in section
607(b)(1)(C)
of
the
Act
and
§ 391.2(a)(1)(iii), including gain which is
ordinary income under section 607(g)(5)
of the Act and § 391.6(e) (relating to
treatment of gain on the disposition of
a vessel with a reduced basis) or under
section 1245 of the Code (relating to
gain from disposition of certain depreciable property), and
(5) Fifteen percent of any dividend
referred to in section 607(e)(2)(C) of the
Act and paragraph (b)(3) of this section
received on any assets held in the fund.
(e) Limitation on deduction for capital
losses on assets held in a fund. Except on
termination of a fund, long-term (and
short-term) capital losses on assets
held in a fund shall be allowed only as
an offset to long-term (and short-term)
capital gains on assets held in the fund,

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§ 391.5

yshivers on PROD1PC62 with CFR

but only if such gains are deposited
into the fund, and shall not be allowed
as an offset to any capital gains on assets not held in the fund. The net longterm capital loss of the fund for the
taxable year shall reduce the earliest
long-term capital gains in the capital
gain account at the beginning of the
taxable year and the next short-term
capital loss for the taxable year shall
reduce the earliest short-term capital
gains remaining in the ordinary income account at the beginning of the
taxable year. Any such losses that are
in excess of the capital gains in the respective accounts shall reduce capital
gains deposited into the respective accounts in subsequent years (without regard to section 1212, relating to capital
loss carrybacks and carryovers). On
termination of a fund, any net longterm capital loss in the capital gain account and any net short-term capital
loss remaining in the ordinary income
accounts is to be taken into account
for purposes of computing the party’s
taxable income for the year of termination as a long-term or short-term (as
the case may be) capital loss recognized in the year the fund is terminated. With respect to the determination of the basis to a fund of assets
held in such fund, see § 391.2(g).
§ 391.5 Qualified withdrawals.
(a) In general. (1) A qualified withdrawal is one made from the fund during the taxable year which is in accordance with section 670(f)(1) of the Act,
the agreement, and with regulations
prescribed by the Secretary of Transportation and which is for the acquisition, construction, or reconstruction of
a qualified vessel (as defined in
§ 391.11(a)(2)) or barges and containers
which are part of the complement of a
qualified vessel (or shares in such vessels, barges, and containers), or for the
payment of the principal of indebtedness incurred in connection with the
acquisition construction, or reconstruction of such qualified vessel (or a
barge or container which is part of the
complement of a qualified vessel).
(2) For purposes of this section the
term share is used to reflect an interest
in a vessel and means a proprietary interest in a vessel such as, for example,
that which results from joint owner-

ship. Accordingly, a share within the
meaning of § 391.2(f) (relating to the
definition of ‘‘agreement vessel’’ for
the purpose of making deposits) will
not necessarily be sufficient to be
treated as a share within the meaning
of this section.
(3) For purposes of this section, the
term acquisition means any of the following:
(i) Any acquisition, but only to the
extent the basis of the property acquired in the hands of the transferee is
its cost. Thus, for example, if a party
transfers a vessel and $1 million in an
exchange for another vessel which
qualifies for nonrecognition of gain or
loss under section 1031(a) of the Code
(relating to like-kind exchange), there
is an acquisition to the extent of $1
million.
(ii) With respect to a lessee’s interest
in a vessel, expenditures which result
in increasing the amounts with respect
to which a deduction for depreciation
(or amortization in lieu thereof) is allowable.
(b) Payments on indebtedness. Payments on indebtedness may constitute
qualified withdrawals only if the party
shows to the satisfaction of the Secretary of Transportation a direct connection between incurring the indebtedness and the acquisition, construction, or reconstruction of a qualified
vessel or its complement of barges and
containers whether or not the indebtedness is secured by the vessel or its
complement of barges and containers.
The fact that an indebtedness is secured by an interest in a qualified vessel, barge, or container is insufficient
by itself to demonstrate the necessary
connection.
(c) Payments to related persons. Notwithstanding paragraph (a) of this section, payments from a fund to a person
owned or controlled directly or indirectly by the same interests as the
party within the meaning of section 482
of the Code and the regulations thereunder are not to be treated as qualified
withdrawals unless the party demonstrates to the satisfaction of the
Secretary of Transportation that no
part of such payment constitutes a dividend, a return of capital, or a contribution to capital under the Code.

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46 CFR Ch. II (10–1–07 Edition)

yshivers on PROD1PC62 with CFR

(d) Treatment of fund upon failure to
fulfill obligations. Section 607(f)(2) of the
Act provides that if the Secretary of
Transportation determines that any
substantial obligation under the agreement is not being fulfilled, he may,
after notice and opportunity for hearing to the party, treat the entire fund,
or any portion thereof, as having been
withdrawn as a nonqualified withdrawal. In determining whether a party
has breached a substantial obligation
under the agreement, the Secretary
will consider among other things, (1)
the effect of the party’s action or omission upon his ability to carry out the
purposes of the fund and for which
qualified withdrawals are permitted
under section 607(f)(1) of the Act, and
(2) whether the party has made material misrepresentations in connection
with the agreement or has failed to disclose material information. For the income tax treatment of nonqualified
withdrawals, see § 391.7.
§ 391.6 Tax treatment of qualified
withdrawals.
(a) In general. Section 607(g) of the
Act and this section provide rules for
the income tax treatment of qualified
withdrawals including the income tax
treatment on the disposition of assets
acquired with fund amounts.
(b) Order of application of qualified
withdrawals against accounts. A qualified withdrawal from a fund shall be
treated as being made: First, out of the
capital account; second, out of the capital gain account; and third, out of the
ordinary income account. Such withdrawals will reduce the balance within
a particular account on a first-in-firstout basis, the earliest qualified withdrawals reducing the items within an
account in the order in which they
were actually deposited or deemed deposited in accordance with this part.
The date funds are actually withdrawn
from the fund determines the time at
which withdrawals are considered to be
made.
(c) Reduction of basis. (1) If any portion of a qualified withdrawal for the
acquisition, construction, or reconstruction of a vessel, barge, or container (or share therein) is made out of
the ordinary income account, the basis
of such vessel, barge, or container (or

share therein) shall be reduced by an
amount equal to such portion.
(2) If any portion of a qualified withdrawal for the acquisition, construction or reconstruction of a vessel,
barge, or container (or share therein) is
made out of the capital gain account,
the basis of such vessel, barge, or container (or share therein) shall be reduced by an amount equal to—
(i) Five-eights of such portion, in the
case of a corporation (other than an
electing small business corporation, as
defined in section 1371 of the Code), or
(ii) One-half of such portion, in the
case of any other person.
(3) If any portion of a qualified withdrawal to pay the principal of an indebtedness is made out of the ordinary
income account or the capital gain account, then the basis of the vessel,
barge, or container (or share therein)
with respect to which such indebtedness was incurred is reduced in the
manner provided by paragraphs (c) (1)
and (2) of this section. If the aggregate
amount of such withdrawal from the
ordinary income account and capital
gain account would cause a basis reduction in excess of the party’s basis in
such vessel, barge, or container (or
share therein), the excess is applied
against the basis of other vessels,
barges, or containers (or shares therein) owned by the party at the time of
withdrawal in the following order: (i)
Vessels, barges, or containers (or
shares therein) which were the subject
of qualified withdrawals in the order in
which they were acquired, constructed,
or reconstructed; (ii) agreement vessels
(as defined in section 607(k)(3) of the
Act and § 391.11(a)(3)) and barges and
containers which are part of the complement of an agreement vessel (or
shares therein) which were not the subject of qualified withdrawals, in the
order in which such vessels, barges, or
containers (or shares therein) were acquired by the party; and (iii) other vessels, barges, and containers (or shares
therein), in the order in which they
were acquired by the party. Any
amount of a withdrawal remaining
after the application of this paragraph
is to be treated as a nonqualified withdrawal. If the indebtedness was incurred to acquire two or more vessels,

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yshivers on PROD1PC62 with CFR

barges, or containers (or shares therein), then the basis reduction in such
vessels, barges, or containers (or shares
therein) is to be made pro rata in proportion to the adjusted basis of such
vessels, barges, or containers (or shares
therein) computed, however, without
regard to this section and adjustments
under section 1016(a) (2) and (3) of the
Code for depreciation or amortization.
(d) Basis for depreciation. For purposes
of determining the allowance for depreciation under section 167 of the Code in
respect of any property which has been
acquired, constructed, or reconstructed
from qualified withdrawals, the adjusted basis for determining gain on
such property is determined after applying paragraph (c) of this section. In
the case of reductions in the basis of
any property resulting from the application of paragraph (c)(3) of this section, the party may adopt a method of
accounting whereby (1) payments shall
reduce the basis of the property on the
day such payments are actually made,
or (2) payments made at any time during the first half of the party’s taxable
year shall reduce the basis of the property on the first day of the taxable
year, and payments made at any time
during the second half of the party’s
taxable year shall reduce the basis of
the property on the first day of the
succeeding taxable year. For requirements respecting the change of methods of accounting, see § 1.446–1(e)(3) of
the Income Tax Regulations of this
chapter.
(e) Ordinary income treatment of gain
from disposition of property acquired with
qualified withdrawals. [Reserved]
§ 391.7 Tax treatment of nonqualified
withdrawals.
(a) In general. Section 607(h) of the
Act provides rules for the tax treatment of nonqualified withdrawals, including rules for adjustments to the
various accounts of the fund, the inclusion of amounts in income, and the
payment of interest with respect to
such amounts.
(b) Nonqualified withdrawals defined.
Except as provided in section 607 of the
Act and § 391.8 (relating to certain corporate reorganizations, changes in
partnerships, and transfers by reason
of death), any withdrawal from a fund

which is not a qualified withdrawal
shall be treated as a nonqualified withdrawal which is subject to tax in accordance with section 607(h) of the Act
and the provisions of this section. Examples of nonqualified withdrawals are
amounts remaining in a fund upon termination of the fund, and withdrawals
which are treated as nonqualified withdrawals under section 607(f)(2) of the
Act and § 391.5(d) (relating to failure by
a party to fulfill substantial obligation
under agreement) or under the second
sentence of section 607(g)(4) of the Act
and § 391.6(c)(3) (relating to payments
against indebtedness in excess of
basis).
(c) Order of application of nonqualified
withdrawals against deposits. A nonqualified withdrawal from a fund shall
be treated as being made: First, out of
the ordinary income account; second,
out of the capital gain account; and
third, out of the capital account. Such
withdrawals will reduce the balance
within a particular account on a firstin-first-out basis, the earliest nonqualified withdrawals reducing the
items within an account in the order in
which they were actually deposited or
deemed deposited in accordance with
this part. Nonqualified withdrawals for
research, development, and design expenses incident to new and advanced
ship design, machinery, and equipment,
and any amount treated as a nonqualified withdrawal under the second
sentence of section 607(g)(4) of the Act
and § 391.6(c)(3), shall be applied against
the deposits within a particular account on a last-in-first-out basis. The
date funds are actually withdrawn
from the fund determines the time at
which withdrawals are considered to be
made. For special rules concerning the
withdrawal of contingent deposits of
net proceeds from the installment sale
of an agreement vessel, see § 391.2(c)(6).
(d) Inclusion in income. (1) Any portion of a nonqualified withdrawal
which, under paragraph (c) of this section, is treated as being made out of
the ordinary income account is to be
included in gross income as an item of
ordinary income for the taxable year in
which the withdrawal is made.
(2) Any portion of a nonqualified
withdrawal which, under paragraph (c)
of this section, is treated as being

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§ 391.7

46 CFR Ch. II (10–1–07 Edition)

made out of the capital gain account is
to be included in income as an item of
long-term capital gain recognized during the taxable year in which the withdrawal is made.
(3) For effect upon a party’s taxable
income of capital losses remaining in a
fund upon the termination of a fund
(which, under paragraph (b) of this section, is treated as a nonqualified withdrawal of amounts remaining in the
fund), see § 391.4(e).
(e) Interest. (1) For the period on or
before the last date prescribed by law,
including extensions thereof, for filing
the party’s Federal income tax return
for the taxable year during which a
nonqualified withdrawal is made, no interest shall be payable under section
6601 of the Code in respect of the tax on
any item which is included in gross income under paragraph (d) of this section, and no addition to such tax for
such period shall be payable under section 6651 of the Code. In lieu of the interest and additions to tax under such
sections, simple interest on the
amount of the tax attributable to any
item included in gross income under
paragraph (d) of this section is to be
paid at the rate of interest determined
for the year of withdrawal under paragraph (e)(2) of this section. Such interest is to be charged for the period from
the last date prescribed for payment of
tax for the taxable year for which such
item was deposited in the fund to the
last date for payment of tax for the
taxable year in which the withdrawal
is made. Both dates are to be determined without regard to any extensions of time for payment. Interest determined under this paragraph which is
paid within the taxable year shall be
allowed as a deduction for such year
under section 163 of the Code. However,
such interest is to be treated as part of
the party’s tax for the year of withdrawal for purposes of collection and in
determining any interest or additions
to tax for the year of withdrawal under
section 6601 or 6651, respectively, of the
Code.
(2)
For
purposes
of
section
607(h)(3)(C)(ii) of the Act, and for purposes of certain dispositions of vessels
constructed, reconstructed, or acquired
with qualified withdrawals described in

§ 391.6(e), the applicable rate of interest
for any nonqualified withdrawal—
(i) Made in a taxable year beginning
in 1970 and 1971 is 8 percent.
(ii) Made in a taxable year beginning
after 1971, the rate for such year as determined and published jointly by the
Secretary of the Treasury or his delegate and the Secretary of Transportation. Such rate shall bear a relationship to 8 percent which the Secretaries
determine to be comparable to the relationship which the money rates and
investment yields for the calendar year
immediately preceding the beginning
of the taxable year bear to the money
rates and investment yields for the calendar year 1970. The determination of
the applicable rate for any such taxable year will be computed by multiplying 8 percent by the ratio which (a)
the average yield on 5-year Treasury
securities for the calendar year immediately preceding the beginning of such
taxable year, bears to (b) the average
yield on 5-year Treasury securities for
the calendar year 1970. The applicable
rate so determined shall be computed
to the nearest one-hundredth of 1 percent. If such a determination and publication is made, the latest published
percentage shall apply for any taxable
year beginning in the calendar year
with respect to which publication is
made.
(3) No interest shall be payable in respect of taxes on amounts referred to
in section 607(h)(2) (i) and (ii) of the
Act (relating to withdrawals for research and development and payments
against indebtedness in excess of basis)
or in the case of any nonqualified withdrawal arising from the application of
the recapture provision of section 606(5)
of the Merchant Marine Act, 1936, as in
effect on December 31, 1969.
(f) Basis and holding period in the case
of property purchased by the fund or considered purchased by the fund. In the
case of a nonqualified withdrawal of
property other than money which was
purchased by the fund (including deposited property considered under § 391.2
(g)(1)(ii) as purchased by the fund), the
adjusted basis of the property in the
hands of the party is its adjusted basis
to the fund on the day of the withdrawal. In determining the period for

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§ 391.11

which the taxpayer has held the property withdrawn in a nonqualified withdrawal, there shall be included only the
period beginning with the date on
which the withdrawal occurred. For
basis and holding period in the case of
nonqualified withdrawals of property
other than money deposited into the
fund, see § 391.2(g)(4).
§ 391.8 Certain corporate reorganizations and changes in partnerships,
and certain transfers on death. [Reserved]

yshivers on PROD1PC62 with CFR

§ 391.9 Consolidated
served]

returns.

[Re-

§ 391.10 Transitional rules for existing
funds.
(a) In general. Section 607(j) of the
Act provides that any person who was
maintaining a fund or funds under section 607 of the Merchant Marine Act,
1936, prior to its amendment by the
Merchant Marine Act of 1970 (for purposes of this part referred to as ‘‘old
fund’’) may continue to maintain such
old fund in the same manner as under
prior law subject to the limitations
contained in section 607(j) of the Act.
Thus, a party may not simultaneously
maintain such old fund and a new fund
established under the Act.
(b) Extension of agreement to new fund.
If a person enters into an agreement
under the Act to establish a new fund,
he may agree to the extension of such
agreement to some or all of the
amounts in the old fund and transfer
the amounts in the old fund to which
the agreement is to apply from the old
fund to the new fund. If an agreement
to establish a new fund is extended to
amounts from an old fund, each item in
the old fund to which such agreement
applies shall be considered to be transferred to the appropriate account in
the manner provided for in § 391.8(d) in
the new fund in a nontaxable transaction which is in accordance with the
provisions of the agreement under
which such old fund was maintained.
For purposes of determining the
amount of interest under section
607(h)(3)(C) of the Act and § 391.7(e), the
date of deposit of any item so transferred shall be deemed to be July 1,
1971, or the date of the deposit in the
old fund, whichever is the later.

§ 391.11

Definitions.

(a) As used in the regulations in this
part and as defined in section 607(k) of
the Act—
(1) The term eligible vessel means any
vessel—
(i) Constructed in the United States,
and if reconstructed, reconstructed in
the United States,
(ii) Documented under the laws of the
United States, and
(iii) Operated in the foreign or domestic commerce of the United States
or in the fisheries of the United States.
Any vessel which was constructed outside of the United States but documented under the laws of the United
States on April 15, 1970, or constructed
outside the United States for use in the
U.S. foreign trade pursuant to a contract entered into before April 15, 1970,
shall be treated as satisfying the requirements of paragraph (a)(1) of this
section and the requirements of paragraph (a)(2)(i) of this section.
(2) The term qualified vessel means
any vessel—
(i) Constructed in the United States
and, if reconstructed, reconstructed in
the United States,
(ii) Documented under the laws of the
United States, and
(iii) Which the person maintaining
the fund agrees with the Secretary of
Transportation will be operated in the
U.S. foreign, Great Lakes, or noncontiguous domestic trade or in the
fisheries of the United States.
(3) The term agreement vessel means
any eligible vessel or qualified vessel
which is subject to an agreement entered into under section 607 of the Act.
(4) The term vessel includes cargo
handling equipment which the Secretary of Transportation determines is
intended for use primarily on the vessel. The term vessel also includes an
ocean-going towing vessel or an oceangoing barge or comparable towing vessel or barge operated in the Great
Lakes.
(b) Insofar as the computation and
collection of taxes are concerned, other
terms used in the regulation in this
part, except as otherwise provided in
the Act or this part, have the same

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§ 391.11

46 CFR Ch. II (10–1–07 Edition)

meaning as in the Code and the regulations thereunder.

PARTS 392–399 [RESERVED]

yshivers on PROD1PC62 with CFR

[29 FR 10464, July 28, 1964]

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