S 1208

112th CONGRESS
1st Session

S. 1208

To provide an election to terminate certain capital construction funds without penalties.

IN THE SENATE OF THE UNITED STATES

June 15, 2011

Mr. WYDEN (for himself, Ms. MURKOWSKI, Mrs. MURRAY, Mr. BEGICH, and Ms. CANTWELL) introduced the following bill; which was read twice and referred to the Committee on Finance



A BILL

To provide an election to terminate certain capital construction funds without penalties.

    Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. ELECTION TO TERMINATE CERTAIN CAPITAL CONSTRUCTION FUNDS.

    (a) Amendments to Chapter 535 of Title 46, United States Code-

      (1) IN GENERAL- Chapter 535 of title 46, United States Code, is amended by adding at the end the following new section:

`Sec. 53518. Election to terminate

    `(a) In General-

      `(1) ELECTION- Any person who has entered into an agreement under this chapter with respect to a vessel operated in the fisheries of the United States may make an election under this paragraph to terminate the capital construction fund established under such agreement.

      `(2) EFFECT OF ELECTION ON INDIVIDUALS- In the case of an individual who makes an election under paragraph (1) with respect to a capital construction fund--

        `(A) any amount remaining in such capital construction fund on the date of such election shall be distributed to such individual as a nonqualified withdrawal, except that--

          `(i) in computing the tax on such withdrawal, except as provided in paragraph (4), subsections (c)(3)(B) and (f) of section 53511 shall not apply; and

          `(ii) the taxpayer may elect to average the income from such withdrawal as provided in subsection (b); and

        `(B) such individual shall not be eligible to enter into, directly or indirectly, any future agreement to establish a capital construction fund under this chapter with respect to a vessel operated in the fisheries of the United States.

      `(3) EFFECT OF ELECTION FOR ENTITIES-

        `(A) IN GENERAL- In the case of a person (other than an individual) who makes an election under paragraph (1)--

          `(i) the total amount in the capital construction fund on the date of such election shall be distributed to the shareholders, partners, or members of such person in accordance with the terms of the instruments setting forth the ownership interests of such shareholders, partners, or members;

          `(ii) each shareholder, partner, or member shall be treated as having established a special temporary capital construction fund and having deposited amounts received in the distribution into such special temporary capital construction fund;

          `(iii) no gain or loss shall be recognized with respect to such distribution;

          `(iv) the basis of any shareholder, partner, or member in the person shall not be reduced as a result of such distribution;

          `(v) any amounts not distributed pursuant to clause (i) shall be distributed in a nonqualified withdrawal; and

          `(vi) such person shall not be eligible to enter into, directly or indirectly, any future agreement to establish a capital construction fund under this chapter with respect to a vessel operated in the fisheries of the United States.

        `(B) SPECIAL TEMPORARY CAPITAL CONSTRUCTION FUNDS- For purposes of this chapter, a special temporary capital construction fund shall be treated in the same manner as a capital construction fund established under section 53503, except that the following rules shall apply:

          `(i) A special temporary capital construction fund shall be established without regard to any agreement under section 53503 and without regard to any eligible or qualified vessel.

          `(ii) Section 53505 shall not apply and no amounts may be deposited into a special temporary capital construction fund other than amounts received pursuant to a distribution described in subparagraph (A)(i).

          `(iii) In the case of any amounts distributed from a special temporary capital construction fund directly to a capital construction fund of the taxpayer established under section 53505--

            `(I) no gain or loss shall be recognized;

            `(II) the limitation under section 53505 shall not apply with respect to any amount so transferred;

            `(III) such amounts shall not reduce taxable income under section 53507(a)(1); and

            `(IV) for purposes of section 53511(e), such amounts shall be treated as deposited in the capital construction fund on the date that such funds were deposited in the capital construction fund with respect to which the election under paragraph (1) was made.

          `(iv) In the case of any amounts distributed from a special temporary capital construction fund pursuant to an election under paragraph (1), clauses (i) and (ii) of paragraph (2)(A) shall not apply to so much of such amounts as are attributable to earnings accrued after the date of the establishment of such special temporary capital construction fund.

          `(v) Any amount not distributed from a special temporary capital construction fund before the due date of the tax return (including extension) for the last taxable year of the individual ending before January 1, 2017, shall be treated as distributed to the taxpayer on the day before such due date as if an election under paragraph (1) were made by the taxpayer on such day.

        `(C) REGULATIONS- The joint regulations shall provide rules for--

          `(i) assigning the amounts received by the shareholders, partners, or members in a distribution described in subparagraph (A)(i) to the accounts described in section 53508(a) in special temporary capital construction funds; and

          `(ii) preventing the abuse of the purposes of this section.

      `(4) TAX BENEFIT RULE- Rules similar to the rules under section 53511(f)(3) shall apply for purposes of determining tax liability on any nonqualified withdrawal under paragraph (2)(A), (3)(A)(v), or (3)(B)(v).

      `(5) ELECTION- Any election under paragraph (1)--

        `(A) may only be made--

          `(i) by a person who maintains a capital construction fund with respect to a vessel operated in the fisheries of the United States on the date of the enactment of this section; or

          `(ii) by a person who maintains a capital construction fund which was established pursuant to paragraph (3)(A)(ii) as a result of an election made by an entity in which such person was a shareholder, partner, or member;

        `(B) shall be made not later than the due date of the tax return (including extensions) for the person's last taxable year ending on or before December 31, 2016; and

        `(C) shall apply to all amounts in the capital construction fund with respect to which the election is made.

    `(b) Election to Average Income- At the election of an individual who has received a distribution described in subsection (a), for purposes of section 1301 of the Internal Revenue Code of 1986--

      `(1) such individual shall be treated as engaged in a fishing business, and

      `(2) such distribution shall be treated as income attributable to a fishing business for such taxable year.'.

      (2) CONFORMING AMENDMENTS-

        (A) Section 53511 of title 46, United States Code, is amended by striking `section 53513' and inserting `sections 53513 and 53518'.

        (B) The table of sections for chapter 535 of title 46, United States Code, is amended by inserting after the item relating to section 53517 the following new item:

      `53518. Election to terminate.'.

    (b) Amendments to the Internal Revenue Code of 1986-

      (1) IN GENERAL- Section 7518 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

    `(j) Election To Terminate Capital Construction Funds-

      `(1) IN GENERAL- Any person who has entered into an agreement under chapter 535 of title 46 of the United States Code, with respect to a vessel operated in the fisheries of the United States may make an election under this paragraph to terminate the capital construction fund established under such agreement.

      `(2) EFFECT OF ELECTION ON INDIVIDUALS- In the case of an individual who makes an election under paragraph (1) with respect to a capital construction fund, any amount remaining in such capital construction fund on the date of such election shall be distributed to such individual as a nonqualified withdrawal, except that--

        `(A) in computing the tax on such withdrawal, except as provided in paragraph (4), paragraphs (3)(C)(ii) and (6) of subsection (g) shall not apply, and

        `(B) the taxpayer may elect to average the income from such withdrawal as provided in paragraph (6).

      `(3) EFFECT OF ELECTION FOR ENTITIES-

        `(A) IN GENERAL- In the case of a person (other than an individual) who makes an election under paragraph (1)--

          `(i) the total amount in the capital construction fund on the date of such election shall be distributed to the shareholders, partners, or members of such person in accordance with the terms of the instruments setting forth the ownership interests of such shareholders, partners, or members,

          `(ii) each shareholder, partner, or member shall be treated as having established a special temporary capital construction fund and having deposited amounts received in the distribution into such special temporary capital construction fund,

          `(iii) no gain or loss shall be recognized with respect to such distribution,

          `(iv) the basis of any shareholder, partner, or member in the person shall not be reduced as a result of such distribution, and

          `(v) any amounts not distributed pursuant to clause (i) shall be distributed as a nonqualified withdrawal.

        `(B) SPECIAL TEMPORARY CAPITAL CONSTRUCTION FUNDS- For purposes of this section, a special temporary capital construction fund shall be treated in the same manner as a capital construction fund established under section 53503 of title 46, United States Code, except that the following rules shall apply:

          `(i) Subsection (a) shall not apply and no amounts may be deposited into a special temporary capital construction fund other than amounts received pursuant to a distribution described in subparagraph (A)(i).

          `(ii) In the case of any amounts distributed from a special temporary capital construction fund directly to a capital construction fund of the taxpayer established under section 53505 of title 46, United States Code--

            `(I) no gain or loss shall be recognized;

            `(II) the limitation under subsection (a) shall not apply with respect to any amount so transferred;

            `(III) such amounts shall not reduce taxable income under subsection (c)(1)(A); and

            `(IV) for purposes of subsection (g)(5), such amounts shall be treated as deposited in the capital construction fund on the date that such funds were deposited in the capital construction fund with respect to which the election under paragraph (1) was made.

          `(iii) In the case of any amounts distributed from a special temporary capital construction fund pursuant to an election under paragraph (1), subparagraphs (A) and (B) of paragraph (2) shall not apply to so much of such amounts as are attributable to earnings accrued after the date of the establishment of such special temporary capital construction fund.

          `(iv) Any amount not distributed from a special temporary capital construction fund before the due date of the tax return (including extension) for the last taxable year of the individual ending before January 1, 2017, shall be treated as distributed to the taxpayer on the day before such due date as if an election under paragraph (1) were made by the taxpayer on such day.

        `(C) REGULATIONS- The joint regulations shall provide rules for--

          `(i) assigning the amounts received by the shareholders, partners, or members in a distribution described in subparagraph (A)(i) to the accounts described in subsection (d)(1) in special temporary capital construction funds; and

          `(ii) preventing the abuse of the purposes of this section.

      `(4) TAX BENEFIT RULE- Rules similar to the rules under subsection (g)(6)(B) shall apply for purposes of determining tax liability on any nonqualified withdrawal under paragraph (2), (3)(A)(v), or (3)(B)(iv).

      `(5) ELECTION- Any election under paragraph (1)--

        `(A) may only be made--

          `(i) by a person who maintains a capital construction fund with respect to a vessel operated in the fisheries of the United States on the date of the enactment of this subsection, or

          `(ii) by a person who maintains a capital construction fund which was established pursuant to subparagraph (3)(A)(ii) as a result of an election made by an entity in which such person was a shareholder, partner, or member,

        `(B) shall be made not later than the due date of the tax return (including extensions) for the person's last taxable year ending on or before December 31, 2016, and

        `(C) shall apply to all amounts in the capital construction fund with respect to which the election is made.

      `(6) ELECTION TO AVERAGE INCOME- At the election of an individual who has received a distribution described in paragraph (2), for purposes of section 1301--

        `(A) such individual shall be treated as engaged in a fishing business, and

        `(B) such distribution shall be treated as income attributable to a fishing business for such taxable year.'.

      (2) CONFORMING AMENDMENT- Section 7518(g)(1) of such Code is amended by striking `subsection (h)' and inserting `subsections (h) and (j)'.

END