[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 222 Introduced in Senate (IS)]







107th CONGRESS
  1st Session
                                 S. 222

To provide tax incentives for the construction of seagoing cruise ships 
  in United States shipyards, and to facilitate the development of a 
United States-flag, United States-built cruise industry, and for other 
                               purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            January 31, 2001

   Ms. Snowe introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To provide tax incentives for the construction of seagoing cruise ships 
  in United States shipyards, and to facilitate the development of a 
United States-flag, United States-built cruise industry, and for other 
                               purposes.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``All American Cruise Act of 2001''.

   TITLE I--TAX INCENTIVES FOR CRUISE SHIP CONSTRUCTION AND OPERATION

SEC. 101. TAX TREATMENT OF UNITED STATES-BUILT CRUISE SHIPS DURING 
              CONSTRUCTION PERIOD.

    (a) In General.--Section 460(e) of the Internal Revenue Code of 
1986 (relating to special rules for long-term contracts) is amended by 
adding at the end the following new paragraph:
            ``(7) Special rule for cruise ship construction 
        contracts.--In the case of any contract for the construction or 
        overhaul of an oceangoing cruise ship of at least 20,000 gross 
        tons, a contractor may, at the contractor's election, use the 
        completed contract method of accounting for each ship that is 
        constructed or overhauled, provided that--
                    ``(A) the construction or overhaul of the ship will 
                take more than 12 months to complete from the contract 
                commencement date to the date that the ship is 
                delivered or returned to the owner,
                    ``(B) the reporting of revenue and costs for each 
                ship may not be deferred beyond the date of delivery or 
                return of the ship to the owner, and
                    ``(C) when a contract provides for the construction 
                or overhaul of more than 1 ship, each ship covered by 
                the contract will be treated as an individual ship 
                contract for the purpose of applying the completed 
                contract method of accounting, and the reporting of 
                revenue and costs for each ship may not be deferred 
                beyond the date on which the ship is delivered or 
                returned to the owner.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2001.

SEC. 102. GROSS INCOME EXCLUSION FOR CRUISE SHIP OPERATIONS.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to amounts specifically 
excluded from gross income) is amended by redesignating section 139 as 
section 140 and by inserting after section 138 the following new 
section:

``SEC. 139. AMOUNTS DERIVED FROM CRUISE SHIP OPERATIONS.

    ``(a) General Rule.--Gross income of a corporation organized in the 
United States shall not include amounts derived by the corporation from 
the operation of a cruise ship which was built in the United States and 
has a certificate of documentation issued under chapter 121 of title 
46, United States Code.
    ``(b) Definition.--For purposes of subsection (a), the term `cruise 
ship' means a seagoing passenger vessel of at least 20,000 gross tons 
that provides a full range of overnight accommodations, entertainment, 
dining, and other services for its passengers.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 103. CREDIT FOR INCOME FROM CRUISE SHIP CONSTRUCTION CONTRACTS.

    (a) In General.--Subpart B of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to foreign tax credit, 
etc.) is amended by adding at the end the following new section:

``SEC. 30B. CRUISE SHIP CONSTRUCTION CREDIT.

    ``(a) Allowance of Credit.--In the case of an eligible taxpayer, 
there shall be allowed a credit against the tax imposed by this chapter 
for the taxable year an amount equal the portion of such tax which is 
attributable to taxable income from any construction contract described 
in subsection (c).
    ``(b) Eligible Taxpayer.--For purposes of subsection (a), an 
eligible taxpayer is a resident of the United States, or a corporation 
organized in the United States, whose average annual gross receipts for 
the 3 taxable years preceding the taxable year in which such 
construction contract is entered into are not less than $30,000,000.
    ``(c) Construction Contract.--A construction contract described in 
this subsection is a contract--
            ``(1) for the construction of a cruise ship,
            ``(2) entered into by the taxpayer, and
            ``(3) for which the taxpayer estimates (at the time such 
        contract is entered into) that the ship construction under the 
        contract will be completed within a 2-year period beginning on 
        the contract commencement date.
    ``(d) Cruise Ship.--For purposes of this section, the term `cruise 
ship' means a seagoing passenger vessel of at least 20,000 gross tons 
that provides a full range of overnight accommodations, entertainment, 
dining, and other services for its passengers.
    ``(e) Limitation Based on Amount of Tax.--The aggregate amount of 
the credit allowed under subsection (a) shall not exceed--
            ``(1) the sum of the taxpayer's regular tax liability and 
        the tax imposed by section 55 for the taxable year, reduced by
            ``(2) the sum of the credits allowable under subparts A, B 
        (other than this section), and D.''.
    (b) Conforming Amendment.--The table of sections for subpart B of 
part IV of subchapter A of chapter 1 of the Internal Revenue Code of 
1986 is amended by inserting after the item relating to section 30A the 
following new item:

                              ``Sec. 30B. Cruise ship construction 
                                        credit.''.
    (c) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2001.

SEC. 104. ACCELERATED DEPRECIATION.

    (a) In General.--Section 168(e)(3)(C) of the Internal Revenue Code 
of 1986 (relating to classification of certain property) is amended by 
redesignating clause (ii) as clause (iii) and inserting after clause 
(i) the following new clause:
                            ``(ii) a cruise ship (as defined in section 
                        30B), and''.
    (b) Effective Date.--The amendment made by this section shall apply 
to property placed in service after December 31, 2001.

SEC. 105. DEDUCTION FOR CERTAIN BUSINESS EXPENSES ON CRUISE SHIPS.

    (a) Deduction Allowed.--
            (1) Conventions on cruise ships.--Section 274(h) of the 
        Internal Revenue Code of 1986 (relating to conventions on 
        cruise ships) is amended--
                    (A) in paragraph (2), by striking ``meets the 
                requirements of paragraph (5)'' and all that follows 
                and inserting ``establishes that the meeting is 
                directly related to the active conduct of the 
                individual's trade or business and that the cruise ship 
                is--
                    ``(A) a United States-built vessel registered in 
                the United States, or
                    ``(B) a foreign-built vessel registered in the 
                United States under section 8109 of Public Law 105-56 
                or title III of the All American Cruise Act of 2001.'', 
                and
                    (B) by striking paragraph (5) and by redesignating 
                paragraphs (6) and (7) as paragraphs (5) and (6), 
                respectively.
            (2) Luxury water travel.--Section 274(m) of such Code 
        (relating to additional limitations on travel expenses) is 
        amended by striking paragraph (1) and redesignating paragraphs 
        (2) and (3) as paragraphs (1) and (2), respectively.
    (b) Conforming Amendments.--
            (1) Section 927(e)(3)(A) of the Internal Revenue Code of 
        1986 is amended by striking ``section 274(h)(6)(C)'' and 
        inserting ``section 274(h)(5)(C)''.
            (2) Section 936(d)(4)(B) of such Code is amended by 
        striking ``section 274(h)(6)(A)'' and inserting ``section 
        274(h)(5)(A)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 106. CREDIT FOR USE OF CLEAN-BURNING GAS ENGINES.

    (a) In General.--Subpart B of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to foreign tax credit, 
etc.), as amended by section 103, is amended by adding at the end the 
following new section:

``SEC. 30C. CREDIT FOR USE OF CLEAN-BURNING ENGINES.

    ``(a) Allowance of Credit.--There shall be allowed as a credit 
against the tax imposed by this chapter for the taxable year an amount 
equal to 20 percent of the amount paid or incurred by the taxpayer for 
the taxable year with respect to fuel consumed by clean-burning engines 
of an eligible cruise ship.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Clean-burning engine.--The term `clean-burning 
        engine' means a gas turbine engine, manufactured in the United 
        States or a possession of the United States, that burns 100 
        percent distillate fuel with less than 1.5 percent sulfur.
            ``(2) Cruise ship.--The term `cruise ship' has the meaning 
        given the same term in section 30B.
            ``(3) Eligible cruise ship.--The term `eligible cruise 
        ship' means a cruise ship which is--
                    ``(A) built in the United States, and
                    ``(B) documented under the laws of the United 
                States.
    ``(c) Application With Other Credits.--The credit allowed under 
subsection (a) for any taxable year shall not exceed the excess (if 
any) of--
            ``(1) the regular tax for the taxable year reduced by the 
        sum of the credits allowable under subpart A and sections 27, 
        29, 30, and 30A, over
            ``(2) the tentative minimum tax for the taxable year.''.
    (b) Clerical Amendment.--The table of sections for subpart B of 
part IV of subchapter A of chapter 1 of the Internal Revenue Code of 
1986, as amended by section 103, is amended by adding at the end the 
following new item:

                              ``Sec. 30C. Credit for use of clean-
                                        burning engines.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

 TITLE II--CAPITAL CONSTRUCTION FUNDS FOR PASSENGER VESSEL CONSTRUCTION

SEC. 201. AMENDMENTS TO MERCHANT MARINE ACT, 1936.

    (a) Changes in Vessels to Which Capital Construction Funds Apply.--
            (1) Inclusion of passenger vessels.--The second sentence of 
        subsection (a) of section 607 of the Merchant Marine Act, 1936 
        (46 U.S.C. App. 1178) is amended by striking ``for operation in 
        the United States foreign, Great Lakes, or noncontiguous 
        domestic trade or in the fisheries of the United States'' and 
        inserting ``for operation in the fisheries of the United States 
        or in the United States foreign, Great Lakes, or noncontiguous 
        domestic trade, or for operation as a passenger vessel in the 
        oceangoing domestic trade,''.
            (2) Definition of eligible vessel.--Paragraph (1) of 
        section 607(k) of such Act is amended to read as follows:
            ``(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 Sates or in the fisheries of the United 
                States.
        A foreign-built passenger vessel temporarily documented with a 
        coastwise trade endorsement under section 8109 of Public Law 
        105-56 or title III of the All American Cruise Act of 2001 
        shall be treated as satisfying the requirements of subparagraph 
        (A) of this paragraph.''.
            (3) Definition of qualified vessel.--Paragraph (2)(C) of 
        section 607(k) of such Act is amended to read as follows:
                    ``(C) which the person maintaining the fund agrees 
                with the Secretary will be operated in the fisheries of 
                the United States, in the United States foreign, Great 
                Lakes, or noncontiguous domestic trade, or (only in the 
                case of a passenger vessel) in the oceangoing domestic 
                trade.''.
            (4) Additional definitions.--Subsection (k) of section 607 
        of such Act is amended by adding at the end the following new 
        paragraphs:
            ``(10) The terms `foreign commerce' and `foreign trade' 
        have the meanings given such terms in section 905 of this Act, 
        except that in the case of a passenger vessel, these terms 
        shall include commerce or trade between foreign ports.
            ``(11) The term `passenger vessel' means a seagoing 
        passenger vessel of at least 20,000 gross tons that provides a 
        full range of overnight accommodations, entertainment, dining, 
        and other services for its passengers.
            ``(12) The term `oceangoing domestic trade' means--
                    ``(A) the operation of a passenger vessel on a 
                coastwise voyage between points in the United States, 
                or
                    ``(B) the operation of a passenger vessel on a 
                voyage to transport passengers to the high seas 
                beginning at a point in the United States and returning 
                to the same point without stopping at any other 
                point.''.
    (b) Treatment of Certain Lease Payments.--
            (1) Qualified withdrawal.--Paragraph (1) of section 607(f) 
        of such Act is amended by striking ``or'' at the end of 
        subparagraph (B), by striking the period at the end of 
        subparagraph (C) and inserting ``, or'', and by inserting after 
        subparagraph (C) the following new subparagraph:
                    ``(D) the payment of amounts which reduce the 
                principal amount (as determined under regulations 
                promulgated by the Secretary) of a qualified lease of a 
                qualified vessel or container which is part of the 
                complement of an eligible vessel.''.
            (2) Tax treatment.--Paragraph (4) of section 607(g) of such 
        Act is amended by inserting ``or to reduce the principal amount 
        of any qualified lease'' after ``indebtedness''.
            (3) Definition of qualified lease.--Subsection (k) of 
        section 607 of such Act, as amended by subsection (a)(4), is 
        amended by adding at the end the following new paragraph:
            ``(13) The term `qualified lease' means any lease with a 
        term of at least 5 years.''.
    (c) Authority To Make Deposits for Prior Years Based on Audit 
Adjustments.--Subsection (b) of section 607 of such Act is amended by 
adding at the end the following new paragraph:
            ``(4) To the extent permitted by joint regulations, 
        deposits may be made in excess of the limitation described in 
        paragraph (1) (and any limitation specified in the agreement) 
        for the taxable year if, by reason of a change in taxable 
        income for a prior taxable year that has become final pursuant 
        to a closing agreement or other similar agreement entered into 
        during the taxable year, the amount of the deposit could have 
        been made for such prior taxable year.''.
    (d) Treatment of Capital Gains and Losses.--
            (1) Capital gain account.--Paragraph (3) of section 607(e) 
        of such Act is amended to read as follows:
            ``(3) The capital gain account shall consist of--
                    ``(A) amounts representing long-term capital gains 
                (as defined in section 1222 of such Code) on assets 
                referred to in subsection (b)(1)(C), reduced by
                    ``(B) amounts representing long-term capital losses 
                (as defined in such section) on assets held in the 
                fund.''.
            (2) Ordinary income account.--Subparagraph (B) of section 
        607(e)(4) of such Act is amended to read as follows:
            ``(B)(i) amounts representing short-term capital gains (as 
        defined in section 1222 of such Code) on assets referred to in 
        subsection (b)(1)(C), reduced by
            ``(ii) amounts representing short-term capital losses (as 
        defined in such section) on assets held in the fund,''.
            (3) Tax treatment.--Subparagraph (B) of section 607(h)(3) 
        of such Act is amended by striking ``gain'' and all that 
        follows and inserting ``long-term capital gain (as defined in 
        section 1222 of such Code), and''.
            (4) Rate of tax.--The last sentence of subparagraph (A) of 
        section 607(h)(6) of such Act is amended by striking ``20 
        percent (34 percent in the case of a corporation)'' and 
        inserting ``the rate applicable to net capital gain under 
        section 1(h) or 1201(a) of such Code, as the case may be''.
    (e) Computation of Interest With Respect to Nonqualified 
Withdrawals.--
            (1) Interest.--Subparagraph (C) of section 607(h)(3) of 
        such Act is amended--
                    (A) by striking clause (i) and inserting the 
                following new clause:
                            ``(i) no addition to the tax shall be 
                        payable under section 6651 of such Code,'', and
                    (B) in clause (ii), by striking ``paid at the 
                applicable rate (as defined in paragraph (4))'' and 
                inserting ``paid in accordance with section 6601 of 
                such Code''.
            (2) Conforming amendments.--
                    (A) Subsection (h) of section 607 of such Act is 
                amended by striking paragraph (4) and by redesignating 
                paragraphs (5) and (6) as paragraphs (4) and (5), 
                respectively.
                    (B) Subparagraph (A) of section 607(h)(5) of such 
                Act, as redesignated by subparagraph (A), is amended by 
                striking ``paragraph (5)'' and inserting ``paragraph 
                (4)''.
    (f) Other Changes.--
            (1) Technical amendment.--Section 607 of such Act is 
        amended by striking ``the Internal Revenue Code of 1954'' each 
        place it appears and inserting ``the Internal Revenue Code of 
        1986''.
            (2) Income-producing assets.--Subsection (c) of section 607 
        of such Act is amended by striking ``interest-bearing 
        securities approved by the Secretary'' and inserting 
        ``interest-bearing securities and other income-producing assets 
        (including accounts receivable) approved by the Secretary''.

SEC. 202. AMENDMENTS OF INTERNAL REVENUE CODE OF 1986.

    (a) Treatment of Certain Lease Payments.--
            (1) Qualified withdrawal.--Paragraph (1) of section 7518(e) 
        of the Internal Revenue Code of 1986 (relating to purposes of 
        qualified withdrawals) is amended by striking ``or'' at the end 
        of subparagraph (B), by striking the period at the end of 
        subparagraph (C) and inserting ``, or'', and by inserting after 
        subparagraph (C) the following new subparagraph:
                    ``(D) the payment of amounts which reduce the 
                principal amount (as determined under regulations) of a 
                qualified lease of a qualified vessel.''.
            (2) Tax treatment.--Paragraph (4) of section 7518(f) of 
        such Code (relating to adjustment to basis of vessels, etc., 
        where withdrawals pay principal on debt) is amended by 
        inserting ``or to reduce the principal amount of any qualified 
        lease'' after ``indebtedness''.
    (b) Authority To Make Deposits for Prior Years Based on Audit 
Adjustments.--Subsection (a) of section 7518 of the Internal Revenue 
Code of 1986 (relating to ceiling on deposits) is amended by adding at 
the end the following new paragraph:
            ``(4) Authority to make deposits for prior years based on 
        audit adjustments.--To the extent permitted by joint 
        regulations, deposits may be made in excess of the limitations 
        described in paragraph (1) (and any limitation specified in the 
        agreement) for the taxable year if, by reason of a change in 
        taxable income for a prior taxable year that has become final 
        pursuant to a closing agreement or other similar agreement 
        entered into during the taxable year, the amount of the deposit 
        could have been made for such prior taxable year.''.
    (c) Treatment of Capital Gains and Losses.--
            (1) Capital gain account.--Paragraph (3) of section 7518(d) 
        of the Internal Revenue Code of 1986 (relating to establishment 
        of accounts) is amended to read as follows:
            ``(3) Capital gain account.--The capital gain account shall 
        consist of--
                    ``(A) amount representing long-term capital gains 
                (as defined in section 1222) on assets referred to in 
                subsection (a)(1)(C), reduced by
                    ``(B) amounts representing long-term capital losses 
                (as defined in such section) on assets held in the 
                fund.''.
            (2) Ordinary income account.--Subparagraph (B) of section 
        7518(d)(4) of such Code (relating to ordinary income account) 
        is amended to read as follows:
                    ``(B)(i) amounts representing short-term capital 
                gains (as defined in section 1222) on assets referred 
                to in subsection (a)(1)(C), reduced by
                    ``(ii) amounts representing short-term capital 
                losses (as defined in such section) on assets held in 
                the fund,''.
            (3) Tax treatment.--Subparagraph (B) of section 7518(g)(3) 
        of such Code (relating to operating rules) is amended by 
        striking ``gain'' and all that follows and inserting ``long-
        term capital gain (as defined in section 1222), and''.
            (4) Rate of tax.--The last sentence of subparagraph (A) of 
        section 7518(g)(6) of such Code (relating to nonqualified 
        withdrawals taxed at highest marginal rate) is amended by 
        striking ``20 percent (34 percent in the case of a 
        corporation)'' and inserting ``the rate applicable to net 
        capital gain under such section 1(h) or 1201(a), as the case 
        may be''.
    (d) Computation of Interest With Respect to Nonqualified 
Withdrawals.--
            (1) Interest.--Subparagraph (C) of section 7518(g)(3) of 
        the Internal Revenue Code of 1986 (relating to operating rules) 
        is amended--
                    (A) by striking clause (i) and inserting the 
                following new clause:
                            ``(i) no addition to the tax shall be 
                        payable under section 6651,'', and
                    (B) in clause (ii), by striking ``paid as the 
                applicable rate (as defined in paragraph (4))'' and 
                inserting ``paid in accordance with section 6601''.
            (2) Conforming amendments.--
                    (A) Subsection (g) of section 7518 of such Code is 
                amended by striking paragraph (4) and by redesignating 
                paragraphs (5) and (6) as paragraphs (4) and (5), 
                respectively.
                    (B) Subparagraph (A) of section 7518(g)(5) of such 
                Code, as redesignated by subparagraph (A), is amended 
                by striking ``paragraph (5)'' and inserting ``paragraph 
                (4)''.
    (e) Other Changes.--
            (1) Income-producing assets.--Paragraph (2) of section 
        7518(b) of the Internal Revenue Code of 1986 (relating to 
        requirements as to investments) is amended by striking 
        ``interest-bearing securities approved by the Secretary'' and 
        inserting ``interest-bearing securities and other income-
        producing assets (including amounts receivable) approved by the 
        Secretary''.
            (2) Paragraph (1) of section 7518(e) of such Code is 
        amended by striking the last sentence.
            (3) Subsection (i) of section 7518 of such Code (relating 
        to definitions) is amended by striking ``enactment of this 
        section'' and inserting ``enactment of the All American Cruise 
        Act of 2001''.
            (4) Subparagraph (B) of section 543(a)(1) of such Code is 
        amended to read as follows:
                    ``(B) interest on amounts set aside in a capital 
                construction fund under section 607 of the Merchant 
                Marine Act, 1936 (46 App. U.S.C. 1178), or in a 
                construction reserve fund under section 511 of such Act 
                (46 App. U.S.C. 1161).''
            (5) Subsection (c) of section 56 of such Code is amended by 
        striking paragraph (2) and by redesignating paragraph (3) as 
        paragraph (2).

SEC. 203. EFFECTIVE DATE.

    (a) In General.--Except as otherwise provided in this section, the 
amendments made by this title shall apply to taxable years beginning 
after the date of the enactment of this Act.
    (b) Changes in Computation of Interest.--The amendments made by 
sections 201(e) and 202(d) shall apply to withdrawals made after 
December 31, 2001, including for purposes of computing interest on such 
a withdrawal for periods on or before such date.
    (c) Qualified Leases.--The amendments made by sections 201(b) and 
202(a) shall apply to leases in effect on, or entered into after, 
December 31, 2001.
                                 <all>