[Congressional Record Volume 157, Number 41 (Thursday, March 17, 2011)]
[Senate]
[Pages S1838-S1840]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Ms. CANTWELL (for herself, Mr. Vitter, Mr. Carper, Mr. 
        Cochran, Mr. Inouye, Ms. Landrieu, and Mrs. Murray):
  S. 626. A bill to amend the Internal Revenue Code of 1986 to repeal 
the shipping investment withdrawal rules in section 955 and to provide 
an incentive to reinvest foreign shipping earnings in the United 
States; to the Committee on Finance.
  Ms. CANTWELL. Mr. President, I am pleased to join with my colleagues 
Senators Vitter, Carper, Cochran, Inouye, Landrieu, and Murray to 
introduce the American Shipping Reinvestment Act of 2011. This 
legislation will build on work Congress started in 2004 to strengthen 
the U.S. merchant marine, create needed jobs in U.S. ship building, and 
stimulate economic activity in our maritime sector.
  Since our Nation's founding, the maritime sector has been integral to 
U.S. national security and economic security. American companies own 
and operate both U.S. flag ships and a significant number of vessels 
under international registries. The U.S. flag fleets of these companies 
generally are built in the United States and are manned with U.S. 
seafarers. These U.S. flag fleets support not only the shipbuilding 
industrial base in this country and the pool of qualified seafarers, 
but they also create the shipping assets that are needed for military 
sealift in time of war or national emergency.
  Most people understand commercial shipping and understand that we 
maintain a fleet of ships for military purposes. What may not be as 
well known is that the international ships of some American-owned 
companies are part of what is called the effective U.S.-controlled 
fleet, EUSC fleet. The EUSC is the fleet of merchant vessels registered 
in certain foreign nations that are available for requisition, use, or 
charter by the U.S. Government in the event of war or national 
emergency.
  For example, U.S. flag commercial vessels and their American crews 
transported the majority of the cargo, more than 25 million measurement 
tons of cargo, in support of Operations Enduring Freedom and Iraqi 
Freedom during the period of 2002-2008.
  What people also may not know is that the EUSC fleet has been in 
decline for the past quarter century, largely because of U.S. tax 
policy. Following enactment of certain 1986 tax law changes, there was 
a precipitous decline in American-owned international shipping assets. 
To remain competitive, many American-owned shipping companies either 
became foreign companies or simply divested themselves of their foreign 
assets.
  A 2002 study commissioned by the Department of Defense and performed 
by professors at the Massachusetts Institute of Technology found that 
the EUSC fleet dropped by 38 percent in terms of numbers of ships and 
nearly 55 percent in terms of deadweight tonnage between 1986 and 2000. 
Perhaps more importantly, these declines have been largely experienced 
in militarily-useful

[[Page S1839]]

vessel types. For example, the results of a 2002 DOD study found that 
if the EUSC fleet continues its present decline, DOD's ability to 
support U.S. military tanker requirements will diminish over time.
  Fortunately, Congress recognized this problem in 2004 and addressed 
it by enacting the tonnage tax regime as part of the American Jobs 
Creation Act. Our legislation today builds on that policy by correcting 
an oversight in the 2004 act that has continued to stymie the ability 
of U.S. shipbuilding companies to invest in new ships in the United 
States.
  We have very strong economic and national security reasons to support 
U.S. owned shipowning companies and to maintain a vibrant maritime 
industry in this country. We also have to continue to support needed 
changes in our tax code so that we provide operators of U.S. flag 
vessels in international trade the opportunity to be competitive with 
their tax-advantaged foreign competitors.
  Notwithstanding the significant competitive disadvantages between 
1986 and 2004 for American companies operating international ships, 
there continues to be several U.S. owned shipping companies with 
foreign operations, and our legislation is directed at helping them 
sustain and grow their U.S. flag fleets and to maintain their EUSC 
fleets. This bill will help these companies make needed investment in 
the U.S. economy, and create jobs in a way that also will enhance 
national security.
  Specifically, the American Shipping Reinvestment Act of 2011 would 
repeal an outdated section of the Internal Revenue Code and allow U.S. 
shipping companies with foreign income earned prior to 1986 to reinvest 
it into the U.S. for the purpose of growing their U.S. flag operations.
  Congress first included foreign shipping income in Subpart F in 1975, 
which meant that all shipping income was taxable at the full U.S. 
corporate tax rate no matter whether it was invested abroad or in the 
United States. However, a temporary rule, applicable to foreign 
shipping income earned from 1975 to 1986, continued to allow for 
deferral in cases where this income was reinvested in qualifying 
shipping activities. Section 955 of the Internal Revenue Code provided 
that this income would be included in gross income, i.e., taxed, 
immediately under Subpart F in the event of any net decrease in 
qualified shipping investments.
  The American Jobs Creation Act of 2004 restored for shipping income 
the normal tax rule under which non-Subpart F income of foreign 
subsidiaries is not taxed by the United States until it is repatriated, 
generally as a dividend. In restoring the potential for deferral for 
certain shipping income, Congress in 2004 returned the treatment of 
shipping income to where it was prior to 1975.
  Unfortunately, Congress did not address the rules under IRC Section 
955 that apply to income earned between 1975 and 1986, thus creating a 
situation that this income is permanently stranded offshore. Our bill 
would repeal IRC Section 955 and will allow these stranded assets to be 
reinvested in the United States under the favorable tax terms that were 
in effect for other companies and industries in 2004. Specifically, the 
legislation provides a one-time opportunity for American-owned shipping 
companies to bring foreign source income back into the United States at 
a discounted tax rate for the purpose of expanding and growing our 
domestic maritime industry. Without the commonsense change in our 
legislation, these old, stranded assets will never return to the United 
States and never be subject to U.S. taxation.
  The bill is guaranteed to create jobs for American workers with the 
funds being brought back into the U.S. economy--on the ships, in the 
shipyards building the ships, and in supporting businesses. The bill 
contains a provision that would recapture any tax benefits if a 
shipping company reduces its full-time U.S. employment levels.
  This bill also would enhance U.S. national security interests by 
supporting shipyards that are vital to our defense industrial base, by 
enabling new U.S. flag tanker capacity to transport our Nation's energy 
products, and by providing DOD with critical assets--manpower and 
ships--necessary to help sustain military sealift.
  The bill is strongly supported by maritime labor, shipyards, and ship 
owners and operators and can provide a boost to the U.S. maritime 
industry at a time when the U.S. is struggling to find its economic 
footing. The jobs created by this legislation are well-paying, long-
term jobs in a crucial sector of our Nation's economy. I urge my 
colleagues to join me and my other original cosponsors in supporting 
this bill.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                 S. 626

       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 ``American Shipping 
     Reinvestment Act of 2011''.

     SEC. 2. REPEAL OF QUALIFIED SHIPPING INVESTMENT WITHDRAWAL 
                   RULES.

       (a) In General.--Section 955 of the Internal Revenue Code 
     of 1986 (relating to withdrawal of previously excluded 
     subpart F income from qualified investment) is hereby 
     repealed.
       (b) Conforming Amendments.--
       (1) Section 951(a)(1)(A) of the Internal Revenue Code of 
     1986 is amended by adding ``and'' at the end of clause (i) 
     and by striking clause (iii).
       (2) Section 951(a)(1)(A)(ii) of such Code is amended by 
     striking ``, and'' at the end and inserting ``, except that 
     in applying this clause amounts invested in less developed 
     country corporations described in section 955(c)(2) (as so in 
     effect) shall not be treated as investments in less developed 
     countries.''.
       (3) Section 951(a)(3) of such Code (relating to the 
     limitation on pro rata share of previously excluded subpart F 
     income withdrawn from investment) is hereby repealed.
       (4) Section 964(b) of such Code is amended by striking ``, 
     955,''.
       (5) The table of sections for subpart F of part III of 
     subchapter N of chapter 1 of such Code is amended by striking 
     the item relating to section 955.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years of controlled foreign 
     corporations ending on or after the date of the enactment of 
     this Act, and to taxable years of United States shareholders 
     in which or with which such taxable years of controlled 
     foreign corporations end.

     SEC. 3. ONE-TIME TEMPORARY DIVIDENDS RECEIVED DEDUCTION FOR 
                   PREVIOUSLY UNTAXED FOREIGN BASE COMPANY 
                   SHIPPING INCOME.

       (a) In General.--In the case of a corporation which is a 
     United States shareholder and for which an election under 
     this section is made for the taxable year, for purposes of 
     the Internal Revenue Code of 1986, there shall be allowed as 
     a deduction in computing taxable income under section 63 of 
     such Code an amount equal to 85 percent of the cash 
     distributions which are received during such taxable year by 
     such shareholder from controlled foreign corporations to the 
     extent that the distributions are attributable to income--
       (1) which was derived by the controlled foreign corporation 
     in taxable years beginning before January 1, 2005, and
       (2) which would, without regard to the year earned, be 
     described in section 954(f) of such Code (as in effect before 
     the enactment of the American Jobs Creation Act of 2004).
       (b) Indirect Dividends.--A rule similar to the rule of 
     section 965(a)(2) of the Internal Revenue Code of 1986 shall 
     apply, determined by treating cash distributions which are so 
     attributable as cash dividends.
       (c) Limitation.--The amount of dividends taken into account 
     under this section shall not exceed the amount permitted to 
     be taken into account under paragraphs (1), (3) (determined 
     by substituting ``December 31, 2008'' for ``October 3, 
     2004''), and (4) of section 965(b) of the Internal Revenue 
     Code of 1986, determined as if such paragraphs applied to 
     this section.
       (d) Taxpayer Election and Designation.--For purposes of 
     subsection (a), a taxpayer may, on its return for the taxable 
     year to which this section applies--
       (1) elect to apply paragraph (3) of section 959(c) of the 
     Internal Revenue Code of 1986 before paragraphs (1) and (2) 
     thereof, and
       (2) designate the extent, if any, to which a cash 
     distribution reduces a controlled foreign corporation's 
     earnings and profits attributable to--
       (A) foreign base company shipping income (determined under 
     section 954(f) of the Internal Revenue Code of 1986 as in 
     effect before the enactment of the American Jobs Creation Act 
     of 2004), or
       (B) other earnings and profits.
       (e) Election.--
       (1) In general.--The taxpayer may elect to apply this 
     section to--
       (A) the taxpayer's last taxable year which begins before 
     the date of the enactment of this Act, or
       (B) the taxpayer's first taxable year which begins during 
     the 1-year period beginning on such date.

[[Page S1840]]

       (2) Timing of election and one-time election.--Such 
     election may be made for a taxable year--
       (A) only if made on or before the due date (including 
     extensions) for filing the return of tax for such taxable 
     year, and
       (B) only if no election has been made under this section or 
     section 965 of the Internal Revenue Code of 1986 with respect 
     to the same distribution for any other taxable year of the 
     taxpayer.
       (f) Reduction in Benefits for Failure to Maintain 
     Employment Levels.--
       (1) In general.--If, during the period consisting of the 
     calendar month in which the taxpayer first receives a 
     distribution described in subsection (a) and the succeeding 
     23 calendar months, the taxpayer does not maintain an average 
     employment level at least equal to the taxpayer's prior 
     average employment, an additional amount equal to $25,000 
     multiplied by the number of employees by which the taxpayer's 
     average employment level during such period falls below the 
     prior average employment (but not exceeding the aggregate 
     amount allowed as a deduction pursuant to subsection (a)) 
     shall be taken into account as income by the taxpayer during 
     the taxable year that includes the final day of such period.
       (2) Prior average employment.--For purposes of this 
     paragraph, the taxpayer's ``prior average employment'' shall 
     be the average number of full time equivalent employees of 
     the taxpayer during the period consisting of the 24 calendar 
     months immediately preceding the calendar month in which the 
     taxpayer first receives a distribution described in 
     subsection (a).
       (3) Aggregation rules.--In determining the taxpayer's 
     average employment level and prior average employment, all 
     domestic members of a controlled group (as defined in section 
     264(e)(5)(B) of the Internal Revenue Code of 1986) shall be 
     treated as a single taxpayer.
       (g) Special Rules.--Rules similar to the rules of 
     subsections (d) and (e) and paragraphs (3), (4), and (5) of 
     subsection (c) of section 965 of the Internal Revenue Code of 
     1986 shall apply for purposes of this section.
       (h) Effective Date.--This section shall apply to taxable 
     years ending on or after the date of the enactment of this 
     Act.
                                 ______