[Federal Register Volume 62, Number 2 (Friday, January 3, 1997)]
[Rules and Regulations]
[Pages 330-331]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-33386]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF COMMERCE

National Oceanic and Atmospheric Administration (NOAA)

50 CFR Part 259

[Docket No.961122326-6326-01; I.D. 081092G]
RIN 0648-AF22


Capital Construction Fund; Interim Fishing Vessel Capital 
Construction Fund Procedures

AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and 
Atmospheric Administration (NOAA), Commerce.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: NMFS issues this final rule to allow fishermen to use the 
Fishing Vessel Capital Construction Fund Program (Program) for 
equipping and/or modifying their fishing vessels to increase general 
vessel safety and/or to comply with specific requirements established 
under the Commercial Fishing Industry Vessel Safety Act of 1988 and/or 
other laws or regulations that materially increase the safety of a 
fishing vessel. The result is that a vessel equipment acquisition or 
vessel modification, which materially increases the safety of a 
qualified vessel, will be treated as a reconstruction and exempted from 
certain Program rules so that payment for it becomes a qualified 
withdrawal.

EFFECTIVE DATE: February 3, 1997.

FOR FURTHER INFORMATION CONTACT: Charles L. Cooper (Financial Services 
Division, NMFS) at 301-713-2396.

SUPPLEMENTARY INFORMATION:

Background

    The Program allows fisheries taxpayers to defer paying Federal 
taxes on fishing vessel income. Income on which taxes are to be 
deferred must be deposited in accordance with Capital Construction Fund 
Agreements and reserved for the equity portion of fishing vessel 
construction, reconstruction, or acquisition costs. All deferred taxes 
are eventually recaptured by reductions in the depreciation basis, for 
tax purposes, of vessels benefitting from tax deferrals under the 
Program.
    Under present Program rules (50 CFR part 259), fishermen cannot use 
the Program to pay for safety equipment unless that equipment is part 
of a vessel construction or reconstruction project. Although this is 
not generally a problem when fishing vessel construction is involved, 
it can be a problem when fishing vessel reconstruction is involved.
    Generally, improving a fishing vessel will not qualify as 
reconstruction under this Program's rules unless the cost of doing so: 
(1) Is a capital expenditure; (2) amounts to at least $100,000 or 20 
percent of the vessel's acquisition cost (whichever is less); and (3) 
substantially prolongs the vessel's useful life, increases its value, 
or adapts it to a different fisheries use. The purchase and 
installation of fishing vessel safety equipment would seldom meet this 
rules test. Many fishing vessel modifications for safety purposes would 
also fail to meet this test.
    Additionally, the conditional fishery requirements apply to fishing 
vessel reconstruction under this Program. These requirements restrict 
the availability of Program benefits in fisheries where the Government 
deems additional or increased harvesting capacity unwarranted. These 
conditional fishery requirements could also, under the present Program 
rules, prevent use of this Program for safety projects.
    This rulemaking permits Program use for the acquisition and 
installation of fishing vessel safety equipment and for fishing vessel 
modifications whose central purpose is to increase vessel safety to be 
treated, in their own right, as reconstructions for the purpose of 
withdrawing tax-deferred funds from Capital Construction Funds to pay 
for them. Except for the capital expenditure requirement, these fishing 
vessel safety projects are now exempted from the normal rules test that 
determines whether fishing vessel improvements can qualify as 
reconstructions. They are now also exempted from the conditional 
fishery requirements that would otherwise apply to reconstruction 
projects.
    Notice of proposed rulemaking for this change was published in the 
Federal Register on November 18, 1992 (57 FR 54356).

Comments and Responses

    Seven parties responded in writing to the notice of proposed 
rulemaking. All supported it. The general response was that this rule 
would give the industry needed flexibility in meeting new and proposed 
safety requirements for fishing vessels. One of those responding was 
the Director, Northeast Region, NMFS, for NOAA, who also recommended 
expanding the proposed rule to include the acquisition and installation 
of equipment required by law or regulation which materially increases 
the safety of a qualified fishing vessel. This recommendation was made 
for the purpose of helping fishermen pay for the high cost of 
transponders required for fishery management purposes; but which also 
serve to materially increase vessel safety by providing accurate hourly 
position transmissions that could be sent directly to the U.S. Coast 
Guard.
    After considering these comments, NMFS has decided to proceed with 
final rulemaking with only a minimum change in the proposed rule to 
allow the Program to be used for vessel equipment acquisitions or 
vessel modifications, which materially increase the safety of a 
qualified vessel, to be treated as a reconstruction when made either 
for such central purpose or because it was required by law or 
regulation.

Effect of Final Rule

    This rule allows the fishing industry to use their Capital 
Construction Funds to pay for fishing vessel safety-related projects 
without regard to: (1) The cost of the safety project; (2) whether the 
fishing vessel involved in the safety project had its useful life 
extended, its

[[Page 331]]

value increased, or was converted to a different fisheries use; and (3) 
conditional fishery requirements.

Classification

    The General Counsel of the Department of Commerce certified to the 
Chief Counsel for Advocacy of the Small Business Administration that 
this rule will not have a significant economic impact on a substantial 
number of small entities because it relates to financial assistance 
programs in which participation is voluntary and does not impose any 
cost, economic burden, or reporting burden on the industry. As a 
result, a regulatory flexibility analysis was not prepared.
    This action has been determined to be not significant for the 
purposes of E.O. 12866.

List of Subjects in 50 CFR Part 259

    Fisheries, Fishing vessels, Income taxes, Reporting and 
recordkeeping requirements.

    Dated: December 27, 1996.
Nancy Foster,
Deputy Assistant Administrator for Fisheries, National Marine Fisheries 
Service.
    For the reasons set out in the preamble, 50 CFR part 259 is amended 
as follows:

PART 259--CAPITAL CONSTRUCTION FUND

    1. The authority citation for part 259 continues to read as 
follows:

    Authority: 46 U.S.C. 1177.

    2. Section 259.31 is amended by removing the authority citation in 
the parenthetical at the end of the section and by adding a new 
paragraph (e) to read as follows:


Sec. 259.31  Acquisition, construction, or reconstruction.

* * * * *
    (e) Safety projects. The acquisition and installation of safety 
equipment for a qualified vessel and vessel modifications whose central 
purpose is materially increasing the safety of a qualified vessel or 
the acquisition and installation of equipment required by law or 
regulation that materially increases the safety of a qualified vessel 
shall, regardless of cost, be treated as reconstruction for the purpose 
of qualifying a CCF withdrawal for such expenditure, shall be exempt 
from having to meet conditional fishery requirements for reconstruction 
as set forth in Sec. 259.32, and shall be exempt from all qualifying 
tests for reconstruction set forth in paragraph (b) of this section, 
with the following exceptions:
    (1) A safety improvement shall be required to meet both conditional 
fishery requirements and all qualifying tests for reconstruction if it 
serves the dual purpose of safety and meeting the reconstruction 
requirement of paragraph (a) of this section for qualifying a 
withdrawal for the acquisition of a used vessel;
    (2) That portion of the actual cost of a safety improvement that is 
to be paid for from the CCF must be classifiable and treated as a 
capital expenditure for Internal Revenue Service purposes;
    (3) Safety improvement projects whose clear and central purpose is 
restricted to complying with the requirements of the Commercial Fishing 
Industry Vessel Safety Act of 1988 (Public Law 100-424 Sec. 1, 102 
stat. 1585 (1988) (codified in scattered sections of 46 U.S.C.)) shall, 
without further documentation, be considered to fall within this 
paragraph (e). Satisfactory documentation will be required for all 
other projects proposed to be considered as falling within this 
paragraph (e). Projects not required by law or regulation whose central 
purpose clearly involves something other than an improvement that 
materially increases the safety of a vessel will not be considered to 
fall within this paragraph (e).
[FR Doc. 96-33386 Filed 12-27-96; 4:05 am]
BILLING CODE 3510-22-F