Statute

The CCF program is authorized under Title 46, United States Code, Chapter 535 (formerly, sec. 607, Merchant Marine Act, 1936, as amended). The statute was most recently amended in December 2022 with the National Defense Authorization Act for Fiscal Year 2023 (“2023 NDAA”). The 2023 NDAA expanded the CCF program’s eligibility to all U.S.-built vessels engaged in commerce and eliminated prior geographic trading restrictions. Link to statute is below:

46 USC Ch. 535: CAPITAL CONSTRUCTION FUNDS (house.gov)

Regulations

Due to recent updates to the CCF’s statute, the program’s regulations will be updated. As a reference, a link to the regulations is below:

46 USC Part 390

Frequently Asked Questions (“FAQs”)

(1) Is there a minimum dollar amount for a CCF account holder's Schedule B program and, if so, how will that be determined?

No minimum amount is required.  If the amount is unknown at the time of an application, it can be modified once the cost of a vessel is known and the amount that the CCF account holder wants to take from the account is known.

(2) Can revenue earned from eligible agreement vessels be deposited into the CCF account at any time during the year or only a specific time of the year?

Deposits may be made at any time of year but not later than the last day prescribed by law for filing the CCF account holder's federal income tax return for the taxable year to which such deposit relates.

(3) Is there a time limit on when a CCF account holder must use its CCF funds (e.g., to purchase a vessel)?

Yes – CCF funds must be used within 25 years from the date (year of) deposit.

(4) Can a CCF account holder deposit money into its CCF account that was received after the application was filed but before a CCF agreement is in place?

In general, yes.

(5) Can a CCF account holder use CCF funds to reimburse for payments made after an application was filed but before its CCF agreement is in place?

In general, yes, so long as the reimbursement is within 120 days of the date of the expenditure or contract execution, as applicable.

(6) Can CCF funds be used for vessels that are in service or expected to be put in service?

CCF funds can be used for reconstruction of existing vessels as well as to construct, reconstruct or pay the principal portion of construction or acquisition-related indebtedness for additional vessels that a fundholder has plans for. The long-term nature of the CCF offers a way to amass a significant portion of new vessel costs in a tax shelter.

(7) If funds are received from a sale of an agreement vessel, can those funds be placed into the CCF account at any time during the calendar year without paying taxes on the funds, or is a shorter period of time required?

Generally, the tax treatment of the deposit made from the sale of an agreement vessel is determined based on the taxable year in which the deposit is made.

(8) Are the proceeds from the sale of an agreement vessel treated any differently than funds received from operating an agreement vessel?

For deposits into a CCF account, proceeds from owning or operating an agreement vessel may be used.  For withdrawals from a CCF account (vessels listed on Schedule B), an applicant must have a proprietary interest in the vessels for which the funds are used.  The ceilings of nontaxability differ depending on whether the proceeds originate from operating or selling an agreement vessel.

(9) What are some limitations of the program?

There are a few specific unacceptable objectives for new applications such as those that are solely for the following:

(i) Reconstruction of an existing vessel, unless such reconstruction will exceed $1,000,000 in capitalized cost under IRS regulations and will result in a vessel which is significantly more competitive;

(ii) Acquisition of an existing vessel; or

(iii) Payment of the principal on existing indebtedness.

(10) Are there any monetary penalties if the CCF agreement is violated (e.g., funds are not used for the agreed on CCF objectives)?

Yes; Unqualified withdraws are treated as ordinary income and the IRS may assess early withdrawal or other penalties if funds are not used to fulfill the agreed on CCF objectives.  Because these penalties are under the IRS's control and will vary based on the particular circumstances, MARAD cannot provide guidance on what the amount(s) may be.

(11) What are the application deadlines?

• Corporation or LLC: Must be received by September 15^th in order to gain tax benefit for the previous year.
• Individual: Must be received by October 15^th in order to gain tax benefit for the previous year.

(12) What is the difference between an "eligible agreement vessel" and a "qualified agreement vessel?"

Eligible agreement vessels are those used to fund the CCF account.  Funds may come from either their operation or from their sale.

Qualified agreement vessels are vessels owned (in whole or in part) by the applicant and for which CCF funds are used to construct or reconstruct.