taxmap/pubs/p595-000.htm#TXMP5a52d194This publication discusses the Capital Construction Fund (CCF).
The CCF is a special investment program administered by the National Marine
Fisheries Service (NMFS) and the Internal Revenue Service (IRS). This program
allows fishermen to defer paying income tax on certain income they invest in a
CCF account and later use to acquire, build, or rebuild fishing vessels.
This publication does not discuss all the tax rules that may
apply to your fishing trade or business. For general information about the
federal tax laws that apply to individuals, including commercial fishermen, who
file Schedule C or C-EZ, see Publication 334, Tax Guide for Small Business. If
your trade or business is a partnership or corporation, see Publication 541,
Partnerships, or Publication 542, Corporations.
taxmap/pubs/p595-000.htm#TXMP5f1e13bdWe welcome your comments about this publication and your suggestions
for future editions.
You can email us at
*taxforms@irs.gov. Please put "Publications Comment" on the subject line.
You can write to us at the following address:
Internal Revenue Service
Business Forms and Publications Branch
SE:W:CAR:MP:T:B
1111 Constitution Ave. NW, IR-6406
Washington, DC 20224
We respond to many letters by telephone. Therefore, it would
be helpful if you would include your daytime phone number, including the area
code, in your correspondence.
taxmap/pubs/p595-000.htm#TXMP535b001dPhotographs of missing children.
The Internal Revenue Service is a proud partner with the National
Center for Missing and Exploited Children. Photographs of missing children
selected by the Center may appear in this publication on pages that would
otherwise be blank. You can help bring these children home by looking at the
photographs and calling
1-800-THE-LOST (1-800-843-5678) if you recognize a child.
taxmap/pubs/p595-000.htm#TXMP468ac2a0The following sections discuss CCF accounts and the types of
bookkeeping accounts you must maintain when you invest in a CCF account. They
also discuss the income tax treatment of CCF deposits, earnings, and
withdrawals.
taxmap/pubs/p595-000.htm#TXMP73c124a5This section explains who can open a CCF account and how to use
the account to defer income tax.
taxmap/pubs/p595-000.htm#TXMP028fd747If you are a U.S. citizen and you own or lease one or more eligible
vessels (defined later), you can open a CCF account. However, before you open
your CCF account, you must enter into an agreement with the Secretary of
Commerce through the NMFS. This agreement will establish the following.
- Agreement vessels. Eligible vessels named in the agreement
that will be the basis for the deferral of income tax.
- Planned use of withdrawals. Use of CCF funds to acquire, build,
or rebuild a vessel.
- CCF depository. Where your CCF funds will be held.
 | You can request an application kit or get additional information
from NMFS at the following address.
NOAA/NMFS, Financial Services Division, F/MB5
Capital Construction Fund Program
1315 East-West Highway
Silver Spring, MD 20910-3282
|
 | You can call NMFS to request an application kit or get additional
information at (301) 713-2393 (ext. 204). Their fax number is (301) 713-1939. |
taxmap/pubs/p595-000.htm#TXMP27caa3d1There are two types of vessels that may be considered eligible,
those weighing 5 tons or more and those weighing less than 5 tons. For each
type, certain requirements must be met.
taxmap/pubs/p595-000.htm#TXMP455d7853To be considered eligible, the vessel must meet all the following
requirements.
- Be built or rebuilt in the United States.
- Be documented under the laws of the United States.
- Be used commercially in the fisheries of the United States.
- Be operated in the foreign or domestic commerce of the United
States.
A small vessel, weighing at least 2 net tons but less than 5
net tons, must meet all the following requirements to be considered eligible.
- Be built or rebuilt in the United States.
- Be owned by a U.S. citizen.
- Have a home port in the United States.
- Be used commercially in the fisheries of the United States.
You can use a CCF account to defer income tax by taking the following
actions.
- Making deposits to your CCF account from taxable income.
- Excluding from income deposits assigned to certain accounts
(discussed later).
- Making withdrawals from your CCF account when you acquire,
build, or rebuild fishing vessels.
- Reducing the basis of fishing vessels you acquire, build,
or rebuild to recapture amounts previously excluded from tax.
 | Reporting requirements.
Beginning with the tax year in which you establish your agreement, you must
report annual deposit and withdrawal activity to the NMFS on NOAA Form 34-82.
This form is due within 30 days after you file your federal income tax return
even if no deposits or withdrawals are made. For more information, contact the
NMFS at the address or phone number given earlier. |
taxmap/pubs/p595-000.htm#TXMP69094ca6This section discusses the three types of bookkeeping accounts
you must maintain when you invest in a CCF account. Your total CCF deposits and
earnings for any given year are limited to the amount attributed to these three
accounts for that year.
taxmap/pubs/p595-000.htm#TXMP6e9910ecThe capital account consists primarily of amounts attributable
to the following items.
- Allowable depreciation deductions for agreement vessels.
- Any nontaxable return of capital from either (a) or (b), below.
- The sale or other disposition of agreement vessels.
- Insurance or indemnity proceeds attributable to agreement
vessels.
- Any tax-exempt interest earned on state or local bonds in
your CCF account.
The capital gain account consists of amounts attributable to
the following items reduced by any capital losses from assets held in your CCF
account for more than 6 months.
- Any capital gain from either of the following sources.
- The sale or other disposition of agreement vessels held
for more than 6 months.
- Insurance or indemnity proceeds attributable to agreement
vessels held for more than 6 months.
- Any capital gain from assets held in your CCF account for
more than 6 months.
The ordinary income account consists of amounts attributable
to the following items.
- Any earnings (without regard to the carryback of any net operating
or net capital loss) from the operation of agreement vessels in the fisheries of
the United States or in the foreign or domestic commerce of the United States.
- Any capital gain from the following sources reduced by any
capital losses from assets held in your CCF account for 6 months or less.
- The sale or other disposition of agreement vessels held
for 6 months or less.
- Insurance or indemnity proceeds attributable to agreement
vessels held for 6 months or less.
- Any capital gain from assets held in your CCF account for
6 months or less.
- Any ordinary income (such as depreciation recapture) from
either of the following sources.
- The sale or other disposition of agreement vessels.
- Insurance or indemnity proceeds attributable to agreement
vessels.
- Any interest (not including tax-exempt interest from state
and local bonds), most dividends, and other ordinary income earned on the assets
in your CCF account.
This section explains the tax treatment of income used as the
basis for CCF deposits.
taxmap/pubs/p595-000.htm#TXMP18c98b7bDo not report any transaction that produces a capital gain if
you deposit the net proceeds into your CCF account. This treatment applies to
either of the following transactions.
- The sale or other disposition of an agreement vessel.
- The receipt of insurance or indemnity proceeds attributable
to an agreement vessel.
Do not report any transaction that produces depreciation recapture
if you deposit the net proceeds into your CCF account. This treatment applies to
either of the following transactions.
- The sale or other disposition of an agreement vessel.
- The receipt of insurance or indemnity proceeds attributable
to an agreement vessel.
Report earnings from the operation of agreement vessels on your
Schedule C or C-EZ (Form 1040) even if you deposit part of these earnings into
your CCF account. You subtract any part of the earnings you deposited into your
CCF account from the amount you would otherwise enter as taxable income on Form
1040, line 43 (for 2005). Next to line 43, write "CCF" and the amount of the
deposits. Do not deduct these CCF deposits on Schedule C or C-EZ (Form 1040).
 | If you deposit earnings from operations into your CCF account
and you must complete other forms such as Form 6251, Alternative Minimum Tax
(Individuals), or a worksheet for Schedule D (Form 1040), you will need to make
an extra computation. When the other form instructs you to use the amount from
Form 1040, line 41 (for 2005), do not use that amount. Instead, add Form 1040,
lines 42 and 43 (for 2005), and use that amount. |
taxmap/pubs/p595-000.htm#TXMP56a64b1eYou must use your net profit or loss from your fishing business
to figure your self-employment tax. Do
not
reduce your net profit or loss by any earnings from operations you deposit into
your CCF account.
|
Partnerships and S corporations.
The deduction for partnership earnings from operations deposited into a CCF
account is separately stated on Schedule K (Form 1065), line 13d, and allocated
to the partners on Schedule K-1 (Form 1065), box 13 (for 2005). The deduction for S corporation earnings deposited into a
CCF account is separately stated on Schedule K (Form 1120S), line 12d, and
allocated to the shareholders on Schedule K-1 (Form 1120S), box 12 (for 2005). |
taxmap/pubs/p595-000.htm#TXMP7c88bfc3This section explains the tax treatment of the earnings from
the assets in your CCF account when the earnings are redeposited or left in your
account. However, if you choose to withdraw the earnings in the year earned, you
must generally pay income tax on them.
taxmap/pubs/p595-000.htm#TXMP3ac8a505Do not report any capital gains from the sale of capital assets
held in your CCF account. This includes capital gain distributions reported to
you on Form 1099-DIV or a substitute statement. However, you should attach a
statement to your tax return to list the payers and the amounts and to identify
the capital gains as "CCF account earnings."
taxmap/pubs/p595-000.htm#TXMP548ca967Do not report any ordinary income (such as interest and dividends)
you earn on the assets in your CCF account. However, you should attach a
statement to your return to list the payers and the amounts and to identify them
as "CCF account earnings."
If you are required to file Schedule B (Form 1040), you can add
these earnings to the list of payers and amounts on line 1 or line 5 and
identify them as "CCF earnings." Then, subtract the same amounts from the list
and identify them as "CCF deposits."
taxmap/pubs/p595-000.htm#TXMP635b28ecDo not report tax-exempt interest from state or local bonds you
held in your CCF account. You are not required to report this interest on Form
1040, line 8b.
taxmap/pubs/p595-000.htm#TXMP7b916803This section discusses the tax treatment of amounts you withdraw
from your CCF account during the year.
taxmap/pubs/p595-000.htm#TXMP33a032f2A qualified withdrawal from a CCF account is one that is approved
by NMFS for either of the following uses.
- Acquiring, building, or rebuilding qualified vessels (defined
next).
- Making principal payments on the mortgage of a qualified vessel.
- NMFS will not approve amounts withdrawn to purchase nets not
continuously attached to the vessel, such as seine nets, gill set-nets, and gill
drift-nets.
- NMFS will approve amounts withdrawn to purchase trawl nets.
This is any vessel that meets all of the following requirements.
- The vessel was built or rebuilt in the United States.
- The vessel is documented under the laws of the United States.
- The person maintaining the CCF account agrees with the Secretary
of Commerce that the vessel will be operated in United States foreign trade,
Great Lakes trade, noncontiguous domestic trade, or the fisheries of the United
States.
When you make a qualified withdrawal, the amount is treated as
being withdrawn in the following order from the accounts listed below.
- The capital account.
- The capital gain account.
- The ordinary income account.
Do not report on your income tax return any qualified withdrawals
from your CCF account.
| Reduce the depreciable basis of fishing vessels you acquire,
build, or rebuild when you make a qualified withdrawal from either the capital
gain or the ordinary income account. |
taxmap/pubs/p595-000.htm#TXMP1cd3f856A nonqualified withdrawal from a CCF account is generally any
withdrawal that is not a qualified withdrawal. Qualified withdrawals are defined
under
Qualified Withdrawals,
earlier.
taxmap/pubs/p595-000.htm#TXMP3e506aecExamples of nonqualified withdrawals include the following amounts
from either the ordinary income account or the capital gain account.
- Amounts remaining in a CCF account upon termination of your
agreement with NMFS.
- Amounts you withdraw and use to make principal payments on
the mortgage of a vessel if the basis of that vessel and the bases of other
vessels you own have already been reduced to zero.
- Amounts determined by the IRS to cause your CCF account balance
to exceed the amount appropriate to meet your planned use of withdrawals. You
will generally be given 3 years to revise your plans to cover this excess
balance.
- Amounts you leave in your account for more than 25 years.
There is a graduated schedule under which the percentage applied to determine
the amount of the nonqualified withdrawal increases from 20% in the 26th year to
100% in the 30th year.
When you make a nonqualified withdrawal from your CCF account, the amount is
treated as being withdrawn in the following order from the accounts listed
below.
- The ordinary income account.
- The capital gain account.
- The capital account.
In general, nonqualified withdrawals are taxed separately from
your other gross income and at the highest marginal tax rate in effect for the
year of withdrawal. However, nonqualified withdrawals treated as made from the
capital gain account are taxed at a rate that cannot exceed 15% for individuals
and 34% for corporations.
| Partnerships and S corporations.
Taxable nonqualified partnership withdrawals are separately stated on Schedule K
(Form 1065), line 20c, and allocated to the partners on Schedule K-1 (Form
1065), box 20 (for 2005). Taxable nonqualified withdrawals by an S corporation
are separately stated on Schedule K (Form 1120S), line 17d, and allocated to the
shareholders on Schedule K-1 (Form 1120S), box 17. |
taxmap/pubs/p595-000.htm#TXMP4cf54bf7You must pay interest on the additional tax due to nonqualified
withdrawals that are treated as made from either the ordinary income or the
capital gain account. The interest period begins on the last date for paying tax
for the year for which you deposited the amount you withdrew from your CCF
account. The period ends on the last date for paying tax for the year in which
you make the nonqualified withdrawal. The interest rate on the nonqualified
withdrawal is simple interest. The rate is subject to change annually and is
published in the Federal Register.
| You also can call NMFS at (301) 713-2393 (ext. 204) to get
the current interest rate. |
taxmap/pubs/p595-000.htm#TXMP39e6d3b8You can deduct the interest you pay on a nonqualified withdrawal
as a trade or business expense.
taxmap/pubs/p595-000.htm#TXMP7b1c2553Attach a statement to your income tax return showing your computation
of the tax and the interest on a nonqualified withdrawal. Include the tax and
interest on Form 1040, line 63 (for 2005). To the left of line 63, write in the
amount of tax and interest and "CCF."
taxmap/pubs/p595-000.htm#TXMP408ff0d4If any portion of your nonqualified withdrawal is properly attributable
to contributions (not earnings on the contributions) you made to the CCF account
that did not reduce your tax liability for any tax year prior to the withdrawal
year, the following tax treatment applies.
- The part that did not reduce your tax liability for any year
prior to the withdrawal year is not taxed.
- That part is allowed as a net operating loss deduction.
This section briefly discussed the CCF program. For more detailed
information, see the following legislative authorities.
- Section 607 of the Merchant Marine Act of 1936, as amended
(46 U.S.C. 1177).
- Chapter 2, Part 259 of title 50 of the Code of Federal Regulations
(50 C.F.R., Part 259).
- Subchapter A, Part 3 of title 26 of the Code of Federal Regulations
(26 C.F.R., Part 3).
- Section 7518 of the Internal Revenue Code (IRC 7518).
The application kit you can obtain from NMFS at the address
or phone number given earlier may contain copies of some of these sources of
additional information. Also, see their web page at
www.nmfs.noaa.gov/mb/financial_services/ccf.htm.
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