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.
We 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.
The 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.
Previous Page |
Table of Contents |
Index |
Next Page
