§1355 Definitions and Special Rules

Summary

Sets rules for which companies and ships count when a corporation makes the special shipping election and how ship use is measured. Key terms (one line each): Electing corporation — a corporation with the election in effect. Electing group — a controlled group that includes an electing corporation. Controlled group — companies treated as one employer under certain tax rules. Qualifying vessel operator — a corporation that runs qualifying vessels and meets the shipping activity test. Qualifying vessel — a U.S.-flag ship of at least 6,000 deadweight tons used only in U.S. foreign trade while the election is active. U.S. flag vessel — a vessel documented under U.S. law. U.S. domestic trade — transport between places in the United States. U.S. foreign trade — transport between the United States and foreign places or between foreign places. A company is treated as operating a vessel if it owns, charters (including time charters), or provides services under an operating agreement and the ship is a qualifying vessel. If a vessel is bareboat-chartered out, the owner counts as operating it only in limited cases (temporary surplus with a charter of 3 years or less, or certain charters within a controlled group or to someone who subcharters to a group member) and only if the ultimate user treats it as qualifying. To meet the shipping activity rule a company must usually meet the tonnage test for each of the two prior taxable years (for the first election year it needs the prior year). For controlled groups, all members are treated as one. The tonnage test requires that on average at least 25% of the total tonnage of qualifying vessels used were owned or bareboat-chartered by the company during the year. Partners are treated as operating partnership vessels and use their partnership share to measure interest. If use stops temporarily or a qualifying vessel is used temporarily in U.S. domestic trade, the company can be treated as still using it if it gives timely notice to the tax official (by the tax return due date, including extensions) saying it intends to resume; temporary domestic use is ignored only if it does not exceed 30 days in the taxable year. Companies can elect special treatment for Great Lakes/St. Lawrence Seaway domestic runs, and the tax official must issue rules and regulations to implement these provisions.