§1355 Definitions and Special Rules

Summary

Tells how companies that choose a special shipping tax option are treated and defines the key words used. Electing corporation — a company with that election in effect. Electing group — a controlled group that includes at least one electing corporation. Controlled group — a group treated as one employer under section 52 (ignoring two small-ownership rules). Qualifying vessel operator — a company that runs qualifying vessels and meets the shipping activity test. Qualifying vessel — a U.S.-flag, self-propelled (or partly self-propelled) ship of at least 6,000 deadweight tons used only in U.S. foreign trade while the election applies. United States flag vessel — a vessel documented under U.S. law. United States domestic trade — moving goods or people between U.S. places. United States foreign trade — moving goods or people between a U.S. place and a foreign place or between foreign places. Says a company is treated as operating a vessel if it owns or charters the ship (including time charters) or provides services under an operating agreement, and the vessel is being used as a qualifying vessel. If the company bareboat-charters a vessel out, it is only treated as operating it in limited cases (temporary surplus with a charter of 3 years or less, or charters within the controlled group or to someone who sub-charters to a group member) and only if the final user uses it as a qualifying vessel. To meet the shipping activity test, a corporation must (for most years) have met the rule for each of the two prior taxable years (the first election year looks at the prior year), and controlled-group members are treated as one company. The test requires that, on average during the year, at least 25 percent of the total tonnage of qualifying vessels the company used were owned by it or bareboat-chartered to it. Partners are treated as operating and doing what the partnership does, in proportion to their partnership share. An electing corporation can treat a vessel as still in qualifying use during a temporary stop or while temporarily working in U.S. domestic trade if it gives timely notice to the Secretary saying it has stopped and plans to resume; “timely” means by the tax return due date (including extensions) for the year the stop begins. Those temporary-use rules stop if the company abandons the plan or resumes use, and they do not apply if the vessel works in U.S. domestic trade more than 30 days in the taxable year. Special rules let a company treat work inside the Great Lakes and St. Lawrence Seaway (qualified zone domestic trade) as foreign trade for one year if it elects to do so; the Secretary will issue rules for dividing income and expenses and for carrying out these rules. The Secretary must also make any needed regulations.