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Title 26 — Internal Revenue CodeRelease 119-73

§1357 Items Not Subject to Regular Tax; Depreciation; Interest

Title 26 › Subtitle Subtitle A— Income Taxes › Chapter 1— NORMAL TAXES AND SURTAXES › Subchapter R— Election To Determine Corporate Tax on Certain International Shipping Activities Using Per Ton Rate › § 1357

Last updated Apr 6, 2026|Official source

Summary

A corporation that elects the tonnage tax regime leaves its income from qualifying shipping activities out of gross income, and the same applies to members of an electing group. In exchange, losses, deductions, and credits tied to that excluded income are disallowed. Depreciation on a qualifying vessel is treated as if it had been allowed when figuring gain on a sale, and these vessels generally must use straight-line depreciation. Interest expense is disallowed in the same proportion that the value of the company's qualifying vessels bears to its total assets.

Full Legal Text

Title 26, §1357

Internal Revenue Code — Source: USLM XML via OLRC

(a)Gross income of an electing corporation shall not include its income from qualifying shipping activities.
(b)Gross income of a corporation (other than an electing corporation) which is a member of an electing group shall not include its income from qualifying shipping activities conducted by such member.
(c)(1)Subject to paragraph (2), each item of loss, deduction (other than for interest expense), or credit of any taxpayer with respect to any activity the income from which is excluded from gross income under this section shall be disallowed.
(2)(A)Notwithstanding paragraph (1), the adjusted basis (for purposes of determining gain) of any qualifying vessel shall be determined as if the deduction for depreciation had been allowed.
(B)(i)Except as provided in clause (ii), the straight-line method of depreciation shall apply to qualifying vessels the income from operation of which is excluded from gross income under this section.
(ii)Clause (i) shall not apply to any qualifying vessel which is subject to a charter entered into before the date of the enactment of this subchapter.
(3)(A)Except as provided in subparagraph (B), the interest expense of an electing corporation shall be disallowed in the ratio that the fair market value of such corporation’s qualifying vessels bears to the fair market value of such corporation’s total assets.
(B)In the case of a corporation which is a member of an electing group, the interest expense of such corporation shall be disallowed in the ratio that the fair market value of such corporation’s qualifying vessels bears to the fair market value of the electing groups total assets.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

References in Text

The date of the enactment of this subchapter, referred to in subsec. (c)(2)(B)(ii), is the date of enactment of Pub. L. 108–357, which was approved Oct. 22, 2004.

Statutory Notes and Related Subsidiaries

Effective Date

Section applicable to taxable years beginning after Oct. 22, 2004, see section 248(c) of Pub. L. 108–357, set out as an

Effective Date

of 2004

Amendments

note under section 56 of this title.

Reference

Citations & Metadata

Citation

26 U.S.C. § 1357

Title 26 — Internal Revenue Code

Last Updated

Apr 6, 2026

Release point: 119-73