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The Capital Construction Fund (“CCF”) program is a joint program of the Internal Revenue Service and the United States Maritime Administration which provides federal income tax incentives, mostly through tax deferral, to vessel owners and operators.  The program is authorized both by Internal Revenue Code Section 7518 and by 46 USC 53501. The primary goals of the program are to ensure that there is a United States flagged fleet in case vessels are needed in time of war and to ensure we have domestic vessel production capacity for such purpose.  Secondarily, the program creates jobs for vessel operators and domestic shipyards and assists in modernizing the United States merchant marine fleet. Program participants may defer income tax by depositing income from the operation of vessels, sales proceeds from the sale of vessels into a CCF account, much like a qualified retirement plan. Deposits into a capital construction fund may reduce a taxpayer’s taxable income or be excluded from income – depending upon the source of the deposits. Withdrawals used to pay for a vessel normally reduce a taxpayer’s federal income tax cost basis in the vessel for which the withdrawal is made but are otherwise tax-free. Earnings on CCF deposits are excluded from income. There are two separately administered CCF programs – one for commercial fishermen and one for commercial vessel operators. The rules for and administrators of the two programs differ.

Read the full post by Liskow attorney Leon Rittenberg on The Energy Law Blog here.

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