Statute Change Brings Tax-Deferred Funding Opportunity For U.S.-Flag Vessel Fleet Owners And Operators

By Bill Finnecy

A significant Capital Construction Fund (CCF) statute was amended on December 23, 2022, allowing more U.S.-flag vessel owners and operators to potentially benefit from this unique tax deferral program.


U.S. flag-carrying vessel owners and operators can defer tax on vessel operating profits as well as capital gains tax from the sale of vessels if these amounts are timely deposited in a CCF agreement account established with the Maritime Administration (MarAd) for commercial vessels and National Marine Fisheries Service (NMFS/NOAA) for commercial fishing vessels.

Previously, the statute was worded to restrict the use of these tax-deferred CCF funds to “qualified vessels” operating in “United States foreign, Great Lakes, non-contiguous domestic or short sea transportation trade.”

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The James M. Inhofe National Defense Authorization Act for Fiscal Year 2023 eliminated these “qualified vessel” geographic trading restrictions, allowing many more U.S.-flag vessel owner/operators to access this tax savings program and expand and modernize their U.S. flag merchant marine fleets.

What Was Amended And Why It Matters

Specifically, the act amended Section 53501(5)(A)(iii) of Title 46, United States Code by striking out “United States foreign, Great Lakes, noncontiguous domestic or short sea transportation trade” and replacing it with “foreign or domestic trade of the United States.”

By amending the definition of a “qualified vessel” in this manner, the act eliminated the significant limiting geographic trading requirements for vessels constructed or reconstructed with the use of these tax-deferred CCF funds. This “qualified vessel” definition change significantly opens the door for the use of the CCF program by virtually all U.S. flag vessel owners/operators.

As a result, U.S. flag vessel owners/operators should assess their fleet modernization and upgrade plans, schedule out projected capital cash flow funding, work with U.S. shipyards to schedule vessel newbuild construction or reconstruction and consider the tax benefits of establishing a CCF account with MarAd or NMFS/NOAA.

U.S. shipyards may see an increase in demand for this CCF vessel construction and reconstruction, so it is important to act timely to potentially take advantage of this change in law.

Other Matters

MARAD/NMFS/NOAA-amended regulations to comply with this recent law change are forthcoming.

Other CCF restrictions were not modified by the act, including requiring these tax-deferred funds be used for vessels constructed or reconstructed in the U.S., operated in foreign or domestic U.S. commerce and primarily engaged in waterborne carriage of people, materials, goods or wares. U.S. ownership, agreement terms and vessel restrictions apply.

Bill Finnecy is managing director/tax of FORVIS.

Editor’s note: Daniel Ladd of the U.S. Maritime Administration will discuss the changes to the CCF program in a presentation at the Inland Marine Expo May 31-June 2 in Nashville, Tenn. For information, visit