Capital construction funds program offers unique funding opportunity for marine fleet owners.

• Author: Finnecy, William G.

The Capital Construction Funds (CCF) program helps owners and operators of U.S. flag vessels accumulate capital to modernize and expand the U.S. merchant marine.

The CCF allows owners and operators to segregate funds tax-free under Sec. 7518 and use those amounts for future purchase of capital assets such as vessel acquisition, construction, or reconstruction. By saving before-tax dollars instead of after-tax dollars, owners can accumulate money more quickly. The tax deferral essentially is an interest-free government loan intended to put U.S. vessel owners on more equal footing with competitors registered in countries that do not tax shipping income. The CCF program supports vessel modernization and expansion for use in the noncontiguous domestic and Great Lakes trade, benefiting a wide range of shipping industry companies.

Two types of vessels may apply for the program: those weighing five tons or more and fishing vessels weighing more than two tons but not more than five tons. Vessels weighing more than five tons must be built or rebuilt in the United States, documented under U.S. laws, and operated in the foreign or domestic commerce of the United States or in U.S. fisheries. Vessels weighing less than five tons must be built or rebuilt in the United States, owned by a U.S. citizen, and used commercially in U.S. fisheries.

The program was created by the Merchant Marine Act of 1936, as amended (46 U.S.C. [section] 1177), and is administered by the U.S. Department of Transportation Maritime Administration (MARAD).

Two Distinct Vessel Categories: Schedule A and Schedule B

Under MARAD's definition, Schedule A vessels produce income that may be deposited into a CCF; Schedule B vessels are new, rebuilt, or acquired and paid for with withdrawals from the CCF.

Schedule A vessels have a great deal of freedom as to how they may operate in domestic or foreign commerce, while Schedule B vessels are subject to geographic trading restrictions on how and where they may be used. Other restrictions are based on citizenship, financial capability, minimum deposits, and acceptable programs.

Schedule A: These vessels must be constructed or reconstructed in the United States, operated in foreign or domestic U.S. commerce, and primarily engaged in carrying people, materials, goods, or wares over water. Also eligible are towing supply vessels operating in the noncontiguous domestic trade serving the offshore marine industry. For example, both a lighter aboard ship (LASH) vessel and the lighters carried aboard are included.

Schedule...