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18 APRIL 2016 FOGHORN LEGISLATIVEREPORT HSCCODEANNEX10 ISO90012008 The most versatile safe and light weight seats are now... Cancun Seat By Ed Welch PVA Legislative Director T he number of PVAmembers who benefit from having a Capital Construction Fund CCF is inching up. Maybe you too should in- vestigate whether establishing such an account to defer federal income taxes and accumulate capital for vessel con- struction or acquisition makes sense for you. The CCF is available to select private-sector vessel operators and shipyards too. Some of us like to char- acterize the CCF as a maritime IRA. Because of the intricacies of federal law not every PVA vessel operator is a realistic candidate for using a CCF. But for those who are it can be a great financial tool. Currently PVAmembers with CCFs operate passenger vessels of all types throughout the Great Lakes and in Hawaii and Alaska. In addition the precedent has been established to use CCF monies for a ferry vessel re- gardless of geographic location that transports vehicles. A Capital Construction Fund is a special account authorized by federal law to enable the owner or operator of a vessel to accumulate tax-deferred earnings. The proceeds of the account are used to build a new vessel acquire another vessel reconstruct an existing vessel or pay off debt attributed to vessel acquisition. A vessel owner with a CCF may deposit a portion of yearly vessel earnings into a designated account approved by the U.S. Maritime Administration. Income taxes are deferred on the amounts deposited stated another way the passenger vessel operators taxable income for the year of the deposit is reduced by the amount placed in the Capital Construction Fund Later the operator can withdraw funds from the account to construct or acquire or reconstruct a U.S.-built U.S.-flagged vessel without subjecting the withdrawals to income tax liability. However there is a corre- sponding downward adjustment in the tax basis of the acquired vessel. Look Into the Value of a Capital Construction Fund What are the legal restrictions that cause the CCF program to be poten- tially useful for some PVA members and not for others Essentially it comes down to the type of service or the area of operation of the vessel obtained with the CCF withdrawals in the language of the federal law this is the qualified vessel. If you are a private operator and are contemplating a new vessel of the following type you should strongly look into the merits of the CCF program if you need to accumulate capital for A passenger-carrying vessel operating anywhere in the Great Lakes or their close tributaries A passenger-carrying vessel operating in or traveling to Hawaii or Alaska Avehicle-carrying ferry operating anywhere in the country but not a pas- senger-only ferry A passenger-carrying vessel operating in or traveling to Puerto Rico the U.S. Virgin Islands or Guam and A passenger-carrying vessel of any type in international service. Lets look more carefully at the vehicle-carrying ferry category. In late 2015 the Maritime Administration approved a PVA member operating on the East Coast to establish a CCF for this purpose. To our knowledge this is the first CCF of this sort to be established and it sets a precedent for the approval of similar applications by other PVA members who wish to build or acquire vehicle-carrying ferry vessels. Eligibility for vehicle-carrying ferries was created in the year 2010 when Congress amended the CCF law Public Law 110-240 section 1122. The amendment created a new class of qualified vessels for use in the short- sea transportation trade. This category