Frequently Asked Questions
Who is eligible for the Notional Shipping Income Calculation?
Available to corporations that have made the Section 1354 election for qualifying vessels operated in U.S. foreign trade.
How does the Notional Shipping Income Calculation work?
Calculates taxable income for shipping at a fixed daily rate (40 cents per 100 tons for the first 25,000 tons; 20 cents thereafter), which can significantly reduce the effective tax rate for highly profitable shipping operations.
What law authorizes the Notional Shipping Income Calculation?
The Notional Shipping Income Calculation is authorized under IRC §1353 of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §1353
Source: Internal Revenue Code, Title 26, United States Code
§ 1353. Notional shipping income(a) In generalFor purposes of this subchapter, the notional shipping income of an electing corporation shall be the sum of the amounts determined under subsection (b) for each qualifying vessel operated by such electing corporation.
(b) Amounts(1) In generalFor purposes of subsection (a), the amount of notional shipping income of an electing corporation for each qualifying vessel for the taxable year shall equal the product of—(A) the daily notional shipping income, and
(B) the number of days during the taxable year that the electing corporation operated such vessel as a qualifying vessel in United States foreign trade.
(2) Treatment of vessels the income from which is not otherwise subject to taxIn the case of a qualifying vessel any of the income from which is not included in gross income by reason of section 883 or otherwise, the amount of notional shipping income from such vessel for the taxable year shall be the amount which bears the same ratio to such shipping income (determined without regard to this paragraph) as the gross income from the operation of such vessel in the United States foreign trade bears to the sum of such gross income and the income so excluded.
(c) Daily notional shipping incomeFor purposes of subsection (b), the daily notional shipping income from the operation of a qualifying vessel is—(1) 40 cents for each 100 tons of so much of the net tonnage of the vessel as does not exceed 25,000 net tons, and
(2) 20 cents for each 100 tons of so much of the net tonnage of the vessel as exceeds 25,000 net tons.
(d) Multiple operators of vesselIf for any period 2 or more persons are operators of a qualifying vessel, the notional shipping income from the operation of such vessel for such period shall be allocated among such persons on the basis of their respective ownership, charter, and operating agreement interests in such vessel or on such other basis as the Secretary may prescribe by regulations.
(Added Pub. L. 108–357, title II, § 248(a), Oct. 22, 2004, 118 Stat. 1450; amended Pub. L. 109–135, title IV, § 403(g)(1)(A), Dec. 21, 2005, 119 Stat. 2624.)
Editorial Notes
Amendments2005—Subsec. (d). Pub. L. 109–135 substituted “ownership, charter, and operating agreement interests” for “ownership and charter interests”.
Statutory Notes and Related Subsidiaries
Effective Date of 2005 AmendmentAmendment by Pub. L. 109–135 effective as if included in the provision of the American Jobs Creation Act of 2004, Pub. L. 108–357, to which such amendment relates, see section 403(nn) of Pub. L. 109–135, set out as a note under section 26 of this title.
Effective DateSection 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.