Frequently Asked Questions
Who is eligible for the Tonnage Tax Exclusion for Qualifying Shipping Activities?
Must be a qualifying corporation making a valid election under the tonnage tax regime for its shipping activities.
How does the Tonnage Tax Exclusion for Qualifying Shipping Activities work?
Allows an electing corporation to exclude all income from qualifying shipping activities from gross income, replacing the regular corporate income tax with a tax based on the tonnage of the vessels.
What law authorizes the Tonnage Tax Exclusion for Qualifying Shipping Activities?
The Tonnage Tax Exclusion for Qualifying Shipping Activities is authorized under IRC §1357 of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §1357
Source: Internal Revenue Code, Title 26, United States Code
§ 1357. Items not subject to regular tax; depreciation; interest(a) Exclusion from gross incomeGross income of an electing corporation shall not include its income from qualifying shipping activities.
(b) Electing group memberGross income of a corporation (other than an electing corporation) which is a member of an electing group shall not include its income from qualifying shipping activities conducted by such member.
(c) Denial of losses, deductions, and credits(1) General ruleSubject to paragraph (2), each item of loss, deduction (other than for interest expense), or credit of any taxpayer with respect to any activity the income from which is excluded from gross income under this section shall be disallowed.
(2) Depreciation(A) In generalNotwithstanding paragraph (1), the adjusted basis (for purposes of determining gain) of any qualifying vessel shall be determined as if the deduction for depreciation had been allowed.
(B) Method(i) In generalExcept as provided in clause (ii), the straight-line method of depreciation shall apply to qualifying vessels the income from operation of which is excluded from gross income under this section.
(ii) ExceptionClause (i) shall not apply to any qualifying vessel which is subject to a charter entered into before the date of the enactment of this subchapter.
(3) Interest(A) In generalExcept as provided in subparagraph (B), the interest expense of an electing corporation shall be disallowed in the ratio that the fair market value of such corporation’s qualifying vessels bears to the fair market value of such corporation’s total assets.
(B) Electing groupIn the case of a corporation which is a member of an electing group, the interest expense of such corporation shall be disallowed in the ratio that the fair market value of such corporation’s qualifying vessels bears to the fair market value of the electing groups total assets.
(Added Pub. L. 108–357, title II, § 248(a), Oct. 22, 2004, 118 Stat. 1455.)
Editorial Notes
References in TextThe date of the enactment of this subchapter, referred to in subsec. (c)(2)(B)(ii), is the date of enactment of Pub. L. 108–357, which was approved Oct. 22, 2004.
Statutory Notes and Related Subsidiaries
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.