The Capital Construction Fund (CCF) was created under a Merchant Marine Act to assist fisherman to acquire fishing vessels or improve a current vessel. It is jointly administered by the National Marine Fisheries Service (NMFS) and the Internal Revenue Service (IRS). The CCF program allows taxpayers to defer taxable income by making contributions to a NMFS approved depository and eventually use the accumulated funds for purchasing or improving fishing vessels.
Deductions are treated differently depending on your business structure. See this page to get more information on deductions and CCFs.
CCF Qualified Withdrawals
A qualified withdrawal from a CCF account is one that is approved by NMFS for acquiring a building, rebuilding qualified fishing vessels, or making principal payments on the mortgage of a qualified fishing vessel.
CCF Non-Qualified Withdrawals
A nonqualified withdrawal from a CCF account is any withdrawal that is not used for acquiring, building, re-building a qualified fishing vessel, or making principal payments on the mortgage of a qualified fishing vessel.
CCF Eligibility Requirements
- You must be a U.S. citizen (individually), a corporation (the president and majority of the board must also be U.S. citizens), or a partnership 75% owned by U.S. citizens
- You must own or lease a vessel
- The vessel must be built in the U. S.
- The vessel must operate in the U.S. fisheries or in U.S. foreign trade, non-contiguous domestic trade (for example, Alaska to Seattle), or the Great Lakes.
Tax Treatment of CCF Earnings
Do not report on your income tax return any capital gains from the sale of capital assets held in your CCF account. This includes capital gains distributions reported on Form 1099-DIV, Dividends and Distributions, or a substitute statement.
However, you should attach a statement to your tax return listing the payers and the amounts. Identify the capital gains as “CCF account earnings.”
Do not report any ordinary income (such as interest and dividends) you earn on the assets in your CCF account. Nevertheless, you should attach a statement to your return to list the payers, the amounts and to identify them as “CCF account earnings.” If you are required to file Form 1040, Schedule B, Interest and Ordinary Dividends, you can add these earnings to the list of payers and amounts on line 1, and identify them as “CCF earnings.” Then subtract the same amounts from the list and identify them as “CCF deposits.”
Do not report tax-exempt interest from state or local bonds you held in your CCF account on your federal tax return. You are not required to report this interest on Form 1040, line 8b.
CCF and Transfer of Assets
Normally transfers that occur when changing business structures (ex: from sole proprietor to corporation) under the provisions of IRC 351 are tax-free. However, it depends on your basis in the assets transferred, as well as any liabilities assumed by the corporation when determining gain or loss. If the liabilities transferred exceed the basis of the assets, a gain may be recognized to the extent of the excess. Caution: When determining basis you must reduce the basis by the amounts funded from your Capital Construction Fund account.