{"identifier":"/us/usc/t46/s53511","title":46,"num":"\u00a7\u202f53511.","heading":"Tax treatment of nonqualified withdrawals","text":"\u00a7\u202f53511.\nTax treatment of nonqualified withdrawals\n(a)\nIn General.\u2014\nExcept as provided in\nsection 53513 of this title\n(b)\nOrder of Withdrawals.\u2014\nA nonqualified withdrawal shall be treated as made\u2014\n(1) first from the ordinary income account;\n(2) second from the capital gain account; and\n(3) third from the capital account.\n(c)\nTax Treatment.\u2014\nFor purposes of the Internal Revenue Code of 1986 (\n(1) a nonqualified withdrawal from the ordinary income account shall be included in income as an item of ordinary income for the taxable year in which the withdrawal is made;\n(2) a nonqualified withdrawal from the capital gain account shall be included in income for the taxable year in which the withdrawal is made as an item of gain realized during that year from the disposition of an asset held for more than 6 months; and\n(3) for the period through the last date prescribed for payment of tax for the taxable year in which the withdrawal is made\u2014\n(A) no interest shall be payable under section 6601 of such Code (\n26 U.S.C. 6601\n26 U.S.C. 6651\n(B) interest on the amount of the additional tax attributable to an amount treated as a nonqualified withdrawal from the ordinary income account or the capital gain account shall be paid at the rate determined under subsection (d) from the last date prescribed for payment of the tax for the taxable year for which the amount was deposited in the fund; and\n(C) no interest shall be payable on amounts treated as withdrawn on a last-in-first-out basis under\nsection 53512 of this title\n(d)\nInterest Rate.\u2014\nThe rate of interest under subsection (c)(3)(B) for a nonqualified withdrawal made in a taxable year beginning after 1971 shall be determined and published jointly by the Secretary and the Secretary of the Treasury. The rate shall be such that its relationship to 8 percent is comparable, as determined by the Secretaries under joint regulations, to the relationship between\u2014\n(1) the money rates and investment yields for the calendar year immediately before the beginning of the taxable year; and\n(2) the money rates and investment yields for the calendar year 1970.\n(e)\nNonqualified Withdrawals.\u2014\n(1)\nIn general.\u2014\nThe following applicable percentage of any amount that remains in a capital construction fund at the close of the following specified taxable year following the taxable year for which the amount was deposited shall be treated as a nonqualified withdrawal:\nIf the amount remains in the fund at\nthe close of the\u2014\nThe applicable percentage is\u2014\n26th taxable year\n20 percent\n27th taxable year\n40 percent\n28th taxable year\n60 percent\n29th taxable year\n80 percent\n30th taxable year\n100 percent.\n(2)\nEarnings.\u2014\nThe earnings of a capital construction fund for any taxable year (except net gains) shall be treated under this subsection as an amount deposited for the taxable year.\n(3)\nContract for qualified withdrawal.\u2014\nUnder paragraph (1), an amount shall not be treated as remaining in a capital construction fund at the close of a taxable year to the extent there is a binding contract at the close of the taxable year for a qualified withdrawal of the amount for an identified item for which the withdrawal may be made.\n(4)\nExcess earnings.\u2014\nIf the Secretary determines that the balance in a capital construction fund exceeds the amount appropriate to meet the vessel construction program objectives of the person that established the fund, the amount of the excess shall be treated as a nonqualified withdrawal under paragraph (1) unless the person develops appropriate program objectives within 3 years to dissipate the excess.\n(5)\nAmounts in fund on january 1, 1987.\u2014\nUnder this subsection, amounts in a capital construction fund on\nJanuary 1, 1987\n(f)\nTax Determinations.\u2014\n(1)\nIn general.\u2014\nFor a taxable year for which there is a nonqualified withdrawal (including an amount treated as a nonqualified withdrawal under subsection (e)), the tax imposed by chapter 1 of the Internal Revenue Code of 1986 (26 U.S.C. ch. 1) shall be determined by\u2014\n(A) excluding the withdrawal from gross income; and\n(B) increasing the tax imposed by chapter 1 of such Code by the product of the amount of the withdrawal and the highest tax rate specified in section 1 (or section 11 for a corporation) of such Code (\n26 U.S.C. 1\n(2)\nMaximum tax rate.\u2014\nFor that portion of a nonqualified withdrawal made from the capital gain account during a taxable year to which section 1(h) or 1201(a)\n1\n1 See References in Text note below.\n26 U.S.C. 1(h)\n(3)\nTax benefit rule.\u2014\nIf any portion of a nonqualified withdrawal is properly attributable to deposits (except earnings on deposits) made by the taxpayer in a taxable year that did not reduce the taxpayer\u2019s liability for tax under chapter 1 of such Code (26 U.S.C. ch. 1) for a taxable year before the taxable year in which the withdrawal occurs\u2014\n(A) that portion shall not be taken into account under paragraph (1); and\n(B) an amount equal to that portion shall be allowed as a deduction under section 172 of such Code (\n26 U.S.C. 172\n(4)\nCoordination with deduction for net operating losses.\u2014\nA nonqualified withdrawal excluded from gross income under paragraph (1) shall be excluded in determining taxable income under section 172(b)(2) of such Code (\n26 U.S.C. 172(b)(2)","url":"https://projectusc.org/usc/t46/s53511.html","content":[{"t":"sec","id":"/us/usc/t46/s53511","children":[{"t":"num","text":"\u00a7\u202f53511."},{"t":"heading","text":"Tax treatment of nonqualified withdrawals"},{"t":"subsec","id":"/us/usc/t46/s53511/a","children":[{"t":"num","text":"(a)"},{"t":"heading","text":"In General.\u2014"},{"t":"content","text":"Except as provided in ","children":[{"t":"ref","text":"section 53513 of this title","href":"/us/usc/t46/s53513","tail":", a withdrawal from a fund that is not a qualified withdrawal shall be treated as a nonqualified withdrawal."}],"tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t46/s53511/b","children":[{"t":"num","text":"(b)"},{"t":"heading","text":"Order of Withdrawals.\u2014"},{"t":"chapeau","text":"A nonqualified withdrawal shall be treated as made\u2014"},{"t":"para","id":"/us/usc/t46/s53511/b/1","children":[{"t":"num","text":"(1)"},{"t":"content","text":" first from the ordinary income account;","tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t46/s53511/b/2","children":[{"t":"num","text":"(2)"},{"t":"content","text":" second from the capital gain account; and","tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t46/s53511/b/3","children":[{"t":"num","text":"(3)"},{"t":"content","text":" third from the capital account.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t46/s53511/c","children":[{"t":"num","text":"(c)"},{"t":"heading","text":"Tax Treatment.\u2014"},{"t":"chapeau","text":"For purposes of the Internal Revenue Code of 1986 (","children":[{"t":"ref","text":"26 U.S.C. 1","href":"/us/usc/t26/s1","tail":" et seq.)\u2014"}]},{"t":"para","id":"/us/usc/t46/s53511/c/1","children":[{"t":"num","text":"(1)"},{"t":"content","text":" a nonqualified withdrawal from the ordinary income account shall be included in income as an item of ordinary income for the taxable year in which the withdrawal is made;","tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t46/s53511/c/2","children":[{"t":"num","text":"(2)"},{"t":"content","text":" a nonqualified withdrawal from the capital gain account shall be included in income for the taxable year in which the withdrawal is made as an item of gain realized during that year from the disposition of an asset held for more than 6 months; and","tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t46/s53511/c/3","children":[{"t":"num","text":"(3)"},{"t":"chapeau","text":" for the period through the last date prescribed for payment of tax for the taxable year in which the withdrawal is made\u2014"},{"t":"subpara","id":"/us/usc/t46/s53511/c/3/A","children":[{"t":"num","text":"(A)"},{"t":"content","text":" no interest shall be payable under section 6601 of such Code (","children":[{"t":"ref","text":"26 U.S.C. 6601","href":"/us/usc/t26/s6601","tail":") and no addition to the tax shall be payable under section 6651 of such Code ("},{"t":"ref","text":"26 U.S.C. 6651","href":"/us/usc/t26/s6651","tail":");"}],"tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t46/s53511/c/3/B","children":[{"t":"num","text":"(B)"},{"t":"content","text":" interest on the amount of the additional tax attributable to an amount treated as a nonqualified withdrawal from the ordinary income account or the capital gain account shall be paid at the rate determined under subsection (d) from the last date prescribed for payment of the tax for the taxable year for which the amount was deposited in the fund; and","tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t46/s53511/c/3/C","children":[{"t":"num","text":"(C)"},{"t":"content","text":" no interest shall be payable on amounts treated as withdrawn on a last-in-first-out basis under ","children":[{"t":"ref","text":"section 53512 of this title","href":"/us/usc/t46/s53512","tail":"."}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t46/s53511/d","children":[{"t":"num","text":"(d)"},{"t":"heading","text":"Interest Rate.\u2014"},{"t":"chapeau","text":"The rate of interest under subsection (c)(3)(B) for a nonqualified withdrawal made in a taxable year beginning after 1971 shall be determined and published jointly by the Secretary and the Secretary of the Treasury. The rate shall be such that its relationship to 8 percent is comparable, as determined by the Secretaries under joint regulations, to the relationship between\u2014"},{"t":"para","id":"/us/usc/t46/s53511/d/1","children":[{"t":"num","text":"(1)"},{"t":"content","text":" the money rates and investment yields for the calendar year immediately before the beginning of the taxable year; and","tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t46/s53511/d/2","children":[{"t":"num","text":"(2)"},{"t":"content","text":" the money rates and investment yields for the calendar year 1970.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t46/s53511/e","children":[{"t":"num","text":"(e)"},{"t":"heading","text":"Nonqualified Withdrawals.\u2014"},{"t":"para","id":"/us/usc/t46/s53511/e/1","children":[{"t":"num","text":"(1)"},{"t":"heading","text":"In general.\u2014"},{"t":"content","text":"The following applicable percentage of any amount that remains in a capital construction fund at the close of the following specified taxable year following the taxable year for which the amount was deposited shall be treated as a nonqualified withdrawal:","children":[{"t":"text","text":"\n"},{"t":"text","text":"\n"},{"t":"text","text":"\n"},{"t":"text","text":"\n"},{"t":"text","text":"\n"},{"t":"text","text":"\n"},{"t":"text","text":"\n"},{"t":"p","children":[{"t":"text","text":"\u2001If the amount remains in the fund at"}]},{"t":"p","children":[{"t":"text","text":"\u2001\u2001the close of the\u2014"}]},{"t":"p","children":[{"t":"text","text":"The applicable percentage is\u2014"}]},{"t":"text","text":"\n"},{"t":"text","text":"\n"},{"t":"text","text":"\n"},{"t":"p","children":[{"t":"text","text":"26th taxable year"}]},{"t":"p","text":"20 percent\u202f\u202f"},{"t":"text","text":"\n"},{"t":"p","children":[{"t":"text","text":"27th taxable year"}]},{"t":"p","text":"40 percent\u202f\u202f"},{"t":"text","text":"\n"},{"t":"p","children":[{"t":"text","text":"28th taxable year"}]},{"t":"p","text":"60 percent\u202f\u202f"},{"t":"text","text":"\n"},{"t":"p","children":[{"t":"text","text":"29th taxable year"}]},{"t":"p","text":"80 percent\u202f\u202f"},{"t":"text","text":"\n"},{"t":"p","children":[{"t":"text","text":"30th taxable year"}]},{"t":"p","text":"100 percent."},{"t":"text","text":"\n"},{"t":"text","text":"\n","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t46/s53511/e/2","children":[{"t":"num","text":"(2)"},{"t":"heading","text":"Earnings.\u2014"},{"t":"content","text":"The earnings of a capital construction fund for any taxable year (except net gains) shall be treated under this subsection as an amount deposited for the taxable year.","tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t46/s53511/e/3","children":[{"t":"num","text":"(3)"},{"t":"heading","text":"Contract for qualified withdrawal.\u2014"},{"t":"content","text":"Under paragraph (1), an amount shall not be treated as remaining in a capital construction fund at the close of a taxable year to the extent there is a binding contract at the close of the taxable year for a qualified withdrawal of the amount for an identified item for which the withdrawal may be made.","tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t46/s53511/e/4","children":[{"t":"num","text":"(4)"},{"t":"heading","text":"Excess earnings.\u2014"},{"t":"content","text":"If the Secretary determines that the balance in a capital construction fund exceeds the amount appropriate to meet the vessel construction program objectives of the person that established the fund, the amount of the excess shall be treated as a nonqualified withdrawal under paragraph (1) unless the person develops appropriate program objectives within 3 years to dissipate the excess.","tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t46/s53511/e/5","children":[{"t":"num","text":"(5)"},{"t":"heading","text":"Amounts in fund on january 1, 1987.\u2014"},{"t":"content","text":"Under this subsection, amounts in a capital construction fund on ","children":[{"t":"text","text":"January 1, 1987","tail":", shall be treated as having been deposited in that fund on that date."}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t46/s53511/f","children":[{"t":"num","text":"(f)"},{"t":"heading","text":"Tax Determinations.\u2014"},{"t":"para","id":"/us/usc/t46/s53511/f/1","children":[{"t":"num","text":"(1)"},{"t":"heading","text":"In general.\u2014"},{"t":"chapeau","text":"For a taxable year for which there is a nonqualified withdrawal (including an amount treated as a nonqualified withdrawal under subsection (e)), the tax imposed by chapter 1 of the Internal Revenue Code of 1986 (26 U.S.C. ch. 1) shall be determined by\u2014"},{"t":"subpara","id":"/us/usc/t46/s53511/f/1/A","children":[{"t":"num","text":"(A)"},{"t":"content","text":" excluding the withdrawal from gross income; and","tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t46/s53511/f/1/B","children":[{"t":"num","text":"(B)"},{"t":"content","text":" increasing the tax imposed by chapter 1 of such Code by the product of the amount of the withdrawal and the highest tax rate specified in section 1 (or section 11 for a corporation) of such Code (","children":[{"t":"ref","text":"26 U.S.C. 1","href":"/us/usc/t26/s1","tail":", 11)."}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t46/s53511/f/2","children":[{"t":"num","text":"(2)"},{"t":"heading","text":"Maximum tax rate.\u2014"},{"t":"content","text":"For that portion of a nonqualified withdrawal made from the capital gain account during a taxable year to which section 1(h) or 1201(a)\u202f","children":[{"t":"ref","text":"1"},{"t":"num","text":"1","tail":"\u202fSee References in Text note below."},{"t":"text","text":"\u202fSee References in Text note below.","tail":" of such Code ("},{"t":"ref","text":"26 U.S.C. 1(h)","href":"/us/usc/t26/s1/h","tail":", 1201(a)) applies, the tax rate used under paragraph (1)(B) may not exceed 20 percent (or 34 percent for a corporation)."}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t46/s53511/f/3","children":[{"t":"num","text":"(3)"},{"t":"heading","text":"Tax benefit rule.\u2014"},{"t":"chapeau","text":"If any portion of a nonqualified withdrawal is properly attributable to deposits (except earnings on deposits) made by the taxpayer in a taxable year that did not reduce the taxpayer\u2019s liability for tax under chapter 1 of such Code (26 U.S.C. ch. 1) for a taxable year before the taxable year in which the withdrawal occurs\u2014"},{"t":"subpara","id":"/us/usc/t46/s53511/f/3/A","children":[{"t":"num","text":"(A)"},{"t":"content","text":" that portion shall not be taken into account under paragraph (1); and","tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t46/s53511/f/3/B","children":[{"t":"num","text":"(B)"},{"t":"content","text":" an amount equal to that portion shall be allowed as a deduction under section 172 of such Code (","children":[{"t":"ref","text":"26 U.S.C. 172","href":"/us/usc/t26/s172","tail":") for the taxable year in which the withdrawal occurs."}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t46/s53511/f/4","children":[{"t":"num","text":"(4)"},{"t":"heading","text":"Coordination with deduction for net operating losses.\u2014"},{"t":"content","text":"A nonqualified withdrawal excluded from gross income under paragraph (1) shall be excluded in determining taxable income under section 172(b)(2) of such Code (","children":[{"t":"ref","text":"26 U.S.C. 172(b)(2)","href":"/us/usc/t26/s172/b/2","tail":")."}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"text","text":"\n"},{"t":"text","text":"\n"}]}]}