View non-flash version
of the regular corporate income tax can be made with respect to a taxable year at any time before the due date (including exten- sions) for filing the tax return for that year. The election remains effective until revoked or until the taxpayer ceases to be a qualifying vessel operator, in which case revocation is automatic as of such date. In the later case (lapse of qualification), income of the electing taxpayer will be annualized using a method prescribed by the Secretary of the Treasury. The tonnage tax election may be revoked at any time. If the revocation is made before the 15th day of the third month of the tax year, it will be effective as of the first day of that tax year. Otherwise, the revocation will be effective as of the first day of the next tax year. It is also possible to specify a later revo- cation date, in which case the revocation will be effective for tax years beginning on or after the specified date. Once revoked, the tonnage tax may not be re- elected for a period of five years. Sale or Disposition of Qualifying Vessel/Avail- ability of Tax-Deferred "Like-Kind" Exchanges In general, the sale or other disposition of a qualifying vessel remains a taxable event. An important exception applies, however, if a replacement vessel is pur- chased in a timely manner. In general, no gain is recognized on the sale or other dis- position of a qualifying vessel if a replace- ment qualifying vessel is acquired during the period beginning one year prior to the disposition and ending three years after the close of the first taxable year in which the gain is realized. The basis of the new vessel is its cost minus the amount of gain not recognized on the disposition of the old vessel. For these purposes, a taxpayer that has elected the tonnage tax must still account for depreciation of its qualifying vessels on a straight-line basis. Deciding Whether to Elect the Alternative Tonnage Tax Deciding whether to elect the tonnage tax is a two-step process. The first step is determining whether the taxpayer qualifies for the tonnage tax. A taxpayer is likely to qualify for the ton- nage tax if the following two statements are accurate with respect to the taxpayer: The taxpayer operates one or more ves- sels of at least 6,000 dwt exclusively in the international trades (each such vessel, a "Qualifying Vessel"). During the tax year in question and each of the preceding two tax years, on average, the taxpayer owned or bareboat chartered Qualifying Vessels having an aggregate tonnage equal to at least 25 per- cent of the aggregate tonnage of all Qual- ifying Vessels used by the taxpayer during the period in question. If the above two statements are accurate with respect to the taxpayer, then the tax- payer is likely to qualify for the alterna- tive tonnage tax. At that point, the decision whether to elect the tonnage tax is strictly a mathe- matical exercise involving a comparison of total federal income tax using the stan- dard corporate income tax rules and the alternative tonnage tax rules. To accurately calculate the full benefit of electing the alternative tonnage tax regime, the taxpayer must identify all income to be excluded from the regular corporate income tax, including income from core qualifying activities, secondary qualifying activities and incidental quali- fying activities. July, 2006 • MarineNews 15 Circle 246 on Reader Service Card Legal Beat About the authors: Joseph T. Gulant, Esq. is a partner in the law firm of Blank Rome LLP ("Blank Rome"), and is the Practice Group Leader of Blank Rome's Business Tax Group. Gulant maintains both New York and Philadelphia offices, and his practice is concen- trated in the areas of tax planning for domestic and international stock and asset acqui- sitions, maritime taxation, taxation of Real Estate Investment Trusts, partnership tax matters, real estate matters, corporate reorganizations, U.S. taxation of non-resident aliens and U.S. expatriates, general Subchapter C and S matters, venture capital, for- eign tax matters, bankruptcy reorganizations and workouts, restructurings, tax-exempt organizations, corporate and structured finance, certain state and local tax matters, taxation of individuals, and executive compensation arrangements. Within the last year, Gulant has advised clients in connection with multi-billion dol- lar transactions involving the acquisition and privatization of three separate New York Stock Exchange traded Real Estate Investment Trusts. Prior to joining Blank Rome in 1993, Gulant was associated with the New York law firm of Skadden, Arps, Slate, Meagher & Flom, where he was engaged in the gener- al practice of federal tax law with an emphasis on commercial transactions (including domestic and international mergers and acquisitions, and bankruptcy and other debt work-outs). Gulant received his J.D. degree in 1985 from New York Law School, where he graduated magna cum laude and was a member of the New York Law School Law Review. He also received an LL.M. in Taxation from New York Univer- sity Law School in 1986. Gulant is a member of the Bar in Pennsylvania and New York. He publishes and lectures frequently on matters relating to taxation. Brett M. Esber is a partner in the Washington, D.C. office of Blank Rome LLP. His practice involves international and domestic commercial transactions, corporate law and finance. As a member of the firm's Maritime Practice Group, Mr. Esber has spe- cialized expertise and experience handling commercial transactions for companies involved in the maritime industry, including shipyards, shipowners, ship operators and cargo interests. He can be contacted at esber@blankrome.com. JULY MN2006 2(9-16).qxd 7/6/2006 11:25 AM Page 15
