1948, the vessel was conveyed to another citizen of the United States, who in August of that year sold it to Mr. Kutis. He thereafter remodeled the vessel for use in the fisheries at a cost of approximately $2,200, and in December 1948 attempted to document it to engage in that trade.

Your committee found that the present owner did not learn of the restrictions with respect to the documentation of foreign-built vessels until after he had completed remodeling the vessel for use in the fisheries; and, since this does not fall within the existing provisions of law, it is necessary to have special legislation to permit the documentation of the vessel. In view of the citizen ownership of the vessel, his good-faith expenditures in improvement of the vessel, and the absence of any showing that the documentation under the laws of the United States would be detrimental to the fishing industry of the United States, your committee are of the opinion that this is meritorious legislation and urge its enactment.

The United States Maritime Commission, in its letter of July 14, 1949, to the chairman of your committee, recommends favorable consideration of the bill. The report is as follows:

Hon. SCHUYLER OTIS BLAND,

UNITED STATES MARITIME COMMISSION,
Washington 25. D. C., July 14, 1949

Chairman, Committee on Merchant Marine and Fisheries.

House of Representatives.

MY DEAR JUDGE BLAND: On March 28, 1949, you requested the views of the Maritime Commission on H. R. 3605, a bill to provide for the documentation of the Canadian-built vessel North Wind, owned by a citizen of the United States. The vessel mentioned in the bill, according to information received from the Bureau of Customs, was built in Canada in 1928, and her original name was Lois M. Greek. She was subsequently sold to an American citizen and was eventually acquired through purchase by the present American owner in August 1948. It is reported that her tonnage is 20.57 gross.

According to an affidavit filed by the present owner with the deputy collector of customs at Tampa, Fla., he expended approximately $2,200 to rebuild and remodel the vessel in order to make it suitable for commercial fishing, and he thereafter learned of the restrictions with respect to the documentation under United States laws of foreign-built vessels.

In view of the citizen ownership of the vessel, his good-faith expenditures in improvement of the vessel, and the absence of any showing that the documentation under United States laws would be detrimental to the fishing interests, the Maritime Commission recommends favorable consideration of the bill by your committee.

The Director, Bureau of the Budget, advises that there would be no objection to the submission of this report to your committee.

Sincerely yours,

PHILIP B. FLEMING, Chairman.

AMENDING THE MERCHANT SHIP SALES ACT OF 1946

SEPTEMBER 27, 1949.-Committed to the Committee of the Whole House on the State of the Union and ordered to be printed

Mr. HART, from the Committee on Merchant Marine and Fisheries, submitted the following

REPORT

[To accompany H. R. 3419)

The Committee on Merchant Marine and Fisheries, to whom was referred the bill (H. R. 3419) to amend the Merchant Ship Sales Act of 1946 having considered the same, report favorably thereon with amendments and recommend that the bill do pass.

The amendments are as follows:

Page 1, line 3, after the word "section" delete the figure "8" and insert "9 (b)".

Page 1, line 5, after the word "new" delete the word "subsection" and insert the word "paragraph".

Page 1, line 6, strike out the entire section through line 8 on page 2, and insert in lieu thereof the following new paragraph:

From and after March 8, 1946, the cost basis of a vessel in respect of which the price adjustment is made shall be the undepreciated original purchase price reduced by the net amount of such adjustment in favor of the applicant resulting from the application of all of the foregoing provisions of this subsection.

The purpose of this bill is to clarify section 9 of the Merchant Ship Sales Act of 1946 with regard to the proper cost basis for depreciation purposes of war-built vessels sold by the United States Maritime Commission prior to the enactment of the act.

BACKGROUND

The Merchant Ship Sales Act of 1946 provides for the sale of war-built vessels owned by the United States and suitable for commercial use. Under the act, in accordance with a formula set forth therein, "statutory sales prices" are established with respect to the various types of vessels. The act further provides in section 9 that citizens who prior to the enactment of the Merchant Ship Sales Act of 1946 purchased war-built vessels from the Maritime Commission

should be entitled to an adjustment in the prices paid for such vessels, in order that they might be placed in a position approximately as favorable as those who purchased their vessels after the passage of the act.

In the determination of the adjustment in price to which such prior purchaser is entitled, the act provides that such adjustment shall be made by treating the vessel as if it were being sold to the applicant on the date of the enactment of the act and not before that time. Section 9 (b), in eight numbered paragraphs, sets forth the manner in which the amount of adjustment shall be determined.

Your committee has been informed through hearings held recently that in most, if not all cases, the operation of the adjustment provisions of section 9 never actually results in a net cost to the purchaser as low as the statutory sales price which he would have had to pay if he had purchased the vessel after the enactment of the act. Notwithstanding this fact, however, the Bureau of Internal Revenue holds that for determining the cost basis for purposes of depreciation the "statutory sales price" shall be taken as the criterion, not the actual net cost to the purchaser. The effect of this, of course, is that the prior purchaser whose price was adjusted under section 9, is allowed lower depreciation charges than he would normally be able to claim on the basis of the actual net amount paid for the vessel. Lower depreciation charges result in higher tax.

RECOMMENDATION

Since the provisions of section 9 appear to be ambiguous and as interpreted by the Bureau of Internal Revenue result in inequities to those citizens who purchased war-built vessels prior to the enactment of the act (a result which was not intended when the act was originally passed) your committee believes this amendment should be enacted.

CHANGES IN EXISTING LAW

In compliance with paragraph 2a of rule XIII of the Rules of the House of Representatives, changes in existing law made by the bill, as introduced, are shown as follows (new matter is printed in italics, existing law in which no change is proposed is shown in roman):

SECTION 8 OF THE MERCHANT SHIP SALES ACT OF 1946, AS AMENDED

EXCHANGE OF VESSELS

SEC. 8. (a) The Commission is authorized to acquire, in exchange for an allowance of a credit on the purchase of any war-built vessel under section 4 or any vessel acquired through exchange under subsection (d) of this section

(1) Any vessel owned by a citizen of the United States, other than a vessel purchased under this Act; or

(2) Any vessel owned by a foreign corporation, if—

(A) the vessel was constructed in the United States, and has, after December 7, 1941, been chartered to, or otherwise taken for use by, the United States; and

(B) the controlling interest in such corporation is, at the time of acquisition of such vessel hereunder, owned by a citizen or citizens of the United States, and has been so owned for a period of at least three years immediately prior to such acquisition; and

(C) such corporation agrees that the war-built vessel purchased with the use of such credit shall be owned by such citizen or citizens and shall be documented under the laws of the United States.

Such allowance shall not be applied upon the cash payment required under section 4. A war-built vessel shall be deemed a "new vessel" for the purpose of section 511 of the Merchant Marine Act, 1936, as amended, and section 510 (e) of such Act shall be applicable with respect to vessels exchanged under this section to the same extent as applicable to obsolete vessels exchanged under section 510 of such Act.

In

(b) (1) If, prior to December 31, 1946, the owner of a vessel eligible for exchange under subsection (a) makes a firm offer binding for at least ninety days, to transfer the vessel to the Commission in exchange for an allowance of credit provided in subsection (a), the amount of such allowance shall be the fair and reasonable value of the vessel as determined by the Commission under this section. In making such determination the Commission shall consider: (A) The value of the vessel determined in accordance with the standards of valuation established pursuant to Executive Order 9387 (8 F. R. 14105) as of the date of such offer, (B) any liability of the United States for repair and restoration of the vessel, (C) the utility value of the vessel, (D) the effect of this Act upon the market value of such vessel, and (E) the public interest in promoting exchanges of vessels as a means of rehabilitating and modernizing the American merchant marine. no event shall the amount of such allowance, in case of dry cargo vessels and tankers, exceed (A) (1) if the vessel or vessels tendered in exchange are of equal or greater dead-weight tonnage than the war-built vessel or vessels being acquired, 33% per centum of the statutory sales price (unadjusted) of the warbuilt vessel or vessels, or (2) if the vessel or vessels tendered in exchange are of lesser dead-weight tonnage than the war-built vessel or vessels, such proportionate part of 33% per centum of the statutory sales price (unadjusted) of such warbuilt vessel or vessels as the dead-weight tonnage of such vessel or vessels tendered in exchange bear to the dead-weight tonnage of such war-built vessel or vessels, or (B) the liability of the United States in connection with the repair or restoration of such vessel under any charter to which the United States is a party, whichever is higher. In the case of passenger vessels tendered in exchange, the amount of the allowance shall not exceed the percentage of statutory sales price computed under (A) (1) and (2) above by gross tons instead of dead-weight tons, or such liability for the repair or restoration of such passenger vessel, whichever is the higher. In any case where the vessel tendered in exchange was acquired from the United States, the exchange allowance under this section shall not exceed the price paid the United States therefor plus the depreciated cost of any improvements thereon. In the case of any vessel tendered in exchange which has been restored to condition by the United States for the purpose of redelivering such vessel to its owner in compliance with the charter of such vessel with the United States, or where, for such restoration a cash allowance has been made to the owner, there shall be deducted from the amount of the allowance of credit for such vessel determined by the Commission under this section, an amount equal to the liability of the United States for such restoration or such cash allowance made to the owner.

(2) If, after such offer is made, and prior to its acceptance, or prior to the acquisition of the vessel, by the Commission, the vessel is lost by reason of causes for which the United States is responsible, then in lieu of paying the owner any amount on account of such loss, the offer shall, for the purposes of subsection (a) and this subsection, be considered as having been accepted and the vessel as having been acquired by the Commission under subsection (a) immediately prior to such loss.

(c) The Commission is also authorized to make available any war-built vessel for transfer in complete or partial settlement of any claim against the United States (1) for just compensation upon requisition for title of any vessel, or (2) for indemnity for the loss of any vessel which was acquired for use by the United States, but only to the extent such vessel is available for sale to the claimant.

(d) In the case of any vessel constructed in the United States after January 1, 1937, which has been taken by the United States for use in any manner, the Commission, if in its opinion the transfer would aid in carrying out the policies of this Act, is authorized to transfer to the owner of such vessel another vessel which is deemed by the Commission to be of comparable type with adjustments for depreciation and difference in design or spread, and to the extent applicable, adjustments with respect to the retained vessel as provided for in section 9, and such other adjustments and terms and conditions, including transfer of mortgage obligations in favor of the United States binding upon the old vessel, as the Commission may prescribe.

(e) The Commission shall accept from the purchaser of a Liberty type war-built tanker sold under section 4 a retransfer thereof and cancel any unpaid notes and mortgage for the balance of the sales price and allow the purchaser the cash payment and installment payments made on the sales price of the tanker and the expenditures made by the purchaser to fireproof the tanker in accordance with the requirements of the United States Coast Guard (provided a court hereafter determines that the Commission is liable to reimburse the purchaser therefor) as a credit on cash payment and on the installment payments on the sales price of a Liberty dry-cargo war-built vessel to be purchased under section 4. notwithstanding anything to the contrary contained in this Act.

For the information of the Members of the House changes in existing law made by the bill as reported are shown as follows (new matter is printed in italics, existing law in which no change is proposed is shown in roman):

SECTION 9 (B) OF THE MERCHANT SHIP SALES ACT OF 1946, AS AMENDED

(b) Such adjustment shall be made, as hereinafter provided, by treating the vessel as if it were being sold to the applicant on the date of the enactment of this Act, and not before that time The amount of such adjustment shall be determined as follows:

(1) The Commission shall credit the applicant with the excess of the cash payments made upon the original purchase price of the vessel over 25 per centum of the statutory sales price of the vessel as of such date of enactment. If such payment was less than 25 per centum of the statutory sales price of the vessel, the applicant shall pay the difference to the Commission.

(2) The applicant's indebtedness under any mortgage to the United States with respect to the vessel shall be adjusted.

(3) The adjusted mortgage indebtedness shall be in an amount equal to the excess of the statutory sales price of the vessel as of the date of the enactment of this Act over the sum of the cash payment retained by the United States under paragraph (1) plus the readjusted trade-in allowance (determined under paragraph (7)) with respect to any vessel exchanged by the applicant on the original purchase. The adjusted mortgage indebtedness shall be payable in equal annual installments thereafter during the remaining life of such mortgage with interest on the portion of the statutory sales price remaining unpaid at the rate of 31⁄2 per centum per annum

(4) The Commission shall credit the applicant with the excess, if any, of the sum of the cash payments made by the applicant upon the original purchase price of the vessel plus the readjusted trade-in allowance (determined under paragraph (7)) over the statutory sales price of the vessel as of the date of the enactment of this Act to the extent not credited under paragraph (1).

(5) The Commission shall also credit the applicant with an amount equal to interest at the rate of 31⁄2 per centum per annum (for the period beginning with the date of the original delivery of the vessel to the applicant and ending with the date of the enactment of this Act) on the excess of the original purchase price of the vessel over the amount of any allowance allowed by the Commission on the exchange of any vessel on such purchase; the amount of such credit first being reduced by any interest on the original mortgage indebtedness accrued up to such date of enactment and unpaid Interest so accrued and unpaid shall be canceled.

(6) The applicant shall credit the Commission with all amounts paid by the United States to him as charter hire for use of the vessel (exclusive of service, if any, required under the terms of the charter) under any charter party made prior to the date of the enactment of this Act, and any charter hire for such use accrued up to such date of enactment and unpaid shall be canceled; and the Commission shall credit the applicant with the amount that would have been paid by the United States to the applicant as charter hire for bare-boat use of vessels exchanged by the applicant on the original purchase (for the period beginning with date on which the vessels so exchanged were delivered to the Commission and ending with the date of the enactment of this Act).

(7) The allowance made to the applicant on any vessel exchanged by him on the original purchase shall be readjusted so as to limit such allowance to the amount provided for under section 8.