shall be submitted by the operator on or Accounting has not been filed (under subparagraph (3) of this paragraph) before June 30, 1961 and thereafter on or before June 30 of each succeeding year, covering each accounting period beginning after December 31, 1957.

(3) A Final Accounting for each accounting period shall be submitted by the operator within six months after the close of the calendar year in which the later of the following occurs: (i) All final subsidy rates for the accounting period concerned have been incorporated in the Subsidy Agreement and (ii) the Maritime Administration has completed its audit of the Preliminary and Supplemental Accountings. All subsequent adjustments (recorded in a complete calendar year) not reflected in a Supplemental Accounting shall be reflected in the Final Accounting. Each of these, i.e., the Preliminary, Supplemental and the Final Accountings, shall be submitted in quadruplicate to the appropriate District Comptroller of the Maritime Administration.

(d) Statements required by the Maritime Administration: The accountings required shall include the following statements: (Illustrative examples of such statements, based on hypothetical figures, will be supplied by the Comptroller.) The operator may change or vary the design of any of these statements: Provided, That the statements substituted will produce the same results and include all the information required: And provided further, That no substantial change or variation in the design of such statements shall be made without the prior concurrence of the appropriate District Comptroller. These examples have been based on the Uniform System of Accounts prescribed by the Maritime Administrator in Part 282 of this chapter:

Exhibit A-I Capital Necessarily Employed, II Recapturable Profits, III Required Deposits of Excess Profits for the Year Ended December 31, This statement, consisting of three parts: (1) summarizes amounts arrived at on Exhibit B to determine Capital Necessarily Employed; (11) determines allowable return and excess profits and recapture, if any; and (ii) computes the required deposit of excess profits into the operator's Special Reserve Fund. This Exhibit will be required with the Preliminary, Supplemental and Final Accountings.

Exhibit B-Trial Balance as of December 31, (at end of preceding accounting period) and Determination of Capital Necessarily Employed for the Calendar Year This statement shall reflect the appropriate allocation of each account composing the post-closing trial balance of the general ledger of the operator to one or more of the following categories: (1) Statutory Reserve Funds and Vessel Equities, (11) Adjusted Working Capital, (111) Other Items Allocated to Subsidized Operation, (iv) Capital Held in Reserve, (v) Unsubsidized Operations, and (vi) Subject to Formula. With respect to each item of the trial balance, reference shall be made either to the section of the order governing its allocation or the supporting schedule on which the allocation is made. This statement shall be subtotaled at the end of the trial balance, and, following the subtotal, all appropriate adjustments, Interim Adjustments, and applications of the formula and all limitations shall be reflected and referenced to the appropriate section or schedule, and the statement totaled. These totals, as appropriate, are carried to Exhibit A, and also are carried forward from the preceding accounting (Preliminary or Supplemental) to constitute the beginning figures in the Final Accounting. Adjustments applicable to preceding years shall be included or excluded in accordance with paragraph (e) of this section.

Exhibit C-Trial Balance and Allocated Statement of Profit and Loss, Year Ended December 31, This statement shall reflect the appropriate allocation of each income and expense account for the accounting period, between Subsidized and Unsubsidized Operations. This statement shall be subtotaled at the end of the trial balance, and all appropriate adjustments shall follow the subtotals. Each account and adjustment shall be referenced to the section of the part governing its allocation or the supporting schedule on which the allocation is made. The net result of Subsidized Operations is carried forward to Exhibit A and all totals are carried forward from the preceding accounting (Preliminary or Supplemental) to constitute the beginning figures in the Final Accounting.

Exhibit D-Analysis of Surplus Accounts, Year Ended December 81, This statement shall reflect all changes in the various surplus accounts for the accounting period and shall be submitted only with the Preliminary Accounting.

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Ad

Schedule B-1-Capital Reserve Fund and Related Accounts, December 31, justed. This statement shall reflect the balances in the subject accounts as at the beginning of the accounting period, and all appropriate Interim Adjustments, as well as the determination of Limitation (1) as defined in § 286.3(a)(2) of this chapter. Any Capital Held in Reserve as the result of the application of this limitation shall be set forth. This statement shall be filed with the Preliminary Accounting, and shall be filled with the Supplemental or Final Accounting only if adjustments with respect thereto have occurred.

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Schedule B-2-Special Reserve Fund and Related Accounts, December 31, Adjusted. This statement shall reflect the balances in the subject accounts as at the beginning of the accounting period, and all appropriate Interim Adjustments, as well as the determination of Limitation (2) as defined in § 286.3(a) (2) of this chapter. Any Capital Held in Reserve as the result of the application of this limitation shall be set forth. This statement shall be filed with the Preliminary Accounting, and shall be filled with the Supplemental or Final Accounting only if adjustments with respect thereto have occurred.

Schedule B-3-Adjusted Working Capital December 31, This statement shall reflect the allocation of the adjusted working capital of the operator and of any consolidated wholly-owned subsidiaries, in accordance with the provisions of § 286.3, as well as the determination of Limitation (3) or (4) as defined in § 286.3(a) (2) of this chapter, whichever is applicable. Details of the composition of Adjusted Working Capital need not be shown hereon. Any Capital Held in Reserve as a result of the application of Limitation (4) shall be set forth. This statement shall be filled with the Preliminary Accounting, and shall be filled with the Supplemental or Final Accounting only if adjustments with respect thereto have occurred.

Schedule B-3(a)-Determination of Average Voyage expenses, Year Ended December 31, This statement shall set forth the determination of Average Voyage Expenses as defined in § 286.3 (a) (2), Limitation (4) of this chapter and need be filed only with the Preliminary Accounting in accordance with that section.

Schedule B-4-Vessel Equities-December

31, --, Adjusted. This statement shall set forth the capitalized cost, accumulated depreciation, and mortgage debt, if any, with respect to each vessel owned by the operator at the beginning of the accounting period, segregated as to those assigned and those not assigned under Operating-Differential Subsidy Agreement at that date, with the net equity allocated appropriately to Subsidized and Unsubsidized Operations. Any adjustments to these figures and Interim Adjustments shall be reflected also.

This

statement shall be filed with the Prelimi

nary Accounting, and shall be filed with the Supplemental or Final Accounting only if adjustments with respect thereto have occurred.

Schedule B-5-Allocation of Other Balance Sheet Accounts, December 31, Any balance sheet accounts, other than those comprehended by the preceding schedules, and for which the bases for the allocation are not adequately explained on Exhibit B, shall be included in this statement. All details necessary to accomplish the appropriate allocation thereof shall be set forth separately and reference shall be made to the section of the order governing their allocation. The details of each account shall be summarized so as to agree with the balance shown on Exhibit B. The complete statement shall be filled with the Preliminary Accounting, and any changes affecting the Supplemental or Final Accounting with respect to these accounts shall be supported by schedules in the Supplemental and Final Accountings; otherwise, the individual account distribution need not be repeated.

Alloof

Schedule C-1-Trial Balance and cated Statement of Profit and Loss Wholly-Owned Subsidiary Companies, Year Ended December 31, This statement shall reflect the appropriate allocation of each income and expense account for the accounting period between Subsidized and Unsubsidized Operations. This statement shall be filled with the Preliminary Accounting and need not be repeated unless there be a change in the allocations in the Supplemental or Final Accounting.

Schedule C-2-Allocation of Income and Expense Accounts, Year Ended December 31,

Any profit and loss accounts for which the bases for the allocation are not adequately explained on Exhibit C shall be inIcluded in this statement. All details necessary to accomplish the appropriate allocation thereof shall be set forth separately, and reference shall be made to the section of the part governing their allocation. The details of each account shall be summarized so as to agree with the balance shown on Exhibit C. The complete statement shall be filled with the Preliminary Accounting, and any changes affecting the Supplemental or Final Accounting with respect to these accounts shall be supported by schedules in the Supplemental and Final Accountings; otherwise, the individual account distribution need not be repeated.

Schedule C-3-Summary of OperatingDifferential Subsidy, Year Ended December 31, This statement, which shall be filed only with the Final Accounting, shall set forth, by lines, the details in summary form of subsidy accrued at final rates by classes of subsidizable expense, showing the subsidizable expenses, the final rate, and the subsidy accrued, less deductions, if any, summarized to show the total accrued subsidy, which shall agree with the subsidy applied in the final Exhibit C.

(e) Adjustments applicable to preceding years. (1) All Account 090 entries (recorded in a complete calendar year) reflecting adjustments to prior years shall be reflected in Preliminary, Supplemental and Final Accountings as set forth in this section.

(2) Until a Final Accounting with respect to an accounting period has been filed, all 090 entries recorded in subsequent accounting periods shall be carried back for capital necessarily employed purposes through the accountings for intervening years and reflected in the earnings section of the Supplemental or Final Accountings of the year to which they apply. After a Final Accounting for an accounting period has been filled all 090 entries recorded in the year in which such accounting is filed and in subsequent years shall be reflected in the year in which recorded and absorbed in the operations for that year.

(3) In carrying back such 090 entries through the accountings for intervening years appropriate adjustments shall be made in the determination of capital necessarily employed for those intervening years and such adjustments shall be reflected in the Preliminary, Supplemental or Final Accountings, as appropriate, of those years. Such recordings shall have no effect on the earnings sections of those intervening years, however.

(f) All calculations required herein shall be carried to at least five places beyond the decimal point, e.g., 97.53821 percent.

(g) The accountings (Preliminary, Supplemental and Final) required under this part shall be accompanied by an affidavit of the corporate officer responsible for the accuracy and maintenance of the books of account and financial records of the operator to the effect that:

(1) The books and accounts have been maintained in accordance with Part 282 of this chapter;

(2) The exhibits and schedules composing the accounting have been prepared in accordance with this part;

(3) The operator has fully complied with all the terms and conditions of its Operating-Differential Subsidy Agreement, dated with the Federal

Maritime Board; and

(4) The accounting, including all exhibits and schedules, reflects true and complete statements in accordance with all applicable orders, rules, regulations,

and instructions issued or adopted by the Maritime Administrator appertaining thereto.

(h) Only the Preliminary accountings submitted must be accompanied, in addition to the affidavit required of the operator, by a signed opinion of an independent certified public accountant to the effect that:

(1) The exhibits and schedules composing the annual accounting have been either examined or prepared by the accountant;

(2) The exhibits and schedules have been prepared in accordance with the terms and conditions of the OperatingDifferential Subsidy Agreement, this part, and all other applicable orders, rules, regulations, and instructions issued or adopted by the Maritime Administrator;

(3) An examination was made of the books and records of the operator in support of the accounting in accordance with generally accepted auditing standards and including all procedures which were considered necessary in the circumstances; and

(4) The annual accounting correctly sets forth the required financial data. § 286.6 Statement of purposes and res

ervations.

(a) The purpose of the procedure in this part is to establish the means for uniform application to expedite and facilitate the rendition by operators to the Administration of annual accountings under an Operating-Differential Subsidy Agreement. The receipt and consideration of such accountings by the Administration shall be subject to the following reservations:

(1) That all working papers (irrespective of by whom prepared) in support of the various statements comprising such accountings, shall be available for examination by the Administration's auditors upon request and that the Administration's auditors shall be permitted to make copies of such papers to the extent they deem necessary;

(2) That the Administration reserves the right to conduct such audits, examinations, or checks of the operators' accounts as it may deem necessary before approving the accounting involved; and

(3) That the examples to be supplied by the Comptroller of the statements required by the Administration are for illustrative purposes only and are based on

hypothetical figures; that no implications should be drawn from the relative magnitude of the figures used in these examples; and that if, in any instance, an example should conflict with the text of the procedure in this part, the latter shall govern.

(b) Where, in the preceding sections hereof, reference is made to a particular part, such reference is to such part as amended, supplemented, or revised at the time of the transaction involved.

(c) The term "subsidized vessels" shall include the vessels listed in the Operating-Differential Subsidy Agreement and any other vessel for any period with respect to which its operating results are required, by the applicable provisions of the said agreement or Part 281 of this chapter, to be taken into account under the reserve fund and recapture provisions thereof.

(d) The preliminary or tentative deposits in the statutory reserve funds and calculations of excess profits subject to recapture by the Maritime Administration provided for in § 286.5 are subject to adjustment upon the approval by the Maritime Administrator of final accounting for each year or other accounting period involved.

(e) The establishment of the rules and regulations prescribed in §§ 286.1 to 286.5 is without prejudice to the right of the Maritime Administrator to determine or the operator to submit for consideration of the Maritime Administrator the employment of other bases for allocation and calculation in any instance where, upon the completion of any annual or final accounting, the results produced by the application of such rules and regulations create unreasonable results, in the judgment of the Maritime Administrator.

(f) If the rules and regulations prescribed in §§286.1 to 286.5 should conflict with the provisions of any applicable statute or of the Operating-Differential Subsidy Agreement, such provisions shall govern.

(g) Nothing in this part contained shall be construed as a waiver of any requirement that the consent of the Maritime Administrator be obtained with respect to any transaction, nor as a waiver of any other right reserved to the Maritime Administrator by the Act or under the Operating-Differential Subsidy Ageement.

287.23

287.24 287.25

287.26

287.27 287.28

Noncompliance with requirements.

Extent of tax liability.

Assessment and collection of defciencies.

Reports by taxpayers.

Controlled corporation.

Administrative jurisdiction.

AUTHORITY: The provisions of this Part 287 Issued under secs. 204, 511, 49 Stat. 1987, as amended, 54 Stat. 1106, as amended; 46 U.S.C. 1114, 1161.

SOURCE: The provisions of this Part 287 contained in General Order 38. 2d Rev., 30 F.R. 7215, May 29. 1965; 30 F.R. 8162, June 25, 1965, unless otherwise noted.

NOTE: The regulations contained in this Part were codified by the Internal Revenue Service in Treasury Decision 6820, 30 F.R. 6820, Apr. 29, 1965. For text see also 26 CFR Part 2.

of Commerce as created by Reorganization Plan No. 21 of 1950 (46 U.S.C. 1111 note).

(4) "Citizen" means a person who, if an individual, was born or naturalized as a citizen of the United States or, if other than an individual, meets the requirements of section 905 (c) of the Act and section 2 of the Shipping Act, 1916, as amended (46 U.S.C. 802).

(5) "Taxpayer" means a citizen who has established or seeks to establish a construction reserve fund under the provisions of section 511 of the Act and the regulations in this part, and may include a partnership.

(6) "Corporation" includes associations, joint-stock companies and insurance companies.

(7) "Stock" includes the shares in an association, joint-stock company, or insurance company.

(8) "Affiliate" or "associate" means a person directly or indirectly controlling, controlled by, or under common control with, another person.

(9) "Control", as used in subparagraph (8) of this paragraph, means the possession of the power to direct in any manner the management and policies of a person, and the terms "controlling" and "controlled" shall have the meanings correlative to the foregoing.

(10) "Person" means an individual, a corporation, a partnership, an association, an estate, a trust, or a company.

(11) "Partnership" includes a syndicate, group, pool, joint venture, or other unincorporated organization.

(12) "Construction", if so determined by the Administration, shall include reconstruction and reconditioning.

(13) "Reconstruction and reconditioning" shall include the reconstruction, reconditioning, or modernization of a vessel for exclusive use on the Great Lakes, including the Saint Lawrence River and Gulf, if the Administration determines that the objectives of the Act will be promoted by such reconstruction, reconditioning, or modernization, and, notwithstanding any other provisions of law, such vessel shall be deemed to be a "new vessel" within the meaning of section 511 of the Act for such reconstruction, reconditioning, or modernization.

(14) "Purchase-money indebtedness" means any indebtedness, or evidence thereof, created as the result of the purchase of a vessel by the taxpayer.

(15) "Contract", "contract for the construction", and "construction contract" shall include, if so determined by the Administration, a contract for reconstruction or reconditioning and shall include, in the case of a taxpayer who constructs a new vessel in a shipyard owned by such taxpayer, an agreement, between such taxpayer and the Administration with respect to such construction, and containing provisions deemed necessary or advisable by the Administration to carry out the purposes and policy of section 511 of the Act.

(b) Insofar as the computation and collection of taxes are concerned, other terms used in the regulations in this part, except as otherwise provided, have the same meaning as in the Internal Revenue Code and the regulations thereunder.

§ 287.2 Scope of section 511 of the Act and the regulations in this part.

(a) Applicability of regulations. The regulations prescribed in this part

(1) Apply to gain realized from the sale or loss of vessels, earnings from the operation of vessels, and interest (or otherwise) with respect to amounts previously deposited in the construction reserve fund, for a taxable year beginning after December 31, 1964, and

(2) Apply to the expenditure, obligation, or withdrawal, during a taxable year beginning after December 31, 1964, of any deposits of gain, earnings, and interest (or otherwise) of the character referred to in subparagraph (1) of this paragraph without regard to the taxable year in which the deposits were made.

(b) Nonrecognition and accumulation. Section 511 of the Act provides, under conditions specified, for the nonrecognition, for income and excess-profits tax purposes, of the gain realized from the sale or indemnification for loss of certain vessels including certain vessels in the course of construction, or shares therein. It also permits the accumulation of the proceeds of such sales or indemnification and of certain earnings without liability under part I (section 531 and following), subchapter G, chapter 1 of the Internal Revenue Code of 1954, and the regulations thereunder (26 CFR §§ 1.531 through 1.537-1 (Income Tax Regulations)).

(c) Availability of benefits. The benefits of section 511 of the Act are available to any citizen as defined in paragraph (a) (4) of § 287.1, who, during any