26 U.S.C. § 1357 — Items not subject to regular tax; depreciation; interest

(a) An electing corporation’s gross income does not include income from qualifying shipping activities^*. (b) The same exclusion applies to income from qualifying shipping activities conducted by a member of an electing group^* that is not itself an electing corporation^*. (c)(1) Unless paragraph (2) applies, each taxpayer’s item of loss, deduction other than interest, or credit connected with an activity whose income is excluded under this section is disallowed. (c)(2)(A) Despite paragraph (1), a qualifying vessel’s adjusted basis for determining gain is calculated as if depreciation had been allowed. (B)(i) The straight-line depreciation method applies to such qualifying vessels. (B)(ii) It does not apply to a qualifying vessel^* under a charter made before this subchapter was enacted. (c)(3)(A) Unless subparagraph (B) applies, an electing corporation’s disallowed interest expense is in the ratio of the fair market value of its qualifying vessels to the fair market value of all its assets. (B) For a member of an electing group, use the fair market value of the corporation’s qualifying vessels divided by the fair market value of the electing group’s total assets.