100 STAT. 2212
PUBLIC LAW 99-514—OCT. 22, 1986
"(2) ORDERING RULE.—Any nonqualified withdrawal from a « fund shall be treated— "(A) first as made out of the ordinary income account, ,,.,,_.„, "(B) second as made out of the capital gain account, and "(C) third as made out of the capital account. For purposes of this section, items withdrawn from any account shall be treated as withdrawn on a first-in-first-out basis; except that (i) any nonqualified withdrawal for research, development, and design expenses incident to new and advanced ship design, machinery and equipment, and (ii) any amount treated as a nonqualified withdrawal under the second sentence of subsection (f)(4), shall be treated as withdrawn on a last-in-first-out basis. "(3) OPERATING RULES.—For purposes of this title— "(A) any amount referred to in paragraph (2)(A) shall be " included in income as an item of ordinary income for the taxable year in which the withdrawal is made, "(B) any amount referred to in paragraph (2)(B) shall be included in income for the taxable year in which the withdrawal is made as an item of gain realized during such year from the disposition of an asset held for more than 6 months, and "(C) for the period on or before the last date prescribed '] for payment of tax for the taxable year in which this ^^' withdrawal is made— "(i) no interest shall be payable under section 6601 and no addition to the tax shall be payable under section 6651, "(ii) interest on the amount of the additional tax attributable to any item referred to in subparagraph (A) or (B) shall be paid at the applicable rate (as defined in paragraph (4)) from the last date prescribed for payment of the tax for the taxable year for which such r item was deposited in the fund, and "(iii) no interest shall be payable on amounts referred to in clauses (i) and (ii) of paragraph (2) or in the case of any nonqualified withdrawal arising from the application of the recapture provision of section 606(5) I of the Merchant Marine Act of 1936 as in effect on December 31, 1969. "(4) INTEREST RATE.—For purposes of paragraph (3)(C)(ii), the applicable rate of interest for any nonqualified withdrawal— "(A) made in a taxable year beginning in 1970 or 1971 is 8 percent, or "(B) made in a taxable year beginning after 1971, shall be determined and published jointly by the Secretary of the Treasury or his delegate and the applicable Secretary and shall bear a relationship to 8 percent which the Secretaries determine under joint regulations to be comparable to the relationship which the money rates and investment yields for the calendar year immediately preceding the beginning of the taxable year bear to the money rates and investment yields for the calendar year 1970. "(5) AMOUNT NOT WITHDRAWN FROM FUND AFTER 25 YEARS FROM DEPOSIT TAXED AS NONQUALIFIED WITHDRAWAL.—
"(A) IN GENERAL.—The applicable percentage of any amount which remains in a capital construction fund at the
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