§ 3674. Long-term lease or charter defined; substantial termination liability

936 words·~4 min read·/usc/title-10/section-3674

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(a)Long-term Lease or Charter.—

(1)General rule.—

(A)In this chapter, the term “long-term lease or charter” (except as provided in paragraph (2)) means a lease, charter, service contract, or conditional sale agreement—

(i)the term of which is for a period of five years or longer or more than one-half the useful life of the vessel, aircraft, or combat vehicle; or

(ii)the initial term of which is for a period of less than five years but which contains an option to renew or extend the agreement for a period which, when added to the initial term (or any previous renewal or extension), is five years or longer.

(B)Such term includes the extension or renewal of a lease or charter agreement if the term of the extension or renewal thereof is for a period of five years or longer or if the term of the lease or charter agreement being extended or renewed was for a period of five years or longer.

(2)Special rule.—

(A)In the case of an agreement under which the lessor first places the property in service under the agreement or the property has been in service for less than one year and there is allowable to the lessor or charterer an investment tax credit or depreciation for the property leased, chartered, or otherwise provided under the agreement under section 168 of the Internal Revenue Code of 1986 (unless the lessor or charterer has elected depreciation on a straightline method for such property), the term “long-term lease or charter” means a lease, charter, service contract, or conditional sale agreement—

(i)the term of which is for a period of three years or longer; or

(ii)the initial term of which is for a period of less than three years but which contains an option to renew or extend the agreement for a period which, when added to the initial term (or any previous renewal or extension), is three years or longer.

(B)Such term includes the extension or renewal of a lease or charter agreement if the term of the extension or renewal thereof is for a period of three years or longer or if the term of the lease or charter agreement being extended or renewed was for a period of three years or longer.

(b)Substantial Termination Liability.— For the purposes of this chapter, the United States shall be considered to have a substantial termination liability under a contract—

(1)if there is an agreement by the United States under the contract to pay an amount not less than the amount equal to 25 percent of the value of the vessel, aircraft, or combat vehicle under lease or charter, calculated on the basis of the present value of the termination liability of the United States under such charter or lease (as determined under regulations prescribed by the Secretary of Defense); or

(2)if (as determined under regulations prescribed by the Secretary of Defense) the sum of—

(A)the present value of the amount of the termination liability of the United States under the contract as of the end of the term of the contract (exclusive of any option to extend the contract); and

(B)the present value of the total of the payments to be made by the United States under the contract (excluding any option to extend the contract) attributable to capital-hire,

is more than one-half the price of the vessel, aircraft, or combat vehicle involved.

(Added and amended Pub. L. 116–283, div. A, title XVIII, § 1825(a), (f), Jan. 1, 2021, 134 Stat. 4206, 4207.)

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