Publication 595

Cat. No. 15171E Contents

Department Introduction ..................... 1

of the Tax Highlights Important Changes for 2002 ......... 2 Treasury

Internal Important Reminder ............... 2

Revenue for Commercial

Service Important Dates for 2003 ............ 2

Fishermen What Is Gross Income From

Fishing? .................... 2

Which Fishing Expenses Can You

Deduct? ..................... 3 For use in preparing

What Forms Must You File? ......... 3

2002 Returns When Do Fishermen Pay

Estimated Tax and File Tax

Returns? .................... 5

What Is the Capital Construction

Fund? ...................... 7

How Do You Claim Fuel Tax

Credits and Refunds? ........... 9

Schedule C Example .............. 11

How To Get Tax Help .............. 13

Index .......................... 14

Introduction

This publication highlights some special tax

rules that may apply to you if you have your own

fishing trade or business. The following persons

have their own fishing trade or business.

• Fishing boat owners or operators who use

their boats to fish for profit.

• Certain fishermen who work for a share of

the catch.

• Other individuals who receive gross income from fishing.

Generally, you report your profit or loss from

fishing on Schedule C or Schedule C–EZ of

Form 1040. An example with a filled-in Schedule

C, shown later, provides details on how to complete this form.

This publication does not contain all the tax

rules that may apply to your fishing trade or

business. For general information about the federal tax laws that apply to individuals who file

Schedule C or C–EZ, see Publication 334, Tax

Guide for Small Business. If your trade or business is a partnership or corporation, see Publication 541, Partnerships, or Publication 542,

Corporations.

If you are just starting out in a fishing

business or you need information on

keeping books and records, see Publi- RECORDS

cation 583, Starting a Business and Keeping

Records.

Please note that this publication uses the

term fisherman because it is the commonly

accepted term in the fishing industry. In the
following discussions it represents both men tax without penalty. See March 3, later, if you ❏ Schedule C–EZ (Form 1040) Net Profit

and women. do not pay two-thirds of your tax by this date. From Business

If less than two-thirds of your gross income ❏ 1040–ES Estimated Tax for Individuals

Comments and suggestions. We welcome is from fishing, you generally must make quar- ❏ 1099–MISC Miscellaneous Income your comments about this publication and your terly estimated tax payments. See Due Dates

suggestions for future editions. for Nonqualified Fishermen, later. ❏ 2210–F Underpayment of Estimated Tax

You can e-mail us while visiting our web site by Farmers and Fishermen

at www.irs.gov. January 31 ❏ 4136 Credit for Federal Tax Paid on You can write to us at the following address: Fuels

Fishing boat operators. Fishing boat oper- Internal Revenue Service ❏ 8849 Claim for Refund of Excise Taxes ators must give a 2002 Form 1099–MISC, Tax Forms and Publications Miscellaneous Income, to certain crew mem- See How To Get Tax Help near the end of W:CAR:MP:FP bers who were self-employed. this publication for information about getting 1111 Constitution Ave. NW publications and forms. Washington, DC 20224

February 28

We respond to many letters by telephone. Fishing boat operators. Use Form 1096,

Annual Summary and Transmittal of U.S. In- Therefore, it would be helpful if you would in- What Is Gross Income formation Returns, to send Copy A of Forms clude your daytime phone number, including the 1099–MISC to IRS. area code, in your correspondence. From Fishing?

March 3 Gross income from fishing includes amounts

you receive from catching, taking, harvesting, Important Changes Fishermen. If at least two-thirds of your cultivating, or farming any of the following

2001 or 2002 gross income was from fishing, aquatic resources. for 2002 you can file your 2002 Form 1040 by this date

and pay your tax in full without penalty. • Fish.

Additional depreciation. You can claim a • Shellfish (such as clams and mussels). special depreciation allowance for qualified April 15 property placed in service after September 10, • Crustacea (such as lobsters, crabs, and

2001, and before September 11, 2004. See Fishermen. shrimp). If you have not filed your Form

Publication 946, How To Depreciate Property, 1040, you should file it by April 15 and pay • Sponges. for more information. your tax in full. If you need more time to file,

you can request an extension of time to file • Seaweeds.

Electronic Form 1099. For tax years ending with Form 4868, Application for Automatic Ex- • Other aquatic forms of animal or vegetable after March 9, 2002, Form 1099 can be issued tension of Time To File U.S. Individual Income life. electronically if the recipient consents to receive Tax Return, or you can get an extension by it that way. Internet or phone. You generally figure your gross income from

fishing in Part I of Schedule C (Form 1040). For More information. For more information on more information on Schedule C, see What important dates, see Due Dates for Qualified Forms Must You File, later. Important Reminder Fishermen and Due Dates for Nonqualified

Fishermen, later.

Photographs of missing children. Wages. Wages you receive as an employee in The Internal Revenue Service is a proud partner with the Useful Items a fishing business are not gross income from

National Center for Missing and Exploited Chil- fishing. You may want to see: dren. Photographs of missing children selected If you work on a boat with an operating crew by the Center may appear in this publication on Publication that is normally made up of fewer than 10 indi- pages that would otherwise be blank. You can viduals, you may be considered a self-employed help bring these children home by looking at the ❏ 15 Circular E, Employer’s Tax Guide individual instead of an employee. As a self-em- photographs and calling 1–800–THE–LOST ❏ 15–A Employer’s Supplemental Tax ployed individual you may receive gross income (1–800–843–5678) if you recognize a child. Guide from fishing. For more information, see Which

fishermen are considered self-employed? under

❏ 15–B Employer’s Tax Guide to Fringe Form 1099–MISC, later. Benefits

Important Dates ❏ 334 Tax Guide for Small Business Patronage dividends. Patronage dividends

❏ 378 Fuel Tax Credits and Refunds you receive from your fishing business activities for 2003

are generally included in your gross income ❏ 463 Travel, Entertainment, Gift, and Car from fishing. However, do not include in gross This section highlights important due dates for Expenses income amounts you receive from a cooperative the 2003 calendar year. For other important

❏ 505 Tax Withholding and Estimated Tax association relating to the purchase of capital dates, see Publication 509, Tax Calendars for

assets or depreciable property used in your fish- 2003. ❏ 533 Self-Employment Tax ing business. Reduce the basis of these assets

❏ 535 Business Expenses by the dividends received. January 15 ❏ 583 Starting a Business and Keeping

Fishermen. If at least two-thirds of your Records Fuel tax credits and refunds. You may have

2001 or 2002 gross income was from fishing, to include fuel tax credits and refunds you re- ❏ 946 How To Depreciate Property you may want to pay at least two-thirds of your ceive from your fishing business activities in

2002 tax by this date, using Form 1040–ES, your gross income from fishing. For more infor- Form (and Instructions) to meet your estimated tax requirement for mation, see Including the Credit or Refund in

2002. This will allow you to wait until April 15 ❏ Schedule C (Form 1040) Profit or Loss Income under How Do You Claim Fuel Tax

to file your Form 1040 and pay any remaining From Business Credits and Refunds, later.

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tion 179 deduction. For more information, see • Meals whose value you include in an

Which Fishing Publication 946. employee’s wages.

• Meals whose value you include in the in- Expenses Can Special depreciation allowance You can

come of a self-employed individual who take a special depreciation allowance for quali- performs services for your business. You You Deduct? fied property you place in service. It is an addi- must generally include the value of meals tional 30% deduction you can take before you you furnish to that individual in his or her figure MACRS depreciation for the year you You generally can deduct ordinary and neces- income. To deduct 100% of these meals, place the property in service. For more informa- sary fishing expenses as business expenses in you must report their value on any Form tion, see Publication 946. Part II of Schedule C (Form 1040). An ordinary 1099–MISC you file to report your pay- fishing expense is one that is common and ac- ments for services.

cepted in a fishing trade or business. A neces- Travel and Transportation • Meals you are required by federal law to sary fishing expense is one that is helpful and This section briefly explains some of the rules for furnish to crew members of certain com- appropriate for a fishing trade or business. An deducting travel and transportation expenses. mercial vessels (or would be required to expense does not have to be indispensable to For more information about travel and transpor- provide if the vessels were operated at be considered necessary. tation expenses, see Publication 463. That pub- sea). The following discussions give a brief over- lication also explains what records to keep. view of three types of business expenses that

are of special interest to fishermen: deprecia- The federal law that generally requires Local transportation expenses. Local transtion, travel, and transportation expenses. The meals to be furnished to crew mem- portation expenses include the ordinary and most common business expenses for small bers of commercial vessels does not CAUTION

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necessary costs of getting from one workplace businesses are listed in Part II of Schedule C. apply to fishing vessels. to another in the course of your business when For more information on business expenses, you are traveling within the city or general area see Publication 535. There is also information that is your tax home. on specific business expenses in Publication Tax home. Generally, your tax home is your 334.

regular place of business, regardless of where What Forms Must

you maintain your family home. It includes the Depreciation entire city or general area in which your busi- You File?

ness is located. If property you acquire to use in your business If you have a fishing trade or business, you may has a useful life that extends substantially be- Commuting expenses. You cannot need to file the following forms. yond the year it is placed in service, you gener- deduct the costs of traveling between

ally cannot deduct the entire cost as a business your home and your main or regular CAUTION

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Schedule C (Form 1040) expense in the year you acquire it. You must place of business. These costs are personal

spread the cost over more than one tax year and commuting expenses. You cannot deduct com- Use Schedule C (Form 1040) to figure your net deduct part of it each year. This method of de- muting expenses no matter how far your home is profit or loss from a fishing business you operate ducting the cost of business property is called from your regular place of business. You cannot or a trade you practice as a self-employed indi- depreciation. Use Form 4562, Depreciation and deduct commuting expenses even if you work vidual. To figure your net profit or loss, subtract Amortization, to report depreciation. during the trip. your deductible fishing expenses from your

Publication 946 contains the rules you need gross income from fishing. File Schedule C with

to depreciate certain property. The following list Travel expenses. For tax purposes, travel ex- your Form 1040.

highlights items of special interest to fishermen. penses are the ordinary and necessary costs of You may be able to use the simpler traveling away from home for your business, • Fishing boats. You generally can depre- Schedule C–EZ (Form 1040), in- profession, or job. You are traveling away from ciate a fishing boat used in your fishing stead of Schedule C, if you made a

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home if you meet the following requirements. trade or business as 7-year property using profit and had fishing expenses of $2,500 or

the Modified Accelerated Cost Recovery • Your duties require you to be away from less. For more information, see Part I of SchedSystem (MACRS) depreciation. the general area of your tax home (defined ule C–EZ.

earlier) substantially longer than an ordi- • Nets, pots, and traps. You generally nary day’s work. Who is self-employed? You are self-em- can depreciate a net, pot, or trap used in ployed if you own an unincorporated business or your fishing trade or business as 7-year • You need to get sleep or rest to meet the practice a trade by yourself. You do not have to property using MACRS depreciation. How- demands of your work while away from carry on regular full-time business activities to ever, if based on your own experience, home. be self-employed. Your trade or business may you determine that any of these items will consist of part-time work, including work you do not be used for more than one year in your Limited deduction for meals. You generally in addition to your regular job. business, you may be able to deduct the can deduct only 50% of the costs of the following If you work on a fishing boat with an operat- cost in the current year. meals. ing crew normally made up of fewer than 10

• Repair or improvement. If a repair or individuals, you may be considered self-em- • Meals you provide to either employees or replacement increases the value of your ployed. For more information, see Which fisher- self-employed individuals who provide property, makes it more useful, or length- men are considered self-employed? under Form services to your fishing trade or business. ens its life, it is an improvement. You must 1099–MISC, later.

depreciate the cost of improvements. If the • Your own meals while you are traveling What is a trade or business? A trade or repair or replacement does not increase away from home for business. business is generally an activity that is your the value of your property, make it more livelihood or that you do in good faith to make a useful, or lengthen its life, it is a repair. Exceptions to limit. You can deduct the full profit. The facts and circumstances of each case You deduct the cost of repairs as a busi- costs of the following meals. determine whether or not an activity is a trade or ness expense. • Meals that qualify as a de minimis fringe business. Regularity of activities and transacbenefit as discussed in section 2 of Publi- tions and the production of income are important

Section 179 deduction. Instead of depreciat- cation 15–B. This generally includes elements. You do not need to actually make a

ing property, you can choose to deduct a limited meals you provide to employees at your profit to be in a trade or business as long as you

amount of the cost of certain depreciable prop- place of business if more than half of have a profit motive. You do need, however, to

erty in the year you place it in service in your these employees are provided the meals make ongoing efforts to further the interests of

business. This deduction is known as the sec- for your convenience. your business.

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Table 1. Employment Tax Treatment of Fishing Activities and Certain Fishermen

Treatment Under Employment Taxes

Social Security and Medicare Federal Unemployment Tax

Activity or Person Income Tax Withholding Taxes (FUTA)

a. Catching salmon or halibut. Withhold unless c. applies. Taxable unless c. applies Taxable unless c. applies.

b. Catching other fish, sponges, Withhold unless c. applies. Taxable unless c. applies Taxable if vessel is more than 10

etc. net tons and c. does not apply.

c. I n d i v i d u a l c o n s i d e r e d Exempt Exempt Exempt

self-employed. (See Which

fishermen are considered

self-employed?)

d. Native American exercising Exempt Exempt Exempt

fishing rights.

Husband and wife partners. You and your fits are available to self-employed persons just line 56 of Form 1040 and attach Schedule SE to

spouse may operate a fishing business to- as they are to wage earners. Form 1040. If you file a joint return and you both

gether. If you and your spouse join together in You must be insured under the social secur- have SE income, each of you must complete a

the conduct of a business and share in the ity system before you begin receiving social se- separate Schedule SE.

profits and losses, you have created a partner- curity benefits. You are insured if you have the Husband-wife partnership. If you and your ship. You and your spouse must report the busi- required number of credits (also called quarters spouse operate a fishing business as a partner- ness income and expenses on Form 1065, U.S. of coverage). ship, each of you should include your respective Return of Partnership Income. The income

Earning credits in 2002 and 2003. You can share of SE income on a separate Schedule SE. should not be reported on a Schedule C. For earn a maximum of four credits per year. For However, if your spouse is not your partner, more information, see Publication 541, Partner- 2002, you earn one credit for each $870 ($890 but your employee, you must pay employment ships. for 2003) of income subject to social security taxes for him or her. For more information, see

Not-for-profit fishing. You must fish taxes. You need $3,480 ($870 x 4) of self-em- Employment Tax Forms, later.

to make a profit in order to report your ployment income and wages to earn four credits Self-employment tax deduction. You can fishing income and expenses on in 2002. For 2003, you will need $3,560 ($890 x CAUTION

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deduct one-half of your SE tax as a business Schedule C. You do not need to actually make a 4) of self-employment income and wages to expense in figuring your adjusted gross income. profit as long as you are making a good faith earn four credits. This deduction only affects your income tax. It effort. If you are not fishing for profit, report your For an explanation of the number of credits does not affect either your net earnings from fishing income and expenses as explained you must have to be insured and the benefits self-employment or your SE tax. under Not-for-Profit Activities in chapter 1 of available to you and your family under the social

Publication 535. To deduct the tax, enter on Form 1040, line security program, contact your nearest Social 29, the amount shown on the Deduction for Security Administration (SSA) office. one-half of self-employment tax line of the

More information. For specific information on Optional methods. You may want to use one Schedule SE.

completing Schedule C, see Schedule C Exam- of the optional methods in Part II of Long Sched- ple and the filled-in Schedule C, later. ule SE (Section B) when you have a loss or a More information. For more information on

small net profit and any of the following apply. self-employment tax, see Publication 533.

Schedule SE (Form 1040) • You want to receive credit for social security benefit coverage. Form 1099–MISC

Use Schedule SE (Form 1040) to figure and

report your self-employment tax. See Self-em- • You incurred child or dependent care ex- Give Form 1099–MISC to each person to whom

ployment tax (SE tax), later. Most fishermen can penses for which you could claim a credit. you have paid the following during the year. This

use Section A — Short Schedule SE to figure (This method may increase your earned form can be filed electronically if the recipient

their self-employment tax. You must file Sched- income, which could increase your credit consents.

ule SE with your Form 1040 if you were self-em- for these expenses.)

ployed and your net earnings from 1) A share of your catch (or a share of the • You are entitled to the earned income self-employment were $400 or more. proceeds from the sale of your catch) to an credit. (This method may increase your individual who is not your employee Even if you do not have to file Schedule earned income, which could increase your (self-employed). For information about in- SE, it may be to your benefit to file it earned income credit.) dividuals considered to be self-employed, and use an optional method in Part II of

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see Which fishermen are considered Long Schedule SE (Section B). For more infor- Using the optional methods will in- self-employed, later. mation, see Optional methods, later. crease your SE tax. 2) At least $600 in rents, services, and other CAUTION

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income payments to an individual who is Self-employment tax (SE tax). The SE tax is not your employee (self-employed). a social security and Medicare tax primarily for Estimated tax. You may have to pay esti- individuals who work for themselves. It is similar 3) Cash payments of at least $600 to a com- mated tax. This depends on how much income to the social security and Medicare taxes with- mercial fisherman for the purchase of fish and SE taxes you expect for the year and how held from the pay of wage earners. for resale. See the instructions for Form much of your income will be subject to withhold- 1099–MISC for definitions of cash and ing. The SE tax is treated and collected as part Social security coverage. Your payments of fish and for information about the record- of the income tax. For more information, see SE tax contribute to your coverage under the keeping requirements for resale buyers. When Do Fishermen Pay Estimated Tax and social security system. Social security coverage File Tax Returns, later. 4) Cash payments of up to $100 per trip that provides you with retirement benefits, disability are: benefits, survivor benefits, and hospital insur- Reporting self-employment tax. Figure your

ance (Medicare) benefits. Social security bene- SE tax on Schedule SE. Then, report the tax on a) Dependent on a minimum catch,

Page 4
b) Paid solely for additional duties for

which additional cash payments are

traditional in the fishing industry, and

c) Not otherwise reportable as wages.

Which fishermen are considered

self-employed? Certain fishermen who work

on a fishing boat are considered to be self-employed for purposes of employment and self-employment taxes. A fisherman is considered

self-employed if he meets all of the following

conditions.

1) He receives a share of the catch or a

share of the proceeds from the sale of the

catch.

2) His share depends on the amount of the

catch.

3) He receives his share from a boat (or from

each boat in the case of a fishing operation involving more than one boat) with an

operating crew normally made up of fewer

than 10 individuals. This requirement is

considered to be met if the average number of crew members on trips the boat

made during the last 4 calendar quarters

was less than 10.

4) He does not get any money for his work

(other than his share of the catch or of the

proceeds from the sale of the catch), unless the pay meets all of the following conditions.

Figure 1. Estimated Tax for Fishermen

Start Here:

Do you expect to owe

$1,000 or more after

subtracting your

withholding and credits?

Do you expect

your income tax

withholding and

credits to be at

least 100% of

the tax shown

on your 2001

return?

You do not have to

pay estimated tax.

Do you expect

your income tax

withholding and

credits to be at

least 662⁄3% of

the tax shown

on your 2002

return?

Will you file

your income

tax return and

pay the tax in

full by

March 3?

You must pay

your estimated

tax (your

required annual

payment) by

January 15.

Was at least 662⁄3%

of all your gross

income in 2001 or

2002 from fishing?

Follow the general

estimated tax rules.

Yes 

No



Yes



No



No



No



Yes



Yes



Yes





No

a) He does not get more than $100 per other five crew members who receive this extra considered self-employed? under Form trip. payment in addition to the proceeds from the 1099–MISC, earlier.

b) He is paid only if there is a minimum sale of the catch are employees. They are emcatch. ployees because the $100 payment is not paid Table 1. See Table 1, shown earlier, for inforsolely for additional duties for which additional mation on the employment tax treatment of fish- c) He is paid solely for additional duties cash pay is traditional in the fishing industry. ing activities and certain fishermen. (such as for services performed as

mate, engineer, or cook) for which additional cash payments are traditional in Employment Tax Forms

the fishing industry. You are generally required to withhold federal When Do Fishermen

income tax, social security tax, and Medicare tax

Example 1. You hire a captain, a mate, an from your employee’s wages. You also must pay Pay Estimated Tax and

engineer, a cook, and five other crew members the employer’s share of social security and

to work on your fishing boat. The proceeds from Medicare taxes. In addition, you may be re- File Tax Returns?

the sale of the catch offset boat operating ex- quired to pay federal unemployment tax under When you must pay estimated tax and file penses such as bait, ice, and fuel. You divide the Federal Unemployment Tax Act (FUTA). If your tax return depends on what percentage of 60% of the balance among the captain, the you have employees, you will need to file forms

mate, and the crew members. You divide the your gross income comes from fishing. See Fig- to report these employment taxes. For more ure 1 to determine if you have to pay estimated other 40% between yourself and the captain. information, see Publication 15, which explains tax. Gross income is discussed later. The mate, engineer, and cook also each receive your payroll tax responsibilities as an employer. an extra $100 for each trip that brings back a To help you determine whether the people certain minimum catch. The crew members do General Rule for Making working for you are your employees, see Publi- not receive any additional pay between voy- cation 15–A. It has information to help you de- Estimated Tax Payments ages, but they must do certain work, such as termine whether an individual is an independent repairing nets, splicing cable, and transporting You must make estimated tax payments for contractor or an employee. the catch. 2002 if you expect to owe at least $1,000 in tax,

For purposes of employment and self-em- If you incorrectly classify an employee after subtracting your withholding and credits,

ployment taxes, each crew member (including as an independent contractor, you can and you expect your withholding and credits to

the captain, mate, engineer, and cook) is con- be held liable for employment taxes for be less than the smaller of the following. CAUTION

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sidered self-employed. You must file Form that worker, plus a penalty.

1099–MISC to report amounts you pay to them. 1) 90% of the tax to be shown on your 2002 An independent contractor is someone tax return.

who is self-employed. You do not generally have Example 2. The facts are the same as in

to withhold or pay any taxes on payments to an 2) 100% of the tax shown on your 2001 tax Example 1 except that all the crew members but return. Your 2001 tax return must cover all independent contractor. the captain receive an extra $100 for each trip 12 months for this rule to apply. Individuals you employ to work on a boat that that brings back a certain minimum catch.

For purposes of employment and self-em- normally has an operating crew of fewer than 10 If at least two-thirds of your gross income for

individuals may be considered self-employed. 2001 or 2002 is from fishing, substitute 662 ployment taxes, the captain, mate, engineer, /3%

and cook are self-employed individuals. The For more information, see Which fishermen are for 90% in (1) above.

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If you receive at least two-thirds of your total • Other income reported on Form 1040, line • 100% of the total tax shown on your 2001

gross income from fishing in the current or prior 21, not included with any of the items return. (The return must cover all 12

year, special estimated tax and return due dates listed above. months.)

apply to you. See the discussion under Due

Dates for Qualified Fishermen, later. Percentage From Fishing 2003 tax. If at least two-thirds of your

gross income for 2002 or 2003 is from

What Is Gross Income? Figure your gross income from all sources. Then fishing, you can choose either of the

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following options for 2003. figure your gross income from fishing. Divide Gross income is all income you receive in the your fishing gross income by your total gross • Make your required annual payment by form of money, goods, property, and services income to determine the percentage of gross January 15, 2004, and file your Form 1040 that is not exempt from tax. Gross income is income from fishing. by April 15, 2004. not the same as total income shown on line 22

of Form 1040. On a joint return, you must add • File Form 1040 by March 1, 2004, and pay Example 1. James Smith had the following

your spouse’s gross income to your gross in- all the tax due. gross income and fishing income in 2002.

come. To decide whether two-thirds of your

gross income for 2002 was from fishing, use as Gross Income Fiscal year fishermen. If you qualify to use

your gross income the total amount of the follow- these special rules but your tax year does not

ing income (not loss) items from your tax return. Total Fishing start on January 1, you can file your return and

Taxable interest pay the tax by the first day of the 3rd month after ........ $3,000 • Wages, salaries, tips, etc., from Form Dividends the close of your tax year. Or you can make your . . . . . . . . . . . . 500

1040, line 7. Rental income (Sch E) . . . 41,500 required annual payment within 15 days after

Fishing income (Sch C) . . . 75,000 $75,000 the end of your tax year. Then file your return • Taxable interest from Form 1040, line 8a. Schedule D ........... 5,000 and pay any balance due by the 15th day of the • Ordinary dividends from Form 1040, 4th month after the end of your tax year. Total ............... $125,000 $75,000 line 9.

• Taxable refunds of state and local taxes Schedule D showed gain from the sale of a Due Dates for

rental house carried over from Form 4797 from Form 1040, line 10. Nonqualified Fishermen ($5,000) in addition to a loss from the sale of • Alimony from Form 1040, line 11. corporate stock ($2,000). However, that loss is If less than two-thirds of your gross income for

• Gross business income from Schedule C not netted against the gain to figure Mr. Smith’s 2001 and 2002 was from fishing, you cannot use

(Form 1040), line 7 (includes gross fishing total gross income or his gross fishing income. these special estimated tax payment and return

income). His gross fishing income is 60% of his total gross due dates for your 2002 tax year. Instead, you

income ($75,000 ÷ $125,000 = .60). Therefore, should have made quarterly estimated tax pay- • Gross business receipts from Schedule based on his 2002 income, he does not qualify ments on April 15, June 17, and September 16, C–EZ (Form 1040), line 1 (includes gross to use the special estimated tax payment and 2002, and on January 15, 2003. You must file

fishing income). your return by April 15, 2003. return due dates for 2002, discussed next. How-

• Capital gains from Form 1040, line 13, in- ever, he would qualify if at least two-thirds of his If less than two-thirds of your gross income

cluding gains from Schedule D (Form 2001 gross income was from fishing. for 2002 and 2003 is from fishing, you cannot

1040). Losses are not netted against use these special estimated tax payment and

gains. Example 2. Assume the same facts as in return due dates for your 2003 tax year. You

Example 1 except that Mr. Smith received only generally must make quarterly estimated tax • Gains on sales of business property from $21,500, instead of $41,500, rental income. This payments on April 15, June 16, and September Form 1040, line 14. made his total gross income $105,000. He quali- 15, 2003, and on January 15, 2004. You must

• Taxable IRA distributions, pensions, annu- fies to use the special estimated tax payment file your return by April 15, 2004.

ities, and social security benefits. and return due dates, discussed next, because For more information on estimated taxes, 71.4% (at least two-thirds) of his gross income is • Gross rental income from Schedule E see Publication 505. from fishing ($75,000 ÷ $105,000 = .714). (Form 1040), line 3.

Estimated Tax Penalty • Gross royalty income from Schedule E Due Dates for

(Form 1040), line 4. for 2002 Qualified Fishermen • Taxable net income from an estate or trust If you did not pay all your required estimated tax If at least two-thirds of your gross income for reported on Schedule E (Form 1040), line for 2002 by January 15, 2003, or file your 2002 2001 or 2002 was from fishing, you are a quali- 36. return and pay the tax by March 3, 2003, you fied fisherman and can choose either of the should use Form 2210–F, Underpayment of • Income from a REMIC reported on Sched- following options for your 2002 tax. Estimated Tax by Farmers and Fishermen, to ule E (Form 1040), line 38. determine if you owe a penalty. If you owe a • Make your required annual payment, dis- • Gross farm rental income from Form 4835, penalty but do not file Form 2210–F with your cussed next, by January 15, 2003, and file line 7 (includes fishing income from return and pay the penalty, you will get a notice your Form 1040 by April 15, 2003. Schedule E (Form 1040)). from the IRS. You should pay the penalty as

• File Form 1040 by March 3, 2003, and pay instructed by the notice. • Gross farm income from Schedule F all the tax due. You are not required to (Form 1040), line 11. If you file your return by April 15 and make the annual payment. If you pay all pay the bill within 21 calendar days (10 • Your distributive share of gross income the tax due, you will not be penalized for business days if the bill is $100,000 or

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from a partnership, or limited liability com- failure to pay estimated tax. more) after the notice date, the IRS will not pany treated as a partnership, from charge you interest on the penalty.

Schedule K–1 (Form 1065). Required annual payment. If at least

two-thirds of your gross income for 2001 or 2002 Do not ignore a penalty notice, even • Your pro rata share of gross income from

was from fishing, only one estimated tax pay- if you think it is in error. You may get an S corporation from Schedule K-1 (Form CAUTION a penalty notice even though you filed

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1120S). ment is due. The required annual payment is the your return on time, attached Form 2210–F, and smaller of the following amounts. • Unemployment compensation from Form met the gross income from fishing test. If you

1040, line 19. • 662/3% (.6667) of your total tax for 2002. receive a penalty notice for underpaying estiPage 6
mated tax that you think is in error, write to the vessels (defined later), you can open a CCF • Reducing the basis of fishing vessels you

address on the notice and explain why you think account. However, before you open your CCF acquire, build, or rebuild to recapture

the notice is in error. Include a computation, account, you must enter into an agreement with amounts previously excluded from tax.

similar to the one in Example 1 (under Percent- the Secretary of Commerce through the NMFS.

age From Fishing, earlier), showing that you met This agreement will establish the following. Reporting requirements. Beginning the gross income from fishing test. with the tax year in which you establish • Agreement vessels. Eligible vessels your agreement, you must report anTIP

named in the agreement that will be the Other Filing Information nual deposit and withdrawal activity to the basis for the deferral of income tax. NMFS on NOAA Form 34-82. This form is due for 2002 • Planned use of withdrawals. Use of CCF within 30 days after you file your federal income

funds to acquire, build, or rebuild a vessel. tax return even if no deposits or withdrawals are

Payment date on holiday or weekend. If the made. For more information, contact the NMFS • CCF depository. Where your CCF funds last day for filing your return or making a pay- at the address or phone number given earlier. will be held. ment falls on a Saturday, Sunday, or legal holiday, your return or payment will be on time if it is Types of Accounts You Must filed or made on the next business day. The You can request an application kit or

actual filing and payment due dates provided in get additional information from NMFS Maintain Within a CCF

this publication generally reflect this adjustment at the following address. This section discusses the three types of book- for Saturdays, Sundays, and legal holidays.

CCF Program keeping accounts you must maintain when you

Extension of time to file Form 1040. If you invest in a CCF account. Your total CCF depos- Financial Services Division (F/CS2) choose not to file your 2002 return by March 3, its and earnings for any given year are limited to NOAA/National Marine Fisheries Service 2003, the due date for your return will be April the amount attributed to these three accounts 1315 East-West Highway, 13th Floor 15, 2003. However, you generally can get an for that year. Silver Spring, MD 20910–3282 automatic 4-month extension of time to file your

return. Your Form 1040 would then be due by Capital account. The capital account consists You can call NMFS to request an appli- August 15, 2003. primarily of amounts attributable to the following cation kit or get additional information You can get this extension by filing Form items.

at (301) 713–2393. Their fax number 4868, Application for Automatic Extension of is (301) 713–1306. Time To File U.S. Individual Income Tax Return, 1) Allowable depreciation deductions for

by April 15, 2003. You also can get an extension agreement vessels.

by using IRS e-file. Form 4868 does not extend Eligible vessels. There are two types of ves- 2) Any nontaxable return of capital from ei- the time for paying taxes. For more information, sels that may be considered eligible, those ther (a) or (b), below. see the instructions for Form 4868. weighing 5 tons or more and those weighing less

a) The sale or other disposition of agree- This extension does not than 5 tons. For each type, certain requirements extend the

must be met. ment vessels. March 3, 2003, due date for qualified

fishermen who did not make the re- b) Insurance or indemnity proceeds attrib- CAUTION

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Vessel weighing 5 tons or more. To be

quired annual payment and want to avoid an utable to agreement vessels. considered eligible, the vessel must meet all the estimated tax penalty. Therefore, if you did not following requirements. make your required annual payment by January 3) Any tax-exempt interest earned on state or

15, 2003, and you file your tax return after March • Be built or rebuilt in the United States. local bonds in your CCF account.

3, 2003, you will be subject to a penalty for • Be documented under the laws of the underpaying your estimated tax, even if you get United States. Capital gain account. The capital gain ac- an extension of time to file Form 1040. count consists of amounts attributable to the • Be used commercially in the fisheries of following items reduced by any capital losses the United States. from assets held in your CCF account for more

• Be operated in the foreign or domestic than 6 months. 

What Is the Capital commerce of the United States.

1) Any capital gain from either of the followConstruction Fund? ing sources. Vessel weighing less than 5 tons. A small

vessel, weighing at least 2 net tons but less than a) The sale or other disposition of agree- The Capital Construction Fund (CCF) is a spe- 5 net tons, must meet all the following require- ment vessels held for more than 6 cial investment program administered by the ments to be considered eligible. months. National Marine Fisheries Service (NMFS) and

the Internal Revenue Service (IRS). This pro- • Be built or rebuilt in the United States. b) Insurance or indemnity proceeds attribgram allows fishermen to defer paying income utable to agreement vessels held for • Be owned by a U.S. citizen. tax on certain income they invest in a CCF more than 6 months.

account and later use to acquire, build, or rebuild • Have a home port in the United States.

fishing vessels. 2) Any capital gain from assets held in your • Be used commercially in the fisheries of The following sections discuss CCF ac- CCF account for more than 6 months. the United States. counts and the types of bookkeeping accounts

you must maintain when you invest in a CCF Ordinary income account. The ordinary in- account. They also discuss the income tax treat- Deferring tax on CCF deposits and earnings. come account consists of amounts attributable ment of CCF deposits, earnings, and withdraw- You can use a CCF account to defer income tax to the following items. als. by taking the following actions.

1) Any earnings (without regard to the car- • Making deposits to your CCF account CCF Accounts ryback of any net operating or net capital from taxable income.

loss) from the operation of agreement ves- This section explains who can open a CCF ac- • Excluding from income deposits assigned sels in the fisheries of the United States or

count and how to use the account to defer in- to certain accounts (discussed later). in the foreign or domestic commerce of the

come tax. United States. • Making withdrawals from your CCF acOpening a CCF account. If you are a U.S. 2) Any capital gain from the following sources count when you acquire, build, or rebuild

citizen and you own or lease one or more eligible reduced by any capital losses from assets fishing vessels.

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held in your CCF account for 6 months or Instead, add lines 40 and 41, Form 1040, and • Making principal payments on the mortless. use that amount. gage of a qualified vessel.

a) The sale or other disposition of agree- Self-employment tax. You must use your ment vessels held for 6 months or less. Qualified vessel. This is any vessel that net profit or loss from your fishing business to meets all of the following requirements. figure your self-employment tax. Do not reduce b) Insurance or indemnity proceeds attrib- your net profit or loss by any earnings from • The vessel was built or rebuilt in the utable to agreement vessels held for 6

months or less. operations you deposit into your CCF account. United States.

Partnerships and S corporations. • The vessel is documented under the laws c) Any capital gain from assets held in The deduction for partnership earnings of the United States. your CCF account for 6 months or less. from operations deposited into a CCF

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• The person maintaining the CCF account 3) Any ordinary income (such as depreciation account is separately stated on Schedule K agrees with the Secretary of Commerce (Form 1065), line 11, and allocated to the part- recapture) from either of the following that the vessel will be operated in United ners on Schedule K–1 (Form 1065), line 11. sources. States foreign trade, Great Lakes trade, The deduction for S corporation earnings noncontiguous domestic trade, or the fish- a) The sale or other disposition of agree- deposited into a CCF account is separately eries of the United States. ment vessels. stated on Schedule K (Form 1120S), line 10,

and allocated to the shareholders on Schedule b) Insurance or indemnity proceeds attrib- How to determine the source of qualified K–1 (Form 1120S), line 10. utable to agreement vessels. withdrawals. When you make a qualified

withdrawal, the amount is treated as being with- 4) Any interest (not including tax-exempt in- Tax Treatment of CCF drawn in the following order from the accounts terest from state and local bonds), most Earnings listed below.

dividends, and other ordinary income

earned on the assets in your CCF account. 1) The capital account. This section explains the tax treatment of the

earnings from the assets in your CCF account 2) The capital gain account.

Tax Treatment of CCF when the earnings are redeposited or left in your 3) The ordinary income account. account. However, if you choose to withdraw the Deposits earnings in the year earned, you must generally Excluding qualified withdrawals from tax. pay income tax on them. This section explains the tax treatment of in- Do not report on your income tax return any come used as the basis for CCF deposits. qualified withdrawals from your CCF account. Capital gains. Do not report any capital gains

Capital gains. Do not report any transaction from the sale of capital assets held in your CCF Reduce the depreciable basis of fishthat produces a capital gain if you deposit the account. This includes capital gain distributions ing vessels you acquire, build, or renet proceeds into your CCF account. This treat- reported to you on Form 1099–DIV or a substi- CAUTION build when you make a qualified

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ment applies to either of the following transac- tute statement. However, you should attach a withdrawal from either the capital gain or the

tions. statement to your tax return to list the payers ordinary income account.

and the amounts and to identify the capital gains • The sale or other disposition of an agree- as “CCF account earnings.” ment vessel.

Nonqualified Withdrawals • The receipt of insurance or indemnity pro- Interest and dividends. Do not report any

ceeds attributable to an agreement vessel. ordinary income (such as interest and divi- A nonqualified withdrawal from a CCF account

dends) you earn on the assets in your CCF is generally any withdrawal that is not a qualified

Depreciation recapture. Do not report any account. However, you should attach a state- withdrawal. Qualified withdrawals are defined

ment to your return to list the payers and the under Qualified Withdrawals, earlier. transaction that produces depreciation recap- amounts and to identify them as “CCF account ture if you deposit the net proceeds into your earnings.” Examples. Examples of nonqualified with- CCF account. This treatment applies to either of drawals include the following amounts from ei- the following transactions. If you are required to file Schedule B (Form ther the ordinary income account or the capital 1040), you can add these earnings to the list of • The sale or other disposition of an agree- gain account. payers and amounts on line 1 or line 5 and ment vessel. identify them as “CCF earnings.” Then, subtract • Amounts remaining in a CCF account

• The receipt of insurance or indemnity pro- the same amounts from the list and identify them upon termination of your agreement with

ceeds attributable to an agreement vessel. as “CCF deposits.” NMFS.

Tax-exempt interest. Do not report tax-ex- • Amounts you withdraw and use to make

Earnings from operations. Report earnings empt interest from state or local bonds you held principal payments on the mortgage of a

from the operation of agreement vessels on your in your CCF account. You are not required to vessel if the basis of that vessel and the

Schedule C or C–EZ (Form 1040) even if you report this interest on line 8b of Form 1040. bases of other vessels you own have aldeposit part of these earnings into your CCF ready been reduced to zero.

account. You subtract any part of the earnings Tax Treatment of CCF • Amounts determined by IRS to cause your you deposited into your CCF account from the Withdrawals CCF account balance to exceed the amount you would otherwise enter as taxable amount appropriate to meet your planned income on line 41 (Form 1040). In the margin to This section discusses the tax treatment of use of withdrawals. (You will generally be the left of line 41, write “CCF” and the amount of amounts you withdraw from your CCF account given 3 years to revise your plans to cover the deposits. Do not deduct these CCF deposits during the year. this excess balance.) on Schedule C or C–EZ (Form 1040).

• Amounts you leave in your account for If you deposit earnings from operations Qualified Withdrawals more than 25 years. (There is a graduated into your CCF account and you must schedule under which the percentage ap- CAUTION complete other forms such as Form

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A qualified withdrawal from a CCF account is plied to determine the amount of the non- 6251, Alternative Minimum Tax (Individuals), or one that is approved by NMFS for either of the qualified withdrawal increases from 20% in a worksheet for Schedule D (Form 1040), you following uses. the 26th year to 100% in the 30th year.) will need to make an extra computation. When

the other form instructs you to use the amount • Acquiring, building, or rebuilding qualified • Amounts for the purchase of seine nets,

from line 39, Form 1040, do not use that amount. vessels (defined next). gill set-nets, and gill drift-nets.

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How to determine the source of nonqualified More Information Fuel used in aircraft to locate fish is not

withdrawals. When you make a nonqualified fuel used in commercial fishing. 

withdrawal from your CCF account, the amount This section briefly discussed the CCF program. CAUTION

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is treated as being withdrawn in the following For more detailed information, see the following

order from the accounts listed below. legislative authorities. Off-highway business use. You may be eligible to claim a credit or refund of excise tax on 1) The ordinary income account. • Section 607 of the Merchant Marine Act of

fuel if you use the fuel for off-highway business 1936, as amended (46 U.S.C. 1177). 2) The capital gain account. use. • Chapter 2, Part 259 of title 50 of the Code 3) The capital account. What is off-highway business use? It is of Federal Regulations (50 C.F.R., Part any use of fuel in a trade or business or in any 259). income-producing activity other than use in a Paying tax on nonqualified withdrawals. In • Subchapter A, Part 3 of title 26 of the highway vehicle registered or required to be general, nonqualified withdrawals are taxed Code of Federal Regulations (26 C.F.R., registered for use on public highways. Off-high- separately from your other gross income and at Part 3). way business use includes fuels used in the the highest marginal tax rate in effect for the following ways. year of withdrawal. However, nonqualified with- • Section 7518 of the Internal Revenue

drawals treated as made from the capital gain Code (IRC 7518). • In stationary engines to operate generaaccount are taxed at a rate that cannot exceed tors, compressors, and similar equipment. The application kit you can obtain from NMFS at 20% for individuals and 34% for corporations. the address or phone number given earlier may • For cleaning purposes.

Partnerships and S corporations. contain copies of some of these sources of addiTaxable nonqualified partnership with- tional information. Also see their web page at Fuel used in a motorboat does not drawals are separately stated on www.nmfs.noaa.gov/sfweb/financial_servTIP

qualify as fuel used for an off-highway Schedule K (Form 1065), line 24, and allocated ices/ccf.htm. business use. CAUTION

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to the partners on Schedule K–1 (Form 1065),

line 25. Taxable nonqualified withdrawals by an

S corporation are separately stated on Schedule

K (Form 1120S), line 21, and allocated to the How Do You Claim How To Claim

shareholders on Schedule K–1 (Form 1120S), a Credit or Refund

line 23. Fuel Tax Credits and

This section tells you when and how to claim a Refunds? credit or refund of excise taxes on fuels you use Interest. You must pay interest on the addi- for a nontaxable use. tional tax due to nonqualified withdrawals that You may be eligible to claim a credit on your are treated as made from either the ordinary Credit or refund. A credit is an amount you income tax return for federal excise tax imposed income or the capital gain account. The interest claim on your income tax return when you file it on certain fuels used for a nontaxable use. You period begins on the last date for paying tax for at the end of the year. If you meet certain re- also may be eligible to claim a quarterly refund the year for which you deposited the amount you quirements, you can claim a refund during the of the fuel taxes during the year, instead of withdrew from your CCF account. The period year instead of waiting until you file your tax waiting to claim a credit on your income tax ends on the last date for paying tax for the year return. See Claiming a Refund, later. return. in which you make the nonqualified withdrawal.

Instead of paying the fuel tax and filing for a Credit only. The following taxes can be The interest rate on the nonqualified withdrawal

credit or refund, you may be able to buy certain claimed only as a credit. is simple interest. The rate is subject to change

annually and is published in the Federal Regis- fuel tax free. For more information, see How To • Tax on fuels you used for nontaxable uses Buy Fuel Tax Free, later. ter. if the total for the tax year is less than

$750. You also can call NMFS at 301– Nontaxable Uses 713–2393 to get the current interest • Tax on fuel you did not include in any

rate. This section discusses the nontaxable uses that claim for refund previously filed for any

may be of particular interest to fishermen. The quarter of the tax year.

Interest deduction. You can deduct the in- nontaxable uses of fuel for which a fisherman

terest you pay on a nonqualified withdrawal as a may claim a credit or refund are generally the Claiming a Credit trade or business expense. following.

You make a claim for credit on Form 4136 and

Reporting the additional tax and interest. • Use in a boat engaged in commercial fish- attach it to your income tax return. Do not claim

Attach a statement to your income tax return ing. a credit for any amount for which you have filed

showing your computation of the tax and the a refund claim. • Off-highway business use. interest on a nonqualified withdrawal. Include

the tax and interest on line 61 of Form 1040. To When to claim a credit. You can claim a fuel

the left of line 61, write in the amount of tax and For information about other nontaxable uses tax credit on your income tax return for the year

(not discussed in this section) for which a credit you used the fuel. interest and “CCF.”

or refund may be claimed, see Publication 378. Once you have filed a Form 4136, you Tax benefit rule. If any portion of your non- cannot file an amended return to show

qualified withdrawal is properly attributable to Commercial fishing. You may be eligible to an increase in the number of gallons of CAUTION

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contributions (not earnings on the contributions) claim a credit or refund of excise tax on gasoline fuel reported on a line of that form. See the you made to the CCF account that did not re- used in a boat engaged in commercial fishing. following discussion for when you can file a duce your tax liability for any tax year prior to the Boats engaged in commercial fishing include claim on an amended return.

withdrawal year, the following tax treatment ap- only watercraft used in taking, catching,

plies. processing, or transporting fish, shellfish, or Fuel tax claim on amended return. You

other aquatic life for commercial purposes, such may be able to make a fuel tax claim on an • The part that did not reduce your tax liabil- as selling or processing the catch, on a specific amended return for the year you used the fuel. ity for any year prior to the withdrawal year trip basis. They include boats used in both fresh Generally, if you are allowed to file an amended is not taxed. and salt water fishing. They do not include boats return, you must file it by the later of 3 years

• That part is allowed as a net operating used for both sport fishing and commercial fish- from the date you filed your original income tax

loss deduction. ing on the same trip. return or within 2 years from the time you paid

Page 9
the income tax. A return filed early is considered Table 3. Claim Groups for Tax Example. You file your 2002 income tax reto have been filed on the due date. turn and claim a fuel tax credit. Form 4136 Years After 2000

You can file an amended return to claim a shows an amount on line 1c for use of gasoline Group Line Number Type of Use fuel tax credit if any of the following apply. in a boat engaged in commercial fishing. This is

a Group IV claim. You cannot amend your return • You did not claim any credit for fuel taxes I 1b, 1d-f, 2b 1 to claim a credit for an amount on line 1d for use on Form 4136 for the tax year. of gasohol in a boat engaged in commercial 1a, 1d-f 2 • Your credit is for gasohol blending, as dis- fishing (Type of Use 4), because that is also a II

cussed in Publication 378. 2a See line instructions Group IV claim. However, if you used the gasohol in an off-highway business use, you can • Your credit is for a claim group, explained III 1c-f 5, 7 amend your return to claim the credit for that fuel next, for which you did not previously file a tax because that would be a Group II claim. claim on Form 4136 for the tax year. 1c-f 3, 4

IV How to claim a credit. As an individual,

Table 2. Claim Groups for Tax 2b 3, 9 you claim the credit on line 68 of Form 1040.

Years 1999-2000 Check box b on line 68. If you would not other- V 8 See line instructions wise have to file an income tax return, you must

Group Line Number Type of Use do so to claim a fuel tax credit. 3, 4, VI See line instructions 5, 6, 7

I 1b, 1d-f, 2b 1

VII 2b 10 Claiming a Refund 1a, 1d-f 2

II You can file a claim for refund for any quarter of 2a See line instructions Claims on Form 4136 (other than for gasohol your tax year for which you can claim $750 or blending) are separated into seven claim more. This amount is the excise tax on all fuels III 1c-f 5, 7 groups. Once you file Form 4136 with a claim used for any nontaxable use during that quarter

1c-f 3, 4 for a group, you cannot file an amended return or any prior quarter (for which no other claim has

IV with another claim for that group. However, you been filed) during the tax year.

2b 3, 9 can file an amended return with a claim for If you cannot claim at least $750 at the end of

another group. a quarter, you carry the amount over to the next V 7 See line instructions quarter of your tax year to determine if you can Claim group table. Tables 2 and 3 show claim at least $750 for that quarter. If you cannot VI 3, 4, 5, 6 See line instructions which claims are in each group. The numbers in claim at least $750 at the end of the fourth

VII 2b 10 the second column of each table refer to the line quarter of your tax year, you must claim a credit

numbers on Form 4136. The numbers in the on your income tax return, using Form 4136.

third column are from the Type of Use Table in Only one claim can be filed for a quarter.

the Form 4136 instructions. For each tax year, How to file a quarterly claim. You make a you can make only one claim for each group. claim for a refund on Form 8849. File the claim

by filling out Schedule 1 (Form 8849) and attach- Table 4. Sample Exemption Certificate ing it to Form 8849. Send it to the address

shown in the instructions. Do not claim a refund EXEMPTION CERTIFICATE on Form 8849 for any amount for which you

(To support vendor’s claim for credit or payment under section 6421 of the Internal Revenue Code) have filed or will file a claim on Schedule C

(Form 720) or Form 4136.

When to file a quarterly claim. You must file Name and Address of Seller a quarterly claim by the last day of the first

quarter following the last quarter included in the The undersigned buyer (“Buyer”) hereby certifies the following under penalties of perjury: claim. If you do not file a timely refund claim for A. Buyer will use the gasoline to which this certificate relates in a boat engaged in commercial the fourth quarter of your tax year, you will have fishing. to claim a credit for that amount on your income

tax return, as discussed earlier. B. Buyer bought or will buy the gasoline to which this certificate relates from the above named

seller at a price that does not include the excise tax.

C. This certificate applies to the following (complete as applicable): Including the Credit or Refund in

1. If this is a single purchase certificate, check here ❏ and enter the number of gallons Income

of gasoline Include any credit or refund of excise taxes on 2. If this is a certificate covering all purchases, check here ❏. fuels in your gross income if you claimed the

■ If Buyer uses the gasoline to which this certificate relates for a use other than stated in the total cost of the fuel (including the excise taxes)

certificate, Buyer will so notify the person to whom Buyer gives this certificate. as an expense deduction that reduced your income tax liability. ■ Buyer has not and will not claim a refund or credit under section 6421 of the Internal If you use the cash method of accounting Revenue Code for the excise tax on the gasoline to which this certificate relates. and file a claim for refund, include the refund in

■ Buyer understands that the fraudulent use of this certificate may subject Buyer and all your gross income for the tax year in which you parties making such fraudulent use of this certificate to a fine or imprisonment, or both, receive the refund. If you claim a credit on your together with the costs of prosecution. income tax return, include the credit in gross

income for the tax year in which you file Form

4136. If you file an amended return and claim a Signature and Date Signed credit, include the credit in gross income for the

tax year in which you receive the credit.

Printed or Typed Name and Title of Buyer

Example. Ed Brown, a cash basis fisherman, filed his 2001 Form 1040 on March 1,

Name, Address, and Taxpayer Identification Number of Buyer 2002. On his Schedule C, Ed deducted the total

cost of gasoline (including $110 of excise taxes)

Page 10
used in his boat while engaged in commercial Schedule C. He then reports the net profit or loss Line 11. Frank paid his crew members total

fishing operations. Then, on Form 4136, he on line 12, Form 1040. crew shares of $10,992 for the year.

claimed the $110 as a credit. Ed reports the Line 13. Frank enters $6,534 depreciation $110 as additional income on his 2002 Schedule Schedule C (Form 1040) C. from Form 4562 (not shown).

First, Frank fills in the information required at the Line 15. Frank’s $3,291 deduction is for insur- How To Buy Fuel Tax Free top of Schedule C. On line A he enters “Fishing” ance on his business property (65% of his truck and on line B he enters 114110, the 6-digit insurance is included on line 10). The deduction Instead of paying the fuel tax and filing a claim business code for commercial fishing shown in is only for premiums that give him coverage for for credit or refund when the fuel is used for a the instructions for Schedule C. He then com- the year. nontaxable use, you may be eligible to buy it tax pletes items C through H.

free. Line 16b. Frank borrowed money to buy his

fishing boat. The interest on this loan was $800 Gasoline. Your supplier may be able to sell Part I—Income for the year. you gasoline at a tax-free price only for use in a

boat engaged in commercial fishing. Frank figures his gross income from fishing in Line 20b. His rent for his mooring space was Your supplier may be eligible to claim a credit Part I. $50 a month, or $600 for the year. or refund of the excise tax on the gasoline sold

to you at a tax-free price. Refer your supplier to Line 1. Frank had sales of $60,288 for the Line 21. He spent $3,600 for boat repairs and

Credits or Refunds under Gasoline in Publica- year. This includes all the fish he caught and $993 for gear repairs for a total cost of $4,593.

tion 510, Excise Taxes for 2003, for details. sold during the year. He enters his total sales on

To buy gasoline at a tax-free price, give your line 1. Line 22. He spent $1,713 for boat supplies

supplier a signed certificate identifying you and and $4,751 for bait and ice for a total cost of

stating that you will use the gasoline in a boat Line 3. Frank did not have any returns and $6,464.

allowances to report on line 2, so line 3 is the engaged in commercial fishing. You do not need same as line 1. Line 23. Frank renewed his fishing license. He to renew the certificate as long as the informa- enters the $35 state fee on this line. tion it contains continues to be correct. See Line 5. Because Frank did not have any cost Table 4, earlier, for a sample exemption certifi- of goods sold to report on line 4, line 5 is the Line 27. Frank enters the total of his other

cate. same as line 3. fishing expenses on this line. These expenses

are not included on lines 8-26. He lists the type Line 6. Frank’s entry of $712 represents a and the amount of the expenses separately in $612 patronage dividend he received from his Part V of page 2 (not shown) and carries the Schedule C Example local cooperative and a $100 fuel tax credit he total entered on line 48 to line 27. His only entry claimed on the 2001 Form 1040 he filed on on this line is the $6,367 he spent on fuel for his

Frank Carter is a sole proprietor who owns and March 1, 2002. The patronage dividend was fishing boat.

operates a fishing boat. He uses the cash reported to him on Form 1099–PATR, Taxable

method of accounting and files his return on a Distributions Received From Cooperatives. Line 28. Frank adds all his expenses listed in

calendar year basis. He keeps his business rec- Part II and enters the total on this line.

Line 7. Frank’s gross income from fishing in- ords with a single-entry bookkeeping system, cludes his gross profit from line 5 and his other Line 29. He subtracts his total expenses, similar to the sample record system illustrated in income from line 6. $42,439 (line 28) from his gross income from Publication 583. fishing, $61,000 (line 7). Frank has a tentative Frank has two crew members, Nan Brown profit of $18,561. and Sandy Green, who are considered self-em- Part II—Expenses ployed for social security, Medicare, and federal Line 30. Frank did not use any part of his income tax withholding purposes. After certain Frank enters his fishing expenses in Part II. home for business, so he does not make an boat operating expenses are paid, the proceeds entry here. from the sale of the catch are divided 75% to Line 10. Frank used his truck 65% for busiFrank and 25% to his crew members. ness during the year. He spent a total of $4,250 Line 31. Frank has a net profit of $18,561 (line

Frank figures his net profit or loss from his for gas, oil, insurance, tags, repairs, and up- 29 minus line 30). He enters his net profit here,

fishing business by subtracting his fishing ex- keep. He can deduct $2,763 (65% × $4,250), the on line 12 of Form 1040, and on line 2, Section A

penses from his gross income from fishing on business portion of these expenses, on line 10. of Schedule SE (Form 1040), not shown.

Page 11
1 1 1 0 0 1 1 1 1

41 1 0

1 09999999

FRANK CARTER

FISHING

CAP’N FRANK’S

215 Seagull Drive

Hometown, OR 97331





60,288

60,288

60,288

712

61,000

600

4,593

6,464

35

10,992

6,367

42,439

18,561

18,561

2,763

6,534

3,291

800

1 1

SCHEDULE C OMB No. 1545-0074

(Form 1040)

Profit or Loss From Business

(Sole Proprietorship)

Partnerships, joint ventures, etc., must file Form 1065 or 1065-B.

Department of the Treasury

Internal Revenue Service

Attachment

Attach to Form 1040 or 1041. See Instructions for Schedule C (Form 1040). Sequence No. 09

Name of proprietor Social security number (SSN)

A Principal business or profession, including product or service (see page C-1 of the instructions) B Enter code from pages C-7, 8, & 9



C Business name. If no separate business name, leave blank. D Employer ID number (EIN), if any

Accounting method:

E

F

G Yes No

H

Did you “materially participate” in the operation of this business during 2002? If “No,” see page C-3 for limit on losses

If you started or acquired this business during 2002, check here 

Income

Gross receipts or sales. Caution. If this income was reported to you on Form W-2 and the “Statutory

employee” box on that form was checked, see page C-3 and check here 

1

1

2 Returns and allowances 2

3 Subtract line 2 from line 1 3

4 Cost of goods sold (from line 42 on page 2) 4

5 Gross profit. Subtract line 4 from line 3 5

6 Other income, including Federal and state gasoline or fuel tax credit or refund (see page C-3) 6

7 Gross income. Add lines 5 and 6 7

Expenses. Enter expenses for business use of your home only on line 30.

8

21 Repairs and maintenance 21

8 Advertising

22 Supplies (not included in Part III) 22

Bad debts from sales or

services (see page C-3)

9

23

9

23 Taxes and licenses

10

24 Travel, meals, and entertainment:

Car and truck expenses

(see page C-3)

10

24a

11

a Travel

11 Commissions and fees

12 Depletion 12

Meals and

entertainment

b

Depreciation and section 179

expense deduction (not included

in Part III) (see page C-4)

13

Enter nondeductible amount included on line 24b

(see page C-5)

c

13

14 Employee benefit programs

(other than on line 19)

24d

14

d Subtract line 24c from line 24b

25

15

25 Utilities

15 Insurance (other than health)

26 Wages (less employment credits) 26

16 Interest:

a Mortgage (paid to banks, etc.) 16a

Other expenses (from line 48 on

page 2)

27

b Other 16b

17

Legal and professional

services

17

18 Office expense 18

19 Pension and profit-sharing plans 19

20 Rent or lease (see page C-5):

a Vehicles, machinery, and equipment 20a

b Other business property 20b

28 Total expenses before expenses for business use of home. Add lines 8 through 27 in columns 28

31

31

32a All investment is at risk.

32

Some investment is not

at risk.

32b

For Paperwork Reduction Act Notice, see Form 1040 instructions. Schedule C (Form 1040) 2002

(1) Cash (2) Accrual (3) Other (specify) 

Business address (including suite or room no.) 

City, town or post office, state, and ZIP code

Cat. No. 11334P

29

30

Tentative profit (loss). Subtract line 28 from line 7

Expenses for business use of your home. Attach Form 8829

29

30



Part I

Part II

27

Net profit or (loss). Subtract line 30 from line 29.

● If a profit, enter on Form 1040, line 12, and also on Schedule SE, line 2 (statutory employees,

see page C-6). Estates and trusts, enter on Form 1041, line 3.

● If a loss, you must go to line 32.

If you have a loss, check the box that describes your investment in this activity (see page C-6).

● If you checked 32a, enter the loss on Form 1040, line 12, and also on Schedule SE, line 2

(statutory employees, see page C-6). Estates and trusts, enter on Form 1041, line 3.

● If you checked 32b, you must attach Form 6198.



(99)

2002

Page 12
You can also reach us with your computer with a tax problem. Now you can set up an

using File Transfer Protocol at ftp.irs.gov. appointment by calling your local IRS of- How To Get Tax Help fice number and, at the prompt, leaving a

TaxFax Service. Using the phone at- message requesting Everyday Tax SoluYou can get help with unresolved tax issues, tached to your fax machine, you can tions help. A representative will call you

order free publications and forms, ask tax ques- receive forms and instructions by call- back within 2 business days to schedule

tions, and get more information from the IRS in ing 703–368–9694. Follow the directions from an in-person appointment at your conveseveral ways. By selecting the method that is the prompts. When you order forms, enter the nience.

best for you, you will have quick and easy ac- catalog number for the form you need. The items

cess to tax help. you request will be faxed to you. Mail. You can send your order for For help with transmission problems, call the forms, instructions, and publications to FedWorld Help Desk at 703–487–4608. Contacting your Taxpayer Advocate. If you the Distribution Center nearest to you

have attempted to deal with an IRS problem and receive a response within 10 workdays after Phone. Many services are available by unsuccessfully, you should contact your Tax- your request is received. Find the address that phone. payer Advocate. applies to your part of the country.

The Taxpayer Advocate represents your in- • Western part of U.S.: • Ordering forms, instructions, and publica- terests and concerns within the IRS by protect- Western Area Distribution Center tions. Call 1–800–829–3676 to order cur- ing your rights and resolving problems that have Rancho Cordova, CA 95743–0001 rent and prior year forms, instructions, and not been fixed through normal channels. While publications. • Central part of U.S.: Taxpayer Advocates cannot change the tax law Central Area Distribution Center or make a technical tax decision, they can clear • Asking tax questions. Call the IRS with P.O. Box 8903 up problems that resulted from previous con- your tax questions at 1–800–829–1040. Bloomington, IL 61702–8903 tacts and ensure that your case is given a com- • Solving problems. Take advantage of Eve- plete and impartial review. • Eastern part of U.S. and foreign ryday Tax Solutions service by calling your addresses: To contact your Taxpayer Advocate: local IRS office to set up an in-person ap- Eastern Area Distribution Center pointment at your convenience. Check P.O. Box 85074 • Call the Taxpayer Advocate at your local directory assistance or Richmond, VA 23261–5074 1–877–777–4778. www.irs.gov for the numbers.

• Call, write, or fax the Taxpayer Advocate • TTY/TDD equipment. If you have access CD-ROM for tax products. You can office in your area. to TTY/TDD equipment, call 1–800–829– order IRS Publication 1796, Federal 4059 to ask tax questions or to order • Call 1–800–829–4059 if you are a Tax Products on CD-ROM, and obtain: forms and publications. TTY/TDD user. • Current tax forms, instructions, and publi- • TeleTax topics. Call 1–800–829–4477 to cations. For more information, see Publication 1546, listen to pre-recorded messages covering

The Taxpayer Advocate Service of the IRS. various tax topics. • Prior-year tax forms and instructions.

• Popular tax forms that may be filled in

Free tax services. To find out what services Evaluating the quality of our telephone serv- electronically, printed out for submission,

are available, get Publication 910, Guide to Free ices. To ensure that IRS representatives give and saved for recordkeeping.

Tax Services. accurate, courteous, and professional answers, It contains a list of free tax publi- • Internal Revenue Bulletins.

cations and an index of tax topics. It also de- we use several methods to evaluate the quality

scribes other free tax information services, of our telephone services. One method is for a The CD-ROM can be purchased from Na- including tax education and assistance pro- second IRS representative to sometimes listen tional Technical Information Service (NTIS) by grams and a list of TeleTax topics. in on or record telephone calls. Another is to ask calling 1–877–233–6767 or on the Internet at some callers to complete a short survey at the Personal computer. With your per- http://www.irs.gov/cdorders. The first release end of the call.

sonal computer and modem, you can is available in early January and the final release

access the IRS on the Internet at is available in late February.

www.irs.gov. While visiting our web site, you Walk-in. Many products and services

can: are available on a walk-in basis. CD-ROM for small businesses. IRS

Publication 3207, Small Business Re- • See answers to frequently asked tax ques- source Guide, is a must for every small • Products. You can walk in to many post tions or request help by e-mail. business owner or any taxpayer about to start a offices, libraries, and IRS offices to pick up • Download forms and publications or business. This handy, interactive CD contains certain forms, instructions, and publica- search for forms and publications by topic all the business tax forms, instructions and pub- tions. Some IRS offices, libraries, grocery or keyword. lications needed to successfully manage a busi- stores, copy centers, city and county gov- ness. In addition, the CD provides an • Order IRS products on-line. ernments, credit unions, and office supply abundance of other helpful information, such as stores have an extensive collection of • View forms that may be filled in electroni- how to prepare a business plan, finding financ- products available to print from a CD-ROM cally, print the completed form, and then ing for your business, and much more. The de- or photocopy from reproducible proofs. save the form for recordkeeping. sign of the CD makes finding information easy Also, some IRS offices and libraries have and quick and incorporates file formats and • View Internal Revenue Bulletins published the Internal Revenue Code, regulations, browsers that can be run on virtually any in the last few years. Internal Revenue Bulletins, and Cumula- desktop or laptop computer. tive Bulletins available for research pur- • Search regulations and the Internal Reve- It is available in March. You can get a free poses. nue Code. copy by calling 1-800-829-3676 or by visiting the

• Services. You can walk in to your local website at www.irs.gov/smallbiz. • Receive our electronic newsletters on hot IRS office to ask tax questions or get help tax issues and news.

• Learn about the benefits of filing electronically (IRS e-file).

• Get information on starting and operating

a small business.

Page 13
To help us develop a more useful index, please let us know if you have ideas for index entries. Index See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.

A LS Expenses, fishing ......... 3

Assistance (See Tax help) . . . 13 Local transportation ........ 3 Schedule C ............. 3

F Schedule C–EZ .......... 3

B M Fishing: Schedule SE ............. 4

Business expenses, fishing . . . 3 Meals Boats, depreciation ....... 3 Self-employment: ................. 3

Expenses ............. 3 Certain fishermen ........ 5 Business or trade defined .... 3 More information (See Tax help) Gross income .......... 2 Deduction for SE tax ...... 4

Form: Defined ............... 3 C N 1040–ES . . . . . . . . . . . . . 6 Tax . . . . . . . . . . . . . . . . . 4

Capital construction fund ..... 7 1099–MISC ........... 4 Nets, depreciation ......... 3 Social security coverage ..... 4

Comments .............. 2 2210–F . . . . . . . . . . . . . . 6 Not-for-profit fishing ........ 4 Suggestions ............. 2

Credits: 4136 ................ 9

Fuel tax .............. 9 4868 ................ 7 P T Social security coverage . . . 4 8849 . . . . . . . . . . . . . . . 10 Partners, husband and wife . . . 4 Tax help . . . . . . . . . . . . . . . 13 Schedule C ............ 3 Patronage dividends ....... 2 Tax home ............... 3 D Schedule C–EZ ......... 3 Penalty: Schedule SE ........... 4 Taxpayer Advocate . . . . . . . 13

Depreciation: Estimated tax ........... 6 Forms to file ............. 3 Trade or business defined .... 3 Fishing boats ........... 3 Notice ................ 6

Free tax services . . . . . . . . . 13 Transportation, local ........ 3 Nets, pots, and traps ...... 3 Pots, depreciation ......... 3

Fuel tax credits and refunds . . 9 Traps, depreciation ........ 3 Due dates: Publications (See Tax help) Travel expenses .......... 3 Nonqualified fishermen .... 6

Qualified fishermen ....... 6 TTY/TDD information . . . . . . 13 G R

Gross income from fishing .... 2 Repairs and replacements .... 3 ■

E Return due date .......... 5

Employment tax forms ...... 5 H

Estimated tax ............ 5 Help (See Tax help)

Page 14
Tax Publications for Business Taxpayers

General Guides

Commonly Used Tax Forms

Spanish Language Publications

Your Rights as a Taxpayer

Your Federal Income Tax (For

Individuals)

Farmer’s Tax Guide

Tax Guide for Small Business (For

Individuals Who Use Schedule C or

C-EZ)

Tax Calendars for 2003

Highlights of 2002 Tax Changes

Guide to Free Tax Services

Circular E, Employer’s Tax Guide

Employer’s Supplemental Tax Guide

Circular A, Agricultural Employer’s Tax

Guide

Circular SS, Federal Tax Guide For

Employers in the U.S. Virgin Islands,

Guam, American Samoa, and the

Commonwealth of the Northern

Mariana Islands

Household Employer’s Tax Guide

Circular PR Guía Contributiva Federal

Para Patronos Puertorriqueños

Travel, Entertainment, Gift, and Car

Expenses

Tax Withholding and Estimated Tax

Excise Taxes for 2003

Withholding of Tax on Nonresident

Aliens and Foreign Entities

Social Security and Other Information

for Members of the Clergy and

Religious Workers

Residential Rental Property

Self-Employment Tax

Depreciating Property Placed in

Service Before 1987

Business Expenses

Net Operating Losses (NOLs) for

Individuals, Estates, and Trusts

Installment Sales

Accounting Periods and Methods

Corporations

Sales and Other Dispositions of Assets

Basis of Assets

Examination of Returns, Appeal Rights,

and Claims for Refund

Retirement Plans for Small Business

(SEP, SIMPLE, and Qualified Plans)

Determining the Value of Donated

Property

Starting a Business and Keeping

Records

The IRS Collection Process

Information on the United StatesCanada Income Tax Treaty

Bankruptcy Tax Guide

Direct Sellers

Passive Activity and At-Risk Rules

How To Depreciate Property

Reporting Cash Payments of Over

$10,000

The Taxpayer Advocate Service of the

IRS

Derechos del Contribuyente

Cómo Preparar la Declaración de

Impuesto Federal

English-Spanish Glossary of Words

and Phrases Used in Publications

Issued by the Internal Revenue

Service

Tax on Unrelated Business Income of

Exempt Organizations

Wage and Tax Statement

Itemized Deductions & Interest and

Ordinary Dividends*

Profit or Loss From Business*

Net Profit From Business*

Capital Gains and Losses*

Supplemental Income and Loss*

Profit or Loss From Farming*

Credit for the Elderly or the Disabled*

Estimated Tax for Individuals*

Self-Employment Tax*

Amended U.S. Individual Income Tax Return*

Capital Gains and Losses

Partner’s Share of Income,

Credits, Deductions, etc.

U.S. Corporation Income Tax Return

U.S. Income Tax Return for an S Corporation

Employee Business Expenses*

Unreimbursed Employee Business Expenses*

Power of Attorney and Declaration of

Representative*

Child and Dependent Care Expenses*

General Business Credit

Application for Automatic Extension of Time To File

U.S. Individual Income Tax Return*

Moving Expenses*

Additional Taxes on Qualified Plans (Including

IRAs) and Other Tax-Favored Accounts

Installment Sale Income*

Noncash Charitable Contributions*

Change of Address*

Expenses for Business Use of Your Home*

Tax Highlights for Commercial

Fishermen

910

595

553

509

334

225

17

1

Nondeductible IRAs*

Passive Activity Loss Limitations*

15

15-A

51

80

179

926

378

463

505

510

515

517

527

533

534

535

536

537

541

538

542

Partnerships

544

551

556

560

561

583

594

597

598

901

911

925

946

947

908

1544

1546

1SP

850

579SP

594SP Comprendiendo el Proceso de Cobro

10134

Sch A & B

Sch C

Sch C-EZ

Sch D

Sch E

Sch F

Sch H Household Employment Taxes*

Sch R

Sch SE

1040-ES

1040X

Sch D

Sch K-1

1120

1120S

1065 U.S. Return of Partnership Income

2106

2106-EZ

2441

2848

3800

4868

3903

5329

6252

8283

8582

8606

8822

8829

Specialized Publications

Fuel Tax Credits and Refunds

W-4 Employee’s Withholding Allowance Certificate*

Employer’s Annual Federal Unemployment

(FUTA) Tax Return*

940

940-EZ

1040 U.S. Individual Income Tax Return*

Employer’s Annual Federal Unemployment

(FUTA) Tax Return*

Business Use of Your Home (Including

Use by Day-Care Providers)

587

U.S. Tax Treaties

Practice Before the IRS and Power of

Attorney

Tax Incentives for Empowerment

Zones and Other Distressed

Communities

Employer’s Guides

Certification for Reduced Tax Rates in

Tax Treaty Countries

686

954

Capital Gains and Losses and Built-In Gains

Shareholder’s Share of Income, Credits,

Deductions, etc.

Sch D

Sch K-1

Underpayment of Estimated Tax by Individuals,

Estates, and Trusts*

2210

Report of Cash Payments Over $10,000 Received

in a Trade or Business*

8300

4562 Depreciation and Amortization*

4797 Sales of Business Property*

Informe de Pagos en Efectivo en

Exceso de $10,000 (Recibidos en

una Ocupación o Negocio)

1544SP

U.S. Corporation Short-Form Income

Tax Return

1120-A

See How To Get Tax Help for a variety of ways to get publications, including by

computer, phone, and mail.

See How To Get Tax Help for a variety of ways to get forms, including by computer, fax, phone,

and mail. Items with an asterisk are available by fax. For these orders only, use the catalog number

when ordering.

Form Number and Title

Catalog

Number

W-2

10220

11234

10983

17001

11320

11330

11334

14374

11338

11344

11346

12187

11358

11340

11360

941 Employer’s Quarterly Federal Tax Return

11359

Sch J Farm Income Averaging* 25513

11510

Catalog

Number

20604

11744

11862

11980

12392

12490

12906

13086

13141

13329

13601

62299

63966

12081

13232

63704

62133

11390

11393

11394

11450

11456

11700

11520

11516

Form Number and Title

Sch D-1 Continuation Sheet for Schedule D 10424

Employer’s Tax Guide to Fringe

Benefits

15-B

Page 15
Page 16