us internal revenue service: p595--1999

8/14/2019 US Internal Revenue Service: p595--1999

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Contents

Introduction ........................................ 1

Important Change for 1999 ............... 2

Important Dates for 2000 ................... 2

What Is Gross Income FromFishing? ....................................... 2

Which Fishing Expenses Can YouDeduct? ........................................ 2

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

When Do Fishermen Pay EstimatedTax and File Tax Returns? ......... 5

What Is the Capital ConstructionFund? ........................................... 6

How To Claim Fuel Tax Credits andRefunds ........................................ 8

Schedule C Example .......................... 9

How To Get More Information .......... 10

Index .................................................... 12

IntroductionThis publication highlights some special taxrules that may apply to you if you have yourown fishing trade or business. Those whohave their own fishing trade or business in-clude the following persons.

Fishing boat owners or operators whouse their boats to fish for profit.

Certain fishermen who work for a shareof the catch.

Other individuals who receive gross in-come from fishing.

Generally you report your profit or lossfrom fishing on Schedule C or ScheduleCEZ of Form 1040. An example with afilled-in Schedule C shown near the end ofthis publication provides details on how tocomplete this form.

This publication does not contain all ofthe tax rules that may apply to your fishingtrade or business. For general informationabout the federal tax laws that apply to indi-viduals who file Schedule C or CEZ, seePublication 334, Tax Guide for Small Busi-ness. If your trade or business is a partner-ship or corporation, see Publication 541,Partnerships, or Publication 542, Corpo-rations.

RECORDS

If you are just starting out in a fishingbusiness or you need information onkeeping books and records, also see

Publication 583, Starting a Business andKeeping Records.

Please note that this publication uses theterm fisherman because it is the commonlyaccepted term in the fishing industry. In thefollowing discussions it represents both menand women.

Departmentof theTreasury

InternalRevenueService

Publica tion 595Cat. No. 15171E

Tax H ighlightsfor CommercialFishermen

For use in preparing

1999 Returns


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Important Changefor 1999

Photographs of missing children. TheInternal Revenue Service is a proud partnerwith the National Center for Missing and Ex-ploited Children. Photographs of missingchildren selected by the Center may appearin this publication on pages that would other-

wise be blank. You can help bring thesechildren home by looking at the photographsand calling 1800THELOST (18008435678) if you recognize a child.

Important Datesfor 2000This section highlights important due dates forfishermen for the 2000 calendar year. Forother important dates, see Publication 509,Tax Calendars for 2000.

January 18

Fishermen. If at least two-thirds of yourgross income for either 1998 or 1999 wasfrom fishing, you may want to pay at leasttwo-thirds of your 1999 tax by this date.This will allow you to wait until April 17 tofile your 1999 Form 1040 and pay the restof the tax without penalty. See March 1,later, if you do not pay two-thirds of yourtax by this date.

If less than two-thirds of your grossincome is from fishing, you generally mustmake quarterly estimated tax payments.See Due Dates for Nonqualified Fisher-men, later.

January 31

Fishing boat operators. Fishing boat oper-ators must give a 1999 Form 1099MISC,Miscellaneous Income, to certain crewmembers who were self-employed.

February 28

Fishing boat operators. Use Form 1096,Annual Summary and Transmittal of U.S.Information Returns, to send Copy A ofForms 1099MISC to IRS.

March 1

Fishermen. If at least two-thirds of yourgross income for either 1998 or 1999 wasfrom fishing, you can file your 1999 Form

1040 by March 1 and pay your tax in fullwithout penalty.

April 17

Fishermen. If you have not filed your Form1040, you should file it by April 17 and payyour tax in full. If you need more time tofile, you can request an extension of timeto file with Form 4868, Application for Au-tomatic Extension of Time To File U.S.Individual Income Tax Return.

More information. For more information onimportant dates, see Due Dates for Qual-ified Fishermen and Due Dates for Non-qualified Fishermen, later.

Useful ItemsYou may want to see:

Publication

15 Circular E, Employer's Tax Guide

15A Employer's Supplemental TaxGuide

334 Tax Guide for Small Business

378 Fuel Tax Credits and Refunds

463 Travel, Entertainment, Gift, andCar Expenses

505 Tax Withholding and EstimatedTax

533 Self-Employment Tax

535 Business Expenses

583 Starting a Business and KeepingRecords

946 How To Depreciate Property

Form (and Instructions)

Schedule C (Form 1040) Profit or LossFrom Business

Schedule CEZ (Form 1040) Net ProfitFrom Business

1040ES Estimated Tax for Individuals

1099MISC Miscellaneous Income

2210F Underpayment of Estimated Taxby Farmers and Fishermen

4136 Credit for Federal Tax Paid onFuels

8849 Claim for Refund of Excise Taxes

See How To Get More Information nearthe end of this publication for informationabout getting publications and forms.

What Is Gross IncomeFrom Fishing?Gross income from fishing includes amountsyou receive from catching, taking, harvesting,cultivating, or farming any of the followingaquatic resources.

Fish

Shellfish (such as clams and mussels)

Crustacea (such as lobsters, crabs, andshrimp)

Sponge

Seaweed

Other aquatic forms of animal or vegeta-ble life

You will generally figure your gross in-come from fishing in Part I of Schedule C(Form 1040). For more information onSchedule C, see Schedule C (Form 1040)under What Forms Must You File?, later.

Wages. Wages you receive as an employeein a fishing business are not gross incomefrom fishing. This includes wages you receivefrom a corporation even if you are a share-holder in the corporation.

If you work on a boat with an operatingcrew that is normally made up of fewer than10 individuals, you may be considered a

self-employed individual instead of an em-ployee. As a self-employed individual youmay receive gross income from fishing. Formore information, see Certain fishermenconsidered self-employed under Form1099MISC, later.

Patronage dividends. Patronage dividendsyou receive from your fishing business activ-ities are generally included in your gross in-come from fishing. However, do not includein gross income amounts you receive from a

cooperative association that are used to ad- just the basis of items you have purchasedat the cooperative.

Fuel tax credits and refunds. You mayhave to include fuel tax credits and refundsyou receive from your fishing business activ-ities in your gross income from fishing. Formore information, see Including the Credit orRefund in Incomeunder How To Claim FuelTax Credits and Refunds, later.

Which FishingExpenses CanYou Deduct?You can generally deduct your ordinary andnecessary fishing expenses as business ex-penses in Part II of the Schedule C (Form1040). An ordinary fishing expense is onethat is common and accepted in a fishingtrade or business. A necessary fishing ex-pense is one that is helpful and appropriatefor a fishing trade or business. An expensedoes not have to be indispensable to beconsidered necessary.

The following discussions give a briefoverview of three types of business expensesthat are of special interest to fishermen: de-preciation, travel, and transportation ex-penses. Business expenses that most small

businesses share are listed in Part II ofSchedule C. For more information on busi-ness expenses, see Publication 535. Youmay also find general information on specificbusiness expenses in Publication 334.

DepreciationIf property you acquire to use in your businesshas a useful life substantially beyond the yearit is placed in service, you generally cannotdeduct the entire cost as a business expensein the year you acquire it. You must spreadthe cost over more than one tax year anddeduct part of it each year. This method ofdeducting the cost of business property iscalled depreciation.

Publication 946 contains the rules you willuse to depreciate certain property. The fol-lowing list highlights items that are of specialinterest to fishermen.

Fishing boats. You can generally de-preciate a fishing boat in your fishingtrade or business as 7-year property us-ing Modified Accelerated Cost RecoverySystem (MACRS) depreciation.

Nets, pots, and traps. You can gen-erally depreciate a net, pot, or trap in yourfishing trade or business as 7-year prop-erty using MACRS depreciation. How-ever, if based on your own experience,you determine that any of these items

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will not be used for more than one yearin your business, you may be able todeduct the cost as a business expense.

Repairs and replacements. If a repairor replacement increases the value ofyour property, makes it more useful, orlengthens its life, you must depreciate itscost. If the repair or replacement doesnot increase the value of your property,make it more useful, or lengthen its life,deduct the cost as a business expense.

Travel and TransportationThis section briefly explains some of the rulesfor deducting travel and transportation ex-penses. For more information about traveland transportation expenses, see Publication463. That publication also explains whatrecords to keep.

Local transportation expenses. Localtransportation expenses include the ordinaryand necessary costs of getting from oneworkplace to another in the course of yourbusiness when you are traveling within yourtax home.

Tax home. Generally, your tax home isyour regular place of business, regardless of

where you maintain your family home. It in-cludes the entire city or general area inwhich your fishing business is located.

CAUTION

!Commuting expenses. You cannotdeduct the costs of traveling betweenyour home and your main or regular

place of business. These costs are personalcommuting expenses. You cannot deductcommuting expenses no matter how far yourhome is from your regular place of business.You cannot deduct commuting expenseseven if you work during the trip.

Travel expenses. For tax purposes, travel

expenses are the ordinary and necessarycosts of traveling away from home for yourbusiness, profession, or job. You are travelingaway from home if you meet the followingrequirements.

1) Your duties require you to be away fromthe general area of your tax home (de-fined earlier) substantially longer than anordinary day's work.

2) You need to get sleep or rest to meet thedemands of your work while away fromhome.

Meals limited deduction. You can gener-ally deduct only 50% of the costs of the fol-lowing meals that you provide.

Meals to either employees or self-employed individuals who provide ser-vices to your fishing trade or business.

Your own meals while you are travelingaway from home for business.

Exceptions to meal deduction limit.You can deduct the full costs of the followingmeals.

Meals that qualify as a de minimis fringebenefit as discussed in chapter 4 ofPublication 535. This generally includesmeals you provide to employees at yourplace of business if more than half of

these employees are provided the mealsfor your convenience.

Meals whose value you include in anemployee's wages. For more information,see chapter 2 in Publication 535.

Meals whose value you include in the in-come of a self-employed individual whoperforms services for your business. Youmust generally include the value of mealsyou furnish to that individual in his or herincome. To deduct 100% of these meals,you must report their value on any Form1099MISC you must file to report yourpayments for services.

Meals you are required by federal law tofurnish to crew members of certain com-mercial vessels (or would be required toprovide if the vessels were operated atsea).

For more information, see chapter 2 in Publi-cation 535.

CAUTION

!The federal law that generally re-quires meals to be furnished to crewmembers of commercial vessels does

not apply to fishing vessels.

What Forms MustYou File?If you have a fishing trade or business, youmay need to file the following forms.

Schedule C (Form 1040)Use Schedule C (Form 1040) to figure yournet profit or loss from a fishing business youoperate or a trade you practice as a self-employed individual. To figure your net profitor loss, subtract your deductible fishing ex-penses from your gross income from fishing.

File Schedule C with your Form 1040.

TIPYou may be able to use ScheduleCEZ (Form 1040) if you made aprofit and had fishing expenses of

$2,500 or less. For more information, see theSchedule CEZ instructions.

Who is self-employed? You are self-employed if you own an unincorporated busi-ness or practice a trade by yourself. You donot have to carry on regular full-time businessactivities to be self-employed. Your trade orbusiness may consist of part-time work, in-cluding work you do on the side in addition toyour regular job.

If you work on a fishing boat with an op-erating crew that is normally made up of fewerthan 10 individuals, you may be consideredself-employed. For more information, seeWhich fishermen are considered self-employed?under Form 1099MISC, later.

What is a trade or business? A tradeor business is generally an activity that is yourlivelihood or that you do in good faith to makea profit. The facts and circumstances of eachcase determine whether or not an activity isa trade or business. Regularity of activitiesand transactions and the production of in-come are important elements. You do notneed to actually make a profit to be in a tradeor business as long as you have a profit mo-tive. You do need, however, to make ongoing

efforts to further the interests of your busi-ness.

Husband and wife partners. You and yourspouse may operate a fishing business as apartnership. If you and your spouse join to-gether in the conduct of a business and sharein the profits and losses, you have created apartnership. You and your spouse must reportthe business income on a partnership return,Form 1065. For more information, see Publi-cation 541, Partnerships.

However, if your spouse is not your part-ner, but your employee, you must pay em-ployment taxes for him or her. For more in-formation, see Employment Tax Forms, later.

CAUTION

!Not-for-profit fishing. You must fishto make a profit for you to report yourfishing income and expenses on

Schedule C. You do not need to actuallymake a profit as long as you are making agood faith effort. If you are not fishing forprofit, report your fishing income and ex-penses as explained under Not-for-ProfitActivities in chapter 1 of Publication 535.

Schedule SE (Form 1040)Use Schedule SE (Form 1040) to report andfigure your self-employment tax (SE tax).Most fishermen can use Short Schedule SE(Section A) to figure their SE tax. You mustfile Schedule SE with your Form 1040 if youwere self-employed and your net earningsfrom self-employment were $400 or more.

TIPEven if you do not have to fileSchedule SE, it may be to your benefitto file it and use an optional method

in Part II of Long Schedule SE (Section B).For more information, seeOptional methods,later.

Self-employment tax. The SE tax is a socialsecurity and Medicare tax for individuals who

work for themselves. It is similar to the socialsecurity and Medicare taxes withheld from thepay of wage earners.

Social security coverage. Your paymentsof SE tax contribute to your coverage underthe social security system. Social securitycoverage provides you with retirement bene-fits, disability benefits, survivor benefits, andhospital insurance (Medicare) benefits. Socialsecurity benefits are available to self-employed persons just as they are to wageearners.

You must be insured under the social se-curity system before you begin receiving so-cial security benefits. You are insured if youhave the required number of credits (alsocalled quarters of coverage).

Credits. For 1999, you receive one credit (upto a maximum of four credits) for each $740($780 for 2000) of income subject to socialsecurity. The maximum number of credits youcan receive for the year is four. Therefore, for1999, if you had income (self-employmentincome and wages) of $2,960 that was sub-

ject to social security taxes, you received fourcredits ($740 4).

For an explanation of the number ofcredits you must have to be insured and thebenefits available to you and your family un-der the social security program, consult yournearest Social Security Administration (SSA)office.

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Table 1. Employment Tax Treatment of Fishing and Related Activities

Activity Income Tax WithholdingSocial Security and

Medicare TaxesFederal Unemployment

Tax (FUTA)

a. Catching salmon or halibut.

b. Catching other fish, sponges,etc.

c. Individual consideredself-employed (see Certainfishermen consideredself-employed, below).

d. Native Americans exercisingfishing rights.

Withhold unless c. applies.

Exempt

Taxable unless c. applies.

Taxable if vessel is morethan 10 net tons and c. doesnot apply.

Exempt Exempt

Taxable unless c. applies.

Withhold unless c. applies. Taxable unless c. applies.

Exempt Exempt Exempt

Optional methods. You can generally useone of the optional methods in Part II of LongSchedule SE (Section B) when you have aloss or a small amount of net income fromself-employment and any of the following ap-ply.

You want to receive credit for social se-curity benefit coverage.

You incurred child or dependent careexpenses for which you could claim acredit (this method will increase yourearned income, which could increaseyour credit).

You are entitled to the earned incomecredit (this method will increase yourearned income, which could increaseyour earned income credit).

Estimated tax. You may have to pay esti-mated tax. This depends on how much in-come and SE taxes you expect for the yearand how much of your income will be subjectto withholding tax. The SE tax is treated, andcollected, as part of the income tax. For moreinformation, see When Do Fishermen Pay

Estimated Tax and File Tax Returns?, later.

Reporting self-employment tax. Figureyour SE tax on Schedule SE. Then report thetax on line 50 of Form 1040 and attachSchedule SE to Form 1040. If you file a jointreturn and you both have SE income, eachof you must complete a separate ScheduleSE. However, you are both liable for the totalSE tax due on the return.

Self-employment tax deduction. Youcan deduct one-half of your SE tax as abusiness expense in figuring your adjustedgross income. This deduction only affectsyour income tax. It does not affect either yournet earnings from self-employment or yourSE tax.

To deduct the tax, enter on Form 1040,line 27, the amount shown on the Deductionfor one-half of self-employment tax line of theSchedule SE.

More information. For more information onself-employment tax, see Publication 533.

Form 1099MISCFile Form 1099MISC for each person towhom you have paid the following.

A share of your catch (or a share of theproceeds from the sale of your catch) toan individual who is not your employee.

At least $600 in rents, services, and otherincome payments in your fishing trade orbusiness to an individual who is not youremployee (self-employed).

Trade or business of purchasing fish forresale. If you are in the trade or business ofpurchasing fish for resale and pay $600 ormore to a commercial fisherman for fish orother forms of aquatic life, file Form

1099MISC. For more information, includinga discussion of the recordkeeping require-ments that apply to resale buyers, see theinstructions for Form 1099MISC.

Which fishermen are considered self-employed? Certain fishermen who work ona fishing boat are considered to be self-employed for purposes of employment andself-employment taxes. A fisherman is con-sidered self-employed if he meets all of thefollowing conditions.

1) He receives a share of the catch or ashare of the proceeds from the sale ofthe catch.

2) His share depends on the amount of thecatch.

3) He receives his share from a boat (orfrom each boat in the case of a fishingoperation involving more than one boat)with an operating crew that is normallymade up of fewer than 10 individuals.This requirement is considered to be metif the average number of crew memberson trips the boat made during the last 4calendar quarters was less than 10.

4) He does not get any money for his work(other than his share of the catch or ofthe proceeds from the sale of the catch),unless the pay meets all of the followingconditions.

a) He does not get more than $100per trip.

b) He is paid only if there is someminimum catch.

c) He is paid solely for additional du-ties (such as mate, engineer, orcook) for which additional cashpayments are traditional in the fish-ing industry.

Example 1. You hire a captain, a mate,an engineer, a cook, and five other crewmembers to work on your fishing boat. Theproceeds from the sale of the catch offsetboat operating expenses such as bait, ice,and fuel. You divide 60% of the balance be-

tween the captain, the mate, and the crewmembers. You divide the other 40% betweenyourself and the captain. The mate, the engi-neer, and the cook also each receive an extra$100 for each trip that brings back a certainminimum catch. The crew members do notreceive any additional pay between voyages,but they must do certain work, such as re-pairing nets, splicing cable, and transportingthe catch.

For purposes of employment and self-employment taxes, each crew member (in-cluding the captain, mate, engineer, andcook) is considered self-employed. You mustfile Form 1099MISC to report amounts youpay to them.

Example 2. The facts are the same as inExample 1 except that all the crew membersbut the captain receive an extra $100 for eachtrip that brings back a certain minimum catch.

For purposes of employment and self-employment taxes, the captain, the mate, theengineer, and the cook are self-employed in-dividuals. The other five crew members whoreceive this extra payment in addition to theproceeds from the sale of the catch are em-ployees. They are employees because the$100 payment is not paid solely for additionalduties for which additional cash pay is tradi-tional in the fishing industry.

Employment Tax FormsIf you have employees, you will need to fileforms to report employment taxes. For moreinformation, see Publication 15. That publi-cation explains your tax responsibilities as anemployer.

To help you determine whether the peopleworking for you are your employees, seePublication 15A. That publication has infor-mation to help you determine whether an in-dividual is an independent contractor or anemployee.

CAUTION

!If you incorrectly classify an employeeas an independent contractor, youcan be held liable for employment

taxes for that worker plus a penalty.

An independent contractor is someonewho is self-employed. You do not generallyhave to withhold or pay any taxes on pay-ments to an independent contractor.

Individuals you employ to work on a boatthat normally has an operating crew of fewerthan 10 individuals may be considered self-employed. For more information, see Whichfishermen are considered self-employed?under Form 1099MISC, earlier.

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Table 1. See Table 1 for information on thespecial employment tax treatment of fishingand related activities.

When Do FishermenPay Estimated Taxand File Tax Returns?When you must pay estimated tax and file

your tax return depends on whether you re-ceive at least two-thirds of your total grossincome from fishing in the current or prioryear. Gross income is discussed next.

What Is Gross Income?Gross income is all income you receive in theform of money, property, and services that isnot exempt from tax. Gross income is notthe same as total incomeshown on line 22of Form 1040. On a joint return, you must addyour spouse's gross income to your gross in-come. To decide whether two-thirds of yourgross income for 1999 was from fishing, useas your gross income the total amount of thefollowing income (not loss) items from your

tax return.

Wages, salaries, tips, etc.

Taxable interest.

Ordinary dividends.

Taxable refunds of state and local taxes.

Alimony received.

Gross business income from ScheduleC (Form 1040), line 7 (includes grossfishing income).

Gross receipts from Schedule CEZ(Form 1040), line 1 (includes gross fish-ing income).

Capital gains from Schedule D (Form1040). Losses cannot be netted againstgains.

Gains on sales of business property fromForm 4797.

Taxable IRA distributions, pensions, an-nuities, and social security benefits.

Gross rental income from Schedule E(Form 1040), line 3.

Gross royalty income from Schedule E(Form 1040), line 4.

Your taxable net income from an estateor trust, Schedule E (Form 1040), line 36.

Income from a REMIC reported onSchedule E (Form 1040), line 38.

Gross farm rental income from Form4835, line 7 (includes gross fishing in-come from Schedule E (Form 1040)).

Farm income from Schedule F (Form1040), line 11.

Your distributive share of gross incomefrom a partnership or limited liabilitycompany treated as a partnership fromSchedule K1 (Form 1065).

Your pro rata share of gross income froman S corporation from Schedule K1(Form 1120S).

Unemployment compensation as re-ported on Form 1099G.

Table 2. Estimated Tax for Fishermen

Is at least 6623% ofall gross income incurrent or prior yearfrom fishing?

Do you expect yourwithholding and

credits to be at least6623% of your tax?

Will you file and payin full by March 1?

Follow generalestimated tax rules.

No estimated taxrequirement.

Estimated taxpayment (up to6623% of liability)due January 15*(return due April 15*).

Start Here:

Yes No

NoYes

No

Yes

*If the due date for making an estimated tax payment falls on a Saturday, Sunday, or legal holiday, thepayment will be on time if you make it on the next day that is not a Saturday, Sunday, or legal holiday.

Other income reported on Form 1040,line 21, not reported with any of the items

listed above.

Percentage From FishingTotal your gross income from all sources aslisted earlier. Then total your gross incomefrom fishing. Divide your fishing gross incomeby your total gross income to determine thepercentage of gross income from fishing.

Example 1. James Smith had the follow-ing total gross income and fishing gross in-come in 1999.

Schedule D showed gain from the sale ofa rental house carried over from Form 4797($5,000) in addition to a loss from the sale ofcorporate stock ($2,000). However, that lossis not netted against the gain to figure Mr.Smith's total gross income or his gross fishingincome. His gross fishing income is 60% ofhis total gross income ($75,000 $125,000= .60). Therefore, based on his 1999 income,he does not qualify to use the special esti-mated tax payment and return due dates for1999. However, he does qualify if at leasttwo-thirds of his 1998 gross income was fromfishing.

Example 2. Assume the same facts asin Example 1 except that Mr. Smith receivedonly $23,000, instead of $43,000, taxable in-terest. This made his total gross income$105,000. He qualifies to use the special es-timated tax payment and return due datessince at least two-thirds of his gross incomeis from fishing [$75,000 $105,000 = .714(71.4%)].

Due Dates for

Qualified FishermenIf at least two-thirds of your gross income for1998 or 1999 was from fishing, you are aqualified fisherman and have only one pay-ment due date for 1999 estimatedtaxJanuary 18, 2000.

For your 1999 tax, you may choose eitherof the following options.

Pay all your estimated tax (figured onForm 1040ES) by January 18, 2000,and file your Form 1040 by April 17,2000.

File your Form 1040 by March 1, 1999,and pay all the tax due. You are not re-quired to make an estimated tax pay-

ment. If you pay all the tax due, you willnot be penalized for failure to pay esti-mated tax.

TIPIf at least two-thirds of your gross in-come for 1999 or 2000 is from fishing,for your 2000 tax, you may choose

either of the following options.

Pay all your estimated tax by January 16,2001, and file your Form 1040 by April16, 2001.

File your Form 1040 by March 1, 2001,and pay all the tax due.

Required annual payment. If at least two-thirds of your gross income for 1998 or 1999

was from fishing, the required annual pay-ment due January 18, 2000, is the smallerof the following amounts.

662/3% (.6667) of your total tax for 1999.

100% of the total tax shown on your 1998return. (The return must cover all 12months.)

TIPIf at least two-thirds of your gross in-come for 1999 or 2000 is from fishing,the required annual payment due

January 16, 2001, is the smallerof the fol-lowing.

662/3% (.6667) of your total tax for 2000.

Gross Income

Total Fishing

Taxable interest ......................... $43,000Dividends ................................... 500Rental income (Sch E) .............. 1,500Fishing income (Sch C) ............ 75,000 $75,000Schedule D ................................ 5,000

Total .......................................... $125,000 $75,000

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100% of the total tax shown on your 1999return. (The return must cover all 12months.)

Fiscal year fishermen. If you qualify to usethese special rules but your tax year does notstart on January 1, you may file your returnand pay the tax by the first day of the 3rdmonth after the close of your tax year. Or youmay pay your required estimated tax within15 days after the end of your tax year. Thenfile your return and pay any balance due bythe 15th day of the 4th month after the endof your tax year.

Due Dates forNonqualified FishermenIf less than two-thirds of your gross incomefor 1998 and 1999 was from fishing, youcannot use these special estimated tax pay-ment and return due dates for your 1999 taxyear. In this case, you generally must makequarterly estimated tax payments on April 15,June 15, and September 15, 1999, and onJanuary 18, 2000. You must file your returnby April 17, 2000.

If less than two-thirds of your gross in-come for 1999 and 2000 is from fishing, youcannot use these special estimated tax pay-ment and return due dates for your 2000 taxyear. You generally must make quarterly es-timated tax payments on April 17, June 15,and September 15, 2000, and on January 16,2001. You must file your return by April 16,2001.

For more information on estimated taxes,see Publication 505.

Estimated Tax Penaltyfor 1999If you did not pay all your required estimatedtax for 1999 by January 18, 2000, and do notfile your 1999 return and pay the tax by March1, 2000, use Form 2210F, Underpaymentof Estimated Tax by Farmers and Fishermen,to determine if you owe a penalty. If you owea penalty but do not file Form 2210F withyour return and pay the penalty, you will geta notice from the IRS. You should pay thepenalty as instructed by the notice.

TIPIf you file your return by April 17 andpay the bill within 21 days (10 days ifthe bill is $100,000 or more) after the

notice date, the IRS will not charge you in-terest on the penalty.

CAUTION

!Do not ignore a penalty notice,even if you think it is in error. Oc-casionally, you may get a penalty no-

tice even though you filed your return on time,attached Form 2210F, and met the grossincome test. If you receive a penalty notice forunderpaying estimated tax that you think is inerror, write to the address on the notice andexplain why you think the notice is in error.Include a computation, similar to the one inExample 1 (underPercentage From Fishing,earlier), showing that you meet the gross in-come test.

Other Filing Informationfor 1999

Payment date on holiday or weekend. Ifthe last day for filing your return or making apayment falls on a Saturday, Sunday, or legalholiday, your return or payment will be on timeif it is filed or made on the next business day.

Automatic extension of time to file Form1040. If you do not choose to file your 1999return by March 1, 2000, the due date for yourreturn will be April 17, 2000. However, youcan get an automatic 4-month extension oftime to file your return. Your Form 1040 wouldthen be due by August 15, 2000. To get thisextension, file Form 4868, Application forAutomatic Extension of Time To File U.S. In-dividual Income Tax Return, by April 17,2000. Form 4868 does not extend the time topay the tax. For more information, see theinstructions for Form 4868.

CAUTION

!This extension does not extend theMarch 1, 2000, filing date for fisher-men who did not make an estimated

tax payment and want to avoid an estimatedtax penalty. Therefore, if you did not make

an estimated tax payment by January 18,2000, and you file your tax return after March1, 2000, you will be subject to a penalty forunderpaying your estimated tax, even if youfile Form 4868.

What Is the CapitalConstruction Fund?The Capital Construction Fund (CCF) is aspecial investment program administered by

the National Marine Fisheries Service(NMFS) and the Internal Revenue Service(IRS). This program allows fishermen to deferincome tax on certain income they invest ina CCF account and later use to acquire, build,or rebuild fishing vessels.

The following sections discuss CCF ac-counts and the types of bookkeeping ac-counts that you must maintain when you in-vest in a CCF account. They also discuss theincome tax treatment of CCF deposits,earnings, and withdrawals.

CCF AccountsThis section explains who can open a CCFaccount and how to use the account to defer

income tax.

Opening a CCF account. If you are a U.S.citizen and you own or lease an eligible ves-sel (defined later), you can open a CCF ac-count. Before you open your CCF account,you must enter into an agreement with theSecretary of Commerce through the NMFS.This agreement will establish the following.

Agreement vessels. These vessels willbe the basis for the deferral of incometax.

Planned use of withdrawals. The useof the money in your CCF account to

acquire, build, or rebuild a vessel is aplanned use of withdrawals.

CCF depository. This is where you willset up your CCF account.

You can request an application kit orget additional information from NMFSat the following address.

CCF ProgramFinancial Services Division (F/SF2)NOAA/National Marine Fisheries Service

1315 East-West Highway, 13th FloorSilver Spring, MD 209103282

You can call NMFS to request an ap-plication kit or get additional informa-tion at (301) 7132393. The fax

number is (301) 7131306.

Eligible vessel weighing 5 tons ormore. An eligible vessel is one that meetsall the following requirements.

The vessel was built or rebuilt in theUnited States.

The vessel is documented under the laws

of the United States. The vessel is used commercially in the

fisheries of the United States.

The vessel is operated in the foreign ordomestic commerce of the United States.

Eligible vessel weighing less than 5tons. A small vessel, one weighing at least2 net tons but less than 5 net tons, must meetall of the following requirements to be con-sidered an eligible vessel.

The vessel was built or rebuilt in theUnited States.

The vessel is owned by a U.S. citizen.

The vessel has a home port in the UnitedStates.

The vessel is used commercially in thefisheries of the United States.

Deferring tax on CCF deposits andearnings. You can use a CCF account todefer income tax by taking the followingactions.

Making deposits to your CCF account.

Excluding from income tax deposits thatare assigned to certain accounts (dis-cussed later).

Making withdrawals from your CCF ac-

count when you acquire, build, or rebuildfishing vessels.

Reducing the tax basis of fishing vesselsyou acquire, build, or rebuild torecapture the amounts that were previ-ously excluded from tax.

TIPReport deposit or withdrawal ac-tivity. After you have opened yourCCF account, you must report annual

deposit and withdrawal activity to the NMFSon NOAA Form 3482. This form is due within30 days after you file your federal income taxreturn. For more information, contact theNMFS at the address or phone number givenearlier.

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Types of Accounts YouMust Maintain Within a CCFThis section discusses the three types ofbookkeeping accounts you must maintainwhen you invest in a CCF account. Your totalCCF deposits and earnings for any given yearare limited to the amount that can be attri-buted for that year to these three accounts.

Capital account. The capital account con-sists of amounts attributable to the following

items.

1) Allowable depreciation deductions foragreement vessels.

2) Any nontaxable return of capital from ei-ther (a) or (b), below.

a) The sale or other disposition ofagreement vessels.

b) Insurance or indemnity proceedsattributable to agreement vessels.

3) Any tax-exempt interest earned on stateor local bonds in your CCF account.

Capital gain account. The capital gain ac-count consists of amounts attributable to the

following items reduced by any capital lossesfrom assets held in your CCF account formore than 6 months.

1) Any capital gain from either of the fol-lowing sources.

a) The sale or other disposition ofagreement vessels held for morethan 6 months.

b) Insurance or indemnity proceedsattributable to agreement vesselsheld for more than 6 months.

2) Any capital gain from assets held in yourCCF account for more than 6 months.

Ordinary income account. The ordinary in-come account consists of amounts attribut-able to the following items.

1) Any earnings (without regard to thecarryback of any net operating or netcapital loss) from the operation ofagreement vessels in the fisheries of theUnited States or in the foreign or do-mestic commerce of the United States.

2) Any capital gain from the followingsources reduced by any capital lossesfrom assets held in your CCF account for6 months or less.

a) The sale or other disposition ofagreement vessels held for 6months or less.

b) Insurance or indemnity proceedsattributable to agreement vesselsheld for 6 months or less.

c) Any capital gain from assets held inyour CCF account for 6 months orless.

3) Any ordinary income (such as depreci-ation recapture) from either of the fol-lowing sources.

a) The sale or other disposition ofagreement vessels.

b) Insurance or indemnity proceedsattributable to agreement vessels.

4) Any interest (not including tax-exemptinterest from state and local bonds),dividends, or other ordinary incomeearned on the assets in your CCF ac-count.

Tax Treatment of CCFDepositsThis section explains the tax treatment of in-come that you use as the basis for CCF de-posits.

Capital gains. Do not report on your incometax return any transaction that produces acapital gain if you deposit the net proceedsinto your CCF account. This treatment appliesto either of the following transactions.

The sale or other disposition of anagreement vessel.

The receipt of insurance or indemnityproceeds attributable to an agreementvessel.

Depreciation recapture. Do not report onyour income tax return any transaction thatproduces depreciation recapture if you de-posit the net proceeds into your CCF account.

This treatment applies to either of the follow-ing transactions.



Earnings from operations. Report earningsfrom the operation of agreement vessels onyour Schedule C or CEZ (Form 1040) evenif you deposit part of these earnings into yourCCF account. Subtract any part of theearnings that you deposited into your CCFaccount from the amount that you wouldnormally enter as taxable income on line 39(Form 1040). In the margin to the left of line39, write CCF and the amount of these de-posits. Do not deduct these CCF deposits onSchedule C or CEZ (Form 1040).

CAUTION

!If you deposit earnings from oper-ations into your CCF account and youmust complete other forms such as

Form 6251 or the worksheets for ScheduleD, you will need to make an extra computa-tion. When the other form instructs you to usean amount from line 37, Form 1040, do notuse that amount. Instead, add lines 38 and39, Form 1040, and use that amount.

Self-employment tax. You must use yournet profit or loss from your fishing business

to figure your self-employment tax. Do notreduce your net profit or loss by any earningsfrom operations you deposit to your CCF ac-count.

TIPPartnerships and S corporations.The deduction for partnershipearnings from operations that are de-

posited into a CCF account is separatelystated on Schedule K (Form 1065), line 11,and allocated to the partners on ScheduleK1 (Form 1065), line 11.

The deduction for S corporation earningsthat are deposited is separately stated onSchedule K (Form 1120S), line 10, and allo-cated to the shareholders on Schedule K1(Form 1120S), line 10.

Nontaxable return of capital. Do not reporton your income tax return any transaction thatproduces a nontaxable return of capital if youdeposit the net proceeds into your CCF ac-count. This treatment applies to either of thefollowing transactions.



Tax Treatment of CCFEarningsThis section explains the tax treatment of theearnings from the assets in your CCF accountwhen the earnings are redeposited or left inyour account. However, if you choose towithdraw the earnings in the year earned, youmust generally pay income tax on them.

Capital gains. Do not report on your incometax return any capital gains from the sale ofcapital assets held in your CCF account. Thisincludes capital gains distributions reportedto you on Form 1099DIV or a substitutestatement. However, you should attach a

statement to your tax return to list the payersand the amounts and identify the capital gainsas CCF account earnings.

Interest and dividends. Do not report onyour income tax return any ordinary income(such as interest and dividends) you earn onthe assets in your CCF account. However,you should attach a statement to your returnto list the payers and the amounts and toidentify them as CCF account earnings.

If you are required to file Schedule B(Form 1040), you can add these earnings tothe list of payers and amounts on line 1 andidentify them as CCF earnings. Then sub-tract the same amounts from the list andidentify them as CCF deposits.

Tax-exempt interest. Do not report onyour federal income tax return tax-exempt in-terest from state or local bonds you held inyour CCF account. You are not required toreport this interest on line 8b of Form 1040.

Tax Treatment of CCFWithdrawalsThis section discusses the tax treatment ofamounts you withdraw from your CCF ac-count during the year.

Qualified WithdrawalsA qualified withdrawal from a CCF account isone that is approved by NMFS for either ofthe following uses.

Acquiring, building, or rebuilding qualifiedfishing vessels.

Making principal payments on the mort-gage of a qualified fishing vessel.

How to determine the source of qualifiedwithdrawals. When you make a qualifiedwithdrawal, the amount you withdraw istreated as being made in the following orderfrom your accounts.

First, from the capital account.

Second, from the capital gain account.

Third, from the ordinary income account.

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Excluding qualified withdrawals from tax.Do not report on your income tax return anyqualified withdrawals from your CCF account.

Reducing the tax basis of acquired, built,or rebuilt vessels. You must reduce thedepreciable basis of fishing vessels you ac-quire, build, or rebuild by a withdrawal that istreated as made from either the capital gainaccount or the ordinary income account. Formore information, see How to determine thesource of qualified withdrawals, and Defer-

ring tax on CCF deposits and earnings, ear-lier.

Nonqualified WithdrawalsA nonqualified withdrawal from a CCF ac-count is any withdrawal that is not a qualifiedwithdrawal. Qualified withdrawals are definedunder Qualified Withdrawals, earlier.

Examples. Examples of nonqualified with-drawals include the following amounts fromthe ordinary income account or the capitalgain account.

Amounts remaining in a CCF account

upon termination of your agreement withNMFS.

Amounts you withdraw and use to makeprincipal payments on the mortgage of avessel with a basis that has already beenreduced to zero.

Amounts determined by IRS to causeyour CCF account balance to exceed theamount that is appropriate to meet yourplanned use of withdrawals. (You willgenerally be given 3 years to revise yourplans to cover this excess balance.)

Amounts you leave in your account formore than 25 years. (There are per-centages beginning with year 26 and laterthat determine the amount of the non-

qualified withdrawal.)

How to determine the source of nonqual-ified withdrawals. When you make a non-qualified withdrawal from your CCF account,the amount you withdraw is treated as beingmade in the following order from your ac-counts.

First, from the ordinary income account.

Second, from the capital gain account.

Third, from the capital account.

Paying tax on nonqualified withdrawals.

Nonqualified withdrawals that are treated asmade from either the ordinary income accountor the capital gain account are taxed sepa-rately from your other gross income at thehighest marginal ordinary income or capitalgain tax rate.

TIPPartnerships and S corporations.Taxable nonqualified partnershipwithdrawals are separately stated on

Schedule K (Form 1065), line 24, and allo-cated to the partners on Schedule K1 (Form1065), line 25. Taxable nonqualified with-drawals by an S corporation are separatelystated on Schedule K (Form 1120S), line 21,and allocated to the shareholders on Sched-ule K1 (Form 1120S), line 23.

Interest. You must pay interest on the addi-tional tax due to a nonqualified withdrawal.The interest period begins on the last date forpaying tax for the tax year for which you de-posited the amount that you withdrew fromyour CCF account. The period ends on thelast date for paying tax for the tax year inwhich you make the nonqualified withdrawal.The interest rate on the nonqualified with-drawal is simple interest. The rate is subjectto change annually and published in theFederal Register.

The current interest rate can also beobtained by calling NMFS at (301)7132393.

Interest deduction. You can deduct theinterest you pay on a nonqualified withdrawalas a trade or business expense.

Reporting the additional tax and interest.Attach a statement to your income tax returnto show your computation of both the tax andinterest on a nonqualified withdrawal. Includethe tax and interest on the nonqualified with-drawal on line 56 of Form 1040. To the leftof line 56, write the amount of tax and interestand CCF.

Tax benefit rule. If any portion of your non-qualified withdrawal is properly attributable tocontributions (not earnings on the contribu-tions) you made to the fund that did not re-duce your tax liability for any tax year prior tothe withdrawal year, the following tax treat-ment applies.

The portion that did not reduce your taxliability for any year prior to the with-drawal year is not taxed.

An amount equal to that portion is al-lowed as a net operating loss deduction.

More InformationThis section briefly discussed the CCF pro-gram. For more detailed information, see thefollowing legislative authorities.

Section 607 of the Merchant Marine Actof 1936, as amended (46 U.S.C. 1177).

Chapter 2, Part 259 of title 50 of the Codeof Federal Regulations (50 C.F.R., Part259).

Subchapter A, Part 3 of title 26 of theCode of Federal Regulations (26 C.F.R.,Part 3).

Section 7518 of the Internal RevenueCode (IRC 7518).

The application kit you can obtain from NMFSat the address or phone number given earliermay contain copies of some of these sourcesof additional information.

How To Claim FuelTax Credits andRefundsYou may be eligible to claim a credit on yourincome tax return for federal excise tax im-posed on certain fuels used for a nontaxableuse. You may also be eligible to claim a

quarterly refund of the fuel taxes during theyear, instead of waiting to claim a credit onyour income tax return.

Instead of paying the fuel tax and filing fora credit or refund, you may be able to buycertain fuel tax free. For more information,see How To Buy Fuel Tax Free, later.

Nontaxable UsesThis section discusses the nontaxable usesthat are of particular interest to fishermen. For

information about credits and refunds for fuelsused for nontaxable uses not discussed inthis section, see Publication 378.

Gasoline used in commercial fishingboats. You may be eligible to claim a creditor refund of excise tax on gasoline used in aboat engaged in commercial fishing.

Boats engaged in commercial fishing in-clude only watercraft used in taking, catching,processing, or transporting fish, shellfish, orother aquatic life for commercial purposes,such as selling or processing the catch, on aspecific trip basis. They include boats used inboth fresh and salt water fishing. They do notinclude boats used for both sport fishing andcommercial fishing on the same trip.

CAUTION

!Fuel used in aircraft to locate fish isnot fuel used in commercial fishing.

Off-highway business use. You may beeligible to claim a credit or refund of excisetax on fuel if you use the fuel in an off-highway business use.

What is off-highway business use?Off-highway business use is any use of fuelin a trade or business or in any income-producing activity. It does not include use ina highway vehicle registered or required tobe registered for use on public highways.Off-highway business use includes fuels usedin the following ways.

In stationary engines to operate genera-tors, compressors, and similar equip-ment.

For cleaning purposes.

CAUTION

!Do not consider any use in a boat asan off-highway business use.

How To Claima Credit or RefundThis section tells you when and how to claima credit or refund of excise taxes on fuels youuse for a nontaxable use.

Credit or refund. A credit is an amount thatreduces the tax on your income tax returnwhen you file it at the end of the year. If youmeet certain requirements (discussed later),you can claim a refund during the year in-stead of waiting until you file your tax return.

Credit only. The following taxes can onlybe claimed as a credit.

Tax on fuels used for nontaxable uses ifthe total for the tax year is less than $750.

Tax on fuel that was not included in anyclaim for refund previously filed for the taxyear.

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Claiming a CreditYou make a claim for credit on Form 4136and attach it to your income tax return. Donot claim a credit for any amount for whichyou have filed a refund claim.

When to claim a credit. You can claim a fueltax credit on your income tax return for theyear you used the fuels. Also, you may beable to make a fuel tax claim on an amendedreturn for that year. Generally, you must filean amended return by the later of 3 years

from the date you filed your original incometax return or within 2 years from the time youpaid the income tax. A return filed early isconsidered to have been filed on the duedate.

CAUTION

!Once you have filed a Form 4136, youcannot file an amended return toshow an increase in the number of

gallons of fuel reported on a line. See thefollowing discussion for when you can file aclaim on an amended return.

Fuel tax claim on amended return. Youcan file an amended return to claim a fuel taxcredit if any of the following apply.

You did not claim any credit for fuel taxeson Form 4136 for the tax year.

Your credit is for gasohol blending, asdiscussed in Publication 378.

Your credit is for a claim group, explainednext, for which you did not previously filea claim on Form 4136 for the tax year.

Claims on Form 4136 (other than for gas-ohol blending) are separated into seven claimgroupsbased on the type of fuel and the useof that fuel. Once you file Form 4136 with aclaim for a group, you cannot file an amendedreturn with another claim for that group.However, you can file an amended return witha claim for another group.

Claim group table. The following tableshows which claims are in each group. Thenumbers in the second column refer to theline numbers on Form 4136. The numbers inthe third column are from the Type of UseTable in the Form 4136 instructions.

For each tax year, you can make only oneclaim for each group.

Example. You file your income tax returnand claim a fuel tax credit. Your Form 4136shows an amount on line 1c for use of gaso-line in a boat engaged in commercial fishing.This is a Group IV claim. You cannot amendyour return to claim a credit for an amount online 1d for use of gasohol in a boat engagedin commercial fishing (Type of Use 4), sincethat is also a Group IV claim. However, if youused the gasohol in an off-highway businessuse, you can amend your return to claim thecredit for that fuel tax because that would bea Group II claim reported on line 1d, Type ofUse 2.

How to claim a credit. As an individual, youclaim the credit on line 63 of Form 1040.Check box b on line 63. If you would nototherwise have to file an income tax return,you must do so to get a fuel tax credit.

Claiming a RefundYou can file a claim for refund for any quarterof your tax year for which you can claim $750or more. This amount is the excise tax on allfuels used for any nontaxable use during thatquarter or any prior quarter (for which no

other claim has been filed) during the taxyear.

If you cannot claim at least $750 at theend of a quarter, you carry the amount overto the next quarter of your tax year to deter-mine if you can claim at least $750 for thatquarter. If you cannot claim at least $750 atthe end of the fourth quarter of your tax year,you must claim a credit on your income taxreturn.

Form 8849. You make a claim for a refundForm 8849. File the claim by filling outSchedule 1 (Form 8849) and attaching it toForm 8849. Send it to the address shown inthe instructions.

When to file a quarterly claim. You mustfile a quarterly claim by the last day of the firstquarter following the last quarter included inthe claim. If you do not file a timely refundclaim for the fourth quarter of your tax year,you will have to claim a credit for that amounton your income tax return, as discussed ear-lier.

Including the Creditor Refund in IncomeInclude any credit or refund of excise taxeson fuels in your gross income if you includedthe cost of the fuel as an expense deductionthat reduced your income tax liability.

If you use the cash method of accounting

and file a claim for refund, include the refundin your gross income for the tax year in whichyou receive the refund. If you claim a crediton your income tax return, include the creditin gross income for the tax year in which youfile Form 4136. If you file an amended returnand claim a credit, include the credit in grossincome for the tax year in which you receiveit.

Example. Ed Brown, a cash basis fish-erman, filed his 1998 Form 1040 on March2, 1999. On his Schedule C, Ed deducted thetotal cost of gasoline (including $110 of excisetaxes) used in his commercial fishing vessel.Then, on Form 4136, Ed claimed the $110as a credit. Ed reports the $110 as additionalincome on his 1999 Schedule C.

How To Buy Fuel Tax FreeInstead of paying the fuel tax and filing aclaim for credit or refund when the fuel is usedfor a nontaxable use, you may be eligible tobuy it tax free.

Gasoline. Your supplier may be able to sellyou gasoline at a tax-free price only for usein a boat engaged in commercial fishing.

Your supplier may be eligible to claim acredit or refund of the excise tax on the gas-oline sold to you at a tax-free price. Referyour supplier to Credits and Refunds underFuel Taxesin Publication 510 for details.

To buy gasoline at a tax-free price, giveyour supplier a signed certificate identifyingyou and stating how you will use the gasoline.You do not need to renew the certificate aslong as the information it contains continuesto be correct.

Exemption certificate. The following is anacceptable exemption certificate.DateThe undersigned (Buyer) hereby certifiesthat Buyer bought or will buy for use in a boat

engaged in commercial fishing(Check the applicable type of certificate)The (quantity) of gasoline, orALL the gasoline it buys

at a price that does not include the excise taxfrom:Name of seller:Address of seller:If the gasoline is not used as specified above,Buyer will so notify the person to whom Buyergives this certificate. Buyer has not and willnot claim a refund or credit under section6421 of the Internal Revenue Code for theexcise tax on this gasoline.Buyer understands that Buyer or any otherparty may, for fraudulent use of this certif-icate, be subject to a fine or imprisonment,together with the costs of prosecution.NameTitleTINAddressSignature

Schedule C ExampleFrank Carter is a sole proprietor who ownsand operates a fishing boat. He uses the cashmethod of accounting and files his return ona calendar year basis. He keeps his businessrecords with a single-entry bookkeeping sys-

tem, similar to the sample record system il-lustrated in Publication 583.Frank has two crew members, Bill Brown

and Joe Green, who are considered self-employed for social security, Medicare, andfederal income tax withholding purposes. Af-ter certain boat operating expenses are paid,the proceeds from the sale of the catch aredivided 76% to Frank and 12% to each crewmember.

Frank figures his net profit or loss from hisfishing business by subtracting his fishingexpenses from his gross income from fishingon Schedule C. He then reports the net profitor loss on line 12, Form 1040.

Schedule C (Form 1040)First, Frank fills in the information required atthe top of Schedule C. On line A, he entersFishing and on line B, he enters 114110, the6-digit business code for commercial fishing.He then completes items C through H.

Part IIncomeFrank figures his gross income from fishingin Part I.

Line 1. Frank had sales of $60,288 for theyear. This includes all the fish he caught andsold during the year. He enters his total saleson line 1.

Group Line No. Type of Use

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

II 1a, 1d-f, 2a 2

III 1c-f 5, 7

IV 1c-f, 2b 3, 4, 9

V 3c, 7 5, 7

VI 3a-b, 4, 5, 6 See line instructions

VII 2b 10

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Line 3. Because Frank did not have any re-turns and allowances to report on line 2, line3 is the same as line 1.

Line 5. Because Frank did not have any costof goods sold to report on line 4, line 5 is thesame as line 3.

Line 6. Frank's entry of $712 represents a$612 patronage dividend he received from hislocal cooperative and a $100 fuel tax credithe claimed on the 1998 Form 1040 he filedon March 2, 1999. The patronage dividend

was reported to him on Form 1099PATR,Taxable Distributions Received From Coop-eratives.

Line 7. Frank's gross income from fishingincludes his gross profit from line 5 and hisother income from line 6.

Part IIExpensesFrank enters his fishing expenses in Part II.

Line 10. Frank used his truck 80% for busi-ness during the year. He spent a total of $505for gas, oil, insurance, tags, repairs, and up-keep. He can deduct $404 (80% $505) online 10.

Line 13. Frank enters $6,534 depreciationfrom Form 4562 (not shown).

Line 15. Frank's $3,291 deduction is for in-surance on his business property (80% of histruck insurance is included in line 10). Thededuction is only for premiums that give himcoverage for the year.

Line 16b. Frank had borrowed money to buyhis fishing boat. The interest on this loan was$800 for the year.

Line 20b. His rent for his mooring space was$50 a month, or $600 for the year.

Line 21. He spent $3,600 for vessel repairsand $993 for gear repairs for a total cost of

$4,593.

Line 22. He spent $1,713 for galley suppliesand $4,751 for bait and ice for a total cost of$6,464.

Line 23. Frank renewed his fishing license.He enters the $35 state fee on this line.

Line 26. Frank paid his crew members totalcrew shares of $10,992 for the year. He doesnot include any amount he paid to himself orwithdrew from the business for his own use.

Line 27. Frank enters the total of his otherfishing expenses on this line. These expensesare not included on lines 826. He lists thetype and the amount of the expenses sepa-rately in Part V of page 2 (not shown) andcarries the total entered on line 48 to line 27.His only entry on this line is the $6,367 hespent on fuel for his fishing boat.

Line 28. Frank adds all his expenses listedin Part II and enters the total on this line.

Line 29. He subtracts his total expenses,$40,080 (line 28) from his gross income fromfishing, $61,000 (line 7). Frank has a tentativeprofit of $20,920.

Line 30. Frank did not use any part of hishome for business, so he does not make anentry here.

Line 31. Frank has a net profit of $20,920(line 29 minus line 30). He enters his netprofit here, on line 12 of Form 1040, and online 2, Section A of Schedule SE (Form 1040),not shown.

How To Get MoreInformationYou can order free publications and forms,ask tax questions, and get more informationfrom the IRS in several ways. By selecting themethod that is best for you, you will havequick and easy access to tax help.

Free tax services. To find out what servicesare available, get Publication 910, Guide toFree Tax Services. It contains a list of free taxpublications and an index of tax topics. It alsodescribes other free tax information services,including tax education and assistance pro-grams and a list of TeleTax topics.

Personal computer. With your per-sonal computer and modem, you canaccess the IRS on the Internet at

www.irs.gov. While visiting our web site, youcan select:

Frequently Asked Tax Questions(locatedunder Taxpayer Help & Ed) to find an-swers to questions you may have.

Forms & Pubsto download forms andpublications or search for forms andpublications by topic or keyword.

Fill-in Forms(located under Forms &Pubs) to enter information while the formis displayed and then print the completedform.

Tax Info For Youto view Internal Reve-nue Bulletins published in the last fewyears.

Tax Regs in Englishto search regulationsand the Internal Revenue Code (underUnited States Code (USC)).

Digital Dispatchand IRS Local News Net(both located under Tax Info For Busi-ness) to receive our electronic newslet-ters on hot tax issues and news.

Small Business Corner(located underTax Info For Business) to get informationon starting and operating a small busi-ness.

You can also reach us with your computer

using File Transfer Protocol at ftp.irs.gov.

TaxFax Service. Using the phoneattached to your fax machine, you canreceive forms and instructions by

calling 7033689694. Follow the directionsfrom the prompts. When you order forms,enter the catalog number for the form youneed. The items you request will be faxed toyou.

Phone. Many services are availableby phone.

Ordering forms, instructions, and publi-cations. Call 18008293676 to ordercurrent and prior year forms, instructions,and publications.

Asking tax questions. Call the IRS withyour tax questions at 18008291040.

TTY/TDD equipment. If you have accessto TTY/TDD equipment, call 18008294059 to ask tax questions or to orderforms and publications.

TeleTax topics. Call 18008294477 tolisten to pre-recorded messages coveringvarious tax topics.

Evaluating the quality of our telephoneservices. To ensure that IRS representativesgive accurate, courteous, and professionalanswers, we evaluate the quality of our tele-phone services in several ways.

A second IRS representative sometimesmonitors live telephone calls. That person

only evaluates the IRS assistor and doesnot keep a record of any taxpayer's nameor tax identification number.

We sometimes record telephone calls toevaluate IRS assistors objectively. Wehold these recordings no longer than oneweek and use them only to measure thequality of assistance.

We value our customers' opinions.Throughout this year, we will be survey-ing our customers for their opinions onour service.

Walk-in. You can walk in to manypost offices, libraries, and IRS officesto pick up certain forms, instructions,

and publications. Also, some libraries and IRSoffices have:

An extensive collection of products avail-able to print from a CD-ROM or photo-copy from reproducible proofs.

The Internal Revenue Code, regulations,Internal Revenue Bulletins, and Cumula-tive Bulletins available for research pur-poses.

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1 1 1 0 0 1 1 1 1

4 1 1 0

1 0 9 9 9 9 9 9 9

FRANK CARTER

FISHING

CAPN FRANKS215 Seagull DriveHomet own, OR 973 31

60,288

60,288

60,288712

6 1,00 0

6 0 04,5936,464

35

10 ,99 2

6,36740,080

20,920

20,920

40 4

6,534

3,291

8 0 0

1 1

OMB No. 1545-0074SCHEDULE C(Form 1040)

Profit or Loss From Business(Sole Proprietorship)

Partnerships, joint ventures, etc., must file Form 1065 or Form 1065-B.Department of the TreasuryInternal Revenue Service

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

Name of proprietor Social security number (SSN)

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

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

Accounting method:

E

F

Yes NoG

H

Did you materially participate in the operation of this business during 1999? If No, see page C-2 for limit on losses

If you started or acquired this business during 1999, 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-2 and check here 1

1

22 Returns and allowances

33 Subtract line 2 from line 1

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

5Gross profit. Subtract line 4 from line 35

6Other 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

21Repairs and maintenance21

Advertising8

22Supplies (not included in Part III)22

Bad debts from sales or

services (see page C-3)

9

23

9

Taxes and licenses23

10

Travel, meals, and entertainment:24

Car and truck expenses

(see page C-3)

10

24a

11

Travela

Commissions and fees11

12Depletion12

Meals and en-

tertainment

b

Depreciation and section 179expense deduction (not included

in Part III) (see page C-3)

13

Enter nondeduct-ible amount in-cluded on line 24b(see page C-5)

c

13

14 Employee benefit programs

(other than on line 19)

24d

14

Subtract line 24c from line 24bd

25

15

Utilities25

Insurance (other than health)15

26Wages (less employment credits)26

Interest:16

16aMortgage (paid to banks, etc.)a

Other expenses (from line 48 on

page 2)

27

16bOtherb

17

Legal and professional

services

17

18Office expense18

19Pension and profit-sharing plans19

Rent or lease (see page C-4):20

20aVehicles, machinery, and equipmenta

b Other business property 20b

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

31

31

All investment is at risk.32a

32

Some investment is not

at risk.

32b

Schedule C (Form 1040) 1999For Paperwork Reduction Act Notice, see Form 1040 instructions.

(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 on 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)

1999

Page 11


12/12

Index

AAssistance (SeeMore information)

BBusiness expenses, fishing ......... 2Business, or trade defined .......... 3

CCapital construction fund ............. 6

DDepreciation:

Fishing boats .......................... 2Nets, pots, and traps .............. 2

EEmployment tax forms ................ 4

Estimated tax ............................... 5Exemption certificate ................... 9

Expenses, fishing ........................ 2

FFishing boats, depreciation ......... 2

Fishing expenses ........................ 2Fishing, gross income ................. 2

Form:

1040ES ................................. 51099MISC ............................ 42210F ................................... 64136 ....................................... 94868 ....................................... 68849 ....................................... 9

Schedule C (Form 1040) ....... 3Schedule CEZ (Form 1040) . 3Schedule SE (Form 1040) ..... 3

Forms to file ................................ 3Free tax services ....................... 10Fuel tax credits and refunds ....... 8

GGross income from fishing .......... 2

HHelp (SeeMore information)

LLocal transportation ..................... 3

MMeals ........................................... 3More information ....................... 10

NNets, depreciation ....................... 2Not-for-profit fishing ..................... 3

PPartners, husband and wife ........ 3

Patronage dividends .................... 2Pots, depreciation ........................ 2

Publications (SeeMore information)

RRepairs and replacements .......... 3Return due date .......................... 5

SSchedule C (Form 1040) ............. 3Schedule CEZ (Form 1040) ...... 3Schedule SE (Form 1040) .......... 3

Self-employed individuals ............ 3Self-employed, certain fishermen 4

Self-employment tax .................... 3Self-employment tax deduction ... 4Social security coverage ............. 3

TTax help (SeeMore information) Tax home .................................... 3Trade or business defined .......... 3

Transportation, local .................... 3Traps, depreciation ...................... 2Travel expenses .......................... 3TTY/TDD information ................ 10

P 12

us internal revenue service: p595--1999

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