us internal revenue service: p595--1998

8/14/2019 US Internal Revenue Service: p595--1998

1/15

ContentsIntroduction ........................................ 1

Important Dates for 1999 ................... 1

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? ......... 4

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

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

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

How To Get More Information .......... 11

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

IntroductionThis publication highlights some special taxrules that may apply to individuals who havetheir own fishing trade or business. Theseindividuals include the following persons.

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

2) Certain fishermen who work for a shareof the catch.

3) Other individuals who receive gross in-come from fishing.

These individuals will generally report theirprofit or loss from fishing on Schedule C orSchedule CEZ of Form 1040. An examplewith a filled-in Schedule C shown near theend of this publication provides details on howto complete this form.

This publication does not contain all of thetax rules that may apply to your fishing tradeor business. For general information aboutthe federal tax laws that apply to individualswho file Schedule C or CEZ, see Publication334, Tax Guide for Small Business. If yourtrade or business is a partnership or corpo-ration, see Publication 541, Partnerships, orPublication 542, Corporations.

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.

Important Datesfor 1999This section highlights important due dates forfishermen for the 1999 calendar year. For

Departmentof theTreasury

InternalRevenueService

Publication 595Cat. No. 15171E

Tax Highlightsfor CommercialFishermen

For use in preparing

1998 Returns


2/15

other important dates, see Publication 509,Tax Calendars for 1999.

January 15Fishermen. If at least two-thirds of your

gross income for either 1997 or 1998 wasfrom fishing, you may want to pay at leasttwo-thirds of your 1998 tax by this date.This will allow you to wait until April 15 tofile your 1998 Form 1040 and pay the restof the tax without penalty. See March 1,later, if you do not pay two-thirds of your

tax by this date.

February 1Fishing boat operators. Fishing boat oper-

ators must give a 1998 Form 1099MISC,Miscellaneous Income, to certain crewmembers who were self-employed.

March 1Fishermen. If at least two-thirds of your

gross income for either 1997 or 1998 wasfrom fishing, you can file your 1998 Form1040 by March 1 and pay your tax in fullwithout penalty.

Fishing boat operators. Use Form 1096,Annual Summary and Transmittal of U.S.

Information Returns, to send Copy A ofForms 1099MISC to IRS.

April 15Fishermen. If you have not filed your Form

1040, you should file it by April 15 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.

Useful ItemsYou may want to see:

Publication

15 Employer's Tax Guide

15A Supplemental Employer's 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 these publications and forms.

What Is Gross Income

From Fishing?You will generally figure your gross incomefrom fishing in Part I of Schedule C (Form1040). For more information on Schedule C,see Schedule C (Form 1040) under WhatForms Must You File?, later.

Gross income from fishing includesamounts you receive from catching, taking,harvesting, cultivating, or farming any of thefollowing aquatic resources.

1) Fish.

2) Shellfish (such as clams and mussels).

3) Crustacea (such as lobsters, crabs, andshrimp).

4) Sponge.

5) Seaweed.

6) Other aquatic forms of animal or vege-table life.

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 aself-employed individual instead of an em-ployee. As a self-employed individual youmay receive gross income from fishing. Formore information, see Certain fishermen

considered 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 acooperative 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 or

Refund 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 ordinaryfishing 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 smallbusinesses 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 of more than one year, yougenerally cannot deduct the entire cost as abusiness expense in the year you acquire it.You must spread the cost over more than onetax year and deduct part of it each year. Thismethod of deducting the cost of businessproperty is called 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 you have placedin service after 1986 in your fishing tradeor business as 7-year property usingModified Accelerated Cost RecoverySystem (MACRS) depreciation.

Nets, pots, and traps. You can gen-erally depreciate a net, pot, or trap youhave placed in service after 1986 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 itemswill 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 the rules for de-ducting travel and transportation expenses.For more information about travel and trans-portation expenses, see Publication 463. Thatpublication also explains what records tokeep.

Local transportation expenses. Localtransportation expenses include the costs ofgetting from one workplace to another whenyou are traveling within your tax home.

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

Page 2


3/15

You cannot deduct commuting expenseseven if you work during the trip.

Travel expenses. For tax purposes, travelexpenses are the costs of traveling away fromhome for your business. You are travelingaway from home if you meet the following tworequirements.

1) Your duties require you to be away from

the 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. You can usually deduct the cost ofproviding meals to either employees or self-employed individuals who provide services toyour fishing trade or business. You can alsodeduct the cost of your own meals while youare traveling away from home for business.However, you can generally deduct only 50%of these costs. For some common exceptionsto this 50% limit, see Deduction limit onmeals, next.

Deduction limit on meals. You cangenerally deduct only 50% of the costs ofmeals. However, you can deduct the full costsof the following meals.

1) Meals that qualify as a de minimis fringebenefit as discussed in chapter 4 ofPublication 535. For tax years beginningafter 1997, this generally includes mealsyou provide to employees at your placeof business if more than half of theseemployees are provided the meals foryour convenience.

2) Meals whose value you include in anemployee's wages. For more informa-tion, see chapter 3 in Publication 535.

3) Meals whose value you include in theincome of a nonemployee (self-employed individual) who performs ser-vices for your business. You must gen-erally include the value of meals youfurnish to that individual in his or her in-come. To deduct 100% of these meals,you must report their value on any Form1099MISC you must file to report yourpayments for services. For more infor-mation, see Form 1099MISC, later.

4) Meals you are required by federal law tofurnish to crew members of certaincommercial vessels (or would be re-quired to provide if the vessels were op-erated at sea).

For more information, see chapter 3 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 Must YouFile?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, you will subtract your deductible fish-ing expenses from your gross income fromfishing. File Schedule C with your Form 1040.You may be able to use Schedule CEZ(Form 1040) if you made a profit and hadfishing expenses of $2,500 or less. For moreinformation, see the Schedule CEZ in-

structions.

Self-employed individuals. You are a self-employed individual if you own an unincorp-orated business or practice a trade by your-self. You do not have to carry on regularfull-time business activities to be a self-employed individual. Your trade or businessmay consist of part-time work, including workyou do on the side in addition to your regular

job.A trade or business is generally an ac-

tivity that is your livelihood or that you do ingood faith to make a profit. The facts andcircumstances of each case determinewhether or not an activity is a trade or busi-ness. Regularity of activities and transactionsand the production of income are importantelements. You do not need to actually makea profit to be in a trade or business as longas you have a profit motive. You do need,however, to make ongoing efforts to furtherthe interests of your business.

If you work on a fishing boat with an op-erating crew that is normally made up of fewerthan 10 individuals, you may be considereda self-employed individual. For more infor-mation, see Certain fishermen consideredself-employedunder Form 1099MISC, later.

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 befishing to make a profit for you to re-port your fishing income and ex-

penses on Schedule C. You do not need toactually make a profit as long as you aremaking a good faith effort. If you are notfishing for profit, report your fishing income

and expenses as explained under Not-for-Profit Activities in chapter 1 of Publication535.

Schedule SE (Form 1040)Use Schedule SE (Form 1040) to figure yourself-employment tax (SE tax). Most fishermencan use Short Schedule SE (Section A) tofigure their SE tax. You must file ScheduleSE with your Form 1040 if you were self-employed and your net earnings from self-employment were $400 or more.

TIP

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

Social security benefits. Social securitybenefits are available to self-employed per-sons just as they are to wage earners. Yourpayments of SE tax contribute to your cover-age under the social security system. Socialsecurity coverage provides you with retire-ment benefits, disability benefits, survivorbenefits, and hospital insurance (Medicare)benefits.

You must be insuredunder 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).

For 1998, you receive one credit (up to amaximum of four credits), for each $700($740 for 1999) of income subject to social

security. Therefore, for 1998, if you had in-come (self-employment income and wages)of $2,800 that was subject to social securitytaxes, you received four credits.

For an explanation of the number ofcredits you must have to be insured, and ofthe benefits available to you and your familyunder the social security program, consultyour nearest Social Security Administrationoffice.

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 sit-uations exist.

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

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

3) 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 PayEstimated 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 adjusted

Page 3


4/15

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 is 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

gross 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 on

self-employment tax, see Publication 533.

Form 1099MISCFile Form 1099MISC if any of the followingsituations apply.

1) You pay a share of your catch (or ashare of the proceeds from the sale ofyour catch) to an individual who is notyour employee.

2) You pay at least $600 in rents, services,and other income payments in yourfishing trade or business to an individualwho is not your employee.

3) You are in the trade or business of pur-

chasing fish for resale and pay $600 ormore to a commercial fisherman for fishor other forms of aquatic life.

For more information, including a discussionof the recordkeeping requirements that applyto resale buyers described in 3, above, seethe instructions for Form 1099MISC.

Certain fishermen 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 a

share 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 of

the 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, the entire crew of the boat(including the captain, mate, engineer, andcook) are considered self-employed individ-uals. You must file Form 1099MISC to reportamounts you pay to them.

Example 2. The facts are the same as inExample 1 except that the mate, the engi-neer, the cook, and the other five crewmembers all 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 people

working for you are your employees, getPublication 15A. That publication has infor-mation to help you determine whether an in-dividual is an independent contractor or anemployee. If you incorrectly classify an em-ployee as an independent contractor, you canbe held liable for employment taxes for thatworker plus a penalty. An independentcontractoris someone who is self-employed.You do not generally have to withhold or pay

any taxes on payments to an independentcontractor.

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 Certainfishermen considered self-employed underForm 1099MISC, earlier.

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

When Do Fishermen

Pay Estimated Taxand File Tax Returns?When you must pay estimated tax and fileyour 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 not the same astotal incomeshown on line 22 of Form 1040.

Gross IncomeYour gross income is all income you receivein the form of money, property, and servicesthat is not exempt from tax. On a joint return,you must add your spouse's gross income toyour gross income. To decide whether two-

thirds of your gross income for 1998 was fromfishing, use as your gross income the total ofthe following income(not loss) amounts fromyour tax return.

1) Wages, salaries, tips, etc.

2) Taxable interest.

3) Dividends.

4) Taxable refunds of state and local taxes.

5) Alimony received.

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

7) Gross receipts from Schedule CEZ(Form 1040), line 1.

Page 4


5/15

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

9) Gains on sales of business property fromForm 4797.

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

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

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

13) Your taxable net income from an estateor trust, Schedule E (Form 1040), line36.

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

15) Gross farm rental income from Form4835, line 7.

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

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

18) Your pro rata share of gross income from

an S corporation, from Schedule K1(Form 1120S).

19) Unemployment compensation, as re-ported on Form 1099G.

20) Other income reported on Form 1040,line 21, not reported with any of theitems listed above.

Gross IncomeFrom FishingGross income from fishing includes the fol-lowing amounts.

1) Gross fishing income from Schedule C(Form 1040), line 7.

2) Gross fishing receipts from ScheduleCEZ (Form 1040), line 1.

3) Gross fishing income from Schedule E(Form 1040). See the instructions for line41.

For more information, see What Is Gross In-come From Fishing?, earlier.

Percentage From FishingTotal your gross income from all sources asshown 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 1998.

Schedule D showed gains from the saleof a rental house carried over from Form 4797($5,000) in addition to losses from the saleof corporate stock ($2,000). Mr. Smith's gross

fishing income is 60% of his total gross in-come ($75,000 $125,000 = .60). Therefore,he does not qualify to use special estimatedtax and return due dates for 1998. However,he can still qualify for 1998 if at least two-thirds of his 1997 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 special esti-

mated tax and return due dates since at leasttwo-thirds of his gross income is from fishing[$75,000 $105,000 = .714 (71.4%)].

Due Dates forQualified FishermenIf at least two-thirds of your gross income for1997 or 1998 was from fishing, you are aqualified fisherman and have only one pay-ment due date for 1998 estimatedtaxJanuary 15, 1999.

For your 1998 tax, you may choose eitherof the following options.

1) Pay all your estimated tax (figured onForm 1040ES) by January 15, 1999,

and file your Form 1040 by April 15,1999.

2) 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.

TIP

If at least two-thirds of your gross in-come for 1998 or 1999 is from fishing,for your 1999 tax, you may choose

either of the following options.

1) Pay all your estimated tax by January17, 2000, and file your Form 1040 byApril 17, 2000.

2) File your Form 1040 by March 1, 2000,and pay all the tax due.

Required annual payment. If at least two-thirds of your gross income for 1997 or 1998was from fishing, the required annual pay-ment due January 15, 1999, is the smallerof the two amounts shown below.

1) 662/3% (.6667) of your total tax for 1998.

2) 100% of the total tax shown on your1997 return. (The return must cover all12 months.)

TIP

If at least two-thirds of your gross in-come for 1998 or 1999 is from fishing,the required annual payment due

January 17, 2000, is the smallerof the twoamounts shown below.

1) 66 2/3% (.6667) of your total tax for 1999.

2) 100% of the total tax shown on your1998 return. (The return must cover all12 months.)

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 by

the 15th day of the 4th month after the endof your tax year.

Due Dates forNonqualified FishermenIf less than two-thirds of your gross incomefor 1997 and 1998 was from fishing, youcannot use these special estimated tax pay-ment and return due dates for your 1998 taxyear. In this case, you generally must makequarterly estimated tax payments on April 15,

June 15, and September 15, 1998, and onJanuary 15, 1999. You must file your returnby April 15, 1999.

TIP

If less than two-thirds of your grossincome for 1998 and 1999 is fromfishing, you cannot use these special

estimated tax payment and return due datesfor your 1999 tax year. In this case, yougenerally must make quarterly estimated taxpayments on April 15, June 15, and Septem-ber 15, 1999, and on January 17, 2000. Youmust file your return by April 17, 2000.

For more information on estimated taxes,see Publication 505.

Estimated Tax Penaltyfor 1998If you did not pay all your required estimatedtax for 1998 by January 15, 1999, and do notfile your 1998 return and pay the tax by March1, 1999, 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.

If you file your return by April 15 and paythe bill within 10 days after the notice date,the IRS will not charge you interest.

Occasionally, 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, showing that you meet the grossincome test. Do not ignore a penalty notice,even if you think it is in error.

Other Filing Informationfor 1998

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 1998return by March 1, 1999, the due date for yourreturn will be April 15, 1999. However, youcan get an automatic 4-month extension oftime to file your return. Your Form 1040 wouldthen be due by August 16, 1999. To get thisextension, file Form 4868, Application forAutomatic Extension of Time To File U.S. In-dividual Income Tax Return, by April 15,1999. Form 4868 does not extend the time topay the tax. For more information, see theinstructions for Form 4868.

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

Page 5


6/15

CAUTION

!This extension does not extend theMarch 1, 1999, 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 makean estimated tax payment by January 15,1999, and you file your tax return after March1, 1999, 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 bythe National Marine Fisheries Service(NMFS) and the Internal Revenue Service(IRS). This program allows fishermen to defertax on certain income they invest in a CCFaccount and later use to acquire, build, orrebuild 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 thetax treatment of CCF deposits, earnings, andwithdrawals.

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

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.1) Your agreement vessels. (Which of

your eligible vessels, defined later, willbe the basis for the deferral of tax.)

2) Your planned use of withdrawals.(What kind of vessel you will acquire,build, or rebuild with the money in yourCCF account.)

3) Your CCF depository. (Where you willset up your CCF account.)

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

CCF Program

Financial Services Division (F/SF2)NOAA/National Marine Fisheries Service1315 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. An eligible vessel is avessel that meets the following requirements.

1) The vessel was built or rebuilt in theUnited States.

2) The vessel is owned by a U. S. citizenand has a home port in the United States(if it weighs between 2 and 5 net tons).

3) The vessel is documented under thelaws of the United States (if it weighs 5net tons or more).

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

A vessel operated in the foreign or domesticcommerce of the United States that meetsrequirements (1) and (3) above is also an el-igible vessel.

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

1) Making deposits to your CCF account.

2) Excluding from tax, deposits that areassigned to certain accounts (discussedlater).

3) Making withdrawals from your CCF ac-count when you acquire, build, or rebuildfishing vessels.

4) Reducing the tax basis of fishing vesselsyou acquire, build, or rebuild to recap-

ture the amounts that were previouslyexcluded from tax.

TIP

Report on deposit or withdrawalactivity. 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.

Types of Accounts Within a

CCF You Must MaintainThis 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 followingitems.

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 thefollowing 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.

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 vessels

held 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 income

earned 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 federalincome tax return any transaction thatproduces a capital gain if you deposit the netproceeds into your CCF account. This treat-ment applies to either of the following trans-actions.

The sale or other disposition of anagreement vessel.

The receipt of insurance or indemnityproceeds attributable to an agreementvessel.

Depreciation recapture. Do not report onyour federal income tax return any transactionthat produces depreciation recapture if youdeposit the net proceeds into your CCF ac-count. This treatment applies to either of thefollowing transactions.


Page 6


7/15


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).

Instructions that refer to line 37 (Form1040). If you deposit earnings from oper-ations into your CCF account and you mustcomplete other forms such as Form 6251 orthe worksheets for Schedule D, you will needto make an extra computation. When theother form tells you to use an amount fromline 37, Form 1040, do not use that amount.Instead, add lines 38 and 39, Form 1040, anduse that amount.

Self-employment tax. You must use yournet profit or loss from your fishing businessto figure your self-employment tax. Donotreduce your net profit or loss by any

earnings from operations you deposit to yourCCF account.

TIP

Partnerships 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 federal income tax return any trans-action that produces a nontaxable return ofcapital if you deposit the net proceeds intoyour CCF account. This treatment applies toeither of the following 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 tax on them.

Capital gains. Do not report on your federalincome tax return any capital gains from thesale of capital assets held in your CCF ac-count. This includes capital gains distribu-tions reported to you on Form 1099DIV ora substitute statement. However, you shouldattach a statement to your tax return to list thepayers and the amounts and identify thecapital gains as CCF account earnings.

Interest and dividends. Do not report onyour federal income tax return any ordinaryincome (such as interest and dividends) youearn on the assets in your CCF account.However, you should attach a statement toyour return to list the payers and the amountsand to identify them as CCF accountearnings.

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.

1) Acquiring, building, or rebuilding fishingvessels.

2) Making principal payments on the mort-gage of a 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 orderof application against your accounts.

First, as made from the capital account.

Second, as made from the capital gainaccount.

Third, as made from the ordinary incomeaccount.

Excluding qualified withdrawals from tax.Do not report on your federal income tax re-turn any qualified withdrawals from your CCFaccount.

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 the amount of awithdrawal that is treated as made from eitherthe capital gain account or the ordinary in-come account. For more information, see

How to determine the source of qualifiedwithdrawals, and Deferring tax on CCF de-posits and earnings, earlier.

Nonqualified WithdrawalsA nonqualified withdrawal from a CCF ac-count is one that is not a qualified withdrawal.For more information, see Qualified With-drawals, earlier.

Examples of nonqualified withdrawals in-clude the following amounts from the ordinaryincome account or the capital gain account.

Amounts remaining in a CCF accountupon 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 of applicationagainst your accounts.

First, as made from the ordinary incomeaccount.

Second, as made from the capital gainaccount.

Third, as made 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.

TIP

Partnerships 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 federal income taxreturn to show your computation of both thetax and interest for a nonqualified withdrawal.Include the tax and interest for the nonqual-ified withdrawal on line 56 of Form 1040. Tothe left of line 56, write the amount of tax andinterest and CCF.

Page 7


8/15

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.

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

2) An amount equal to that portion is al-

lowed as a net operating loss deduction.

More InformationThis section briefly discusses 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).

Part 259 of title 50 of the Code of FederalRegulations (50 C.F.R., Part 259).

Part 3 of title 26 of the Code of FederalRegulations (26 C.F.R., Part 3).

Section 7518 of the Internal Revenue

Code (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 youpay on certain fuels used for a nontaxable

use. You may also be eligible to claim aquarterly 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. Forinformation about credits and refunds for fuelsused for nontaxable uses not discussed inthis section, see Publication 378.

Gasoline and special fuel used in com-mercial fishing boats. You may be eligibleto claim a credit or refund of excise tax in-cluded in the price of gasoline or special fuelused in a commercial fishing boat.

Commercial fishing boats include onlywatercraft used in taking, catching, process-ing, or transporting fish, shellfish, or otheraquatic life for commercial purposes, such asselling or processing the catch, on a specifictrip basis. They include boats used in bothfresh and salt water fishing. They do not in-clude boats used for both sport fishing andcommercial fishing on the same trip. Fuelused in aircraft to locate fish is not fuel usedin commercial fishing.

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

Off-highway business use is any use offuel in a trade or business or in any income-producing activity. It does not include use ina highway vehicle registered for use on publichighways. Do not consider any use in amotorboat as an off-highway business use.

Examples. Off-highway business use in-cludes fuels used in the following ways.

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

2) For cleaning purposes.

How To Claima Credit or RefundThis part tells you when and how to claim acredit or refund of excise taxes included in theprice of fuels you use for a nontaxable use.

Claiming a CreditYou claim a credit on Form 4136and attachit to your income tax return. Do not claim acredit for any tax for which you have filed arefund claim.

You must claim a credit for excise tax youpaid on any of the following.

Fuels used for nontaxable purposes if thetotal for the tax year is less than $750.

Fuel that was not included in any claimfor refund filed for the tax year.

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 claim a fuel tax credit on an amendedreturn for that year. Generally, you must filean amended return by the later of 3 yearsfrom the date you filed your original incometax return or 2 years from the time you paidthe income tax. A return filed early is consid-ered to have been filed on the due date.

Fuel tax claim on amended return. Youcan file an amended return to claim or changeyour fuel tax credit only in the following situ-ations.

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, line 8) are separated intoseven claim groups based on the type of fueland the use of that fuel. Once you file Form4136 with a claim for a group, you cannot filean amended return with another claim for thatgroup. However, you can file an amendedreturn with a claim for another group.

The following table shows what claims arein each group. The numbers in the secondcolumn refer to the line numbers on Form4136. The numbers in the third column arefrom the Type of Use Table in the Form 4136instructions.

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 for commercial fishing. This isa Group IV claim. You cannot amend yourreturn to claim a credit for an amount on line1d for use of gasohol in a boat for commercialfishing (Type of Use 4), since that is also aGroup IV claim. However, if you used thegasohol in an off-highway business use (Typeof Use 2), you can amend your return to claimthe credit for that fuel tax because that wouldbe a Group II claim.

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. Seethe instructions for Form 1040.

Claiming a RefundYou can file a claim for refund for any quarterof your tax year for which you can claim $750or more. This amount includes the excise taxpaid on all fuels used for any qualifying pur-pose during that quarter or any prior quarter(for which no other claim has been filed) dur-ing the tax year.

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 that

quarter. 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. Use Form 8849 to file a claimfor refund. Fill out the appropriate scheduleand follow the instructions for additional in-formation you need to include with your claimfor refund.

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 amount

on 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 deductedthe taxes as an expense that reduced yourincome tax liability.

If you use the cash method of accountingand 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 return

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

VII 2b 10

Page 8


9/15

and 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 1997 Form 1040 on March2, 1998. 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 $110of excise tax paid on the gasoline as a credit.Ed reports the $110 as additional income onhis 1998 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 vessel employed in commercial fish-ing.

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 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 avessel employed 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.NameTitleTIN

AddressSignature

Schedule C ExampleThis section gives an example of how to fillout Schedule C (Form 1040). The exampleuses the situation of Frank Carter who ownsand operates a fishing boat. His completedreturn is at the end of this section.

Frank 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 business

records with a single-entry bookkeeping sys-tem, similar to the sample record system il-lustrated in Publication 583.

Frank has two crew members, Bill Brownand 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, thenew 6-digit business code for commercialfishing. He then completes items C throughH.

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.

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 1997 Form 1040 he filedon March 2, 1998. The patronage dividendwas reported to him on Form 1099PATR,Taxable Distributions Received From Coop-eratives.

Line 7. Frank's gross income from fishing

includes 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 the $6,534 depreci-ation from 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 supplies

and $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 on

line 2, Section A of Schedule SE (Form 1040),not shown.

Page 9


10/15

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 1,0 0 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

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

Profit or Loss From Business(Sole Proprietorship)

Partnerships, joint ventures, etc., must file Form 1065.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 NEW 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 1998? If No, see page C-2 for limit on losses

If you started or acquired this business during 1998, 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

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-4)

13

Enter 50% ofline 24b subjectto limitations(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-5):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) 1998For 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)

1998

1 1

Page 10


11/15

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.ustreas.gov. While visiting our WebSite, you can select:

Frequently Asked Tax Questionsto findanswers to questions you may have.

Fill-in Formsto complete tax forms on-line.

Forms and Publicationsto download

forms and publications or search publi-cations by topic or keyword.

Comments & Helpto e-mail us withcomments about the site or with taxquestions.

Digital Dispatchand IRS Local News Netto receive our electronic newsletters onhot tax issues and news.

You can also reach us with your computerusing any of the following.

Telnet at iris.irs.ustreas.gov

File Transfer Protocol atftp.irs.ustreas.gov

Direct dial (by modem) 7033218020

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

information by calling 7033689694. Followthe directions from the prompts. When youorder forms, enter the catalog number for theform you need. The items you request will befaxed to you.

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.Alaska fishermen can call 18008290933 then dial extension 89019.

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 persononly 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 the

quality 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 pick up certainforms, instructions, and publicationsat many post offices, libraries, and

IRS offices. Some libraries and IRS officeshave an extensive collection of productsavailable to print from a CD-ROM or photo-copy from reproducible proofs.

Mail. You can send your order forforms, instructions, and publicationsto the Distribution Center nearest to

you and receive a response 7 to 15 workdaysafter your request is received. Find the ad-dress that applies to your part of the country.

Western part of U.S.:Western Area Distribution CenterRancho Cordova, CA 957430001

Central part of U.S.:Central Area Distribution CenterP.O. Box 8903Bloomington, IL 617028903

Eastern part of U.S. and foreign ad-dresses:Eastern Area Distribution CenterP.O. Box 85074Richmond, VA 232615074

CD-ROM. You can order IRS Publi-cation 1796, Federal Tax Products onCD-ROM, and obtain:

Current tax forms, instructions, and pub-lications.

Prior-year tax forms, instructions, andpublications.

Popular tax forms which may be filled inelectronically, printed out for submission,and saved for recordkeeping.

Internal Revenue Bulletins.

The CD-ROM can be purchased from Na-

tional Technical Information Service (NTIS)for $25.00 by calling 18772336767 or for$18.00 on the Internet at www.irs.ustreas.gov/cdorders. The first release is availablein mid-December and the final release isavailable in late January.

Page 11


12/15

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 ............................... 4Exemption certificate ................... 9

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

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

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

Form:

1040ES ................................. 51099MISC ............................ 42210F ................................... 54136 ....................................... 84868 ....................................... 58849 ....................................... 8

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

Forms to file ................................ 3Free tax services ....................... 11Fuel tax credits and refunds ....... 8

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

HHelp (SeeMore information)

LLocal transportation ..................... 2

MMeals ........................................... 3More information ....................... 11

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

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

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

Publications (SeeMore information)

RRepairs and replacements .......... 2Return due date .......................... 4

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 ... 3Social security benefits ............... 3

TTax help (SeeMore information) Tax home .................................... 2Trade or business defined .......... 3

Transportation, local .................... 2Traps, depreciation ...................... 2Travel expenses .......................... 3TTY/TDD information ................ 11

Page 12


13/15

Tax Publications for Individual Taxpayers

General Guides

Your Rights as a TaxpayerYour Federal Income Tax (ForIndividuals)Farmers Tax GuideTax Guide for Small BusinessTax Calendars for 1999Highlights of 1998 Tax Changes

Guide to Free Tax Services

Specialized Publications

Armed Forces Tax GuideFuel Tax Credits and RefundsTravel, Entertainment, Gift, and CarExpensesExemptions, Standard Deduction,and Filing InformationMedical and Dental ExpensesChild and Dependent Care ExpensesDivorced or Separated IndividualsTax Withholding and Estimated TaxEducational Expenses

Foreign Tax Credit for IndividualsU.S. Government Civilian EmployeesStationed AbroadSocial Security and OtherInformation for Members of theClergy and Religious WorkersU.S. Tax Guide for AliensScholarships and FellowshipsMoving ExpensesSelling Your HomeCredit for the Elderly or the DisabledTaxable and Nontaxable IncomeCharitable ContributionsResidential Rental Property

Commonly Used Tax Forms

Miscellaneous Deductions

Tax Information for First-TimeHomeownersReporting Tip IncomeSelf-Employment TaxDepreciating Property Placed inService Before 1987Installment SalesPartnershipsSales and Other Dispositions ofAssetsCasualties, Disasters, and Thefts(Business and Nonbusiness)Investment Income and ExpensesBasis of AssetsRecordkeeping for IndividualsOlder Americans Tax GuideCommunity PropertyExamination of Returns, AppealRights, and Claims for RefundSurvivors, Executors, andAdministratorsDetermining the Value of DonatedPropertyMutual Fund DistributionsTax Guide for Individuals WithIncome From U.S. Possessions

Pension and Annuity IncomeNonbusiness Disaster, Casualty, andTheft Loss WorkbookBusiness Use of Your Home(Including Use by Day-CareProviders)Individual Retirement Arrangements(IRAs) (Including Roth IRAs andEducation IRAs)Tax Highlights for U.S. Citizens andResidents Going AbroadUnderstanding the Collection ProcessEarned Income CreditTax Guide to U.S. Civil ServiceRetirement Benefits

Tax Highlights for Persons withDisabilitiesBankruptcy Tax GuideDirect SellersSocial Security and EquivalentRailroad Retirement BenefitsIs My Withholding Correct for 1999?Passive Activity and At-Risk RulesHousehold Employers Tax GuideTax Rules for Children andDependentsHome Mortgage Interest DeductionHow To Depreciate PropertyPractice Before the IRS and Powerof AttorneyIntroduction to Estate and Gift TaxesIRS Will Figure Your Tax

Per Diem RatesReporting Cash Payments of Over$10,000The Problem Resolution Programof the Internal Revenue Service

Derechos del ContribuyenteCmo Preparar la Declaracin deImpuesto Federal

Crdito por Ingreso del TrabajoEnglish-Spanish Glossary of Wordsand Phrases Used in PublicationsIssued by the Internal RevenueService

U.S. Tax Treaties

Spanish Language Publications

Tax Highlights for CommercialFishermen

910

595

553509334225

171

3378463

501

502503504505508

514516

517

519520521523524525526527529

530

531533534

537

544

547

550551552554

541

555556

559

561

564570

575584

587

590

593

594596721

901907

908

915

919925926929

946

911

936

950

1542

967

1544

1546

596SP

1SP

850

579SP

Comprendiendo el Proceso de Cobro594SP

947

Tax Benefits for Adoption968

Informe de Pagos en Efectivo enExceso de $10,000 (Recibidos enuna Ocupacin o Negocio)

1544SP

See How To Get More Information for a variety of ways to get forms, including by computer,

fax, phone, and mail. For fax orders only, use the catalog numbers when ordering.

U.S. Individual Income Tax ReturnItemized Deductions & Interest andOrdinary Dividends

Profit or Loss From BusinessNet Profit From Business

Capital Gains and LossesSupplemental Income and Loss

Earned Income CreditProfit or Loss From Farming

Credit for the Elderly or the Disabled

Income Tax Return for Single andJoint Filers With No Dependents

Self-Employment Tax

U.S. Individual Income Tax ReturnInterest and Ordinary Dividends forForm 1040A FilersChild and Dependent CareExpenses for Form 1040A FilersCredit for the Elderly or theDisabled for Form 1040A Filers

Estimated Tax for IndividualsAmended U.S. Individual Income TaxReturn

Unreimbursed Employee BusinessExpenses

Underpayment of Estimated Tax byIndividuals, Estates and Trusts

Power of Attorney and Declarationof Representative

Child and Dependent Care Expenses

Moving ExpensesDepreciation and AmortizationApplication for Automatic Extension of TimeTo File U.S. Individual Income Tax ReturnInvestment Interest Expense DeductionAdditional Taxes Attributable to IRAs, Other

Qualified Retirement Plans, Annuities,Modified Endowment Contracts, and MSAsAlternative Minimum TaxIndividualsNoncash Charitable Contributions

Change of AddressExpenses for Business Use of Your Home

Nondeductible IRAsPassive Activity Loss Limitations

1040Sch A & B

Sch CSch C-EZSch DSch ESch EICSch FSch H Household Employment Taxes

Sch RSch SE

1040EZ

1040ASch 1

Sch 2

Sch 3

1040-ES1040X

2106 Employee Business Expenses2106-EZ

2210

24412848

390345624868

49525329

6251828385828606

88228829

Form Number and TitleCatalogNumber

Sch J Farm Income Averaging

Additional Child Tax Credit8812

Education Credits8863

CatalogNumber

1170020604

11744

1186211980

124901290613141

1317713329

1360062294637046396610644120811323225379

11320

Form Number and Title

11330

11334143741133811344113391134612187255131135911358

1132712075

10749

12064

11329

1134011360

See How To Get More Information for a variety of ways to get publications,including by computer, phone, and mail.

970 Tax Benefits for Higher Education971 Innocent Spouse Relief

Page 13


14/15

Tax Publications for Business Taxpayers

General Guides

Commonly Used Tax Forms

Spanish Language Publications

Your Rights as a TaxpayerYour Federal Income Tax (ForIndividuals)Farmers Tax GuideTax Guide for Small BusinessTax Calendars for 1999Highlights of 1998 Tax Changes

Guide to Free Tax Services

Employers Tax Guide (Circular E)Employers Supplemental Tax GuideAgricultural Employers Tax Guide(Circular A)Federal Tax Guide For Employers inthe U.S. Virgin Islands, Guam,American Samoa, and theCommonwealth of the NorthernMariana Islands (Circular SS)

Household Employers Tax Guide

Gua Contributiva Federal ParaPatronos Puertorriqueos(Circular PR)

Travel, Entertainment, Gift, and CarExpensesTax Withholding and Estimated TaxExcise Taxes for 1999Withholding of Tax on NonresidentAliens and Foreign CorporationsSocial Security and OtherInformation for Members of theClergy and Religious WorkersResidential Rental PropertySelf-Employment TaxDepreciating Property Placed inService Before 1987Business ExpensesNet Operating LossesInstallment SalesAccounting Periods and Methods

CorporationsSales and Other Dispositions ofAssetsBasis of AssetsExamination of Returns, AppealRights, and Claims for RefundRetirement Plans for Small Business(SEP, SIMPLE, and Keogh Plans)Determining the Value of Donated

PropertyStarting a Business and KeepingRecords

Understanding the Collection Process

Information on the United States-Canada Income Tax Treaty

Bankruptcy Tax GuideDirect Sellers

Passive Activity and At-Risk RulesHow To Depreciate Property

Reporting Cash Payments of Over$10,000The Problem Resolution Programof the Internal Revenue Service

Derechos del ContribuyenteCmo Preparar la Declaracin deImpuesto Federal

English-Spanish Glossary of Wordsand Phrases Used in PublicationsIssued by the Internal RevenueService

Tax on Unrelated Business Incomeof Exempt Organizations

Wage and Tax Statement

Itemized Deductions & Interest andOrdinary 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 LossesPartners 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 BusinessExpenses*

Power of Attorney and Declaration ofRepresentative*

Child and Dependent Care Expenses*

General Business Credit

Application for Automatic Extension of Time ToFile U.S. Individual Income Tax Return*

Moving Expenses*

Additional Taxes Attributable to IRAs, Other

Qualified Retirement Plans, Annuities, ModifiedEndowment Contracts, and MSAs*Installment Sale Income*Noncash Charitable Contributions*

Change of Address*Expenses for Business Use of Your Home*

Tax Highlights for CommercialFishermen

910

595553509334225

171

Nondeductible IRAs*Passive Activity Loss Limitations*

1515-A

51

80

179

926

378

463

505510515

517

527533534

535536537

541538

542Partnerships

544

551556

560

561

583

594

597

598

901

911

925946947

908

1544

1546

1SP

850

579SP

Comprendiendo el Proceso de Cobro594SP

10134

Sch A & B

Sch CSch C-EZSch DSch ESch FSch H Household Employment Taxes*

Sch RSch SE

1040-ES1040X

Sch DSch K-1

1120

1120S

1065 U.S. Partnership Return of Income

21062106-EZ

24412848

3800

4868

3903

5329

62528283

8582860688228829

Specialized Publications

Fuel Tax Credits and Refunds

Employees Withholding Allowance Certificate*W-4

Employers Annual Federal Unemployment(FUTA) Tax Return*

940

940EZ

U.S. Individual Income Tax Return*1040

Employers Annual Federal Unemployment(FUTA) Tax Return*

Business Use of Your Home(Including Use by Day-CareProviders)

587

U.S. Tax Treaties

Practice Before the IRS and Powerof AttorneyInternational Tax Information forBusinesses

Employers Guides

Certification for Reduced Tax Ratesin Tax Treaty Countries

686

953

Capital Gains and Losses and Built-In Gains

Shareholders Share of Income, Credits,Deductions, etc.

Sch D

Sch K-1

Underpayment of Estimated Tax byIndividuals, Estates, and Trusts*

2210

Report of Cash Payments Over $10,000Received in a Trade or Business*

8300

Depreciation and Amortization*4562Sales of Business Property*4797

Informe de Pagos en Efectivo enExceso de $10,000 (Recibidos enuna Ocupacin o Negocio)

1544SP

U.S. Corporation Short-FormIncome Tax Return

1120-A

See How To Get More Information for a variety of ways to get publications,including by computer, phone, and mail.

See How To Get More Information 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 catalognumbers when ordering.

Form Number and TitleCatalogNumber

W-210220

11234

10983

170011132011330

113341437411338113441134612187

113581134011360

Employers Quarterly Federal Tax Return941

11359Sch J Farm Income Averaging* 25513

11510

CatalogNumber

20604

11744

1186211980

1239212490129061308613141

13329

1360162299

639661208113232

63704

62133

113901139311394

1145011456

11700

11520

11516

Form Number and Title

Page 14


15/15

Notes

us internal revenue service: p595--1998

Documents