Buying and Selling Fish with Cash
Purchasing Fish with Cash
If you are a fish wholesaler, retailer, restaurant owner, marine worm dealer, or any other type of business that buys fish for resale directly from the fisherman, using cash, there are tax regulations that come into play.
One of the provisions in the Small Business Job Protection Act of 1996 created Internal Revenue Code Section 6050R, Returns Relating to Certain Purchases of Fish. The Code Section requires that if you purchase fish from a person who is in the business of catching fish and you pay $600 in cash during the course of the calendar year to this person, you must report this information to the IRS. The effective date for 6050R was for all payments made after December 31, 1997.
- Fish includes fish, shellfish (including clams and mussels), and crustacean (such as lobster, crab, shrimp, sponge, seaweed, marine worms, or other aquatic forms of animal or vegetable life).
- Person includes an individual, a trust, an estate, a partnership, an association, a company, and a corporation.
- Cash is currency, cashiers' checks, bank drafts, travelers' checks and money orders. (Cash does not include personal checks and business checks).
In order to comply with information reporting provisions, you are required to obtain or maintain the following:
- Complete name, addresses, and tax identification number of each person to whom you pay cash for the product. The information should be captured on Form W-9, Request for Taxpayer Identification Number and Certification, at the time of the initial cash transaction.
- Maintain records of each payment to these persons. Form 1099- MISC, Miscellaneous Income, is required to be filed with the IRS for each person to whom you paid more than $600 in cash for the purchase of fish. The total amount paid to the person is reflected in item 7, "Nonemployee Compensation".
Selling Fish for Cash
In the reverse, if you are in the trade or business of selling fish, any "cash" buyers purchasing fish from you should be issuing you Form 1099-MISC for “cash” payments of $600 or more that they paid to you during the year. Since the “cash” buyer was only required to report total "cash" sales, only the "cash" sales will be reflected on Form 1099-MISC. “Non-cash” payments that you received for fish will not (generally) be included on Form 1099-MISC. These “non-cash” payments for which no Form 1099-MISC was received are still taxable to you. Your return must report total gross fish sales received from all sources and in all formats (i.e. all “cash” and “non-cash” sales proceeds must be reported).
If you have received a Form 1099-MISC from one or more "cash" buyers and all the transactions you had with these buyers were in the form of "cash" sales, you should reconcile your fish tickets with the Forms 1099-MISC and report the correct amount of total gross fish sales from all sources on your return.
If you have received Form 1099-MISC from a "cash" buyer and there were other transactions you had with this buyer, such as your cannery account was credited with fish deliveries and you later received a settlement check(s), you should reconcile your fish tickets and Form 1099-MISC with year-end cannery statement(s) and report the correct amount of total gross fish sales from all sources on your return.
When reconciling, keep in mind that if you provided services to a fish buyer (other than as an employee) and received payments of $600 or more during the year for these services, you should also receive Form 1099-MISC for this income. If completed properly, the payer will designate these payments as “nonemployee compensation” in box 7 of Form 1099-MISC. Nonemployee compensation is reportable on Schedule C, Profit or Loss from Business, and is subject to self-employment tax.
If you only reported the amounts reflected on Forms 1099-MISC for “cash” sales of fish and also had “non-cash” sales of fish, you must file an amended return to correct the error and fully report your fish sale income.
A fish purchaser cannot pay the fisher with a check then cash it in order to avoid the Form 1099-MISC requirement. The IRS looks to the substance of the transaction and not the form. In form, the fish purchaser is using their personal or business account to pay for the fish. However, in substance, the fish purchaser is actually making a cash payment. The only purpose of the check is an attempt to avoid the reporting requirements. Consequently, the check should be disregarded when determining the reporting requirements for purchasers of fish. Since in substance cash was paid for the fish, Form 1099-MISC is required to be filed by the fish purchaser.