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Gulf Oil Spill Questions and Answers: Vessels of Opportunity Program

Q1. Is a vessel owner required to include in gross income payments received under the Vessels of Opportunity (VoO) program for use of the vessel?

A1. Yes. A vessel owner is required to include in gross income payments received under the VoO program for use of the vessel. Generally, an individual vessel owner who receives a payment for use of the vessel in a trade or business of operating or renting the vessel should include the amount of the payment in net earnings from self-employment for purposes of self-employment tax. See Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ).

Q2. Is a vessel owner required to include in gross income reimbursements received under the VoO program for fuel and oil costs calculated under a commercially available formula rate?

A2. Yes. A vessel owner is required to include in gross income reimbursements received under the VoO program for fuel and oil costs calculated under a commercially available formula rate. The vessel owner may deduct from gross income the actual expenses the owner pays for fuel and oil costs.

Q3. Is a vessel owner required to include in gross income reimbursements received under the VoO program for the actual costs of airline travel and vehicle rentals that the Charterer approves in advance and agrees to reimburse in full?

A3. No. A vessel owner is not required to include in gross income reimbursements received under the VoO program from the Charterer of the actual costs of airline travel and vehicle rentals. The vessel owner may not deduct from gross income any payments for reimbursable airline travel and vehicle rental expenses.

Q4. Is a person who makes payments to a vessel owner for the use of the vessel under the VoO program required to report the payments to the IRS?

A4. Generally, yes. A person making payments of rents or other income to a vessel owner who is an individual must report the payments to the IRS on a Form 1099-MISC, Miscellaneous Income, if the payments aggregate $600 or more. The payor must report the payments for the use of the vessel (described in Q1) as well as the payments for fuel and oil costs that are includible in the vessel owner’s gross income (described in Q2). The payor is not required to report any reimbursements of actual costs (described in Q3) which are not includible in the vessel owner’s gross income. Generally, the reportable payments are subject to backup withholding if the individual fails to furnish the individual's taxpayer identification number to the payor at or before the time of payment.

Under current law, a person making payments of rent or other income to a corporation is not required to report those payments to the IRS. Payments of rent or other income made to other entities are generally reportable in the same manner as payments to individuals.

Q5. Is a taxpayer required to include in gross income payments received under the VoO program for performing services as a captain or a deckhand?

A5. Yes. A taxpayer is required to include in gross income payments received under the VoO program for performing services as a captain or a deckhand.

A self-employed individual who receives payments for services performed as a captain or a deckhand should include the amount of the payments in net earnings from self-employment for purposes of the self-employment tax. For more information about reporting self-employment income and paying self-employment tax, see Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ).

If the individual performs services as a captain or a deckhand as an employee, the amount of the payments for those services is wages for purposes of Social Security tax and Medicare tax.

The determination of whether an individual performs services as an employee or as an independent contractor (i.e., self-employed individual) depends on the facts and circumstances of each case. The rules that apply to members of a crew that catches fish or other water life do not apply to these payments. For more information on how to determine whether an individual performs services as an employee or as an independent contractor, see Publication 15-A, Employer’s Supplemental Tax Guide.

Q6.  Is a person who makes payments under the VoO program to an individual for the performance of services as a captain or a deckhand required to report the payments to the IRS?

A6. Generally, yes. A person making payments to non-employees for services performed must report the payments to the IRS on a Form 1099-MISC, Miscellaneous Income, if the payments aggregate $600 or more. Generally, these payments are subject to backup withholding if the individual fails to furnish the individual's taxpayer identification number to the payor at or before the time of payment.

A payment that is treated as a payment of wages is subject to reporting on Form W-2, Wage and Tax Statement, and to the social security tax, Medicare tax and income tax withholding rules that apply to wage payments made by an employer to an employee. For more information about withholding from an employee’s wages, see Publication 15 (Circular E), Employer’s Tax Guide.

Q7. Is the taxable income a taxpayer receives under the VoO program eligible for income averaging?

A7. No. Any taxable income a taxpayer receives under the VoO program is not eligible for income averaging.

Return to Gulf Oil Spill: Questions and Answers.

Page Last Reviewed or Updated: 27-Jan-2014