Fishing Audit Technique Guide

A fishing business is defined as the conduct of commercial fishing via definitions detailed in the Magnuson-Stevens Fishery Conservation and Management Reauthorization Act of 2006, 16 U.S.C. §§ 1801-1884 (2011) ("Sustainable Fisheries Act"). Commercial fishing is fishing in which the fish harvested is entered into commerce through sale, barter or trade. Fishing income is defined as income from catching, taking or harvesting of fish (this includes all forms of aquatic life). The National Oceanic and Atmospheric Administration’s National Marine Fisheries Service (NMFS), a division of the Department of Commerce, is the federal agency responsible for the management, conservation and protection of living marine resources within the U. S. Exclusive Economic Zone (water three to 200 miles offshore). Its six Regional Offices and eight Regional Fishery Management Councils have oversight of fishing activities and compliance with fisheries regulations. NMFS publishes information in its annual statistical report, Fisheries of the United States. For 2009, the report states that commercial landings by U.S. fishers at ports in the 50 states were 7.9 billion pounds valued at $3.9 billion. Over 1/3 of both the catch and the value was caught in Alaska. The next three states based on dollar value were Massachusetts, Maine and Louisiana, respectively. The type of vessel and gear, size of crew, and fishery regulation will vary based on location and species. Types of Fishing Operations Generally, there are two types of fishing operations - shore-based and offshore. Shorebased operations use a net from shore to catch fish, dig, or pick aquatic life. Offshore operations use fishing vessels and either nets, lines, pots, traps, or diving gear to catch finfish, shellfish or other aquatic life. There are two basic types of nets used - encircling nets and entangling nets. The encircling nets are purse seine, haul seine, or trawl seine. The fishing vessel circles around the target fishing area, dropping the net in a circular pattern. Once the net is in place, the net is closed, trapping the catch in the net. Entangling nets, also known as gill or trammel nets, catch the fish when the fish try to swim through the nets. The many types of fishing vessels used in the variety of fisheries use different gear and equipment. Some vessels participate in more than one kind of fishery. Some vessels solely catch fish, some vessels catch and process fish, some vessels solely process fish, and some vessels transport fish from the vessel catching the fish to a processing vessel or a shore-based processor.
Most state websites will provide information regarding reporting requirements, licensing and permit information, and the state’s commercial fishing laws. What follows is a limited description of fishing around the country to aid in understanding that not all fishery operations are alike. New England New England’s fishing business consists primarily of owner-operated vessels. The largest are approximately 100 feet long, and most are less than 50 feet long. In spite of the various regulatory agencies, many of the fishing areas are undersupplied, resulting in declining income for the fisherman. The New England Area is primarily known for harvesting the following species - lobster, scallops and ground fish. Income is also derived from seaweed and sponges. Licenses are required in New England for harvesting various sea "products" - lobster, crab, shellfish, quahog, mussels, marine worms, commercial fish, commercial shrimp, and seaweed. The Maine Department of Marine Resources issues lobster licenses, which determine the number of individuals permitted to harvest lobster under the license. A Class 1 license allows only the license holder to harvest lobster. A Class 2 license allows the license holder and one crewmember to harvest. A Class 3 license permits the license holder and two crewmembers to harvest. A single operator license covers the licensed activity for the license holder only. The crew license covers the licensed activity for the license holder as well as all crewmembers. The number of crewmembers allowed to fish under one fishing crew license is unlimited. As long as the fishing license is on the boat, the license holder is not required to be present. The City of Portland, Maine owns a Fish Exchange, which provides seller representation through daily auctions and handles over 90% of Maine’s total catch of regulated ground fish. The Exchange weighs, grades, and sells fishery products, and services financial accounts. Sellers from all over Maine maintain control of their products up to the point of sale. Daily and weekly price reports are available on the Exchange’s website.
Alaska Commercial fisheries in Alaska fall within the mixed jurisdiction of state and federal management authorities. In general, the state has management authority for all salmon, herring and shellfish fisheries, whereas the federal government has management authority for the majority of ground fish fisheries, except for those within three nautical miles of shore and a few others. Commercially important species of seafood from Alaska include five species of salmon, five species of crab, walleye, pollock, Pacific halibut, Pacific cod, sablefish, herring, four species of shrimp, several species of flatfish and rockfish, lingcod, geoducks, sea cucumbers, and sea urchins. The Alaska Department of Fish and Game website is an excellent resource for Alaska fishing information. It provides details on the season, licensing, vessels, gear, catch and ex-vessel price (the price sold by the fishers). The website has descriptions accompanied by pictures of vessels and gear. Gulf Coast All of the Gulf Coast States harvest shrimp from the Gulf of Mexico, commonly referred to as the Gulf. Brown shrimp and white shrimp are most common, although pink, river, rock, roughneck and Royal Red varieties can also be found. Shrimp are sold wholesale by size grade, expressed as the average number of shrimp per pound. The lower the number of shrimp per pound, the larger the average shrimp. For example, 16-20 grade shrimp are larger than 21-25 grade shrimp. Larger shrimp command a higher price than smaller shrimp. Shrimp are sold "head-on" or "headless." Headless shrimp are more expensive because more are required to make a pound and "heading" shrimp (removing the heads) is labor-intensive. Specialized boats (trawlers) use large nets that are dragged through the water to scoop up the shrimp. Due to the type of trawl net used, a variety of other species of aquatic life, called bycatch, is also scooped up. Federal law protects certain species of shark, turtle and dolphin, and requires the use of turtle excluder devices (usually called TEDS). Limited bycatch of some species, such as swordfish, may be retained. Depending on what bycatch occurs, it may be retained for sale to the wholesaler/buyer, eaten by the crew while on the water, or frozen and taken home by the captain and/or crew for personal consumption or casual sale. Catfish are also common to all the Gulf Coast States. In the wild, commercial fishers generally harvest fresh or saltwater catfish by stringing a "trotline" from which are suspended large multi-barbed hooks (treble hooks). The fisher baits the hooks with "trash fish" and "runs the line" morning and evening to pick up the catfish caught by the treble hooks. Sales to the wholesaler/buyer/ processor are usually of whole, fresh, not frozen, fish.
Type of Vessel In your pre-audit analysis, you should review Accurint for business information. As part of the search, obtain a watercraft report. It will provide the vessel name, number, make, use, year, type, length, breadth, depth, gross tons, net tons and propulsion type. Based on information obtained during the initial interview, determine the number of days offshore and the type of vessel(s), and reconcile that information to fuel consumption. Determine the vessel types in service. Processed catch will sell for a different price than catch sold whole. Licenses/Permit Data The state fisheries regulators and the NMFS Regional Offices will have information with respect to licensing and permit requirements. You can obtain this data from most states. If the permit was issued by the NMFS, you can go to its permit page and search types of permits by vessel name. Fishing Season Each fishery has a specific season for each location and species harvested. It is important to understand this in relation to your taxpayer. Does the reported fishing activity correspond with the season? If not, why not? The answer may simply be that the quota for the fishery had been met. See the Alaska Fish and Game website for Commercial Fishing Seasons in Alaska for a good example of fishing seasons, species and permitted method of catch.