Seafood trade-relief payments can qualify for the tribal fishing-income exclusion

Plain-English summary

Members of a federally recognized Indian tribe received payments under the Department of Agriculture's Seafood Trade Relief Program after foreign retaliatory tariffs reduced seafood exports. IRC § 7873 excludes qualifying income that tribal members or qualified Indian entities derive from treaty-protected fishing activities. Counsel viewed the relief payments as substitutes for lost income from harvesting, processing, transporting, or selling the affected fish. The program was limited to commercial fishermen harmed on particular species, and payment amounts reflected expected trade damage for those species. Counsel concluded that if the replaced income qualified as fishing rights-related income, the substitute relief payments received by a tribal member or qualified Indian entity also qualified for the § 7873 exclusion.

Ruling snapshot

• Question: May qualifying tribal fishermen exclude Seafood Trade Relief Program payments under § 7873?
• Outcome: Advice given: yes, when the payments replace qualifying fishing rights-related income
• Key authorities: IRC § 7873; S. Rep. No. 445, 100th Cong., 2d Sess. 474 (1988); H. Rep. No. 312 (part 2), 100th Cong., 2d Sess. 7 (1988)

Full text (IRS public release)

ID: CCA_2020112709582040
UILC: 7873.00-00

Number: 202053014
Release Date: 12/31/2020
From: -----------------------
Sent: Friday, November 27, 2020 9:58:20 AM
To: ---------------------
Cc: ------------------------------------------------------------
Bcc:
Subject: Assistance request on the application of sec 7873 to Seafood Trade Relief Program (POSTU-
123809-20)

Hi ----------,
You have asked for CC:EEE:EOET:ET’s assistance on whether members of a federally
recognized Indian tribe who are excluding income from fishing rights-related activity
under section 7873 of the Internal Revenue Code (Code) may also exclude payments
received under the Seafood Trade Relief Program (STRP). The STRP is administered
by the United States Department of Agriculture and provides payments to eligible
commercial fisherman of seafood commodities that have been impacted by trade
actions of foreign governments resulting in the loss of exports (“retaliatory tariffs”).

Section 7873 of the Code provides rules governing the federal tax treatment of income
derived by Indians from the exercise of fishing rights secured by treaty. The general
rule of section 7873(a)(1) provides that no income tax shall be imposed on income
derived by a member of an Indian tribe directly or through a qualified Indian entity, or by
a qualified Indian entity, from a fishing rights-related activity of such tribe. The general
rule of section 7873(a)(2) provides that no employment taxes shall be imposed on
remuneration paid for services performed in a fishing rights-related activity of an Indian
tribe by a member of such tribe for another member of such tribe or for a qualified
Indian entity.

“Fishing rights-related activity” is defined by section 7873(b)(1), with respect to any
Indian tribe, as any activity directly related to harvesting, processing, or transporting fish
harvested in the exercise of a recognized fishing right of such tribe or to selling such
fish, but only if substantially all of such harvesting was performed by members of the
tribe.

“Recognized fishing rights” is defined by section 7873(b)(2), with respect to an Indian
tribe, as fishing rights secured as of March 17, 1988, by a treaty between the tribe and
the United States or by an Executive order or an Act of Congress.

“Qualified Indian entity” is defined by section 7873(b)(3)(A) to mean, with respect to an
Indian tribe, any entity if (1) the entity is engaged in a fishing rights-related activity of the
tribe, (2) all of the equity interests in the entity are owned by qualified Indian tribes,

members of such tribes, or their spouses, (3) except as provided in regulations, in the
case of an entity that engages in any substantial processing or transporting of fish, 90
percent or more of the annual gross receipts of the entity is derived from fishing rights-
related activities of one or more qualified Indian tribes each of which owns at least 10
percent of the equity interests in the entity, and (4) substantially all of the management
functions of the entity are performed by members of qualified Indian tribes.

The legislative history of section 7873 provides additional guidance on the term “fishing
rights-related activity.” Specifically, the Senate report states, “[t]he term “fishing rights-
related activity” is defined to include any activity directly related to harvesting (including
aquaculture), processing, or transporting fish harvested in the exercise of fishing rights
guaranteed by treaty, Federal statute, or executive order, or the selling of such fish,
provided that substantially all of the harvesting of such fish was performed by members
of the tribe granted such fishing rights. S. Rep. No. 445, 100th Cong., 2d Sess. 474
(1988). The House report further provides, “[i]t is the intent of the Committee that this
legislation be read broadly to clarify the tax exempt status of all fishing activities,
regardless of whether they are protected by treaty, executive order, or statute. H. Rep.
No. 312 (part 2), 100th Cong., 2d Sess. 7 (1988).

We believe the STRP payments received by the tribal fisherman are income derived
from a fishing rights-related activity of the tribe, as described in section 7873(a). The
STRP payments to commercial fisherman are intended to offset the loss of income from
fish exports due to retaliatory tariffs imposed by foreign governments. The STRP
payments are not available to anyone affected by retaliatory tariffs in general, they are
offered only to commercial fisherman who have lost income on the export of particular
fish, and the payments are calculated based on the expected trade damage for each
affected species of fish. In effect, the payments are substitutes for income lost on the
harvesting, processing, and transporting fish subject due to the tariffs. If the income
being replaced by the STRP payments is “income derived from a fishing rights-related
activity of the tribe,” then the STRP payments received by a tribal member or qualified
Indian entity (as described in section 7873(b)(3)) will also meet the requirements for
exclusion under section 7873.

Please let us know if you have any questions or would like to discuss.

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