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STATE OF HAWAII — DEPARTMENT OF TAXATION
2023 Instructions For Form N-168
(Rev. 2023) Income Averaging for Farmers and Fishermen
(NOTE: References to “married” and “spouse” are also references to “in a civil union” and “civil union partner,” respectively.)
GENERAL INSTRUCTIONS Qualified settlement income is any taxable interest and punitive damage
Use Form N-168 to elect to figure your 2023 tax by averaging, over the awards you received (whether as lump sums or periodic payments) in con-
previous three years (base years), all or part of your 2023 taxable income nection with the Exxon Valdez civil action described above. Qualified settle-
from your trade or business of farming or fishing. This election may give you ment income includes all such awards, whether received before or after the
a lower tax if your 2023 income from farming or fishing is high and your tax- judgment and whether related to a settlement or a judgment.
able income for one or more of the three prior years was low. SPECIFIC INSTRUCTIONS
In order to qualify for this election, you are not required to have been in the Line 2 — To figure your elected farm income, first figure your taxable
business of farming or fishing during any of the base years. income from farming or fishing. This includes all income, gains, losses, and
You may elect to average farming or fishing income even if your filing sta- deductions attributable to your farming or fishing business. If you conduct
tus was not the same in the election year and the base years. both farming and fishing businesses, you must figure your elected farm in-
You do not have to recompute, because of this election, the tax liability of come by combining income, gains, losses, and deductions attributable to
any minor child who was required to use your tax rates in the prior years. your farming and fishing businesses.
You may need copies of your original or amended Forms N-11 or N-15 that Elected farm income also includes any gain or loss from the sale or other
you filed for 2020, 2021, and 2022 to figure your tax on Form N-168. If you disposition of property regularly used in your farming or fishing business for
do not have copies of those returns, you can get them by filing Form L-72, a substantial period of time. However, if such gain or loss is realized after
Request for Copies of Hawaii Tax Return. Form L-72 may be obtained from cessation of the farming or fishing business, the gain or loss is treated as
any district tax office, by mail, or via the Internet at: tax.hawaii.gov. attributable to a farming or fishing business only if the property is sold within
a reasonable time after cessation of the farming or fishing business. A sale or
Definitions other disposition within one year of the cessation is considered to be within
Farming Business. A farming business is the trade or business of cultivat- a reasonable time.
ing land or raising or harvesting any agricultural or horticultural commodity. Elected farm income does not include income, gain, or loss from the sale
This includes: or other disposition of land or from the sale of development rights, grazing
1. Operating a nursery or sod farm; rights, and other similar rights.
2. Raising or harvesting of trees bearing fruits, nuts, or other crops; Generally, income, gains, losses, and deductions from farming or fishing
3. Raising ornamental trees (but not evergreen trees that are more than are reported on:
six years old when severed from the roots); • Form N-11 or N-15, income from wages and other compensation you
4. Raising, shearing, feeding, caring for, training, and managing animals; received (a) as a shareholder in an S corporation engaged in a farming
and or fishing business or (b) as a crew member on a vessel engaged in a
5. Leasing land to a tenant engaged in a farming business, but only if the fishing business (but see Fishing business on this page);
lease payments are (a) based on a share of the tenant’s production (not • Form N-11 or N-15, income from Exxon Valdez litigation;
a fixed amount), and (b) determined under a written agreement entered • Form N-11 or N-15, deductible part of self-employment tax, but only
into before the tenant begins significant activities on the land. to the extent that deduction is attributable to your farming or fishing
A farming business does not include: business;
• Contract harvesting of an agricultural or horticultural commodity grown • Form N-11 or N-15, CCF reduction, except to the extent that any
or raised by someone else, or earnings (without regard to the carryback of any net operating or net
• Merely buying or reselling plants or animals grown or raised by capital loss) from the operation of agreement vessels in the fisheries of
someone else. the United States or in the foreign or domestic commerce of the United
Fishing Business. A fishing business is the trade or business of fishing States are not attributable to your fishing business;
in which the fish harvested, either in whole or in part, are intended to enter • Federal Schedule C or C-EZ;
commerce or enter commerce through sale, barter, or trade. This includes: • Form N-11, capital gain or loss, or Capital Gain/Loss Worksheet in the
1. The catching, taking, or harvesting of fish; Form N-15 instruction booklet;
2. The attempted catching, taking or harvesting of fish; • Federal Schedule E, Part II;
3. Any other activity which can reasonably be expected to result in the • Federal Schedule F;
catching, taking, or harvesting of fish; • Schedule D-1;
4. Any operations at sea in support of, or in preparation for, any activity • Federal Form 4835; and
described in (1) through (3) above; • Federal Form 8949.
5. Leasing a fishing vessel, but only if the lease payments are (a) based Your elected farm income is the amount of your taxable income from
on a share of the catch (or a share of the proceeds from the sale of the farming or fishing that you elect to include on line 2. You do not have to
catch) from the lessee’s use of the vessel in a fishing business (not a include all of your taxable income from farming or fishing on line 2. It may be
fixed payment), and (b) determined under a written lease entered into to your advantage to include less than the entire amount, depending on how
before the lessee begins any significant fishing activities resulting in the the amount you include on line 2 affects your tax bracket for the current and
catch; and prior three tax years.
6. Compensation as a crew member on a vessel engaged in a fishing The excess farm loss rules don’t apply in 2023. The excess business loss
business, but only if the compensation is based on a share of the catch disallowance rule replaces the limitation on excess farm loss. Your elected
(or a share of the proceeds from the sale of the catch). farm income cannot include excess business losses. See the instructions for
The word fish means finfish, mollusks, crustaceans, and all other forms of federal Schedule F (Form 1040) and federal Form 461.
marine animal and plant life other than marine mammals and birds. Your elected farm income cannot exceed your taxable income. Also, the
A fishing business does not include any scientific research activity con- portion of your elected farm income treated as a net capital gain cannot ex-
ducted by a scientific research vessel. ceed the smaller of your total net capital gain or the net capital gain attribut-
Settlement from Exxon Valdez litigation. You will be treated as engaged able to your farming or fishing business. If your elected farm income includes
in a fishing business with respect to any qualified settlement income you net capital gain, you must allocate an equal portion of the net capital gain
received if either of the following applies. to each of the base years. If, for any base year, you had a capital loss that
1. You were a plaintiff in the civil action In re Exxon Valdez, No. 89-095- resulted in a capital loss carryover to the next tax year, do not reduce the
CV (HRH) (Consolidated) (D. Alaska); or elected farm income allocated to that base year by any part of the carryover.
2. All of the following apply: Line 4 — Figure the tax on the amount on line 3 using the 2023 Tax Table,
a. You were a beneficiary of a plaintiff described in (1) above. Tax Rate Schedules, or Capital Gains Tax Worksheet from your 2023 Form
b. You acquired the right to receive qualified settlement income from that N-11 or Form N-15 instruction booklet. Enter the tax on line 4.
plaintiff. Line 5 — If you used Form N-168 to figure your tax for 2022 (that is, you
c. You were the spouse or an immediate relative of the plaintiff. entered the amount from the 2022 Form N-168, line 22, on your 2022 Form
N-11, line 27 or Form N-15, line 44), enter on line 5 the amount from your
