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Anyone's Farm Been Audited?

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  • Anyone's Farm Been Audited?

    Just got my notice today..uggghh

    What makes it really bad is the year they are auditing - is the year my husband and I were separated and I moved out. Yeah - I was the one who kept the reciepts - he would trash them ...

    Yes - we have a good CPA now - but the one who did our taxes back then passed away.

  • #2

    Farms usually get audited because the IRS is trying to claim its a hobby- well if you had a loss. If you are in fault try to strike up a deal. Having a CPA on call will be very helpful.


    • #3
      Not to be rude.. but what year are they auditing (seems like it was awhile ago?)? I wonder how far back they will/can go? I always worry about that bc my farm business is in the red every year (legitimately).

      I would talk to your current cpa for tips/advice so you can prepare. Maybe they would offer to be present for consultation during questioning?

      Good luck!


      • #4
        I was audited in 2006 for 2001 for my boarding/lesson business. I was in a full scale panic as in my mind I had not kept the best of records... I had went through everything I had, put it in folders, got my mileage logs, my deposit/income records, my contracts with suppliers, and did the best I could to organize it. I went in on Friday the 13th for my audit (insert doom music here).

        The IRS agent was very nice, very helpful, and pleased to see that I brought so much information with me! She said lots of people just bring in boxes & expect them to go through it, and don't bring pertinent information to support their deductions. We went over some figures, she made copies of my contracts, mileage logs (which I supported with income receipts & mapquest), and some other things and said she'd be in touch, but not to worry too much.

        I ended up getting a refund...instead of the original state for $22,000 if I couldn't support my deductions!

        I don't want to go through it again as I was really sweating it, but if you can in any way support your claims, and you were honest in the first place, you're probably in pretty good shape.


        • #5
          Originally posted by DiablosHalo View Post
          Not to be rude.. but what year are they auditing (seems like it was awhile ago?)? I wonder how far back they will/can go? I always worry about that bc my farm business is in the red every year (legitimately).

          I would talk to your current cpa for tips/advice so you can prepare. Maybe they would offer to be present for consultation during questioning?

          Good luck!
          I believe it is 7 years for an audit, but if they suspect fraud they can go anytime.


          • #6
            We haven't been audited (touch wood) but the state sent us a demand letter wanting to know why we hadn't filed for 2006. Quite frightening really, they put the usual "you have so many days to respond or else" in there. We had to wait for the accountant to get back from vacation and then he sent them copies and an explanatory letter of our situation. Got a letter back from the state that was actually nice, "thank you, blah blah, no further action is needed at this time".. Accountants are wonderful things to have.

            Good luck, I've had friends audited and they say for us small business people it is more a pain than anything else.
            Courageous Weenie Eventer Wannabe
            Incredible Invisible


            • #7
              Not a farm audit, but our family business (residential real estate rental) just got audited for 2003. It was a nightmare. We had everything we needed and then some regarding receipts for things we'd claimed as deductibles as we've been in this business for 35 years, and we were prepared to deal with an audit. We ended up hiring a CPA (at $725/hour nonetheless- ended up costing us over $30k) to deal with the unreasonable agent on our case, and we're now free and clear. A good CPA is critical to any audit.
              Here today, gone tomorrow...


              • #8
                We got audited for 2003, but we don't have a farm or business so it was just a "we think you owe another $13,000 unless you can prove otherwise; please send us a check" audit. I talked to the agent, found out what the IRS wanted to see and sent very detailed spreadsheets with backup explaining everything. I'm a CPA. Not practicing now, but I used to work at a firm that did IRS audits so we have very good backup. End result was that they accepted our return as is, with no money owed. There's a good book called "Stand Up to the IRS" that explains tax audits. You will want the assistance of a CPA, but knowing what's going on is always very helpful and this book explains a lot.

                Start now trying to reconstruct any important areas for which your hubby trashed receipts. For example, if you have no receipts from the feed store but deducted $10,000 for feed, support that with a spreadsheet that has number of horses, bags of feed per week, price per bag. Your CPA can advise you of potential trouble areas. Working with your CPA can keep your fees down.

                The IRS is understaffed, and they try to pick audits that will be profitable. They usually start their audits very close to the statute of limitations deadline. If they send you a form asking you to extend the statute of limitations on your audit, consult with your CPA before signing anything.

                Good luck!
                It's 2017. Do you know where your old horse is?

                www.streamhorsetv.com -- website with horse show livestream listings and links.


                • #9
                  We had an 'on site' audit one year. I was happier about that because the agent could SEE the horse facilities and work involved. Turns out the audit was triggered by an inherited house and corresponding tax questions, but they wanted to see everything. I went through the usual fuss, reconstructing mileage logs, etc.
                  Agent asked if horse business made a profit, and I showed her the inch thick stack of vet bills for several surgeries on rehab horses that year, and she believed all of it. We were lucky to have bought the H&R Block insurance where their senior tax preparer comes and sits through the audit - that is definately worth a small amount of money each year. He piped up several times when she asked for something he thought she could not ask for.

                  But the useful info here is that the FIRST thing the auditor did was to compare all deposits in all checkbooks with income declared. I guess if that jibes exactly, everything else is generally OK also, and they quit being suspicious.

                  We ended up having to pay $50 to depreciate an improvement that could not be deducted 100% as we had done. $50 to get an IRS agent out of your house? Golden!
                  Comprehensive Equestrian Site Planning and Facility Design


                  • #10
                    This farm I own now was audited in its first year of business. The auditor came to the farm. We had everything in order and ready for her to inspect. She was nice and very helpful about giving us advice and information on taxation within all our farms ventures. She had lunch with us, left on a good note and then sent us a bill for $50 underpayment. We were happy and wouldn't fear another audit. So long as you have all your paperwork in order I think you will find them quite accommodating, at least they were with us.


                    • #11
                      Originally posted by DiablosHalo View Post
                      Not to be rude.. but what year are they auditing (seems like it was awhile ago?)? I wonder how far back they will/can go? I always worry about that bc my farm business is in the red every year (legitimately).

                      I would talk to your current cpa for tips/advice so you can prepare. Maybe they would offer to be present for consultation during questioning?

                      Good luck!
                      We do have a CPA representing us and the year they are requesting is 2007.


                      • #12
                        We were audited - the farm and our other business as well. Our CPA was there, as were we, and we all keep meticulous records. The agent was not finding what he wanted to find, and quite persistant in requesting this or that, and each time we had this or that at our fingertips. I don't know what they thought they were going to find, but thank god I am a detail oriented record keeper. And we've always leaned to the conservative side about taking deductions - if it is on the line, we don't do it.

                        Which means we've probably left a lot of money on the table in our years of poker playing with the IRS. Because in the end, it was determined that the IRS owed us a little over $7,000 in a refund. So it worked out really well for us in the end.
                        Last edited by TripleRipple; Feb. 10, 2010, 01:24 PM.