FARMING And Audit And Appeal Procedures

Question 1

In addition to filing schedule F, a farmer must file…

2) Why?

Answer 1

Schedule SE

2) in order to compute self employment tax on farm earnings

Question 2

Partnerships engaged in farming must file…

Corporations engaged in farming must file appropriate…

Answer 2

Partnerships: Form 1065

Corp: Form 1120

Question 3

Income and expenses from farming are generally treated in…

Answer 3

The same manner as income and expenses from any other business

Question 4

A cash basis farmer who receives insurance proceeds as a result of destruction or damage to crops may elect to…

Answer 4

Include proceeds in income for year after year of damage

Question 5

A cash basis farmer who receives insurance proceeds as a result of destruction or damage to crops may elect to include the proceeds in income for the year after the year of damage if the farmer can show that the…

Answer 5

Income from the crops would normally have been reported in the following year

Question 6

Income from sale of crop is normally reported…

Answer 6

In year of sale

Question 7

If the farmer has pledged all of or part of the crop production to secure a Commodity Credit Corporation loan, the farmer may elect to report…2

Answer 7

1 The loan proceeds as income in the year received

2 rather than reporting income in the year the crop is sold

Question 8

With an election to report Commodity Credit Corporation proceeds as income, the amount reported as income becomes…2

Answer 8

1 the farmers basis for the crop and

2 used to determine gain or loss from sale of crop

Question 9

A farmer may generally deduct soil and water conservation expenditure that are consistent with…

Answer 9

Conservation plan approved by federal or state agency

Question 10

Deductions for foil and water conservation expenditures are limited to…

Answer 10

25% of farmer’s gross income from farming

Question 11

Excess expenses that can’t be deducted for soil and water expenditures in the current year have…

Answer 11

1 unlimited number of carryover years

2 subject to 25% deduction limitation/year

Question 12

Expenses related to draining of wetlands or to land preparation for the installation of center pivot irrigation systems may…

Answer 12

Not be deducted under soil and water conservation provision

Question 13

Land clearing expenses must be…

Answer 13

Capitalized and added to farmer’s basis in land

Question 14

Cash basis farmers can generally deduct…

Answer 14

Prepaid feed costs in year of payment

Question 15

Cash basis farmers can generally deduct prepaid feed costs in year of payment if…

Answer 15

The deduction does not materially distort income

Question 16

No deduction is allowed for advance payments for feed, seed, fertilizer or other supplies to extent that…2

Answer 16

1 Such prepayments exceed 50% of total deductible farming
expenses

2 deductible farming expenses exclude prepaid items

Question 17

The cost of most tangible personal property used in a farming business cannot be depreciated under the 200% declining balance method but instead is generally recovered using…

Answer 17

MACRS 150% decline balance method over 5 year period

Question 18

An individual engaged in farming can elect to determine current year tax liability by…2

Answer 18

1 averaging over previous 3 years

2 all or part of his current year income from farming

Question 19

Audit and appeal procedures:

Taxpayer makes determination of tax when…

Answer 19

Return is filed

Question 20

Audit and appeal procedures:

Examination of questionable returns may be conducted by…3

Answer 20

1 correspondence

2 in IRS office

3 at tax payer’s place of business

Question 21

Audit and appeal procedures:

Office audit

Answer 21

Examination made in IRS office

Question 22

Audit and appeal procedures:

Field audit

Answer 22

Examination made at taxpayer’s place of business

Question 23

Audit and appeal procedures:

If taxpayer does not agree with the changes proposed by the examiner and the examination was made in an IRS office or by correspondence, the tax payer may…

Answer 23

Request meeting with examiner’s supervisor

Question 24

Audit and appeal procedures:

If no agreement is reached or if examination was conducted in the field, the IRS will send taxpayer…2

Answer 24

1 copy if examination report

2 thirty day letter

Question 25

Audit and appeal procedures:

Thirty day letter

Answer 25

Sent to tax payer stating proposed changes

Question 26

Audit and appeal procedures:

When thirty day letter is received, tax payer has thirty days to…

Answer 26

1 accept deficiency

2 appeal examiner’s findings

3 disregard and wait for 90 day letter

Question 27

Audit and appeal procedures:

90 day letter is a…

Answer 27

Statutory notice of deficiency

Question 28

Audit and appeal procedures:

If taxpayer has appealed and agreement is not reached at appellate level…

Answer 28

90 day letter is sent

Question 29

Audit and appeal procedures:

Under 90 day letter, the taxpayer has 90 days to…

Answer 29

File petition in tax court

Question 30

Audit and appeal procedures:

Assessment and collection are prohibited as long as…

Answer 30

Tax payer can petition tax court

Question 31

Audit and appeal procedures:

Payment of deficiency is…

Answer 31

Not required before going to tax court

Question 32

Audit and appeal procedures:

If petition is not filed within 90 days…2

Answer 32

1 the tax deficiency is assessed and

2 amount is subject to collection if not paid within 10 days

Question 33

An individual engaged in farming must file…

Answer 33

Schedule F (form 1040), Farm Income and Expenses