FARMING And Audit And Appeal Procedures Flashcards
In addition to filing schedule F, a farmer must file…
2) Why?
Schedule SE
2) in order to compute self employment tax on farm earnings
Partnerships engaged in farming must file…
Corporations engaged in farming must file appropriate…
Partnerships: Form 1065
Corp: Form 1120
Income and expenses from farming are generally treated in…
The same manner as income and expenses from any other business
A cash basis farmer who receives insurance proceeds as a result of destruction or damage to crops may elect to…
Include proceeds in income for year after year of damage
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…
Income from the crops would normally have been reported in the following year
Income from sale of crop is normally reported…
In year of sale
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
1 The loan proceeds as income in the year received
2 rather than reporting income in the year the crop is sold
With an election to report Commodity Credit Corporation proceeds as income, the amount reported as income becomes…2
1 the farmers basis for the crop and
2 used to determine gain or loss from sale of crop
A farmer may generally deduct soil and water conservation expenditure that are consistent with…
Conservation plan approved by federal or state agency
Deductions for foil and water conservation expenditures are limited to…
25% of farmer’s gross income from farming
Excess expenses that can’t be deducted for soil and water expenditures in the current year have…
1 unlimited number of carryover years
2 subject to 25% deduction limitation/year
Expenses related to draining of wetlands or to land preparation for the installation of center pivot irrigation systems may…
Not be deducted under soil and water conservation provision
Land clearing expenses must be…
Capitalized and added to farmer’s basis in land
Cash basis farmers can generally deduct…
Prepaid feed costs in year of payment
Cash basis farmers can generally deduct prepaid feed costs in year of payment if…
The deduction does not materially distort income
No deduction is allowed for advance payments for feed, seed, fertilizer or other supplies to extent that…2
1 Such prepayments exceed 50% of total deductible farming
expenses
2 deductible farming expenses exclude prepaid items
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…
MACRS 150% decline balance method over 5 year period
An individual engaged in farming can elect to determine current year tax liability by…2
1 averaging over previous 3 years
2 all or part of his current year income from farming
Audit and appeal procedures:
Taxpayer makes determination of tax when…
Return is filed
Audit and appeal procedures:
Examination of questionable returns may be conducted by…3
1 correspondence
2 in IRS office
3 at tax payer’s place of business
Audit and appeal procedures:
Office audit
Examination made in IRS office
Audit and appeal procedures:
Field audit
Examination made at taxpayer’s place of business
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…
Request meeting with examiner’s supervisor
Audit and appeal procedures:
If no agreement is reached or if examination was conducted in the field, the IRS will send taxpayer…2
1 copy if examination report
2 thirty day letter
Audit and appeal procedures:
Thirty day letter
Sent to tax payer stating proposed changes
Audit and appeal procedures:
When thirty day letter is received, tax payer has thirty days to…
1 accept deficiency
2 appeal examiner’s findings
3 disregard and wait for 90 day letter
Audit and appeal procedures:
90 day letter is a…
Statutory notice of deficiency
Audit and appeal procedures:
If taxpayer has appealed and agreement is not reached at appellate level…
90 day letter is sent
Audit and appeal procedures:
Under 90 day letter, the taxpayer has 90 days to…
File petition in tax court
Audit and appeal procedures:
Assessment and collection are prohibited as long as…
Tax payer can petition tax court
Audit and appeal procedures:
Payment of deficiency is…
Not required before going to tax court
Audit and appeal procedures:
If petition is not filed within 90 days…2
1 the tax deficiency is assessed and
2 amount is subject to collection if not paid within 10 days
An individual engaged in farming must file…
Schedule F (form 1040), Farm Income and Expenses
