Ag-Visors

The IRS Manual has a section in the Audit Technique Guide entitled “IRC Section 183: Farm Hobby Losses With Cattle Operations and Horse Activities.” The guide is intended to alert IRS auditors to situations pertaining to the horse and cattle industries. The guide says that, “Current trends indicate that these two activities, due to their nature, contain certain opportunities for taxpayer abuse.” Auditors are advised:  “Many of the taxpayers who potentially fall under the provisions of IRC section 183 with respect to horse and cattle activities have been involved in such activities during their youth. These taxpayers have grown up on farms or had close relatives who operated farms. Other taxpayers had unfulfilled childhood aspirations to be involved with such activities, but circumstances prevented participation. As adults, these taxpayers have achieved the financial wherewithal which permits participation.”

Well the winter storms have hit. We have 8 inches of snow and ice. Hopefully, this article finds everyone safe and warm. But, what are some tips for this winter?

An important consideration in audits is Factor No. 4 of the IRS Regulations.  This Factor is called “Expectation That Assets Will Appreciate in Value.” The term “profit” in IRS Regulations encompasses appreciation in the value of assets such as land and/or livestock used in the activity, and was discussed in an early case, Engdahl v. IRS. The taxpayer’s land appreciated from $83,l46 to $225,000 and the livestock appreciated by $l8,000 over their cost basis. The Tax Court held that this in itself was indicative of a profit motive. Later, other decisions looked favorably on evidence that the taxpayer’s assets, particularly farm property, had appreciated in value.

Today, our lives seem to be run by technology: smart phones, GPS, computer programming, social media, to name just a few. Technology has allowed those of us in the farming and ranching industries to make outstanding, and in some cases, almost unbelievable advances. More food, fiber and other raw commodities are being produced with fewer resources than our forefathers had. Thanks to electronic communications, we are able to spend more time bettering our operations. But with the rise of electronic communication comes the fall of personal interaction. And today, more than ever, relationships matter. Not just for our social and emotional health, but also our economic health. The amount of time invested in a relationship, business or personal, indicates how much we care about that person or business doing well.

Today, our lives seem to be run by technology: smart phones, GPS, computer programming, social media, to name just a few. Technology has allowed those of us in the farming and ranching industries to make outstanding, and in some cases, almost unbelievable advances. More food, fiber and other raw commodities are being produced with fewer resources than our forefathers had. Thanks to electronic communications, we are able to spend more time bettering our operations. But with the rise of electronic communication comes the fall of personal interaction. And today, more than ever, relationships matter. Not just for our social and emotional health, but also our economic health. The amount of time invested in a relationship, business or personal, indicates how much we care about that person or business doing well.

In the Tax Court case, Richard H. Daley, T.C. Memo l996-259, an Arizona surgeon was denied deductions with respect to his cutting horse activity. The Tax Court, which in recent years has become more and more hard-nosed, concluded that the activity was not conducted for profit within the relevant IRS Regulations.

In all efforts of continuing my last article, there are a few more things to help our cattle here in the fall.

With the season changing we need to focus on what we need to do for our animals. With fall here, winter is just around the corner. All of us need to be prepared. I have also heard that they have found a spoon in the persimmon this year. Normally, I have heard that means we will be scooping snow in the winter. I have also heard that for every foggy morning in July we will get a snow for each. So, we may be in for it this winter.

Proper decision-making and advance planning are crucial elements in operating a profitable livestock venture. Ever since the inception of income tax, all areas of farming have enjoyed generous tax benefits.

One of my favorite songs is “The Farmer and the Cowman” from “Oklahoma.” Agriculture is one of the most diverse industries we have, and some of us have very strong opinions on which part of agriculture is the best. That’s why I love this song – it lightheartedly speaks the truth. While we all have an opinion on our different parts in agriculture, one thing we can agree on is they all have their place in the industry. And more and more, we are finding ourselves being involved personally in different aspects of agriculture as we diversify our operations.