How to Handle an IRS Audit
By John Alan Cohan, Attorney at Law

Excessive Attorney at Law business deductions by owners and breeders of horses, livestock or general farmers--or in other businesses activities-- can be a red flag that triggers IRS audits.... click for more.

An area of concern in IRS audits of farming, livestock and horse activities is the amount of time expended by the taxpayer in the activity.

A recurring problem is that taxpayers do not keep contemporaneous time records, but instead “reconstruct” time records in the face of an audit.  This can always be a hurdle because it suggests that you did not really conduct the activity in a businesslike manner, but instead simply prepared self-serving records after the fact, and only because the IRS has indicated its intention to conduct an audit.... click for more

Livestock businesses should be operated basically in the same way as other business, utilizing business principles and judgment in decision-making, and maintaining appropriate books and records.  For many ranchers, this activity is a second venture, entered into to supplement retirement income or with the expectation that assets will appreciate in value and later be sold, together with the ranch, at a profit....               click for more

Operating in a Businesslike Manner
By John Alan Cohan, Attorney at Law

In hobby loss audits, the IRS sometimes views horse activities as a means of generating tax losses, rather than as a profit-oriented venture.  The IRS gives the greatest problems to individuals who have had a significant history of losses that they use to write off  other income... click for more

Many people who own livestock farms are full-time professionals in non-farming fields--doctors, for instance.  The IRS often enough will assess deficiencies against these individuals based on the idea that the activity is simply a means of generating tax write-offs... click for more

An area of concern for people in the horse, livestock and farming industries--among many other fields--is how to withstand IRS scrutiny in the event of an audit. 

In judging whether you are engaged in a business rather than a hobby, one element is whether you have consulted experts so as to determine if the activity is conducted in accordance with IRS Regulations.... click for more

Many years ago a federal court defined the word “profit” as “the advantage or gain resulting from the investment of capital, or the acquisition of money beyond the amount expended; a pecuniary gain.”  The meaning of “profit” is important not only in computing tax liability, but in determining a taxpayer’s motive for entering into a transaction, or establishing a livestock or other farming business.  click for more