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:: Farmers Audit Techniques Guide - Chapter One - The Initial
Interview
Chapter
One - The Audit Flow
The
Initial Interview
Interview
Questions
The initial
interview of the farmer, as in
all audits, is very important.
Being knowledgeable in farm
terminology will help you get
the most from the interview,
since it puts the taxpayer more
at ease to freely discuss
business operations, problems,
yields, purchases, improvements
built, hobbies, children, new
plantings, etc. Always look for
ways to customize the interview
questions based on knowledge of
the taxpayer and specific
products. Initial interview
questions for general farms,
beef, dairy, swine, sheep, farm
vehicles and exotic animals are
available in ATGs’ and from the
SB/SE Agriculture Technical
Analyst at
http://sbse.web.irs.gov/TG/TGContact.htm The
IDR and initial interview
questionnaire can be used
together to ensure pertinent
questions and documents are
received. Add, modify or delete
questions to customize the
initial interview to the farmer.
Initial
interviews of farmers can be
hard to arrange. To accommodate
the farmer, try combining the
business tour with the initial
interview. During your tour, use
correct terminology, ask
open-ended questions, don’t be
afraid to ask for explanations,
and DON’T PRETEND TO
UNDERSTAND SOMETHING IF YOU
REALLY DON’T. Use it as an
opportunity for the farmer to
teach you about the industry.
Substance vs. Form and Active
vs. Material participation cases
are many times won or lost based
on information gathered by the
auditor during the initial
interview. Address these issues
immediately if they arise.
Tour of
Business
Insist that the
person giving the tour be
knowledgeable and consider the
following:
-
Do you
see young vines/trees? -
When were they planted?
When is the first
harvest? Check the
depreciation schedule
for the capitalization
of the vines/trees and
for the overhead
capitalized costs per
IRC § 263A, UNICAP
(See
Chapter 4, Expenses).
-
Do you
see improvements? - Look
for things such as
stakes, trellises,
fences, irrigation
systems, buildings, etc.
-
Are
there houses on the
property? - Many
taxpayers have bought
additional farms as
people retire and
leave. This can create
rental income or
employee housing issues.
-
Are
there calves at a dairy?
- Dairies have a high
incidence of unreported
calf sales. Ask and
verify what is done
with the bull calves. If
the calves are being
sold for cash, they may
be seen tethered by the
corrals waiting to be
taken to the auction
yard or to be picked-up
by a buyer.
-
What
kind of machinery is
there? - The farm
machinery should match
the crop produced. If it
doesn’t, then there
could be income from
renting out the
specialized equipment.
For example, if a grape
farmer has a cotton
picker or an almond
shaker, this should be
questioned.
-
Do you
see large trucks? - Some
farmers have large
trucks to haul their
crops to the packing
houses. During the
non-harvest season they
may haul hay or other
commodities for
additional income.
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