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I did not know that growing grass was legal in Tennessee, lol.

I absolutely agree that a preparer can get sanctioned in cases where an activity (not just farming) is clearly a hobby and you're writing off losses against other income. (This is a general statement, and I think Edsel can argue effectively that this farmer is really involved in a farming trade.) Clients don't know what they don't know. We have a responsibility to explain hobby loss rules just like we have a responsibility to explain commuting miles and just like we have a responsibility to explain that you can't claim your sister's fourth kid on your return just because there is no benefit in sister claiming him. Not just explain these things, but be the boss, don't allow clients to do what they want, do what is correct. One of the two I disengaged from this summer was not even a farmer. He had a very dismal photography hobby. He came to me new for 2016 prep. Three previous returns had five figure Sch C losses. I convinced him he had a hobby, printed articles and a tax court memo, and we filed correctly for 2016. When he picked up, he remarked that we were counting the losses for 2017. Well, you probably will, but Rita won't be doing it. Here's one article about preparer due diligence: https://www.accountingweb.com/tax/irs/hobby-or-business-tax-preparer-due-diligence-part-1

I just went through an audit and the agent actually told me that it was selected because of 3 years of losses. This client went into the business of selling high end homes 3 million and up on average. 2013-no income just expenses, 2014-small income since she was apprenticing and only got a small percentage of commission. Expenses exceeded income. 2015 was more income but still showed a net loss. What saved us from having to argue the hobby rule with the agent is, a] she understood the business and knows the local market and b] 2016 had nice commissions and 2017 had a few large ones too.

I'm afraid he also has some exposure with IRS. Several years back, I remember IRS telling tax practitioners that many farmers were losing money year after year after year. If I remember correctly, what they basically said was the tax practitioners could be held responsible for continually showing losses for a farmer(s) if it was common sense to said practitioners that these farmers were either involved in hobbies or plan out stretching the truth. I was relieved as it gave me a way out. One of my clients called several CPAs he knew personally before he left my office. Each CPA repeated my feelings about these type clients.....go somewhere else.

I had one other worrisome thought that goes back to the missed election to opt out of the bonus depreciation. The election was missed yet that extra amount wasn't deducted, so the effect is that expenses and NOL were minimized, and there is no statement with the return that puts the bank on notice of that. We all know that banks think accountants have deep pockets and will try to lay blame on us when the loans go bad, and with the bank relying on these tax returns as part of the basis for their lending decisions, I think you may have some exposure here. This is not an insignificant amount of debt, so I'd suggest that you have documentation in your files that you and your client discussed the effect of making the election, that he made an informed decision on opting out, and make sure that the election is attached to the returns in future.

This happened here over the summer. Some stoned guy without a shirt, stole a tractor and drove it to town. He was asking people for sandwiches in the Walmart parking lot. Report: Shirtless tractor driver yells for sandwiches Man's driver's license had been suspended

I don’t know why driving a tractor to Walmart is funny to you people. My sister would do it in a heartbeat. And my sister in law drove one to the store to get cigarettes when she was 14.

My grievous error has been corrected, with sincere apologies.

You agreed with me but didn't like my post! I'm devastated.

Part of our reaction to your client's situation might have been because we didn't have all of the facts of this client's revenue stream, your mention of the NOLs, that he doesn't have any other job, and that it's hard to have time for anything else with his level of production and gross farm revenue. We now know that in addition to the farm operation and equipment sold, he has income from a separate trucking operation and machine rentals. JohnH made good points about the bank allowing the continued borrowing, and the ballooning debt you described is a problem. I've seen banks that use a client like this, one that looks great on paper with nice collateral and excellent credit, to prop up and offset other less-than-stellar loans in their portfolio.

I agree with Judy. 2 likes and 2 laughs is more akin to an electoral vote rather than a popular vote. Don't anybody dare respond to this post. It is only in jest and it will be deleted if Judy deems it necessary.

We click on the "like" for a variety of reasons so you shouldn't use those as affirmation or agreement with the technical aspect of the post. Likewise, a perfect answer that is correct in all aspects may garner zero likes at all. If someone is wrong, we aren't shy about pointing out the error and continuing the discussion. You'd have to know the personalities of the posters and those using that function. Many of our members stop visiting or posting off-season, and since you joined on April 16th of this year you may not know everyone well enough to judge the tone yet. I wouldn't consider 2 likes and 2 laughs a whole gallery of members considering the number of posts, posters, and views this topic has already had. I can only speak for myself, but my "like" was the mention of Rita telling off her client wanting to deduct a swimming pool and the visual of someone driving industrial farm equipment to Walmart, plus we love Rita and her way of breaking the tension with her humor.

I don't have any big-time farmers as clients, so I don't run into this type of situation. However, I agree that the lenders' practices are at the least highly suspicious. I can't recall how many times I've had to explain to clients why a bank turned them down because the bank lends money based on "ability to repay" rather than the size of the collateral. The client wants to borrow against the value of their assets, but the bank wants to see an income level sufficient to service the debt. Collateral is necessary, but it's usually the bank's fall-back position. Most banks hate to go after collateral when loan defaults. If what you describe is the norm, then it seems that banks dealing with farmers take a much different approach. The only way this guy can be continually buying new equipment is to roll over ballooning debt. One could jump to the conclusion that an underlying goal is to get possession of the land in the long run.

No problem - not intending to ask for an apology. We know each other well enough to not worry about that. It just seemed like a whole gallery of board members were tag-teaming with you to buy into the idea of a lying farmer when they didn't know the client or the situation. There is a worthy discussion about hobby income and why it should be avoided. You are forced to claim all the revenue on line 21 and are only allowed deductions on Sch A with a 2% throwaway. Imagine what $100,000 in farm revenue would do on line 21, and expenses limited on Sch A. To be honest, I would rather not even know about hobbies than to go through this phony collection activity on behalf of the IRS. But you can't ignore reporting $100K in revenue, especially when there are $15K in 1099s for machine hire. I congratulate you if you have your own farm operation and report a profit. Maybe 1/3 of my farmers report a profit, the rest of them are poor businessmen making uneconomic purchases, and even still have to pay a ton of tax money when they sell their property. One of the factors used by the IRS to determine hobby is how much time is spent on the activity - and if you have a farm yourself you can only imagine how much time is require to raise and sell $100,000 in a single year. For what it's worth, I am much more aggressive in disallowing Sch C losses than I am Sch F. And I won't put up with a farmer who spends $5000 in feed and $3000 in fertilizer, and never seems to sell more than 2-3 calves. Some of our job is knowledge of tax laws, and some of it is just plain common sense.

Edsel, my point was that if you lose money on a venture year after year after year, you may have a hobby, not a business. My guy whose farm I compared to a swimming pool was not lying about the numbers, he was lying about the definition of the activity. Lying was apparently too strong a word. My guy was mistaken because it goes on all the time and it lowers your tax liability so it must be good. You know - writing off the costs of keeping up and enjoying your property against your salary at the job in town. Also, the bad joke about driving tractors to WalMart was meant in fun and to suggest that your farmer may have some of this equipment more for personal enjoyment and convenience than for a true business purpose. That maybe you could minimize depreciation by assigning some of the costs to personal use and not depreciating some percentage at all. If the equipment he's buying is not reasonable and customary for the activity, he may be buying it because he wants it, which is fine, but it might be more of a personal expense than a business cost. I do apologize, my friend, I was excited about wrapping up a like-kind exchange for my own sister's tractor trade, and my comments came across in a way I did not intend. I never in a million years wanted to offend and I thought I was picking up the tone of your original post where you said his behavior was ridiculous, that he could not justify the expense, and there might be no end in sight. I'm sorry, I totally missed it.

Are you electing out of the bonus depreciation too? Does the farm show a profit in enough years that profit motive won't be questioned, or is this a very expensive hobby?

You could open a 529 plan and make yourself or your daughter beneficiary. Then when grandchild is born you can change the beneficiary. Would be a great head start, what a lucky kid.

"The Internal Revenue Service issued a new warning Tuesday to users of its online e-Services cautioning them to beware of a new phishing scam that attempts to trick tax professionals into “signing” a new e-Services user agreement. The phishing scam is actually trying to steal passwords and data, the IRS warned in an email to tax professionals. The IRS has been trying to migrate to new e- Services technology with improved authentication and security abilities, but has faced repeated delays. The IRS said that all tax professionals should be aware that as e-Services begins its move later this month to Secure Access authentication and its two-factor protections, cybercriminals are likely to make last-ditch efforts to steal passwords and data prior to the transition. The scam email claims to come from “e-Services Registration” and says “Important Update about Your e-Services Account” in the subject line. In part, the scam email states, “We are rolling out a new user agreement and all registered users must accept its revised terms to have access to e-Services and its products.” The email asks users to review and accept the agreement but takes them instead to a fake site !" Be careful out there !

My suspicions were confirmed yesterday that IRS doesn't stop an E-Filed returned if an incorrect birthdate is used for a spouse on the E-File Info page. Remember hearing at seminars that the dates of birth for the taxpayer and spouse were going to help prevent fraud. Huh....it might indeed help if returns with incorrect birth dates were rejected! This really doesn't surprise me.

Luck is when opportunity meets preparation. I am not surprised that you can run a farm profitably. Good business sense goes a long way when implemented.

I don't know why my brain recalls these trivial things, but "grievous error" in Russian is "grubuyu oshibku" (with all the u's sounding like ooooooooooooo, not oh).

Well, I could probably lose money if I had to have a John Deere with a cab and AC and a radio like my high maintenance little sister. I'm good with being a sitting duck for hornets on my cabless Kubota. She's the baby and always gets what she wants but I'm not bitter or anything. In all seriousness, I have lots of grass thanks to my daddy, good fencing thanks to my farmhand kids, and cows that grow fat calves. I am a lucky girl.

Tom, thanks for your hypotheses. They certainly provide some avenues to pursue. The house was re-fied in 2005 and spouse's name was on the loan papers and it was paid out of a joint account, although there are no longer any records to substantiate it.

You've put me on the carpet, so I am compelled to respond. For Rita, and the chorus of people who "like" what she says...he is not lying. Nobody is rude enough to call me a liar, but after lo these many years, no one seems to give me credit for knowing liars when I encounter them. I have some that I am suspicious are giving calves to their kids to sell in their own names, and various other situations where I believe people are tip-toeing around the truth. When the situation becomes such that I can no longer ignore common sense, I will quit them. It is written of the devil that his most powerful trait is his ability to deceive, so I imagine some few of them may be able to fool me. Remember that people can survive on losses if the losses are "on paper". Especially if there is an endless supply of collateral creating cash coming from loans. I comply with his request to furnish banks with copies of his tax return every year, and sure enough, when I prepare his taxes there are new loans. To put this in perspective, you might google up the value of 2500 acres in Williamson County, Tennessee and get a handle on just how much collateral is available. Below is what his farm income would be without the depreciation deduction. Remember, depreciation on his equipment costs him nothing except debt service, since it is bought with borrowed money. Year Schedule F(prior to depreciation) 4797 income 2016 32,135 23,427 2015 33,967 68,427 2014 63,185 0 2013 6,340 10,283 He also has a trucking operation where he hauls his own grain to market, and grain for other farmers, clearing around $50K per year. He can live somewhat comfortably on this income, as he does not have cash outflow for huge equipment expenditures. Stupid? Yes. A liar? No. This guy is 56 years old, and I've known him since he was a boy. He grew up two miles from where I did. Thanks to all who have responded in an attempt to advise how to reduce depreciation expense. But he won't be driving a manure spreader to WalMart.

I'm with Jack. No info to third parties. Anytime or for any reason.

I never send any taxpayer information to ANY third party. Period. I will send it to the taxpayer, then they can pass it along to whomever.

Another IRS scam announcement: "Tax professionals and their clients should be aware of a fake insurance tax form scam that is being used to access annuity and life insurance accounts. Cybercriminals currently are combining several tactics to create a complex scheme through which both tax professionals and taxpayers have been victimized."

If this were my thread, my answer would be: Because hobby. I hate these "businesses" that lose money year after year after year and I fired two this summer. I know, I know. IRS is not going to get them. I don't care. My farm business makes money. Sure enough. If you're a grown @$$ man losing money on a farm business, you're lying. Either it ain't a business or you ain't losing money. I told one that his farm was a swimming pool. You're trying to write off your swimming pool. Sorry, Edsel, I too am off on a rabbit trail. I don't see any way to minimize depreciation unless you say 50% of the use is personal or something. Have him drive it to church or Wal-Mart. All I can come up with.

I have a smoothed-out rough spot, an appointment for next week, and a strong need for a nap. Which I am going to indulge!

Lion, I have that trouble too, but I know enough of the answers to get through the security questions. I run into this every time after clearing my computer's cache. The question that usually pops up for us is about my husband's address from his first marriage that ended 27+ years ago! At least his ex didn't remarry, so I don't have that complication. It's totally ridiculous that there isn't a time limit on those things.

I can never pass those knowledge-based tests, because all the questions end up being about my ex-husband and his second wife. I don't know what bank has their mortgage or what street they lived on in Syracuse. I opened a UPS account using my current husband's name, because I knew what street his mother lived on ten years ago and other info about him and his family; have notices come to my email address. But, I can't open an e-Services account in my husband's name, for instance. I had to do one of the credit freezes via snail mail, sending in copies of DL, utility bills, etc., to prove who I am, because I couldn't answer the questions. And, in November, I'll go to a SS office (not all that near) with all my ID to prove who I am in person -- required to be in person, because I failed the questions -- so I can open up an online MySSA account. Very frustrating.

I sent a form out for e-signatures to a client who has the same name as his dad, who died almost TWENTY years ago. E-signature was cancelled because the "signer was deceased" and I had to re-send with a lower level of authentication. So there's *another* level of problem.

The Security Summit is working! Today I got two emails from IRS on this scam, one from Accounting Today, and another from NAEA. The partners in the summit are supposed to share info on new scams with each other and their constituents, and I see that they are in fact doing so. I don't think any of us would fall for this scam anyway since we know that legit emails from IRS never contain links but tell us to go to IRS.gov and log into our accounts. Speaking of which, their new website doesn't have the tax pro link. I used e-services the other day and actually had to google it to get there. Is it hidden somewhere I don't see? Yesterday Equifax admitted that almost 11 million driver license numbers were stolen along with everything else. This is what I've been afraid of. We still don't know exactly what data were taken, on whom. Anyone got a letter from Equifax yet telling you that you were a victim? They said they'd be sending them. When? And what good will they do if three months after they discovered the theft they are still learning what data were breached? With all that non-credit info out there, there is no way IRS will be able to tell the thief from the real taxpayer when those zillions of fake returns get filed. The crooks will be able to answer more of the identity verification questions correctly than we will.

When the IRS announced their new "no bid contract" with Equifax, they said it was because Equifax had a "unique set of capabilities." LOL

Well, with the IRS using bleeping EQUIFAX to "verify" who we are, they might as well just open all their systems to all and sundry, fer gosh sake. *WHAT* were they thinking? (More to the point, *who* got paid - and what, and how - for that one?)

The internet can be a dark and scary place....

It's a nice group now. I learn a lot there as well as here so I routinely use both.

I'm old....But, When the Saber program and William ended with Atx, the end was surely in sight...

It kind of sounds like the days of yesteryear.....the year, that is, when the board was shut down because they didn't like comments in regard to the issues that we all had that one year in particular when it was a fight every time we had to file a return!!!!! The board just vanished...poof...no word....just vanished! Oh, yes, I do remember well!