Handle an audit

What do you do when the uncle sam comes calling? OFA and ANLA have received reports suggesting that the Internal Revenue Service (IRS) is stepping up audit activity of nursery growers.

Tax compliance can be particularly tricky for growers, because special rules apply to agricultural enterprises, such as when and how inventory is valued.

If you grow both nursery and greenhouse crops, as well as buy plants from others, you may face special challenges. Here are a few tips. But remember, each case is different, so seek professional advice.

If you are audited, immediately contact ANLA or OFA and report it.

The IRS does not contact an individual via e-mail for an initial appointment. Contact related to being selected for an audit will be made via telephone or mail only, due to disclosure requirements.

If you do get a call, be cooperative. There is little to be gained by confrontation. The IRS has extensive enforcement authority; if it wants to see specific records, more often than not, it will eventually secure the authority to do so.

Do not turn over anything to the IRS without first talking to your tax advisor.

Do not volunteer more than necessary. The examiner may be looking at a very narrow range of issues, and you certainly do not want to open up the proverbial “can of worms.”

Immediately contact your tax advisor, accountant, or attorney. Ask whether your advisor has specific experience and success in this area. If not, ask them to recommend someone who has.

Be familiar with your rights. They can be found at www.irs.gov/uac/Taxpayer-Rights. The IRS has standards for selecting a reasonable time and reasonable place for taxpayer interviews. However, if the IRS is insistent in conducting a field audit at your office, it may be difficult to prevent it from taking place.

The IRS will consider, on a case-by-case basis, written requests by taxpayers or their representatives to change the place set for an examination. In considering these requests, the following factors are considered:

• The location of the taxpayer’s current residence;
• The location of the taxpayer’s current principal place of business;
• The location at which the taxpayer’s books, records, and source documents are maintained;
• The location at which the Service can perform the examination most efficiently;
• The Service resources available at the location to which the taxpayer has requested a transfer; and

Other factors that indicate that conducting the examination at a particular location could pose undue inconvenience to the taxpayer.

You have the right to suspend an interview at any time to consult with your tax advisor.

Generally, the IRS can include returns filed within the last three years in an audit. Additional years can be added if a substantial error is identified. Generally, if a substantial error is identified, the IRS will not go back more than the last six years.

If an audit is for an older year, you may be requested to extend the statute of limitations for assessment of your tax return. The statute of limitations limits the time allowed to assess additional tax. It is generally three years after a return is due or was filed, whichever is later. There is also a statute of limitations for making refunds. You do not have to agree to extend the statute of limitations date.

Remember to report to ANLA or OFA if the IRS initiates an audit of your business.

For more: www.ofa.org