Horses and the IRS

[appendixqh]

Ok, our horse farm was being audited for tax year 2004, and within 1 1/2 hours of an audit scheduled for 2 days, the auditor said we were not a business, and decided to audit 2003 as well. We did the old thing, talked to his supervisor (I kid you not, the supervisors name was Muhammed Ali )and got another auditor to come and do a real audit. BUT the damage was done and we still had to continue being audited with 2003 as well as 2004. NOW, we haven't even finished the audit on those two years, and yesterday in the mail we received a letter from ANOTHER IRS agent, at another office all together, saying that they are going to audit 2005, and have the 2004 books ready as he may audit those as well. We did the thing again and are trying to get the 2005 audit sent to the same guy currently working 2003 and 2004.

1st off, is anyone else dealing with this type of crap? ...

and, if anyone is given notice of an audit on their horse business, I will gladly GIVE you a copy my reply to the IRS, complete with successful tax court cases for reference. We are beating the irs, but it is a pain. Also, for those of you in horse business, I can gladly send you a list of the 9 criteria the IRS uses to judge if you are a hobby or a business, so you can protect yourself in (or if you guys want I can post it in the forums!)

 

[Chasey_Lane]

What kind of horse "business" do you operate?

 

[appendixqh]

What kind of horse "business" do you operate?

In 2003 we started breeding for appendix QH's. Now we have our first set of two year olds and we will start showing those and promoting them. We also board 1 to 3 horses.

 

[jetmonkey]

Horse business = business of losing money?

 

[Chasey_Lane]

In 2003 we started breeding for appendix QH's. Now we have our first set of two year olds and we will start showing those and promoting them. We also board 1 to 3 horses.

And you do this for business purposes, correct?

 

[Cowgirl]

And you do this for business purposes, correct?

I think she was saying they did have a business, while the IRS man was saying it wasn't a business.

 

[appendixqh]

Wow, I got some quick PM's with that one!

Here are the nine factors, In my big response I listed excerpts from successful and unsuccessful cases and the likeness of each. Glad to email it to who ever wants it...it is just too big to post the whole thing here.

9 Factors

Factor 1. Manner in Which the Taxpayer Carries on the Activity.

Factor 2. The Expertise of the Taxpayer or his Advisors.

Factor 3. The Time and Effort Expended by the Taxpayer in Carrying on the Activity.

Factor 4. The Expectation That the Assets Used in the Activity May Appreciate in Value.

Factor 5. The Success of the Taxpayer in Carrying on Other Similar or Dissimilar Activities.

Factor 6. The Taxpayer's History of Income or Losses With Respect to the Activity.

Factor 7. Amount of Occasional Profits, If Any.

Factor 8. The Financial Status of the Tax Payer

Factor 9. Elements of Personal Pleasure or Recreation

 

[Chasey_Lane]

I think she was saying they did have a business, while the IRS man was saying it wasn't a business.

So you're saying she has a business, right?

 

[appendixqh]

I think she was saying they did have a business, while the IRS man was saying it wasn't a business.

You are absolutey correct. The IRS gives horse business 7 years, of which 2 years must show profit, and they will give concessions if continued losses are justified but shows that profit is attainable. We approached this as a business, and the first IRS agent immediately dismissed it as a hobby. The second agent, actually looked at our records and said we complied with the 9 factors and that we did operate as a business.

 

[Cowgirl]

So you're saying she has a business, right?

Yes.

 

[DQ2B]

You are absolutey correct. The IRS gives horse business 7 years, of which 2 years must show profit, and they will give concessions if continued losses are justified but shows that profit is attainable. We approached this as a business, and the first IRS agent immediately dismissed it as a hobby. The second agent, actually looked at our records and said we complied with the 9 factors and that we did operate as a business.

I'm so glad you posted this. I'm going to print it out to show my husband who is driving me crazy about boarding one or two horses as a "business." I keep telling him that IRS will surely consider it a hobby.

 

[appendixqh]

I'm so glad you posted this. I'm going to print it out to show my husband who is driving me crazy about boarding one or two horses as a "business." I keep telling him that IRS will surely consider it a hobby.

Very glad to help!!!

 

[Sadielady]

My poor parents have gone through the whole IRS horse business thing. My dad hates them. They don't let up, and put you through a lot. I feel for you. Good luck.

 

[TWHFAN1]

Ok, our horse farm was being audited for tax year 2004, and within 1 1/2 hours of an audit scheduled for 2 days, the auditor said we were not a business, and decided to audit 2003 as well. We did the old thing, talked to his supervisor (I kid you not, the supervisors name was Muhammed Ali )and got another auditor to come and do a real audit. BUT the damage was done and we still had to continue being audited with 2003 as well as 2004. NOW, we haven't even finished the audit on those two years, and yesterday in the mail we received a letter from ANOTHER IRS agent, at another office all together, saying that they are going to audit 2005, and have the 2004 books ready as he may audit those as well. We did the thing again and are trying to get the 2005 audit sent to the same guy currently working 2003 and 2004.

1st off, is anyone else dealing with this type of crap? ...

and, if anyone is given notice of an audit on their horse business, I will gladly GIVE you a copy my reply to the IRS, complete with successful tax court cases for reference. We are beating the irs, but it is a pain. Also, for those of you in horse business, I can gladly send you a list of the 9 criteria the IRS uses to judge if you are a hobby or a business, so you can protect yourself in (or if you guys want I can post it in the forums!)

Please pm it to me, I would be very interested to read it! Thanks !

 

[TWHFAN1]

I'm so glad you posted this. I'm going to print it out to show my husband who is driving me crazy about boarding one or two horses as a "business." I keep telling him that IRS will surely consider it a hobby.

Hey girl, So you are no longer at Wheatly's?? Does Rhonda board with you? If So give her a big "ole Hello from me!

 

[DQ2B]

Hey girl, So you are no longer at Wheatly's?? Does Rhonda board with you? If So give her a big "ole Hello from me!

Hi Cassandra. How are ya? Rhonda is still at Wheatley's, I'm inbetween my place and Wheatley's. Horses are at my home right now since it got so bloody cold this week and they still don't have a run-in in the big field at Wheatley's. My stalls/run-in are done but my place isn't really ready for full use (arena mainly and aisleways) so they go back this weekend. I'll be sure to tell Rhonda you said hi.

 

[MorganLover]

That is awful that they are going all the way back to 03 figures huh, it is now 2007 and they just now decided to audit you. How long have you been in "business" have you shown a loss for each year?

I am worried about my daycare business b/c for the past 3 years now i have been at a total loss. I can't fill my daycare and have more write offs then income for the past 3 years, so that is worrying me that i will get audited for it. But i will be getting out of daycare very soon so this will be the last year i have to deal with it.

I just don't get it they want you to report your "profit" but don't want you to have a loss, that makes no sense. You HAVE to report your extra income with the business or get in big trouble, but WHY do you have too, your boarders don't submit a yearly pay out to you to write it off for themselves do they? what about when you sell one of your horses, the new owners don't send the IRS the profit you made (like me i have too show ALL profit b/c parents can write off up to a few thousand for daycare.) So here you are doing things the "legal" way and reporting all income and they are pounding on you for it. when you could of done what most do and never report the income in the first place. It sucks to be honest.