Lancelot Acres

Our ongoing (and seemingly neverending) audit venture...

Well after our first meeting with the auditor, we looked to owe about $6500.  Then we talked to H&R Block, who we filed our taxes with for 2005 and 2006 (the years we were being auditted for).  We bought the Peace of Mind gaurantee for 2006 but not 2005.  H & R Block will pay everything we owe for 2006, and all interest and fees for 2005.  That leaves us owing about $3000.  Better than $6500, but still a lot of money.  Especially when our tax preparer (at H&R Block) is the sole reason we owe a good chunk of the money.

The $3000 could get lowered a bit after I sent this last bit of information to the audittor today.  She was asking for a complete inventory of every animal on our farm for the last 4 years.  Not only that, but we had to make a list that looked like this:

DATE BOUGHT / PURCHASE PRICE/ QTY / ANIMAL / DATE SOLD/ SALE PRICE

Now that really wasn't that hard, but it was a little time consuming.  I had all the information in our records, it was just putting it all together on one sheet.  Lance and I did that together last night.  The hard part was that Lauren is really sick and cries and cries at times when we were trying to concentrate on the paperwork. 

Other than the inventory for the last 4 years, we had to provide receipts for our farm equiptment that we depreciated for those years.  We had all the receipts, but they are handwritten ones and she frowned on that.  Hopefully she'll accept them anyway, we'll just have to wait and see.  When you buy from small farmers, you get handwritten receipts and you deal in cash, both of which are frowned on in an audit because there is no paper trail.  I hope she realizes that I did all I could to keep accurate records.

We also depreciated a pickup truck that we only use on the farm.  It doesn't even leave the property unless we are picking up hay down the road.  It is used solely for the farm, hauling animals from the field and hauling fence supplies.  She wanted to know exactly what we use it for.  I don't know if she'll disallow that or not either. 

The good thing is that I think she disallowed everything already, so anything she allows back on will help lower what we owe. 

We didn't buy any new animals in 2007, but we still had our goat herd.  We didn't depreciate any of our equiptment because we weren't using it.  I am not sure if that's proper or not.  If you stop the business, do you still depreciate the equiptment if you still own it?  Neither the audittor nor the H&R Block rep could answer that for us.

Our fence is supposed to be depreciated as well.  We never did that, so hopefully that might help us out a little when she adds that in.

"IF" this audit changes our gross profit those years then we have to refile our Michigan State taxes for those years.  Great, eh?  It's not bad enough to owe one place, now we'll owe another too.  Sigh.

The H&R Block rep was very surpised that we have no penalty fees yet.  All the penalties were zeroed out.  The rep said that was unheard of.  I'm not sure why we aren't being penalized, hopefully it's because the audittor likes us.  LOL

The audittor said that if we do continue to make money in the future, we can put it under hobby and include expenses and profits in that area instead of filing an actual farm form.

I just thought I'd write everything down for a reference.  I'm sure it's not very interesting to read.  LOL

Blah on audits!  They suck even when you are honest in your filings.  :(