IRS Audits - Business Plans
Question: Does the client conduct their horse operation as a horse BUSINESS?
Answer: The reviewing of management and operations policies and procedures is an integral part of the process associated with determining the feasibility of prudent and reasonable business practices.
Question: In the eyes of the court, how realistic is a BUSINESS plan?
Answer: The establishment of a business plan for the horse business is necessary to achieve realistic goals and satisfy the demands of tax examinations. The plan can be implied or written, but there must be a clear image of the intent. And when it is backed by a traceable marketing plan, the intent can be established.
Question: How important is it to have a marketing plan for the sales and services associated with the horse BUSINESS?
Answer: A marketing plan is an important tool in determining the intention of the horse owner. A marketing plan includes the methods and techniques used to promote and sell the product or services of the owner/farm. Without a marketing plan, the owner/breeder is operating in a non-businesslike manner.
Question: Can your horse farm BUSINESS pass the IRS 9 point test?
Answer: Yes, there is a 9 point IRS test which includes, Manner of Operation, Expertise, Time & Effort, Expectation of Appreciation, Success in Other Businesses, History of Loss/Profit, Financial Status, Personal Pleasure and Amount of Occasional Profits. It is a test to determine the substance of the activities in these areas.
These answers represent common sense replies, but horse owners need to be prepared to explain and/or defend their actions and business decisions. With our guidance these plans can be established in the beginning, following simple steps with realistic objectives. Or, after the fact, we can work with the horse owner and legal counsel to assess the ‘unwritten’ motives for operation and business which answer these questions.
No one likes an audit, whether for tax purposes or a review of management and operations. We can offer a new perspective of horse expertise to seek a reasonable solution.
