This article was previously published in Bird Breeder magazine and is reprinted here with permission of the author.
Making Taxes Less Taxing
by Laurella Desborough
The Tax Bite
In the past two years, there have been numerous bird breeders who have been audited by the IRS. The IRS has raised the issue of hobby versus business: Breeders are expected to prove that they indeed are running a business and not just taking deductions for an expensive hobby. For instance, in the San Francisco Bay area, newspapers printed articles about the IRS targeting "unusual" small businesses on the assumption that these businesses were potentially not quite legitimate. In other areas of the country, we are learning of audits on large and small bird breeders.
Many people have a great fear of an audit by the IRS. If you are filing tax returns regarding your bird business, you have probably read the informative articles by tax experts David Sefton and Jim Hawley in bird magazines. As they recommend, keeping detailed records is an absolute must. For instance, when audited, you will have to provide a detailed mileage log to support the mileage deduction. If any of your deductions or calculations involve original breeding stock, you will need documents detailing purchases or trades. If you have followed all these recommendations and you are audited, you may find that the auditors are adamant about your tax status and demand additional money. Statements such as, "We will disallow that deduction!" have been heard by some breeders who have been audited.
One aspect of the problem is that the IRS auditors, and even tax attorneys, are not familiar with the bird breeding business. Another aspect of the problem is that many of us have some pet birds and some birds that have been "retired" from breeding. These birds should be excluded from the tax paperwork. Bird breeders who are in an unresolved and difficult tax audit situation with the IRS might benefit from advice from a tax attorney.
In dealing with IRS audit problems, if you have done your paperwork correctly and followed the rules and you are making no progress with the audit, a visit to your Congressman may be helpful. Before you schedule a visit, prepare well. This is a last-ditch effort and should be undertaken with great care or it also will not succeed. Prepare a one- to two-page outline of your tax situation with simple, yet detailed, statements. Elected officials are quite busy and have a lot of people demanding their attention. You have to make your particular problem very clear in a few minutes. You may have only 15 or 20 minutes to present your case. You need to present your outline in paper form, speak to what is on the paper, answer questions and then take the guidance given.
Most likely the Congressman will listen, ask a few questions, determine whether or not your problem can be addressed and then direct an aide to assist you. The aide will do the actual work of providing names and numbers of one or more individuals who can be contacted to help you. These people may be within the IRS agency or outside of it. The aide will then be your contact person as long as needed. It is recommended that you pursue this course of action only after all else has failed; after you have worked with a tax attorney and been unsuccessful. This is a last resort, not a first effort. After your visit to the Congressman, send a thank-you letter for his or her time and attention.