Alabama IRS Denies Losses due to "Pre Production Phase"
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  1. #1
    Join Date
    Jan 2016
    Location
    Madison, AL, USA
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    62

    Default Alabama IRS Denies Losses due to "Pre Production Phase"

    A few years ago I started a small apiary with the goal of growing to a 300+ hive operation. I'm still trying to survive the growing pains and taking significant losses along the way. I've been audited for the last couple of years. The audit findings were to deny my losses entirely due to me being in the "pre production phase." Has anyone here ever dealt with a similar issues? I didn't know this IRS rule existed.

    Thanks

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  3. #2
    Join Date
    Dec 2008
    Location
    Menomonee Falls, Wis.
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    4,144

    Default Re: Alabama IRS Denies Losses due to "Pre Production Phase"

    Would you ask an accountant for beekeeping advise?

    Crazy Roland

  4. #3
    Join Date
    Feb 2006
    Location
    Herrick, SD USA
    Posts
    6,616

    Default Re: Alabama IRS Denies Losses due to "Pre Production Phase"

    If you are trying to write off the losses of hives, the IRS won't go for that. You were already allowed deductions on the expenses that went into the hives.
    If its simply that they feel you aren't large enough to have a workable plan to profit as a business that's another matter and one on which you have to argue a good case. Do you file a schedule F?
    "People will generally accept facts as truth only if the facts agree with what they already believe."- Andy Rooney

  5. #4
    Join Date
    Jan 2016
    Location
    Madison, AL, USA
    Posts
    62

    Default Re: Alabama IRS Denies Losses due to "Pre Production Phase"

    Quote Originally Posted by Roland View Post
    Would you ask an accountant for beekeeping advise?

    Crazy Roland
    Well my accountant has asked me if I'm aware of this happening to any other beekeepers. He's never seen IRS make this claim on a livestock farm. In our mind's a bee farm is no different than a dairy farm in this sense.

    Quote Originally Posted by jim lyon View Post
    If you are trying to write off the losses of hives, the IRS won't go for that. You were already allowed deductions on the expenses that went into the hives.
    If its simply that they feel you aren't large enough to have a workable plan to profit as a business that's another matter and one on which you have to argue a good case. Do you file a schedule F?
    No, I didn't write off my hive losses, although I wish I could have. The write offs were primarily purchased equipment, workshop construction, tools and plants/fertilizer costs.

    Yes, I did file on a schedule f.

  6. #5
    Join Date
    Feb 2016
    Location
    Covington County, Alabama, USA
    Posts
    1,548

    Default Re: Alabama IRS Denies Losses due to "Pre Production Phase"

    Quote Originally Posted by CoryM465 View Post
    No, I didn't write off my hive losses, although I wish I could have. The write offs were primarily purchased equipment, workshop construction, tools and plants/fertilizer costs.
    I am not a tax guy or anyone that you would want to go to for trusted tax advice. However, I think you are being caught up in the "Start Up Cost" rules for starting a small business. In addition to your customary large capital investments that must be depreciated over time (buildings, vehicles, large machinery, etc.) the IRS seems to lump what they call "Start Up Costs" into a category that must be CAPITALIZED not EXPENSED within the first year of operation. I am not sure exactly how this works, but you could Google it and perhaps read some more about it.

    There seems to be a $5,000 cap on Start Up Costs that can be expensed in the first year of operation (Maybe an additional $5k for Administrative Costs?). Anything over that must be put on a depreciation schedule and expensed over time.

    You stated that the IRS "denied your losses." Are they saying that you simply cannot take them in the tax years audited, but can spread them out over future years, or are they saying that you will never get the benefit of those losses . . . ever?

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