The IRS targets the agriculture industry and looks at farming operations with a skeptical eye when evaluating tax returns for auditing. What is common for farmers can also hold true for other ag businesses. The nuances of the industry are complex and volatile because of varying economic and weather conditions. This can lead to difficulty discerning what should be considered income. And it can be a pretty perplexing task to depreciate a lot of livestock or equipment.

Be sure to have your books in order and understand the implications of your business entity. Sometimes businesses are structured as sole proprietorships. The IRS often wonders if sole proprietorship businesses are commingling personal and business accounts. If so, there may be an underreporting of income, leading to a cheaper tax bill. This is one of the first things the IRS looks for. Another is whether figures listed in books appear to be rounded or estimated.

If an audit is already initiated, they will ask you to provide all the information pertaining to your operation. The IRS will send an Information Document Request (IDR) and provide an Initial Interview Questionnaire to generate as much information as possible before sending out an agent. They like to use something called the Front Loading Technique, and if you’re able to provide this information, the process will be much more pleasant.