Market Segment Specialization Program Poultry Industry Training 3123-013 (03/2002) TPDS No. 87537E The IRS Mission Provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. 2-1 3123-013 Poultry Industry Table of Contents Page No. INTRODUCTION Chickens.....................................................................................................ix Primary Breeders ...........................................................................ix Breeders .........................................................................................x Broilers...........................................................................................xi Layers.............................................................................................xi Turkeys ......................................................................................................xii Support Operations ....................................................................................xii Ducks .........................................................................................................xiii Geese..........................................................................................................xiii CHAPTER 1, IRC SECTION 447(i) Introduction................................................................................................1-1 Prior Law ...................................................................................................1-1 IRC section 447 .........................................................................................1-2 Gross Receipts Test .......................................................................1-3 Family Corporations ......................................................................1-4 IRC section 481 .............................................................................1-4 Suspense Account ..........................................................................1-5 Recapture Rules ─ Suspense Account.......................................................1-6 Changes Made by Taxpayer Relief Act of 1997........................................1-7 Summary....................................................................................................1-7 CHAPTER 2, FARM PRICE Introduction..................................................................................................2-1 Inventories ...................................................................................................2-2 Farm-Price Method ......................................................................................2-3 Garth ................................................................................................2-3 Farm Inventory.................................................................................2-5 Market..............................................................................................2-6 Market Conversion ..........................................................................2-9 Cost of Disposition ..........................................................................2-11 Technical Advice Memorandum..................................................................2-12 Summary......................................................................................................2-13 2-2 3123-013 CHAPTER 3, UNIT LIVESTOCK PRICE Introduction..................................................................................................3-1 General.........................................................................................................3-1 Livestock..........................................................................................3-2 IRC section 263A.........................................................................................3-4 Audit Techniques.........................................................................................3-5 Summary......................................................................................................3-6 CHAPTER 4, PREPAID FEED Introduction: Cash Basis Taxpayer.............................................................4-1 Revenue Ruling 79-229, 1979-2 CB 210.....................................................4-2 Payment for Feed versus Deposit ....................................................4-3 Business Purpose versus Tax Avoidance.........................................4-3 Distortion of Income........................................................................4-4 IRC section 464(f) Limitation......................................................................4-4 Case Scenario...............................................................................................4-5 Payment for Feed versus Deposit ....................................................4-5 Business Purpose or Tax Avoidance ...............................................4-6 Distortion of Income........................................................................4-7 Case Law......................................................................................................4-7 Audit Techniques.........................................................................................4-8 Summary......................................................................................................4-8 CHAPTER 5, SECTION 108 ─ INCOME FROM DISCHARGE OF INDEBTEDNESS Introduction..................................................................................................5-1 IRC section 108 ...........................................................................................5-2 Income from Discharge of Indebtedness .........................................5-3 Definition of Farming ......................................................................5-4 Qualified Farm Indebtedness ...........................................................5-5 Limitation.........................................................................................5-6 Reduction of Tax Attributes for Farmers.........................................5-7 IRC section 1017 .........................................................................................5-9 Forgiveness of Shareholder Debt.................................................................5-9 Acquisition of Debt by Related Party..........................................................5-10 Audit Techniques.........................................................................................5-10 Summary......................................................................................................5-11 2-3 3123-013 CHAPTER 6, SWEETHEART DEALS Introduction..................................................................................................6-1 Pre-1986 Law...............................................................................................6-2 Post-1986 Law .............................................................................................6-3 IRC section 263A.............................................................................6-4 Sweetheart Deals..........................................................................................6-4 Audit Techniques.........................................................................................6-6 Summary......................................................................................................6-7 CHAPTER 7, GROWER ISSUES Introduction..................................................................................................7-1 Expenses ......................................................................................................7-1 Utilities.............................................................................................7-2 Insurance..........................................................................................7-3 Miscellaneous ..................................................................................7-3 Depreciation.....................................................................................7-4 Net Check ─ Double Deduction ..................................................................7-6 Financing Arrangements..............................................................................7-8 Audit Techniques.........................................................................................7-9 Summary......................................................................................................7-10 CHAPTER 8, FARM LABOR Introduction..................................................................................................8-1 Growers........................................................................................................8-2 Industry Practice ..............................................................................8-2 Farm Workers ..............................................................................................8-3 Behavioral Control...........................................................................8-3 Financial Control .............................................................................8-4 Relationship of the Parties ...............................................................8-4 Withholding on Employees..........................................................................8-5 Audit Techniques.........................................................................................8-5 Summary......................................................................................................8-7