need advice from Expert FARM tax preparers

[TaxLadyinPA]

I posted this question yesterday under subject domestic production activities deduction …. I didn't get enough response so I am reposting….

I need advice from those preparers who are experts in preparing farm returns.

I'm confused …. (not unusual this time of year) … Would someone please explain to me the Domestic Production Activities Deduction …..

I've read all the threads here all the way back to 2005 on this subject and I don't see anyone mentioning dairy farmers in any of the conversations.

I have a dairy farmer that wants to know why I didn't give him the deduction. I don't see in the rules where he qualifies for it.

The dad age 75 this year turned over the farm work to the son. The son does NOT own anything. Dad still owns it all i.e. the farm barn, land, equipment and most of the cows, with the exception of a few cows that son purchased over the years or raised. In January 2008 Dad turned over the milk check to son. So from that point on the milk check comes in the son's name and social security number instead of dads and he gives his dad a 1099-misc non-employee comp, which was the other way around years prior.

It is strictly a family operation with dad, mom, son and son's wife working the farm. There are no employees.

I am confused when I read that raising livestock is considered an activity that qualifies as Qualifying Production Property (QPP) (which a dairy farm would be I guess) but the any taxpayer who qualifies for *ALL THREE* under who qualifies has one that states wages paid to employees. Is this saying this farmer has to have employees in order to qualify? (he has none)

It also states that they could possibly qualify if they receive 1099-PATR with some allocated to them. (which I don't remember seeing that on their forms and need to re-look)

Can someone just enlighten me with a bit of knowledge on the qualifications of this form.

Thanks so much for your guidance.

The following Pros on this board did respond and I appreciate those answers but I really need more guidance before I call my client and tell them that they do NOT qualify for this.

Per Lion: Since no one has answered, I'll give you what I know off the top of my head, which isn't much. The deduction is limited to half (I think) of wages paid, so no wages means no deduction. I have a number of small businesses that might actually qualify; however, few of my business clients have employees.


Per Davc: Agree. No Employee = No Deduction.

[DaveO]

I can only echo what Davc said. The deduction is based on wages. If they wish to modify their operations to pay wages they may use the deduction. I posted a while back about Coops' reporting grain sales on the 1099 Patr forms. They are doing this in order to claim the DPAD for themselves. For the family farm that pays no wages this is not a big deal. However for the corporate farm that does it can be a very big deal.

[RitaB]

I will add that I believe

that a dairy farm is producing milk, not livestock, if it matters. (If if does matter, the son will remember that he sold some steers that he hadn't mentioned before.)

Here are two articles that might help - the second one appears to be a filled in tax return for a dairy farmer:

https://www.msu.edu/user/steind/2008%20DomesticProductionDeduction%202007.pdf

http://www.missouribusiness.net/irs/taxmap/pubs/p225-073.htm

[AJsTax]

Not much time,

I dont have much time available today, but to be brief..my first college degree is in Agriculture production, I have years and years experience on the farm, including dairy...they produce milk, meat and crops for sale.
BUT, that is all a moot point if there is no W-2 wages paid, there is no deduction to take. The deduction is limited by a % of W-2 wages.
There are options for a farm, but some family farms don't have any paid wages so dont bother with it. or they are so small the amount of credit is very small .

[RitaB]

Well, I thought that, too

but there is an exception to the rule, (as TaxLady said), that I just now see:

A taxpayer that receives a Form 1099 PATR with DPAD included on the form.

--- from 2008 Tax Book, 8-18.

[JenMO]

I have a couple of dairy farms this year that received notices from their coop of amounts to use. Instructions say you can take the coop amounts distributed without having wages. I proceeded to go ahead and take a deduction for the dairy farmer too, I am now doing amended returns to remove the farm deduction and only taking the coop deduction. I later read you can only take one or the other on that specific deduction.(double dipping, they are using the same milk checks to come up with the deduction) Some times you learn from your mistakes.

[DaveO]

Good information Jemo, I have yet to see that but will be on the lookout for it now. Always a wrinkle.

[TaxLadyinPA]

Thank you so much

Thank you so very much .... I appreciate all the guidance and advice on this subject. I needed others to make me brave LOL

I've sent a copy of the rules to my client with the *ALL THREE* rule highlighed and the page regarding the coops and their 1099-PATR.... I asked her to provide me with the letter from the co-op that states they are sharing their DPAD.... and I told her that if she had the letter with her other tax info I'm sorry I missed it but then she knows I'm nuts at the end of February, asked for her forgiveness, told her to bring me the letter showing that and I will amend their return.

I'm kind of chuckling to myself because I think even if they have the letter from the co-op it might help their tax liability by how much .... $ 20 or less ??? We'll see

HER father is the one who put her up to it .... he asked her why she had me doing their farm taxes .... (he does his own) ... she told him it was because I knew what I was doing (my eyes rolling here LOL) ... Then he asked her if they got the DPAD and she says no ... but she will ask me why not ....

So I'm wondering ... if daddy is doing his own farm return ... he is probably claiming this DPAD on his return simply because he feels he qualifies because he is a milk producing dairy farmer.

Oh I love my job .................... *sigh* ................... Are We Done Yet?? LOL

[AJsTax]

TaxladyinPA

I did not read the entire post well enough and repeated some of what you had already learned. I appologize for that.
I have read most everything I have here again and tried to remember what I have done in the past on this subject, which is not a lot as most of the farms I work with do not qualify. Some farms do sell through a coop and may receive a notice of shared DPAD that they can deduct and they are assumed to have a share of the coop's w-2 wages as well.
When looking at an example of the 8903 there are lines to combine the DPAD from the owner's operation with the allocated DPAD on the 1099-PATR. The only limitation is that you can not use the patron dividends paid by the coop to figure the farm's QPAI.(don't you just love all these letters!!).
So few family farms show a profit year after year it just is not a big issue around this area, we are not in a highly productive part of the country.
There may be some cause to check for this more closely in the future, or in years when the grain prices spike like in 2007 and more so after 2009 when the % jumps to 9% of qualified net income.
I would have to disagree at this point that just because you have a 1099-PATR you cannot figure the DPAD on the product raised and sold by the farm. After all the milk processor or the elevator are qualifying on the added value of the product they produce after they buy it from the farm, not on the orignial production of the product.
Maybe I helped a little, maybe I just blurred it more, but I tried!!