Publication Date - July 2006

NOTE: This guide is current through the publication date. Since changes may have occurred after the publication date that would affect the accuracy of this document, no guarantees are made concerning the technical accuracy after the publication date.

Chapter Five / Table of Contents / Chapter Seven
Tax Code, Regulations and Official Guidance Search

Chapter Six - Raisin Grapes

• Overview of Industry
• Growing Production Cycle for a Mature Vineyard
• Development of a New Vineyard
• Mature Productive Operating Vineyard
• Method of Accounting
• Rancher or Farmer
• Gross Income
• Expenses and Depreciation
• Related Party Transactions
• Exhibit A: Cites for Code, Regulations, Revenue Rulings and Court Cases

Mature Productive Operating Vineyard

A typical grower’s business relationships consist of acquiring farm assets, hiring and paying for labor through a Farm Labor Contractor and specialty Outside Service providers, while receiving income from the packer and sometimes loans from either the packer or a lending institution.

Method of Accounting

Most growers will elect, if allowable, to be on the cash receipts and disbursements method of accounting. This will allow the grower opportunities to manipulate the reporting of income and expenses. It is not unusual for a grower to take actions to defer income and accelerate expenses. In most cases this accounting method is correct under the IRC and supportable under case law. But sometimes these manipulations will result in potential issues for the agent.

Audit Techniques

1. A spread analysis will indicate if there is possible improper reporting of expenses and income. If large fluctuations are detected, additional audit work needs to be performed.
2. When inspecting the cash receipts journal (or its equivalent), be aware of large deposits in early January. This could be an indication of a deferral from a prior year’s harvested crop. Also, review the bank statements from the first month of the subsequent year.
3. When inspecting the cash disbursements journal (or its equivalent), be aware of checks written for large amounts in the last days of the fiscal year ( See Chapter 4, Expenses). Look for checks paid to related parties. Look at the backs of these checks to be sure that they were presented to the bank by the payee within a reasonable period of time. If not, this may give rise to an issue of whether or not the grower actually paid the expense in the period for which he is seeking an expense deduction.