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
• Expense and Depreciation
• Related Party Transactions
• Exhibit A: Cites for Code, Regulations, Revenue Rulings and Court Cases

Expenses and Depreciation

There are no expenses/costs that are particularly unique to raisin grape growers other than staking and trellis system costs. The agent wants to ascertain the Schedule F presented is not a blended farm commodities operation, but includes only costs of growing grapes. If other commodities are involved, the agent has to adjust his audit work accordingly.

Audit Techniques

1. A large deduction for “Cost of Pulled Vines” may indicate that the grower may have made a recent ranch purchase and: (a) an unreasonable high allocation of purchase cost was placed on the vines and (b) these soon to be pulled vines, in substance, had a much smaller value than the one assigned. This would be an issue of overstated expenses (vines) and an understated value of the land.
2. A “Cost of Purchased Crop” shown as a COGS or expense item would indicate that the grower purchased an immature crop. Was this done at arms-length from an unrelated party? Inspect the purchase escrow for the amount the grower was charged and compare this cost with what is claimed on the tax return (See Rev. Rul. 85-82, 1985-1 C.B. 57.)
3. Scan the detailed fixed asset schedule to determine if any of the assets lend themselves to personal use or if asset purchase invoice testing is justified. In the area of claimed expenses and depreciation, the agent should base his/her work on the audit risks.