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

Related Party Transactions

Related party transactions may not be evident from an inspection of the tax return, but can be developed from the initial interview. Check for any non arms-length transactions and related parties within the context of IRC § 267. Some examples of related party transactions are loans between the grower and packer, rentals between them and sales and purchases of ranches, equipment, etc. Also, the grower may be related to a goods and service provider.

Audit Techniques

1. Watch for formal and informal agreements between related parties in the allocation of income and expenses among themselves to verify that all receipts and expenses are fully and properly allocated among related parties. If the allocations are not properly being done, consider IRC § 482 for potential issues.
2. Watch for differences in method of accounting between related parties and apply IRC § 267(a)(2) when applicable.

Entities
Most raisin growers are proprietorships, showing their ranching activity on Schedule F’s. Others examined may be corporations, general partnerships, family limited partnerships, or trusts. The agent must be prepared to administer all the tax laws, as applicable.

References
1997 University of California - Cooperative Extension “Raisins, Thompson Seedless in the San Joaquin Valley.” Available at www.agecon.ucdavis.edu