Farmer Beware: When a Tractor Repair Triggers an IRS Audit

What rights do farmers and property owners have related to IRS audits?
What rights do farmers and property owners have related to IRS audits?
(Photo by Chris Bennett)

An Internal Revenue Service agent red-flagged a $7,800 tractor repair, entered the home of a Texas farming couple, sat in their kitchen for two full days, and combed through three years of financial paperwork.

Producers David and Deborah Hajda underwent an on-site IRS audit triggered by equipment repair expenses. An IRS agent arrived on the Hajda property, brought a packed lunch, sat inside the farmhouse kitchen, and pored over their financial past.

“It really happened—right in our little house,” Deborah says. “Everyone knows the IRS does this to private business owners, but you rarely hear the stories because people are afraid. We’re not.”

What rights do farmers and property owners have related to IRS audits?

Tractor Repair

Along the San Gabriel River at Raising Five Cattle Company, an hour northeast of Austin, Texas, the fourth-generation Hajda family grows corn and cotton on roughly 1,500 acres, along with another 1,500 acres for pasture and Angus cattle.

 

COTTON GROWER AT PICKING
If contacted by the IRS, what should a farmer do, and what legal rights do small business owners possess? (Photo by Chris Bennett)

 

In the summer of 2010, the Hajda mailbox in rural Williamson County clinked with the arrival of an IRS letter noting a problem in the Hajda’s 2009 tax returns. An agency phone call ensued: “An IRS guy from Dallas called and said they wanted to review our taxes,” Deborah describes. “I had really good records, and I offered to fax or mail him whatever he needed, but he wanted to come to the farm. It was weird because it’s a three-and-a-half-hour drive to us from Dallas, but he was intent on coming to the house.”

Several days later, the IRS agent knocked on the farmhouse door and announced the initial reason for IRS interest in the Hajda’s tax return: “Unusually high repair costs.”

Assuming the agent was referring to a $7,800 tractor repair, Deborah found the bill in a box of receipts and handed the paperwork to the agent. However, the agent then requested all bank records within a three-year window.

Deborah watched as the agent took a seat at her kitchen table, pulled out a calculator, and began picking apart the numbers of the Hajda farming operation, i.e., an audit.

“We had five kids and a 1,500-square-foot house,” she recalls. “We weren’t scammers or liars. We weren’t living high on the hog. None of that mattered to the IRS.”

$750?

The vehicle in IRS crosshairs was an early 1990s John Deere 4960. “It’s a tractor. It’s old. It’s used on a farm. It needed to be fixed. End of story,” Deborah says.

 

WHEAT CROP IN MISSISSIPPI
“Your best defense is a good accountant that knows agriculture. Do not go into an audit alone,” says Kelly Hardy, agribusiness principal at CliftonLarsonAllen. (Photo by Chris Bennett)

 

“The whole thing was so uncomfortable and unnecessary. I’m trying to watch my baby and kids, and my husband is in the field, and there is a government representative parked in my kitchen trying to catch us cheating, stealing, or whatever other violation he thought he could find.”

After roughly five hours, the agent departed, but returned the following day, once more crunching numbers in the kitchen. “He actually brought a lunch with him to eat,” Deborah describes. “He’s sitting there asking more questions and asking for more documents.”

After two days, the IRS agent returned to Dallas, leaving the Hajdas with a penalty based on incorrect work vehicle claims—$750.

Due Diligence

If contacted by the IRS, what should a farmer do, and what legal rights do small business owners possess?

 

MIDWEST FARMER AT DUSK
“A site visit to a farm or property isn’t abnormal for the IRS, but to have them sit at the kitchen table is not something we recommend,” says Hardy. “Most of the time, the CPA can have the IRS come to their office to review the farmer’s records.” (Photo by Chris Bennett)

 

Kelly Jackson Hardy, agribusiness principal at CliftonLarsonAllen and owner of a small feeder calf operation, advises producers to utilize a CPA as a go-between when contacted by IRS: “If a farmer or landowner is contacted or gets a letter from the IRS, we recommend they don’t ignore the notice, but they don’t need to do anything except be calm. First, send the letter to your CPA and let the CPA make initial contact with the IRS. We don’t recommend the farmer reach out on their own.”

Does the IRS typically make farm visits or go into farmer homes, as was the case with the Hajda operation? “The IRS doesn’t typically go into someone’s home to work on an audit. In fact, in July 2023 the IRS announced it would end most unannounced revenue officer visits because of safety concerns and because of growth of scams. However, farmers are sometimes different in that their office may be in their home or their machine shed,” Hardy explains. “A site visit to a farm or property isn’t abnormal for the IRS, but to have them sit at the kitchen table is not something we recommend. Most of the time, the CPA can have the IRS come to their office to review the farmer’s records.”

Legally, what avenue can a farmer pursue regarding IRS actions? “Again, use your CPA as a middle person,” Hardy urges. “If needed, you can also consult an attorney. If you can’t come to an agreement with the IRS, you can appeal to the Taxpayer Advocate Service. It is an agency within the IRS, but they are helpful.”

IRS has a three-year statute of limitations on assessments from a filing date. Hardy recommends producers maintain thorough records. “I’ve had cases where farmers didn’t keep good records and it hurt them. Keep your receipts and records on something like QuickBooks. Overall, follow the law and don’t be unreasonable. Your best defense is a good accountant that knows agriculture. Do not go into an audit alone,” Hardy adds.

Deborah Hajda urges farmers and small business owners to conduct due diligence. “We should have called our tax preparer and an attorney, but in that moment, we had nothing to hide. Now I tell people to research things for yourself and to not let the IRS in your home.”

For more from Chris Bennett (cbennett@farmjournal.com 662-592-1106) see:

Priceless Pistol Found After Decades Lost in Farmhouse Attic

Cottonmouth Farmer: The Insane Tale of a Buck-Wild Scheme to Corner the Snake Venom Market

Tractorcade: How an Epic Convoy and Legendary Farmer Army Shook Washington, D.C.

Bagging the Tomato King: The Insane Hunt for Agriculture’s Wildest Con Man

Young Farmer uses YouTube and Video Games to Buy $1.8M Land

While America Slept, China Stole the Farm

Bizarre Mystery of Mummified Coon Dog Solved After 40 Years

The Arrowhead whisperer: Stunning Indian Artifact Collection Found on Farmland

Fleecing the Farm: How a Fake Crop Fueled a Bizarre $25 Million Ag Scam

Skeleton In the Walls: Mysterious Arkansas Farmhouse Hides Civil War History

US Farming Loses the King of Combines

Ghost in the House: A Forgotten American Farming Tragedy

Rat Hunting with the Dogs of War, Farming's Greatest Show on Legs

Evil Grain: The Wild Tale of History’s Biggest Crop Insurance Scam

 

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