TAXFAX Winter 2021

Originally published in The Cooperative Accountant, Winter 2021 Issue

IRS Releases Revised Hobby Loss Audit Technique Guide

To assist agents in the field, the IRS has developed a series of publications which it calls audit technique guides (“ATGs”). According to the IRS website:

“ATGs explain industry-specific examination techniques and include common, as well as, unique industry issues, business practices and terminology. Guidance is also provided on the examination of income, interview techniques and evaluation of evidence. Also they may be helpful for business and tax planning purposes.”

Currently, there are fifty ATGs, covering such topics as capitalization of tangible property; cost segregation; credit for increasing research activities; lawsuits, awards and settlements; and the retail industry. Copies are available on the IRS website. https://www.irs.gov/businesses/small-businesses-self-employed/audit-techniques-guides-atgs. 

There is an audit technique guide for farming (Farmers ATG (Revision 7/2006)), but it is currently being revised. According to the IRS website, a revised version will be posted “as soon as it is completed and approved for publication.”

Like other forms of informal guidance, each ATG contains a disclaimer that it is “not an official pronouncement of the law or the position of the Service and cannot be used, cited, or relied upon as such.” However, the ATGs provide useful information for taxpayers.

Recently, the IRS released an updated version of the ATG designed to help agents in audits of activities which may not be engaged in for profit (often referred to as “hobby loss” activities). Audit Technique Guide for Activities Not Engaged in for Profit, Internal Revenue Code Section 183 (Rev. 09/2021). The purpose of this guide “is to provide guidance to examiners on how to conduct a quality examination of an ‘activity not engaged for profit’ issue under IRS 183.” It also is intended to provide “information to taxpayers, tax return preparers, tax representatives, tax accountants and tax attorneys.”

To read the full article, visit https://nsacoop.org/publications/tca or NSAC Connect.