speaking of 3115.....

[schirallicpa]

Taxpayer and wife have a farm.  (and losses for the first 3 years, as any good farmer shall have....)  Taxpayer claims farm.  Taxpayer and wife get loan from the FSA and FSA says they are a partnership since the land is owned jointly and the barns are owned jointly.  (Yeah - the FSA wanted the second signature.)  But now the Taxpayer is wondering if we should amend past 3 years since their farm is now declared by a federal agency a partnership.  In looking at the return, they would get a refund having the farm offset the wife's self-employed income.  

Is this a 3115 or just amended returns?

(remember the good old days when you could just mark the "joint" box on the top of a Schedule F or Schedule C instead of creating 2 and splitting in half.)

 

[jklcpa]

Disclaimer - I don't do farm returns so this reply is meant to generate additional discussion in hopes of getting to the proper reporting and may not be helpful, but I'll take a shot.

Thinking out loud - I think these are the main issues regarding the wife's involvement in the farm:

• First, the wife already has s.e. income from another activity other than the farm. Does she also materially participate in the farming operation in a substantial and significant way for this to really be a partnership for tax reporting purposes? If she doesn't then I'd have trouble calling this a partnership merely because jointly held land and buildings are used in the farm operation and are collateral for the loan.
• If you think it's a partnership and if she does materially participate, then this can be a qualified joint venture and not be treated as a partnership requiring 1065 reporting, and instead the income and expenses may be split and reported on the appropriate schedules and forms of the 1040. https://www.irs.gov/businesses/small-businesses-self-employed/married-couples-in-business
• If the wife doesn't materially participate but you still think this is a partnership, then they can't claim QJV and report only on the 1040. In this case the proper reporting would be on a 1065. Additionally, without her participation, I believe that any loss to her would be considered passive and not be available to offset her other s.e. income. 

If after all of this, you decide that the 3 years' tax reporting is not correct, I don't see this as a 3115 change at all because there is no change in the income or deductions due to an accounting method change, only a split in the reporting and that the wrong forms were used. 

Sorry that's so lengthy and might not be of much help.

 

Edited October 18, 2017 by jklcpa
typo