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Below is a letter from BROCK, VEYTIA AND CO., PC.
To view a scan of the letter please click here .


BROCK, VEYTIA AND CO., PC.
CERTIFIED PUBLIC ACCOUNTANTS
7350 REMCON CIRCLE
EL PASO, TX 79912
(915) 585-7575
Fax (915) 585-7700

October 27, 2003

Bruce Beatty
1090 S. HWY 28 Anthony, NM 878021

Re: Alpaca Farmers

Dear Bruce,

Raising and sales of Alpacas are deemed to be farming activity under US Treasury Regulations. This designation creats some unique prospectives that effect individual taxpayers.

1. Cost of Alpacas as breeding herd effectively is a depreciable asset subject to a 5 year life (depreciation) more specifically:

Year	1		20%
Year	2		32%
Year	3		19.2%
Year	4		11.52%
Year	5		11.52%
Year	6		5.76%
Total			100%

2. Offspring of the purchased Alpacas breeding herd are deeded as raised, and have no basis, that is all cost associated with raising and feeding the animals have already been expensed when paid.

3. Internal Revenue Code Section 179 deduction is effectively a bonus for small business (stimulates the economy) which allows up to $100,000 write off of first year purchases of personal property (non real estate) to offset earned income (i.e. W-2 earnings; net earnings from self employment). Internal Revenue Code Section 179 includes, purchase of breeding herd, tractors, trucks, office equipment and field equipment. Note: Luxury vehicles may have limited deduction.

4. Inventory - Historically farmers do not account for inventory (i.e. feed; seed; fertilizer; medications). Effectively these items are expensed when purchased thereby allowing substantial control of current year income.

5. Hobby Losses; Internal Revenue Code Section 183. The Internal Revenue Service can claim that the activity my be a hobby, if losses occur in more than 2 of 5 years. Effectively the taxpayer must prove intention, time and effort and reasonable expectation that a profit will be made. Effectively the burden of proof has been transferred to the taxpayer. Historically Alpacas Farming has not been overly scrutinized by the Internal Revenue Service (It's still a new industry).

6. Farming losses generally offset other earned income of the individual taxpayers. Generally to receive full benefits of the tax law, the taxpayer would want to maintain a proprietorship (i.e. not incorporate) to receive full benefit of the law.

The above items are general in nature and apply only to individual taxpayers. Each taxpayer is unique and should seek independent tax advise.

Sincerely,
Doug Brock, CPA