Section 180 Audit Risks and Penalties

Agronomic review by Alec Bean, CCA.
Last reviewed 9/19/26. How we review

Short answer: Deducting fertilizer under Section 180 is plainly legal. Deducting residual fertility bought with land is a position based on limited IRS guidance, not settled law. It’s defensible when it follows that guidance and is well documented. It’s exposed when it’s based on total soil nutrients, unfertilized pasture, or old purchases — and if it fails, you repay the tax plus interest and possibly a 20% to 40% penalty.

You carry the burden of proof

Deductions exist only where Congress provides them, and the taxpayer has to prove they fit. The Supreme Court has said so repeatedly (New Colonial Ice Co. v. Helvering, 1934; INDOPCO, Inc. v. Commissioner, 1992). For residual fertility, that means proving each of the three conditions in TAM 9211007 — see What the IRS requires.

What an examiner is likely to ask for

• The purchase contract, closing statement and your allocation of the price
• The seller’s return treatment of the same sale (the IRS can examine both sides)
• Soil test reports, sampling maps and lab accreditation
• The seller’s application records linking fertility to past fertilizer
• The valuation method, prices used and their source
• Evidence the fertility is declining — later soil tests
• Proof you own the land and are in the business of farming

Which claims are most exposed

How penalties work

Sources: IRC §6662 and §6663, as summarized in the USDA webinar deck and by CALT. Interest runs on any underpayment regardless of penalties.

Two ways to avoid the 20% penalty

1. Substantial authority. The weight of authority for your position is substantial compared with the authority against it. A TAM issued after October 31, 1976, can count toward this even though it “may not be used or cited as precedent” — but the 1991 TAM denied the deduction, so it supports only a claim that meets its three conditions. Iowa State’s Kristine Tidgren has described this informally as roughly a 40% chance of success.
2. Reasonable basis plus disclosure. A position with a reasonable basis (described informally as at least about 20%) avoids the penalty if you disclose it on Form 8275. Disclosure also tells the IRS exactly what you did.

Ask your tax attorney or preparer which standard your position meets. Preparers face their own penalties for positions that fall short, which is one reason some CPAs decline these deductions.

Red flags that invite scrutiny

• Per-acre values far above what the seller could have applied
• A valuation fee based on a percentage of the deduction
• Micronutrients or nitrogen making up a large share of the value
• No mention of fertilizer in the purchase contract
• Report language like “audit-proof,” “IRS-approved” or “IRS-backed”; or a deduction larger than the fertility’s share of the purchase price

Frequently asked questions

Does claiming this trigger an audit? No one outside the IRS can say. What we can say is that a large Schedule F deduction with no matching sale of fertilizer on the seller’s return is easy to spot.

Will a soil test protect me? Only partly. It proves what’s in the soil, not where it came from or that it’s being used up.

Can I claim part of a larger valuation to be safe? Claiming a percentage doesn’t create authority. Claim what you can prove.

Next:What the IRS requires, Seller tax consequences, FAQ

Sources

• Tidgren & Coutu, Deducting Residual Fertility, USDA webinar, July 2025
• Tidgren, Iowa State CALT
• Tidgren & Lashmet, Southern Ag Today
• TAM/PLR 9211007