How It Works
An end-to-end view of a Headwaters engagement — from pre-engagement screening to audit support — with the methodology that underlies it.
The Process
The work is structured to be predictable for the landowner, useful for the CPA, and defensible to an examiner. Each phase has a defined output. Nothing happens until the phase before it is complete.
01
Phase 1
1–2 weeks
Every engagement begins with a structured conversation between Headwaters, the landowner, and ideally the landowner’s CPA. The goal is binary: confirm whether the engagement makes sense before any field work is scheduled.
We run the five-item eligibility screen, review the acquisition documentation, establish scope (Stage One or Stage Two), and issue the engagement letter. If the parcel doesn’t qualify, the conversation ends here — without obligation on either side.
What we do
Run the eligibility screen, confirm basis documentation, define scope, issue the engagement letter.
What you and your CPA do
Provide acquisition records and basis documentation. Sign the engagement letter when scope is agreed.
02
Phase 2
1–3 days in the field
Field sampling under Headwaters’ Montana protocol. The ranch is stratified into like-with-like polygons by topography, slope, and soil type, anchored to the NRCS soil maps, so like ground is compared with like. Sample sites are placed at randomly generated GPS points within each polygon — one site per twenty to thirty acres, ten to thirty sites per polygon — with two cores taken at each point from the 0–6-inch surface horizon, the layer that holds the most plant-available nutrient pool on Montana rangeland.
Sampling runs year-round, weather permitting, avoiding the sixty-day windows after fertilizer application, manure application, or wildfire burn. Every point is GPS-recorded, and a one-quart split sample is retained for twenty-four months in case of independent laboratory verification.
What we do
Stratify the ranch into like-with-like polygons, place sample sites at randomly generated GPS points, collect cores from the 0–6-inch surface horizon, GPS-record every point, retain split samples.
What you do
Provide field access, gate codes, and any access notes. Field work doesn’t require landowner presence.
03
Phase 3
2–4 weeks
Samples are submitted to accredited Montana-region laboratories — Energy Laboratories in Billings, or AgVise in Northwood, ND — with explicit MSU EB161 extraction protocol. Ten macro- and micronutrients enter the valuation. Nitrogen never does — plant-available nitrate is too mobile to defend on examination, and excluding it is a trade made on purpose.
The choice of extraction method matters. Mehlich-3, the standard in Midwest cropland work, is an acidic extractant that systematically misreads Montana’s calcareous, high-pH soils. Olsen P and the MSU-Extension-aligned methods are appropriate for the chemistry of the soils we work in. The same care applies across the full nutrient panel.
Why this matters
Methodology starts at the extractant. A Mehlich-3 result on a Montana calcareous soil overstates plant-available phosphorus by a factor that has nothing to do with the soil and everything to do with the chemistry of the test. A deduction built on the wrong extractant is a deduction that doesn’t survive examination.
04
Phase 4
2–3 weeks · overlaps Phase 3
Lab results pass through Headwaters’ six-step calculation framework. Each of the ten valued nutrients is walked through the same arithmetic, producing a per-nutrient per-acre value. The values sum to the parcel opinion of value.
The framework’s two distinguishing moves are the native baseline subtraction — drawing on Kellogg Soil Survey Laboratory characterization to remove nutrients that were in the soil before any human activity — and the sufficiency floor: one year of forage removal at the site’s documented productivity, checked against the MSU critical level, with the larger governing. Both moves produce smaller per-acre numbers than the Midwest-derived methodologies in market — and numbers that hold under scrutiny.
Calculation Framework
01
Average
Lab ppm across all points
02
Convert
ppm → lb/acre at depth
03
Subtract baseline
KSSL-anchored native
04
Subtract floor
Sufficiency reserve
05
Price
Per-pound, MT-specific
06
Sum
Across all nutrients
Worked Example — Phosphorus
A hypothetical rangeland parcel run under the firm’s Moderate framework, phosphorus only — to show the arithmetic. The full report does this for each of the ten valued nutrients and sums to the parcel total.
02 · Convert to lb/acre at 0–6″ depth
14 ppm (topsoil composite)
02 · Convert to lb/acre (0–6″, 2.0 factor)
28.0 lb P/ac gross
03 · Native baseline subtraction
0 (Olsen P, no baseline)
04 · Sufficiency floor (MSU critical level)
13 lb P/ac
05 · × $1.55/lb P (MT delivered)
$23.25 / acre
Phosphorus contribution
$23.25 / acre
Converted at the 2.0 ppm→lb/ac factor used in the firm’s illustrative tables. Illustration only — not a client opinion of value.
Full Methodology
The complete 33-page methodology paper is available on request.
05
Phase 5
2–3 weeks
The Section 180 Soil Diligence Report is assembled as a single document built around a single standard: every number in the report should be re-derivable by a CPA from the source data documented in the report itself.
That means the methodology is stated explicitly, not summarized. Pricing sources are cited, not asserted. Each per-nutrient calculation is shown, not aggregated. The §611 exhaustion period schedule is calculated per nutrient, not flat-lined across the asset. The report’s structure exists to make the deduction defensible — first to the CPA who signs the return, then to the examiner who may review it.
What we do
Assemble the report, derive every calculation from source data, cite sources, deliver final document to landowner and CPA.
What you and your CPA do
Review the report. Ask questions. The report is structured to answer them.
06
Phase 6
As needed during tax preparation
The report is the foundation, not the conclusion. The CPA owns the filing — selecting the route (Section 180, §§167/168, or §611), determining timing, and preparing Form 3115 if required for prior-year purchases.
Headwaters stays available throughout. We answer methodology questions, provide supplemental documentation when an unusual circumstance surfaces, and make our team available to the CPA on a call when one is wanted.
What we do
Remain available to your CPA for methodology questions and supplemental documentation throughout the filing window.
What you and your CPA do
Your CPA prepares and files the return, electing the appropriate provision and form. We are a call away when wanted.
07
Phase 7
If and when needed
If an audit is initiated on a return that claims the deduction, Headwaters stands behind the work. We make the methodology and source data available to the examiner, provide team members to address methodological questions, and support the CPA who manages the audit on the client’s behalf.
The position is straightforward: the methodology was built to be Tax-Court-defensible from the start. Every number in the report is derived from documented source data. Pricing sources are cited. Sampling design is recorded. Lab protocols are specified. There are no phantom nutrients, no Midwest-cropland assumptions applied to Montana rangeland, and no contingency-fee incentives distorting the result.
Our position
An audit that’s won on a technicality is a survival. An audit that’s won on the merits is a defense. Headwaters’ methodology is built for the second — the report stands or falls on its substance, not on the examiner’s appetite to pursue.
Timeline
From engagement letter to final report. Audit support, if needed, follows separately.
Final report typically delivered within 60 to 90 days of engagement letter.
If the work is done well, the report does not need defending.
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