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Farmers overlooking benefits of claiming an R&D tax credit

HOUSTON, Texas — A number of farmers and ranchers aren’t taking advantage of a tax credit designed to promote research, according to a former USDA secretary.

The research and development (R&D) tax credit has been around since 1981, when it was introduced as a part of the Economic Recovery Act. After numerous expirations and renewals, the credit was made permanent in 2015 with language more favorable to agriculture, said Mike Johanns, who served as USDA secretary under former President George W. Bush.

“If you’re like most people in agriculture – farmers, ranchers, agronomists – you may not think this applies to you, that it’s for General Motors and General Electric, but it’s not,” he explained. “Farmers and ranchers working on improving a process, maybe working on a better way to apply fertilizer or improve animal genetics, they can get an R&D tax credit for that.

“We’re doing everything we can to educate folks in agriculture that the R&D tax credit is available to them.”

Johanns is also a former governor and former U.S. senator for Nebraska. He’s been working with Houston-based alliantgroup since June 2017 to help get the word out about the credit.

The goal of the credit “was, and continues to be, to promote American innovation and competitiveness in the global marketplace,” said Adam J. Kline, with Bose McKinney & Evans LLP, based in Indianapolis. “The R&D tax credit encourages businesses to increase their investment in research and experimentation through tax credits. Inherently, the business must be profitable to utilize such credits.”

He agreed that farmers aren’t taking advantage of the credit. “But, farmers are experimenting,” Kline said. “Farmers are amongst the most resilient and entrepreneurial industry segments in America. There are countless examples of farmers that have fabricated a new device or piece of equipment that improves a machine or farm process.

“But because of a lack of general awareness, the size of the tax savings or the somewhat burdensome documentation associated with claiming the credit, many farmers simply do not believe it to be worth their time.”

Johanns estimated less than 10 percent of farmers and ranchers take advantage of the credit. “It doesn’t cost farmers and ranchers anything to ask (if they’re eligible),” he pointed out. “It’s so important that they do it. It doesn’t hurt to ask.

“A farmer or rancher – someone invested in agriculture – is missing out on a tremendous opportunity to avail themselves of a credit put into place to help them.”

The list of agricultural activities eligible for the credit includes development and/or implementation of new strains of crops, plants or livestock, irrigation systems, feeds or feeding techniques, gene transfer techniques and disease-resistant crops or livestock, according to alliantgroup.

A four-part test to determine if a specific activity qualifies for the credit is in Section 41 of the Internal Revenue Code, according to Shaun Yeh, national tax practice director for Tax Point Advisors. The company provides R&D tax credit study services to business owners and certified public accountant firms nationwide.

The activity must involve a new or improved business component and the research must be technological in nature. The component may be a product, process, formula or technique, he noted.

“Technological in nature simply means there is a reliance on sciences such as biology, chemistry, physics or engineering, and excludes things like market research for consumer preferences,” Yeh added.

The work must also include the elimination of uncertainty and the process of experimentation. “Companies have to have some uncertainty going through the process,” he explained. “This is more often methodology uncertainty than capability uncertainty. We look for experimentation in terms of systematic trial and error or evaluation of alternatives.”

Documentation, such as the amount of time spent on the qualifying activity, is important but a lack of specifics shouldn’t be an obstacle to looking into the credit, Yeh said.

“The lack of detailed time tracking, for instance, isn’t an obstacle to a successful R&D credit claim. The credit allows for the use of reasonable estimates, and we can build quality estimates through interviews and available documentation.”

For more information, visit, and – an agriculture e-book may be found on the Tax Point Advisors site under “resources.”