Agribusiness

Companies in the Agribusiness industry often engage in Research & Development activities, qualifying for the R&D Tax Credit. Unfortunately, the vast majority of those companies are unaware that these activities could generate additional tax savings for the company. Below are some examples of activities that qualify for the R&D credit, as well as how we analyze the activities of companies in this industry to help guide our calculations.

Four-Part Test

In determining whether an activity qualifies as Research and Development for tax credit purposes, the IRS has put together a list of criteria that must be met, commonly referred to as the “four-part test.” The four-part test is as follows:

  • Permitted Purpose – the activity is intended to result in a new or improved product or process (must be improving the functionality, performance, reliability, or quality)

  • Technological in Nature – the activity must rely on the principles of physical or biological science, engineering, or computer science

  • Technical Uncertainty – at the beginning of the activity, the taxpayer must be uncertain as to capability, method, or design

  • Process of Experimentation – the taxpayer must evaluate one or more alternatives to eliminate technical uncertainty (e.g., modeling, simulation, or systematic trial and error)

Anyone who is actively completing, supervising, or supporting an activity that meets all four parts will have qualifying R&D time. That qualifying time is then added into calculating the R&D tax credit.

Qualifying Activities

Many common, even daily, activities qualify as Research and Development for tax credit purposes in the agribusiness industry. Companies that develop and install equipment for breeding, raising, or harvesting efficiency, develop fruits and vegetables that are more resistant to climate change, or develop new or improved livestock breeding methods qualify for the R&D Tax Credit. When your company experiments with developing new or improved nutritional value in feeds or feeding techniques, R&D is also occurring.  Genetics research, including gene transfer research, also supports the R&D process.  There are many other qualifying activities, including:

  • Experimentation to increase nutritional value of seed structures

  • Research and experimentation regarding disease control

  • Development of new or improved waste control methods

  • Development of maintenance techniques for new or improved seed and crop yield storage

Time spent by those employees who directly perform, support, or supervise these activities also qualify as R&D time. During an R&D study, we work with your company to identify the qualifying activities of your business and document those efforts.

Qualifying Titles

While job titles aren’t enough on their own to indicate the presence of qualifying activities, the IRS does apply weight to those titles in relation to qualifying activities.  While not an exhaustive list, the following are examples of agribusiness job titles associated with R&D activities:

  • Agronomist

  • Botanist

  • Geneticist

  • Microbiologist

  • Other individuals with PhDs

Non-qualifying Activities and Titles

Some activities and titles do not typically qualify for the R&D tax credit. Examples of non-qualifying activities are:

  • Research that is wholly funded by grant or contract

  • Research conducted outside the United States

  • Research related to style, taste, cosmetic, or seasonal design factors

  • Research in the social sciences, art, or humanities

  • Adaptation or duplication of existing business components to meet a particular customer’s requirements

  • Surveys (e.g., efficiency surveys, management surveys, market research, routine data collection, and routine quality control)

Examples of titles not usually associated with R&D qualifying activities would be:

  • HR

  • Purchasing

  • Marketing

  • Other soft-science related areas

Adams Consulting works with your company to identify which employees and activities are qualifying for the R&D Credit. We then thoroughly document those activities and the functions of those individuals involved as part of the R&D study.