Michael Carraway Jr.

To address this issue, and in line with the longstanding tradition of using the Internal Revenue Code as a carrot to elicit a desired response, a new credit (designed as part of the general business credit) was included in the Food, Conservation, and Energy Act of 2008. More commonly known as the 2008 Farm Bill, it is the most recent omnibus farm bill governing federal farm and food policy. This credit has not received much publicity and, therefore, may be overlooked by some eligible taxpayers.

The credit in question is the agricultural chemicals security (ACS) credit, which is available for “eligible agricultural businesses” with “qualified chemical security expenditures” between May 23, 2008, and December 31, 2012. The credit was created to encourage increased security of agricultural chemicals and to protect against potential theft and misuse, e.g., terrorist attacks or illegal drug manufacturing. It is equal to 30 percent of the aforementioned qualified chemical security expenditures, subject to limitations regarding annual expenditures and expenditures per facility.

Limitations

The credit is limited to $100,000 per facility, reduced by the aggregate amount of the credits allowed for the facility in the preceding five years. In other words, the maximum amount of the cumulative credit per facility is $100,000. Note that there is currently no statutory or regulatory definition of the term “facility” for ACS credit purposes, though the IRS could define this term in future regulations, possibly providing further limitation by treating certain related facilities as one property. In addition, the total ACS credit per taxpayer is limited to $2 million per year, which is only an annual limitation, not a cumulative one.

Qualified Expenditures

Qualified chemical security expenditures include amounts paid or incurred by an eligible agricultural business for:

• Employee security training and background checks
• Limitation and prevention of access to controls of specified agricultural chemicals stored at the facility
• Tagging, locking tank valves and using chemical additives to prevent the theft of specified agricultural chemicals or to render such chemicals unfit for illegal use
• Protection of the perimeter of specified agricultural chemicals
• Installation of security lighting, cameras, recording equipment and intrusion detection sensors
• Implementation of measures to increase computer or computer network security
• Conducting a security vulnerability assessment
• Implementing a site security plan
• Any other measures for the protection of specified agricultural chemicals that the IRS may identify in regulations

Eligible Businesses

Eligible agricultural businesses include any persons or organizations in the trade or business of:

• Selling agricultural products, including specified agricultural chemicals, at retail, predominantly to farmers and ranchers
• Manufacturing, formulating, distributing or aerially applying specified agricultural chemicals

Specified agricultural chemicals are defined as those that are included in and described by certain specific existing federal laws and regulations, such as the Emergency Planning and Community Right-to-Know Act of 1986 and others.

Deduction Limitation

It should be noted that otherwise deductible expenses taken into account in calculating the credit are reduced by the credit calculated without regard to either the facilities or annual expenditure limitations. Though this may be an unintended consequence of the law’s architecture, this means the disallowed deduction will be greater than the amount of the credit if either or both of the aforementioned limitations apply.

Conclusion

Obviously, appropriate security around potentially dangerous chemicals should be addressed regardless of financial considerations. However, this credit provides additional incentive and potential cost savings. Businesses and individuals interested in learning more about this credit should contact their BKD advisor.