OMB Approves Extension of Agricultural Chemicals Security Credit ICR

Yesterday the OMB’s Office of Information and Regulatory Affairs (OIRA) announced that it had approved an information collection request (ICR) from the Internal Revenue Service for IRS Form 8931 [.DOC download], Agricultural Chemicals Security Credit. I was rather surprised to see this since the tax credit authorized by 26 USC 45O expired on December 31^st, 2012. I last wrote about this credit in January 2011.

The IRS in its documentation [.DOC download] supporting the ICR extension explains that the form “has been identified as a historical form and cannot be used with a current year federal tax return”. It further goes on to explain that:

“The form can only be used by those taxpayers who are filing a late or amended return requiring the use of Form 8931 to report the credit.”

While that sounds reasonable on its face, the supporting document goes on to explain in paragraph 12 that the IRS expects an annual response rate of 66,000 and that each response will take 5 hours to complete. What is odd about this is that these are the same numbers that the IRS reported in 2012 when the ICR was extended for the last year that the program was in effect.

Now there might be a tax loophole here that these 66,000 agricultural tax payers are using. The actual wording of §45O(i) for the termination of the tax credit says:

“This section shall not apply to any amount paid or incurred [emphasis added] after December 31, 2012.”

Technically (Standard Disclaimer, I am not a lawyer and especially not a tax lawyer) it would seem that a cost incurred before December 31^st, 2012, but paid after that date would still qualify for the 30% tax credit on the 2012 tax return. I suppose that the documentation of those incurred costs is subsequent years could require the filing of an amended return for 2012. It is odd, however, that the IRS would expect each and every taxpayer who filed for the Agricultural Chemicals Security Credit in 2012 would still be needing to file these amended returns.

Looking at the qualified expenditures listed under §45O(d) it does not look like any of the listed expenditures would extend beyond the 2012 deadline unless they were contracted for in 2012 for installation after 2012. Except that the requirement for “implementing a site security plan” might liberally be taken to require (or to‘incurr’) recurring expenditures in all of the categories listed.

If that loophole is being used by 66,000 people per year to continue to claim new tax credits on their 2012 income taxes, it will eventually be self-limiting. There is a maximum tax credit of $2,000,000 in any tax year for any single taxpayer set by §45O(c).

It would be extremely interesting to have the GAO do a study on the total cost to the Federal government of this tax credit. I doubt, however, that any congress critter would be interested in taking on the agriculture lobby by asking for such a report. After all, it is only money.

BTW: For those facilities that claimed these credits that were covered by the CFATS program, they are the only facilities that received any monetary support from the Federal government for any of the costs of complying with the CFATS program.

Chemical Security Tax Credits

It’s a little early in the tax season this year, but once again I get to point at the agriculture lobby in this country as a group that knows how to manipulate congress to get support for their members. I am of course talking about the Agricultural Chemicals Security Credit. This year the spur to this annual discussion is driven by a press release from WTP Advisors telling people that too many agricultural businesses are missing out on the opportunity to collect this money from the Federal Government.

Background

Back in 2007 when the Department of Homeland Security published their Interim Final Rule establishing the Chemical Facilities Anti-Terrorism Standards, one of the groups that complained the loudest about the broad strokes used by the Secretary to define high-risk chemical facilities was the farm lobby. DHS modified some of the specific things that the Ag Lobby complained about the most (the STQ for Propane for instance), but did not waiver in their determination that some farms, ag chemical destributors and applicators might fall under the CFATS regulations, until January 2008 when they provided actual farm facilities with a ‘temporary Top Screen exemption’ that still exists today.

The farm lobby was still incensed that some agricultural businesses would actually have to pay for security measures so they got provisions added to the 2008 Farm bill (§12405) providing for a tax credit to a qualified agricultural business amounting to 30% of qualified security program expenditures up to an annual limit of $2,000,000 per year per tax payer. Farmers were not covered under this program as they were already protected by the Top Screen Exemption.

Who is Covered?

The eligible agricultural businesses include any person in the trade or business of {§450(e)}:

“[S]elling agricultural products, including specified agricultural chemicals, at retail predominantly to farmers and ranchers, or’
“[M]anufacturing, formulating, distributing, or aerially applying specified agricultural chemicals.”

The qualified chemical security expenditures were listed as {§450(d)}:

● 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 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, and

● Other such measures for the protection of specified agricultural chemicals as the Secretary may identify in regulation.

The covered chemicals are limited to fertilizers and pesticides listed in other federal regulations. A list of those regulations is included on the tax form used to file for this tax credit (IRS Form 8931).

Is it Fair?

This is always an interesting discussion of the present tax processes in this country. Of the 6,000 facilities covered under CFATS I would guess that a relatively small number of them would qualify for this tax credit. Is it fair for that limited number to receive a 30% government subsidy for their CFATS related security costs?

It can be argued that the country as a whole benefits from the reduced food costs of not having to pass those reimbursed security costs on to farmers. Of course we are all paying higher taxes (in the long run at least) so while the food costs are being reduced it is probably a net negative impact on our spending as the government distribution system for those credits is incredibly expensive.

In any case, the tax credits are part of the current US Tax Code and any chemical facility that can legally use them probably should. You will notice that I said ‘any chemical facility’ rather than my more common ‘any high-risk chemical facility’. There is nothing in the law that says that this credit only applies to CFATS related costs.

BTW: Greenpeace activists please take note; the chemical industry is not powerful enough to get a similar tax credit applied to all of the CFATS covered facilities. They are not omniscient.

DISCLAIMER: I am not an attorney and certainly not a tax attorney; so this cannot be construed in any way as legal advice. Consult with your own tax professional before trying to obtain this tax credit.