We wanted to get together and have a quick conversation about agriculture and the research and development tax credit or R&D credit.
And Jim, there’s been some changes recently in R&D. For those that might not have heard about it yet, can you give us a quick overview of the George case and why it matters to farmers and ranchers that are thinking about R&D credits, or maybe those that haven’t thought about R&D credits, given the way things have been in the past.
Sure. Yeah. The George tax court decision that came out in February really laid some excellent foundation for us to be able to look at a farm operation and research and development tax credits in a different light.
So prior to the George decision, we did R&D studies with other farmers — but a lot of the things that we were looking at were more process-driven changes.
One of the things that came out with George was if you’re making improvements along the way, whether that’s different changes within your genetic line, different things you’re changing throughout the growing process of it, whether it’s livestock, crops, you name it, really anything in agriculture — if the goal is really to grow a higher quality, a new, improved, finished, product, then we really do have the opportunity to get on a path to claim these credits under a new product change, versus a process change.
And the big difference there is the amount of the credits. It really allows you to capture more of those input costs that are going into what you’re raising as research expenses and therein amplifying these tax credits.
So when I talk to some farmers or other farm CPAs, a lot of times they’ll say, oh, these farms, it doesn’t seem like they’re doing anything crazy and anything new and anything trial.
But then my mind goes to, I think, farmers, ranchers, whoever it is, they’re always trying to increase the quality, their yields — there’s always disease or some sort of issues with not enough water. So they’re always trying new things.
Would some of these trials that we may not think of as R&D in the past, if we’re trying to get better yields, if we’re trying to figure out how to do that in a changing environment, would those potentially qualify as R&D credits?
Yeah, we really think they do. And I’ve had a lot of conversations with farmers along the way and a lot of things that seem routine —if we start going back to it and tearing it apart like a science experiment, really what we’re doing is, okay, why did you make these changes?
If we’re thinking of a row crop farmer, raising corn and soybeans, if they went with a new seed variety, because the seed company was coming out with some new genetics, what was the reason for that change?
And what we’re finding is a lot of that change, really, those decisions were driven by, okay, we were having some unhealthy conditions in our soil, some unhealthy conditions in our plant.
So coming down to what the real product is that we’re trying to improve on, and when we think about it a little bit different, where we’re thinking about the product being the stock of corn, the soybean plant, the sugar beet, whatever it is that you’re growing, that being the product that we’re trying to improve, a lot of these things that seemed maybe routine really have the ability to potentially qualify for some R&D credits.
I think that’s one of the things that I’m still trying to wrap my head around, but there is kind of the George case has made us think about growing crops or raising livestock in a little bit of a different way than we’re maybe traditionally used to thinking about it.
And I think it’s really going to expand the opportunity for R&D credits. We’re seeing that significantly with our clients. Whereas in the past we might have thought, oh, there may not be a lot of R&D here, in light of the George case and the way the court ruled on what R&D is, it sounds like there’s a lot more opportunity.
Another thing that always comes up with research and development tax credits is documentation. And that seems to be a big thing that came out of the George case as well.
Can you briefly touch on that, the importance of documentation and maybe some practical tips you might give producers so that we can make sure that they’ve got a strong claim here on tax credits.
Yeah, yeah, that’s, that is a big thing. The George case did shed some light on what they didn’t like in the documentation standpoint.
So what we’ve been doing is if we’re starting a study, let’s just say in the 2025 tax year there’s a three-year look-back period, and we really push our clients to dig deep into those look-back periods. So we can calculate what our average research spend was for the previous three years because that becomes part of the credit calculation.
But then making sure that we have documentation to support that because that was one part in the George case that was missing. So there’s a lot of work in the front end in this first year of these studies.
But it is well worth it to make sure that you have the proper documentation. So we really push clients to go through that process.
Then the other thing, too, that it always comes down to is: When does a trial start, and when does a trial end?
And that’s the part where it’s the conversation with the farmer, too, because it is a little bit individualized — not everything has to be a success, of course.
So you try some different seed varieties and you like them, they worked out, they performed, the plant responded the way you were intending, you were hoping it would. Then you bring it in as part of your commercial production. So at that point maybe the trial ends.
Let’s say it didn’t work. You go on a different path or there’s a newer improved genetic line out there again. So maybe we have a new research trial starting. So those are the two things that I think we spend most time on.
One is documentation and then two is being able to figure out when are these trials starting, when are they ending. And then, what’s our test environment versus our control environment, if we’re thinking of a farming operation.
Yeah, interesting. And Jim, I think this is something that we’ll probably, go into in more detail later. And I know there’s an upcoming webinar. We’ll reference that in just a minute here. But with regard, you mentioned supplies and you mentioned: Is this a new product versus a new process?
I think historically when we’ve worked with our clients on R&D, just coming from like a tax side of things and tax compliance and tax consulting, we’ve typically looked at wages, whether they’re employee wages, R&D employee, we’ve always liked those.
If we hire consultants to wages, we didn’t really look at supply costs, all the time. Sometimes they’ve applied, but often weren’t able to capture a lot of those other expenditures.
Could you talk a little bit about how that’s how that’s changed in light of the George case and maybe being able to deduct more of the supplies that are consumed as part of that trial process?
Sure, yeah. Because that’s really one of the major changes is, pre-George, when we would sit down with a farmer and really see if they qualify for R&D credits, I would say nine times out of 10 they’re going to qualify for credits, but they’re under process-driven changes.
So when we have process driven changes, when we look at those supply costs, again, think of like a corn/soybean producer, so the seed, fertilizer, chemical main input costs going into raising those crops. Those are the supply costs that we’re trying to qualify.
If it was a process-related change, we really look at incremental changes and maybe not that entire bucket of those inputs. So, under a process change we wouldn’t have been able to capture a lot of those input costs.
Pre-George, we would have looked at labor costs, of course, because even under a research and development credit claim under process, we can include the labor. But a lot of our farms, whether it’s the owner’s compensation or just general labor, what we’re finding is those numbers just haven’t been that high, especially on the row crop side in these previous years.
So, let’s fast forward now to February and George, we go through the same process, we go through the same study. But at the end of the day, if the improvements that we’re doing to the growing process are intended to improve the health of that plant and it’s really going to qualify under this product change, now we’re still doing the same thing with labor allocations.
Maybe we’re not grabbing all of those input costs, the seed, fertilizer, chemical, but we’re grabbing a larger majority of them and including them in the credit calculation.
So that’s really what’s amplifying these tax credits today.
So, for a farmer or rancher that’s listening to this, watching, and is wondering if R&D credits are a fit for their operation, what’s your best advice on next steps for them?
And while you’re at it, I guess I’ll remind everyone of CLA’s July 23rd research and development tax credit webinar, which is going to be at 1 p.m. Central again on July 23rd at 1 p.m. Central.
So, what do you think are the best next step for a farmer or rancher thinking about this credit?
Yeah, next step, honestly, reach out to us. I mean, it really starts with a conversation, and these do get individualized, so there’s a lot of similarities from one farmer to the next, but I’m also seeing a lot of differences.
It’s your tax return. You need to understand the positions that you’re taking within these returns, too. So that’s the other part that we want to do. We want to make sure that we educate you on the positions around the R&D credits that are being claimed within your tax return.
So next step, really, honestly, it’s a one-hour conversation. We can do a scoping exercise to estimate what we think your credits would be, coming out of that and then let you make a decision if it’s something you want to pursue.
Thank you, Jim. I appreciate your time this morning. And I know just in talking to clients and CLA’s agribusiness professionals, more than 300 of us around the country, in certain parts of the country this is a very hot topic right now, especially if you’re in the Midwest.
However, I know there’s other parts of the country where there isn’t a lot of buzz about this quite yet. And I think it’s important for us to get the word out and make sure that our clients and the farmers and ranchers around the country are aware of these opportunities in R&D, I guess, enhanced R&D opportunities potentially in light of the George case.
So, thank you very much for your time, Jim.
And I want to remind everyone who’s watching that CLA will be hosting a webinar to go into more R&D discussion, and so it would be a great opportunity for you to learn more from us, from our specialists, and again, that’s on July 23rd at 1 p.m. Central. There should be a link posted. So we hope you click on that link and register and look forward to talking to you soon about research and development tax credits.
Thanks again, Jim. Appreciate your time this morning.
Thanks Robby.
Key insights
- The U.S. Tax Court confirmed on farm, production level testing can qualify for the R&D tax credit, and inputs like feed may count as qualified research expenses (QRE).
- Costs that feel routine can take on new significance when inputs are used as part of experimentation rather than standard operations.
- A short conversation before filing can help you understand whether what you’re already doing deserves a closer look.
Review activities that could support an R&D tax credit.
Many farmers, ranchers, and agribusinesses are already testing ways to improve yields, inputs, crop health, and more — but they may not realize those activities could matter for R&D tax credit planning.
In George v. Commissioner, the U.S. Tax Court delivered an important message for the agriculture industry: Research and development doesn’t have to occur in a laboratory to qualify for the federal R&D credit.
For agricultural producers, innovation often occurs in barns, fields, and poultry houses, and the court confirmed real world, production-based experimentation can meet the requirements for the R&D credit.
Understanding how farm activities align with current guidance can help businesses make more informed decisions about whether, and how, to pursue a claim.
What the George case means for agricultural R&D credits?
The case involved a large poultry producer engaged in applied research to improve broiler health, disease resistance, and growth rates. As is common in agriculture, the taxpayer tested hypotheses through live production cycles rather than controlled lab environments.
The IRS argued that because the research occurred in a commercial setting, the related activities and costs were part of routine farming operations. The court rejected that position, recognizing in agriculture, technical uncertainty is often resolved only through hands-on testing under actual production conditions.
What counts as a QRE?
QREs generally fall into three buckets:
- Wages — Pay for employees directly involved in research activities, supervise that work, or support it in a meaningful way.
- Supplies —Tangible items used up during research, such as materials, components, or inputs consumed while testing ideas or processes.
- Contract research — Certain costs paid to third parties to carry out research on your behalf.
Of particular significance to agricultural producers, the court held feed costs for experimental flocks qualified as supply costs eligible for the R&D credit under the pilot model rules. Because the animals were raised specifically to evaluate technical uncertainty, those costs weren’t treated as ordinary production expenses but as integral components of the research process.
The court also confirmed taxpayers aren’t required to claim every possible category of qualifying costs; electing not to pursue wage expenses doesn’t invalidate supply-based credits.
Example from the field
An agricultural producer set out to improve flock consistency after noticing uneven growth across production cycles.
Over several runs, the team adjusted environmental controls, timing, and inputs while tracking how those changes affected health indicators and outcomes. The effort wasn’t about routine upkeep — it was about answering specific technical questions without clear answers at the outset.
When those activities were documented alongside the decision‑making process, the work took on a different tax posture than standard operating costs.
Many agricultural producers are already testing, adapting, and improving — they just may not think of it as R&D. Learn what may qualify for R&D credit purposes. Watch the webinar.
Why R&D credit documentation still matters
Where the taxpayer fell short was documentation of both the base period (prior years) research expenses and of the process of experimentation. The court declined to accept unsupported estimates and instead applied the alternative simplified credit using the default 6% rate (when the taxpayer doesn’t have three prior years of qualifying costs).
For agricultural businesses, the message is clear: While the R&D credit is available for applied, production level experimentation, contemporaneous documentation still matters, even in industries where experimentation is embedded in daily operations.
Bottom line: George reinforces that agricultural innovation qualifies for the R&D credit. Experimentation conducted in barns, fields, and production facilities can meet the statutory requirements, and production inputs like feed can constitute qualifying costs when tied to research objectives.
Flexibility exists — but solid documentation remains essential to fully realizing the benefit.
Common questions about agricultural R&D credits
What tends to cause issues on exam?
Documentation. Even when experimentation is ongoing, unsupported estimates, proof of trials, or missing base‑period records can limit the credit available.
How early should we start thinking about R&D credit considerations?
Many organizations wait until tax season to ask whether activities qualify. In practice, the most useful conversations often happen earlier — when testing plans are being designed or refined — so research objectives and tracking methods align from the start.
What’s the difference between experimentation and routine improvement?
Routine adjustments are expected in agriculture. Experimentation typically involves testing alternatives when outcomes aren’t certain, evaluating results over time, and using those findings to inform next steps. The distinction often comes down to intent and how decisions are evaluated, not necessarily the complexity of the activity.
Do small or mid‑size producers need the same level of formality as large operations?
No. Documentation doesn’t have to be complex or academic. What matters is capturing the reasoning behind changes, what was tested, and how results were assessed. The level of detail should reflect the scope of the activity.
Can past activities still be evaluated for potential credits?
Sometimes. While contemporaneous records are always stronger, many producers already have operational data, production logs, or internal notes to help reconstruct how testing occurred. The key is understanding what’s usable and where gaps may limit the claim.
If you’re evaluating prior-year activities, it’s also important to consider how R&D credits may interact with Section 174 treatment and amended return decisions.
How does this affect risk tolerance around claiming the credit?
Court decisions like this one help clarify where the boundaries are, but they don’t remove the need for judgment. Understanding how activities align with current guidance can help businesses make more informed decisions about whether, and how, to pursue a claim.
When does it make sense to ask for help?
Producers often reach out when they’re unsure whether everyday testing crosses into qualifying research, when documentation feels informal, or when they want a second look before filing. In many cases, a brief review can clarify whether further effort is worthwhile.
How CLA can help with R&D tax credits
The takeaway for ag businesses: innovation in the field can qualify, but strong documentation unlocks the full benefit. Many organizations may already have qualifying R&D activity underway; the question is how it’s framed, supported, and reviewed before decisions are finalized.
CLA works with producers to evaluate how experimentation shows up in real‑world operations, how activities and costs are documented, and how current records align with IRS expectations.
Our goal is to bring clarity by helping you understand what may already qualify, where documentation could be strengthened, and how future activity can be captured in a way that reflects how the work actually happens.