An infrequently publicized clarification provided by case law, IRS rulings, and final regulations has broadened the impact of the Domestic Production Activities Deduction (DPAD). The clarification provides insight in applying the DPAD across the agribusiness industries, opening up opportunities in an area of tax deductions that’s long been promoted by the IRS as a “manufacturer’s deduction.” As a result, farmers, growers, and processors that store, handle, and conduct other processing activities can successfully leverage the benefits of the DPAD.
Farmers, growers, and processors can claim the DPAD benefits through their involvement in the manufacturing, production, growth, or extraction process of agricultural products. While clients tend to understand that growing and processing cattle, dairy, produce, grain, fish, berries, bees, and nuts are qualifying activities for DPAD; they often overlook that DPAD also applies to the storage and handling of these agricultural products. From the farm to the fridge, there are myriad opportunities to reap the benefits of the DPAD.
One client who took advantage of the DPAD had a complicated mix of products; some the company produced, and some the company purchased. All were delivered through the client’s distribution system. After close study, our team found that the company qualified to receive a DPAD on 93 percent of its taxable income, even though only 83 percent of its gross receipts qualified as domestic production activities. The analysis yielded an additional $1 million of taxable income eligible for DPAD.
The processes of identifying DPAD opportunities and substantiating the claims are complicated. We’ve found that a fresh look at the calculations often uncovers additional activities that most companies wouldn’t consider to be “qualified” activities. Our experts can help you uncover these unique opportunities to ensure that you’re taking full advantage of the DPAD benefits available to you.
