Hemp Production Rising with Farm Bill, Possible R&D Credits

Date January 23, 2020
Authors HBK CPAs & Consultants
Categories

Christopher T. Marrie, CPA, CCIFP and Principal in the Naples, Florida office of HBK CPAs & Associates is also the southern tier region leader of the firm’s Cannabis Industry Group. He performed a technical review of this article, which was written by Sally Frizzell Coleman, CPA, PA. Sally is a Senior Director in HBK’s Fort Myers, Florida office and has been with the firm since she merged with HBK in 2017. She is a member of the firm’s Cannabis Industry Group.

With the passage of the Agriculture Improvement Act of 2018 (U.S. Farm Bill), farmers can now legally grow industrial hemp throughout the United States.

Holly Bell, Director of Cannabis for the Florida Department of Agriculture and Consumer Services, spoke of the more than 25,000 uses for hemp. “The CBD craze is what the plant is used for and what will get this industry going,” she said. Adding that hemp will remain a valuable commodity and is not a fad.

Industrial hemp affects multiple industries which include agriculture, manufacturing, energy, medical, nutrition and technology. With the passing of the U.S. Farm Bill, researching can be performed to develop ways in which to use this versatile plant for both profits and the sustainability of our planet.

Research and development will be instrumental in exploring many of the ways in which to process and use the hemp plant. Entrepreneurs may be able to benefit from Federal Research and Experimentation (R&D) Tax Credit to help reduce their Federal income tax burden.1 Potentially eligible expenses include wages, the cost of testing, supplies, as well as contract research expenses.

Some examples of business activities that may qualify for R&D tax credits include but are not limited to:

  • Experimenting with fertilizers, plant spacing, lighting, watering techniques, etc. to increase yield or production
  • Improving efficiency in production techniques during growing and/or harvesting
  • Developing new strains of hemp
  • Developing automated systems for greenhouse production
  • Developing new edible products with CBD derived from hemp
  • Experimenting with topical creams and skin absorption formulations
  • Testing new CBD oil products and extraction techniques
  • Testing of new filtration systems for air and water
  • Developing new software analytical tools
  • Developing new irrigation/hydroponic systems
  • Testing new equipment to shorten the life of a growth cycle
  • Studying hemp uses for energy fuels, textiles and other materials

The four-part test required for claiming any Federal R&D tax credit is as follows:

  • Qualified Purpose: The purpose of the research must be to create a new or improved product, process, or formulation, resulting in increased performance, function, reliability or quality.
    • Technological in Nature – The research must rely on principles of the hard sciences, such as engineering, physics, chemistry, biology or computer science.
    • Elimination of Uncertainty – Activities must overcome some unknowns, such as uncertainty as to capability, optimal design, or optimal methodology.
  • Process of Experimentation – Experimentation can be demonstrated through test batches, simulations, systematic trial and error, or other methods of evaluating alternatives to achieve a desired result.

The possibilities of processes involving hemp eligible for the Federal R&D Tax Credit seem endless. Please contact Christopher Marrie, CPA, CCIFP and Director of the firm’s Cannabis Industry Group in the southern tier service region, at CMarrie@hbkcpa.com for more information.

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1 Some states also offer similar credits.

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Is Your Anti-Virus Software Functioning as Intended?

Date June 4, 2019

Most people know basic information about anti-virus software and that it is crucial for cybersecurity. However, it’s often mistakenly believed that anti-virus software is the only cybersecurity defense component required to protect your computer system.

Anti-virus does play a very important role within a multi-layered cybersecurity strategy. However, we are providing this overview to underscore and verify that this component is merely one part of protecting your computer environment.

From a 50,000-foot view, anti-virus software operates in the following manner: it checks a table of known virus definitions with all the files stored on a computer system, in order to flag a potential virus. The flagging of viruses is achieved either through signature-based or heuristic-based analysis.

A file signature is a unique identifying number located in the file’s header that identifies the type of file and data contained within that file. Heuristics refers to an algorithm that is used to find previously unknown viruses (i.e. those not yet listed on the virus definition table).

There are two main anti-virus operational modes currently in use to check files on a computer system:

  1. Full System Scan. This mode also includes a “quick scan” or a check of files within which the file signature has changed since the previous Full System Scan, which runs on an automatic schedule or is manually enacted.
  2. Background Processing. This is the process that occurs (as its name indicates) and functions in the background on your computer by checking every file as it is opened. It is often referred to as “Real-Time Protection”.

There are many anti-virus options available to consumers, including both free and paid products. Virus detection rates vary among these choices and can fluctuate over time. Therefore, do not expect there to be only one solution that is consistently proven as the ultimate anti-virus product available. A consistent “Number One” has not yet materialized.

There are numerous anti-virus comparison sites searchable on the web. Also, it’s important to remember that if your anti-virus definition files are not updated regularly, or if the anti-virus function is disabled by users of your computer system, you may not be receiving the protection you assume.

Action Items:

  1. If you do not already use anti-virus software, research options within your price range and choose a solution that fits your needs.
  2. Implement the anti-virus software system on your network.
  3. Periodically ensure that your anti-virus software is running as intended. This means the virus definition table will be updated frequently and that it will be consistently used on all computers within your network.
  4. HBK Risk Advisory Services can assist you with your data backup or Cybersecurity questions and needs. Please contact Bill Heaven at WHeaven@hbkcpa.com

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