Chemical transportation units were not credit-eligible facilities

Plain-English summary

The IRS considered whether transportation units used to move agricultural chemicals were separate facilities for the section 45O agricultural chemicals security credit. Because tax credits must be clearly authorized, the memorandum read “facility” narrowly in light of the statute's listed expenses and legislative background. Those materials focus on protecting chemicals at on-site locations such as plants, warehouses, or farm buildings. Transportation units therefore were not facilities under section 45O, and their security costs were not qualified chemical security expenditures. The memorandum incorporated the other issues from TAM 201532034 and replaced only that TAM's analysis of this issue.

Ruling snapshot

• Question: Were chemical transportation units facilities whose security expenses qualified for the section 45O credit?
• Outcome: Advice given, the units and their security expenses did not qualify
• Key authorities: IRC § 45O(b) and (d); 153 Cong. Rec. E728-02 (2007)

Full text (IRS public release)

                            INTERNAL REVENUE SERVICE
                  NATIONAL OFFICE TECHNICAL ADVICE MEMORANDUM

                                              February 16, 2016

                                                      Third Party Communication: None
                                                      Date of Communication: Not Applicable
Number:                    201624022
Release Date:              6/10/2016
Index (UIL) No:            45O.00-00
CASE-MIS No:               TAM-127804-15

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         Taxpayer's Name:                             -------------------------------
         Taxpayer's Address:                          --------------------------------------------------------------------
         Taxpayer's Identification No                 -----------------
         Year(s) Involved:                            ----------------
         Date of Conference:                          --------------------------------------------------

LEGEND:

Sub               =        -------------------------------------
X                 =        ----------------------

This technical advice memorandum (TAM) incorporates by reference the issues,
conclusions, facts, law, and analyses for issues 1,3, 4, and 5 provided in TAM
201532034 (April 8, 2015) (TAM1). This TAM, although in agreement with the
conclusion under Issue 2 of TAM1, replaces the analysis regarding that issue with the
following:

Section 45O(b) provides a limit on the amount of credit that may be claimed with
respect to any facility for any taxable year. Thus, the § 45O credit is accrued on a per
facility basis. The term facility is not specifically defined in the statute, and the Service
has not issued guidance concerning what constitutes a facility for purposes of § 45O.
Tax credits are a matter of legislative grace and are allowed only as clearly provided by
statute. Therefore, we believe that the best approach is to narrowly define the term
“facility” within the plain meaning of the statute.1 To the extent the statute is unclear, we
look to the accompanying statutory background to determine whether X constitutes a
facility under § 45O(d).


1
 Helvering v. Northwest Steel Rolling Mills, Inc., 311 U.S. 46, 49 (1940); see also New Colonial Ice, Co.
                                                                                       th
v. Helvering, 292 U.S. 435, 440 (1934); U.S. v. McFerrin Stinson, 570 F.3d 672, 675 (5 Cir. 2009).
TAM-127804-15                                 2

Section 45O(d) provides, in part, that qualified chemical security expenditures include
the following: limitation and prevention of access to controls of specified chemicals
stored at the facility, protecting 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, and implementing a site security plan. These types of expenses usually
involve security measures for protecting on-site facilities located at the taxpayer’s
physical location.

This interpretation is supported by the statutory background as reflected in
Congressman Lewis’ remarks which specifically refer to enhancement of on-site
security, and not to security costs related to transportation units. Congressman Lewis,
stated that: “The legislation that I have proposed, The Agricultural Business Security
Tax Credit Act, extends tax initiatives to help defray the high costs agricultural
businesses now face enhancing on-site security. . . . I believe the incentives offered in
The Agricultural Business Security Tax Credit Act will promote improved security at
agricultural facilities that handle chemicals and fertilizers, helping them take the
necessary steps to better protect U.S. agriculture and the American public from
potential threats and other illegal activity.” 153 Cong. Rec. E728-02 (2007). Thus,
§ 45O intends to promote the enhanced protection of specified agricultural chemicals at
on-site agricultural business facilities. X is not a facility at a site that stores or handles
chemicals, such as a chemical plant, or warehouse or farm building. Therefore, it is not
reasonable to consider X as a separate facility under § 45O since to do so would
expand the scope of the statute.

In addition, as discussed above, the applicable statute must be narrowly construed, and
there is simply no authority under the statute or accompanying statutory background for
expanding the plain meaning of “facility.” Because a narrow interpretation of the statute
is required, we believe that categorizing X as a facility is too far reaching under a strict
interpretation of this statute. The nature of the qualifying expenses listed in the statute
are indicative of the intent of the statute and are consistent with Congressman Lewis’
remarks relating to the enhancement of on-site security. Therefore, the transportation
units used by the taxpayer in transporting chemicals do not qualify as facilities under the
provisions of § 45O and the costs of security measures taken with respect to such
transportation units do not qualify for the credit. Thus, we conclude that Sub may not
treat certain expenditures incurred as qualified chemical security expenditures under
§ 45O(d) because X is not a facility for purposes of § 45O.

CAVEAT(S):

A copy of this technical advice memorandum is to be given to the taxpayer(s). Section
6110(k)(3) provides that it may not be used or cited as precedent.