The requirement to capitalize and amortize research and experimental (R&E) expenditures under section 174, which took effect last year, is significantly affecting the taxable income posture of many taxpayers.
As businesses continue to adjust to and plan for this new reality, our federal tax policy and R&E specialists hosted a 30-minute webcast in which they addressed the following topics, considerations and actions (with corresponding timestamp for your convenience).
Legislative dynamics surrounding tax incentives for R&E (1:41)
- How and why the tax treatment of R&E expenses under section 174 changed as part of the Tax Cuts and Jobs Act of 2017 (2:16).
- Why a legislative impasse continues despite strong bipartisan support for reinstating immediate deductibility of R&E expenses (3:55), and the prospects of Congress enacting a fix (5:11).
New tax treatment of R&E expenses (7:11)
- Additional regulations and guidance about the change to section 174 (7:40).
- How the new tax treatment of expenses interplays with the R&E tax credit (9:20), and the historic context that informs how businesses respond to the change (10:14).
- How software development is affected by changes to section 174 (13:23).
- The lack of an abandonment deduction permitted for R&E costs (14:48).
Broad tax implications throughout the R&E life cycle (15:46)
- Penalties and interest, and estimated taxes for 2023 (16:09).
- Tax extensions (17:13) and interplay with other tax provisions, such as business interest expense limitations, or section 163(j) (17:38).
- Utilization of other tax attributes, including net operating losses (18:10).
- Tax provisions and auditable documentation (18:40)
- Unexpected effects (21:50), including confusing definitions of R&E activities and costs, accounting considerations and implications for private equity.
Planning considerations (25:24)
- Accounting methods reviews and changes (25:24) and transaction costs analyses (25:40).
- The importance of indirect taxes (26:24).
How businesses can advocate for themselves (26:37)
RSM’s comment letter to congressional leaders (27:07) and additional communication channels.