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Tax & Assurance Guidance

Is Immediate R&D Expensing on The Horizon?

Posted on March 22, 2023 by

Sarah Russell

Sarah Russell

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CongressFor the first time since 1953, taxpayers are not allowed an immediate deduction for R&E expenses and instead must capitalize and amortize such expenses. As the end of 2022 came and went, optimism for a repeal of this rule waned. However, companies and industry groups have continued with their lobbying efforts to push Congress to repeal or at least delay this rule, focusing on both the immediate cash flow impact as well as the additional complexity the new rule brings. The IRS has indicated guidance on the nuanced application of the rule will not be issued before April 15, 2023.

Over the last week or so we have started to see some activity in Congress. Representative Ron Estes (R- Kansas), a House Ways and Means committee member, said in an interview that reviving the provision allowing immediate expensing is something the committee is working on now, ahead of other priorities. Representative Greg Murphy (R-N.C.) also noted urgency for extending R&D expensing during a Ways and Means hearing with Treasury Secretary Yellen. However, skepticism remains whether a bipartisan agreement can be reached to get legislation across the finish line.

On March 17, 2023 a stand-alone bipartisan bill was reintroduced (originally introduced in 2021) which would allow immediate expensing of R&D. The bill was read twice and then referred to committee.

What does this mean for taxpayers?

The recent activity in Congress brings a sliver of hope retroactive legislation change will occur. It is unlikely, although not impossible, such change will occur before the fast-approaching April 15 tax deadline. Taxpayers should consult with their advisers to determine what judgement calls to make with regard to payments due on April 15.

The IRS continues to experience operational challenges and taxpayers should avoid filing amended returns if possible. With potential legislation and/or IRS guidance on this issue, taxpayers who usually file before the original deadline should consider filing for an extension in the current year.

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If you have questions about this potential legislation and how it could impact your taxes, please reach out. We can help you make the best decision based on your individual business situation.

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Sarah Russell

Shareholder, Tax

As the leader of the firm's tax group, Sarah supports growth-driven domestic and international businesses with tax planning, consulting and compliance.

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