While Democrats in Congress and President Joe Biden notched two major legislative victories before Congress’ August recess, neither piece of legislation includes a provision retroactively restoring full expensing of research and experimentation (R&E) costs under Section 174, as some supporters had hoped.
Biden recently signed the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act (H.R. 4346) into law, and the updated reconciliation bill known as the Inflation Reduction Act (H.R. 5376) is currently headed to Biden’s desk for enactment. Nevertheless, while some lawmakers lobbied to add retroactive R&E expensing into both bills, political complications caused the measure to be left out of both packages.
The best hope for Section 174 relief now appears to be as part of a year-end “extenders” bill after the November elections. The measure enjoys broad bipartisan support and lawmakers will likely seek to fix the issue before the end of the calendar year. Still, there are no guarantees in the legislative process, and many energy extenders were already addressed in the reconciliation package.
In light of the current political climate surrounding Section 174 relief, businesses should identify and track costs that will need to be amortized under current law.