Efforts to retroactively restore expensing of research and experimentation (R&E) costs under Section 174 remain stalled, but there is still optimism for an eventual fix.
There are three potential vehicles to carry a provision restoring R&E expensing: a Democratic reconciliation package, an innovation bill currently with a conference committee, and a year-end extenders package. The prospects of a reconciliation package took a significant hit last week when pivotal holdout Sen. Joe Manchin, D-W.V., rejected a broader tax bill, and the innovation bill also took a major hit in recent weeks.
Negotiations in the conference committee charged with merging the Senate-passed version of the United States Innovation and Competition Act (USICA) and the House-passed bill known as “America COMPETES” remain contentious. Senate Minority Leader Mitch McConnell, R-Ky., recently pledged to block any agreement if Democrats continue to pursue a reconciliation bill.
If Democrats fail to pass a reconciliation bill, it may give new life to the innovation legislation, but will not necessarily lead to inclusion of the R&E provision. Hopes for adding a tax title to the innovation bill have diminished because of the cost and Democratic demands for individual tax relief in exchange for business provisions. The administration also offered support for moving a narrower bill focused on only semi-conductors, something McConnell also suggested. This would further decrease the odds of an R&E fix being included. Lawmakers have also discussed adding tax credits for semi-conductors, though this provision faces an uphill battle.
If the Section 174 fix is not included in the innovation legislation or a reconciliation package, it still has a good chance of being addressed in a year-end “extenders” bill after the November elections. There are no guarantees in the legislative process, however, and businesses should consider identifying and tracking the costs that will need to be amortized under current law.
Contact:
Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.
More tax hot topics
No Results Found. Please search again using different keywords and/or filters.