Congress last week passed its federal Omnibus package, funding the federal government for the remainder of the fiscal year (through Sept. 30, 2022). The Omnibus contains no tax title, but provides $12.6 billion in funding for the IRS, up $675 million from the previous fiscal year.
Several lawmakers had pushed to include a retroactive delay of the R&E amortization rules under Section 174 in the Omnibus, but no tax provisions made it into the final package. There remains broad bipartisan congressional support for retroactively postponing the Section 174 amortization rules—most recently shown in a letter urging extension of full R&E expensing from a bipartisan group of 15 senators addressed to Senate Majority Leader Chuck Schumer, D-N.Y., and Senate Minority Leader Mitch McConnell, R-Ky.—but lawmakers have thus far been unsuccessful in attaching deferral to a legislative package signed into law.
Supporters of legislative fix will not turn to other potential vehicles. There are ongoing discussions about including Section 174 deferral in bipartisan innovation and China competitiveness legislation that is expected to be enacted in the coming months. The Senate-passed version of this bill—United States Innovation and Competition Act (USICA)—passed by a 68-32 margin in June 2021, while the House passed its bill—known as America COMPETES—via a 219-203 vote on Feb. 2. There are currently no tax provisions in this legislation, and many Democrats still appear reluctant to pass business tax relief while the enhanced child credit is stalled.
A Section 174 fix could also still be included in a slimmed-down reconciliation bill, if Democrats—and most notably, pivotal holdout Sen. Joe Manchin, D-W.V.—can come to terms on an updated package in the coming months. If no legislation is passed before then, the provision will likely be considered as part of a larger “tax-extenders” package in a lame duck session. House Ways and Means Committee Chairman Richard Neal, D-Mass., recently indicated he believes postponement of the R&E amortization rules could be included in such legislation, and stated, “We think we can still move [a tax extenders package] before too long.”
Further developments on deferral of the R&E amortization rules under Section 174 are expected in the coming weeks and months. For additional information on the Section 174 R&E rules, see our prior story, “Capitalizing R&E expenditures requires detail focus.”
Dustin Stamper is a managing director in Grant Thornton’s Washington National Tax Office and leads the tax legislative affairs practice for the firm.
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