The IRS issued favorable guidance (Rev. Proc. 2024-34) that broadens the scope of the automatic method change procedures (Rev. Proc. 2024-23) for the treatment of specified research or experimental (SRE) expenditures under Section 174 for taxpayers with short taxable years in 2022 and 2023.
Rev. Proc. 2024-34 modifies procedures in Section 7.01 of Rev. Proc. 2024-23 by expanding certain taxpayer-favorable automatic consent rules to apply to any taxable year beginning in 2022 and 2023. Under prior guidance, these rules were only applicable for a taxpayer’s first or second taxable year beginning after Dec. 31, 2021.
The new procedures do the following:
- Extend the waiver of the eligibility rules in Sections 5.01(1)(d) and (f) of Rev. Proc. 2015-13 to taxable years beginning in 2022 and 2023
- Provide that taxpayers may make a change in successive taxable years beginning in 2022 or 2023 for the same item
Similar to the taxpayer favorable rules under prior guidance, the new procedures provide limited audit protection with respect to SRE expenditures paid or incurred in the first taxable year beginning after Dec. 31, 2021, and expand the rules to include taxable years beginning in 2022 or 2023. Generally, taxpayers receive audit protection for changes made for any taxable year beginning in 2022 or 2023, provided the taxpayer changed its method in an effort to comply with Section 174 for its first taxable year beginning after Dec. 31, 2021.
The new procedures are effective for Forms 3115 filed on or after Aug. 29, 2024.
Grant Thornton Insight:
The issuance of Rev. Proc. 2024-34 offers administrative relief by permitting taxpayers with multiple short tax years in 2022 or 2023 to file an automatic method change for SRE expenditures during 2022 or 2023. For example, under prior guidance, a taxpayer with two short years in 2022 was unable to file an automatic method change for SRE expenditures in 2023. Under the guidance provided in Rev. Proc. 2024-34, such a taxpayer may file an automatic method change for SRE expenditures in 2023.
Contacts:
Content disclaimer
This content provides information and comments on current issues and developments from Grant Thornton Advisors LLC and Grant Thornton LLP. It is not a comprehensive analysis of the subject matter covered. It is not, and should not be construed as, accounting, legal, tax, or professional advice provided by Grant Thornton Advisors LLC and Grant Thornton LLP. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this content.
For additional information on topics covered in this content, contact a Grant Thornton professional.
Grant Thornton LLP and Grant Thornton Advisors LLC (and their respective subsidiary entities) practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations and professional standards. Grant Thornton LLP is a licensed independent CPA firm that provides attest services to its clients, and Grant Thornton Advisors LLC and its subsidiary entities provide tax and business consulting services to their clients. Grant Thornton Advisors LLC and its subsidiary entities are not licensed CPA firms.
Tax professional standards statement
This content supports Grant Thornton Advisors LLC’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. It is not, and should not be construed as, accounting, legal, tax, or professional advice provided by Grant Thornton Advisors LLC. If you are interested in the topics presented herein, we encourage you to contact a Grant Thornton Advisors LLC tax professional. 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.
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, tax, or professional advice provided by Grant Thornton Advisors LLC. 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 a Grant Thornton Advisors LLC tax professional 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 Advisors LLC 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.
Grant Thornton Advisors LLC and its subsidiary entities are not licensed CPA firms.
More tax hot topics
No Results Found. Please search again using different keywords and/or filters.