The Senate last week offered overwhelming support for restoring the expensing of research and experimentation (R&E) costs in an innovation bill going to conference between the House and Senate. The show of support for repealing R&E amortization came on a 90-5 vote in favor of “motion to instruct” lawmakers participating in the upcoming conference, but it is non-binding.
Under the Tax Cuts and Jobs Act, R&E costs under Section 174 must generally be amortized over five years (15 years for costs outside the U.S.) beginning in 2022. There is broad bipartisan support for reinstating expensing of these costs, but the change needs a legislative vehicle.
Supporters are pushing to add the provision to the innovation and China competitiveness legislation that is scheduled to head to conference beginning May 12. Lawmakers recently agreed to advance into a formal conference to merge the Senate-passed version of the underlying legislation (the United States Innovation and Competition Act (USICA)), with the House-passed bill known as “America COMPETES.” The Senate passed USICA by a 68-32 margin in June 2021, while the House passed America COMPETES via a 219-203 vote on Feb. 2, 2022.
The motion passed in the Senate instructed conferees to “include provisions that expand the research and development tax credit for small businesses and preserve full and immediate expensing for research and development investments.” Despite the overwhelming support for the motion, it does not guarantee the provision will be included. The motion is nonbinding, and negotiations on the underlying bill could be difficult.
There are currently no tax provisions in either version of the legislation, and many Democrats still appear reluctant to pass business tax relief while the enhanced child credit is stalled. Nevertheless, the overwhelming bipartisan support for R&E expensing, in addition to continued pressure from businesses and trade associations, give the provision a decent chance to be included.
The timeline for completion of the conference committee and final passage of the updated legislation remains uncertain. If the Section 174 fix is not included in the innovation legislation, it still has a good chance of being addressed in a year-end “extenders” bill after the November elections. For additional information on the Section 174 R&E rules, see our prior story, “Capitalizing R&E expenditures requires detail focus.”
Washington National Tax Office
+1 202 861 4144
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.