Lawmakers Rally for Research and Experimental Expense Capitalization Repeal

by: Brad Pittman
Verified by: CPA

January 4, 2024

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On November 29, 2023, nearly 150 lawmakers wrote to the Speaker of the House to outline their support for tax legislation that will repeal certain provisions of the Tax Cuts and Jobs Act (“TCJA”) and result in the restoration of full and immediate expensing of research and experimental (“R+E”) expenses, full capital expensing, and interest deductibility rules that foster a pro-growth environment. The revisions of these provisions, which are often referred to as the “Big Three” provisions of TCJA, has consistently received bipartisan support.

Specific to the treatment of R+E expenses, TCJA modified the law under Internal Revenue Code Section 174 such that these expenses when incurred in tax years beginning on or after January 1, 2022, could no longer be deducted in full but rather have to be capitalized and amortized over either a five-year period (domestic expenses) or a fifteen-year period (foreign expenses).

In addition to a general call for legislative action, the letter called specifically for support of the Build It in America Act, which was introduced to Congress via House Resolution 3938 in June 2023. According to a July 2023 Congressional Budget Office cost estimate, this bill includes provisions to allow businesses to fully deduct R+E expenses, depreciate certain capital equipment faster, and other pro-business measures addressing excise taxes on oil and petroleum products and credits for clean electricity and clean vehicles.

Subsequent to the delivery of the letter to House Speaker Mike Johnson, there has been additional speculation around a possible bipartisan deal being reached to address the “Big Three” of TCJA as well as the child tax credit at the beginning of the upcoming tax season.

Smith + Howard is closely monitoring all developments related to the potential revision of the tax law related to R+E expense capitalization and is available to support with a range of research + development tax credit services. To be sure you’re on the email list for future updates on this topic, provide your email address in the “Want more insights?” block below and select “Tax.” To learn more, contact Brad Pittman at [email protected].

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