The Internal Revenue Service handed out a hefty tax break to large corporations, ensuring that President Donald Trump's lucrative research and development deduction doesn't increase their tax bills under a Biden-era 15% minimum levy.
The agency issued interim guidance Wednesday allowing companies to claim a backlog of R&D deductions stretching back to 2022, while minimizing their exposure to the 15% tax Democrats established for large corporations under former President Joe Biden.
The new guidance doesn't necessarily mean companies can avoid triggering the corporate minimum tax if they claim the backlog of deductions, yet it does allow them to reduce their tax burden by subtracting old domestic R&D investments from their income.
The IRS guidance is a huge win for research-intensive industries, including technology, pharmaceuticals and manufacturing. Without it, some companies found the retroactive tax break was so generous that it triggered the corporate alternative minimum tax, which applies to businesses with at least $1 billion in annual profits.
Charles Crain, managing vice president of policy for the National Association of Manufacturers, praised the decision, saying in a statement that it would "supercharge" private sector investment in research and development.
Yet the move quickly came under criticism from Democrats, who had warned the Treasury against issuing the guidance. They have said the limitations that the 15% minimum tax put on the retroactive break was an indication that the corporate alternative minimum tax was working as intended.
Meta Platforms Inc., Salesforce Inc., Qualcomm Inc., Airbnb Inc., Broadcom Inc. and Applied Materials Inc., are among the companies that disclosed in regulatory filings that the boosted deduction and other new tax breaks would either trigger a corporate alternative minimum tax liability or prevent them from using millions of dollars in credits earned through past payment of the tax.
Brett York, a principal at PwC, said the guidance is likely to have a "meaningful impact" for a lot of big companies, which tend to invest heavily in research and development.
The official IRS guidance doesn't have the force of law or even of a government regulation, but serves as an official notice to companies on the agency's plans to enforce the law. A future administration could rescind or change the guidance. The agency said it plans to propose regulations along the same lines.
Trump's signature tax law last year reversed a requirement that R&D deductions be spread out over five years, which was put in place by Republicans during his first term. The multitrillion-dollar tax and spending act also allows companies to deduct any unclaimed amortized R&D tax breaks dating back to 2022.
The backlog of unclaimed, retroactive R&D deductions was so generous — estimated to be worth $67 billion in accelerated tax savings in 2026 — that for some large corporations it would trigger the 15% corporate alternative minimum tax. The guidance allows companies to take advantage of the backward-looking tax break by deducting any newly claimed research and development investments from prior years from the adjusted book income used to calculate their tax burden under the corporate minimum rate.
The backlog of R&D breaks could still trigger a minimum corporate tax liability under the guidance, but the new guidelines would allow a business to minimize its tax burden under the regime by subtracting newly claimed R&D deductions from its taxable income.
'Skirting accountability'
Representative Richard Neal of Massachusetts, the top Democrat on the House Ways and Means Committee, said in a statement on Wednesday evening that, "This new guidance ignores the clear language of the tax code and is right out of the Republican playbook to pull any lever to further rig the system for those at the top."
"The corporate minimum tax serves an important role in preventing giant corporations from skirting accountability," he added.
The guidance also allows companies to take other deductions to reduce their tax bills under the 15% minimum tax. Money spent on repairs and maintenance can be deducted from their income immediately, rather than spaced out over several years, under the IRS notice.
Similarly, film, television, audio and theatrical production companies can immediately write-off production costs from their tax bills under the corporate alternative minimum tax, just like under the traditional tax regime.
Companies can also deduct "goodwill" and other intangible assets over 15 years from their corporate minimum tax liability, just as they would under traditional tax treatment. Prior to the guidance, companies could not deduct intangible assets — such as patents, trademarks and customer lists — from their tax liabilities if they were subject to the corporate minimum tax.
The guidance also allows companies emerging from bankruptcy to avoid triggering the 15% minimum tax due to any artificial spike or loss of income due to accounting practices.
