IRS plans rules to clarify R&D expensing

The Internal Revenue Service and the Treasury Department have issued a notice saying they intend to propose regulations to address the capitalization and amortization of specified research and experimental expenditures.

Notice 2024-12, issued last week, clarifies rules issued earlier this year in Notice 2023-63 relating to research performed under a contract. The notice also modifies the reliance rules from the earlier notice by removing the requirement that taxpayers have to rely on all of the rules in sections 3 through 9 of Notice 2023-63. 

In addition, the notice clarifies that section 5 of Rev. Proc. 2000-50, which covers the costs of developing computer software, is now obsolete for amounts paid or incurred in tax years starting after Dec. 31, 2021.

Samuel Corum/Bloomberg

The remaining rules and regulations surrounding research and development expensing have been eagerly awaited as Congress has still not agreed to defer a provision under the Tax Cuts and Jobs Act of 2017 that requires companies to amortize and capitalize their R&D costs rather than write them off immediately. The provision has been lobbied for heavily in the business community and proponents had hoped to see it passed by Congress before the end of the year, along with other business-friendly tax extenders like 100% bonus depreciation and the EBITDA standard for deducting business interest expenses. In return, Democrats have pushed for a revival of the expanded Child Tax Credit that was available in the American Rescue Plan Act of 2021, while some have advocated for an expansion of Low Income Housing Tax Credits. But like so much in Congress this past year, Democrats and Republicans have been unable to agree on a compromise, although proponents hope to see renewed action next year on a tax extenders deal.