With the Build Back Better reconciliation bill currently stalled, several lawmakers are pushing Congress to find an alternative legislative vehicle to delay the amortization of research and experimental (R&E) expenses under Section 174.
The Tax Cuts and Jobs Act amended Section 174 to require taxpayers to capitalize and amortize all R&E expenditures over five years (15 years for foreign R&E costs) for tax years beginning in 2022 or later late.
While there is broad bipartisan support in Congress for the retroactive deferral of R&E depreciation, Congress has yet to successfully tie this deferral to an enacted legislative package. Still, there are plenty of potential bills that Congress could attach a delay to.
Discussions are underway about the possibility of including the Section 174 depreciation deferral in the next Omnibus budget bill, which Congress hopes to pass by March 11, when the current continuing resolution funding the federal government will expire.
Discussions are also underway to include the postponement of Section 174 in the Semiconductor/Competitiveness Bill which is expected to be reconciled and signed into law in the coming months. The Senate-passed version of this bill — colloquially known as the United States Innovation and Competition Act (USICA) — passed by a 68-32 margin in June 2021, while the House passed its bill. bill – known as America COMPETES – via a 219-203 vote on Feb. 2. These bills are expected to be reconciled and eventually enacted into law in the coming months.
Finally, a fix for Section 174 could also be included in a slimmed-down version of the Build Back Better Reconciliation Bill — or a set of tax extensions lawmakers plan to pass later this year.
With the timing and ultimate outcome of the legislation still uncertain, companies should consider evaluating their approach to identifying and tracking Section 174 R&E expenditures and determining the potential impact of this new capitalization requirement on items such as the upcoming Q1 2022 financial statements and estimated tax deadlines. .
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