The Internal Revenue Service and the Treasury Department issued Revenue Procedure 2023-11 during the last week of December after a revenue-raising provision of the Tax Cuts and Jobs Act of 2017 took effect. This provides updated guidelines for accounting method changes for specified research or experimental expenditures and supersedes Revenue Procedure 2023-8.

Revenue Procedure 2023-11 contains guidance like Rev. Proc. 2023-8 but modifies the audit protection with respect to Section 174 expenditures to encourage timely compliance with the changes made by the Tax Cuts and Jobs Act, which took effect for tax years beginning after Dec. 31. 2021. The provision requires the amortization of R&D expenses by companies over five years rather than allowing them to deduct them immediately. The change took effect at the beginning of last year, but companies had held out hope the tax break would be extended again by Congress.

House Republicans had been in favor of extending the R&D expensing tax break, in addition to extending 100% bonus depreciation for new asset purchases and delaying the cap on deductibility of interest expenses from the 2017 tax law. House Democrats, on the other hand, had pushed for extending the expanded Child Tax Credit from the American Rescue Plan Act of 2021. The R&D expense changes from the 2017 tax law are now operable, hence the need for updated guidance since the two parties could not agree on a deal to include those tax provisions in the year-end omnibus spending bill that Congress passed a few days before Christmas. That means the R&D expense changes from the 2017 tax law are now operable, hence the need for updated guidance. Revenue Procedure 2023-11 will appear in Internal Revenue Bulletin 2023-3, dated Jan. 17, 2023.

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