The Internal Revenue Service (IRS) and the Treasury Department have recently announced their plan to propose new regulations concerning the capitalization and amortization of specific research and experimental expenditures, as indicated in Notice 2024-12. This announcement follows earlier guidelines provided in Notice 2023-63, focusing on research conducted under a contract.

Significantly, Notice 2024-12 adjusts the earlier stipulations by removing the necessity for taxpayers to depend entirely on the rules in sections 3 to 9 of Notice 2023-63. This change offers more flexibility and clarity for taxpayers in their approach to these regulations. Additionally, the notice declares that section 5 of Rev. Proc. 2000-50, which deals with the costs of developing computer software, is now considered outdated for expenses paid or incurred in tax years beginning after December 31, 2021.

This development comes at a critical time as the business community eagerly anticipates further rules and regulations on research and development (R&D) expensing. A key point of contention has been a provision from the Tax Cuts and Jobs Act of 2017, which mandates companies to amortize and capitalize their R&D costs instead of immediately writing them off. This provision has faced substantial lobbying from the business sector, with hopes for its deferment to be passed by Congress before year-end. Such a deferment is part of a broader discussion on business-friendly tax extenders, including 100% bonus depreciation and the EBITDA standard for business interest expense deductions.

Concurrently, political negotiations have been ongoing, with Democrats advocating for the reinstatement of the expanded Child Tax Credit from the American Rescue Plan Act of 2021. Additionally, there is support among some legislators for increasing the low-income housing tax credits. Despite these efforts, a lack of consensus between Democrats and Republicans has stalled progress on these issues. However, optimism remains that next year might bring a resolution and action on a tax extenders deal.

The IRS and Treasury's move to update and clarify these rules reflects an ongoing effort to address the complexities of tax regulations, especially in areas as critical as R&D expenditures. These changes are not just technical but have broader implications for how businesses plan their investments and manage their tax liabilities. With the political landscape continuously evolving, the business community and tax professionals alike remain attentive to how these and future legislative changes will shape the landscape of corporate taxation and investment in innovation.

Talley's team of tax professionals provides comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on your assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.