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IRS Issues Interim Guidance on R&D Expenditures

Recently, the IRS released Notice 2023-63, containing long-awaited interim guidance on the capitalization and amortization of Specified Research or Experimental expenditures under Section 174. Beginning in 2022, businesses involved with R&D are no longer able to currently deduct their R&D expenses. Rather, they need to capitalize and amortize those costs over time.

The Notice specifically addresses:

  • Amortization Methods
  • Identification and Allocation of Costs
  • Software Development
  • Research performed under contract
  • Disposition of property
  • Cost-sharing regulations
  • Long-Term Contract Accounting

The proposed regulations are expected to apply to tax years ending after September 8, 2023, although they may be adopted for earlier years. The IRS intends to issue additional guidance, however,

“Before the proposed regulations are released, a taxpayer may choose to rely on Notice 2023-63 , except for the rules in section 7, provided the taxpayer relies on all rules and applies them consistently. Notice 2023-63 also addresses how account for SRE expenses under IRC Sec. 460 and how to apply IRC Sec. 482 to cost-sharing agreements involving SRE expenditures. Additionally, the IRS has indicated the IRC Sec. 460 regulations will likely be revised to reflect these updates. Notice 2023-63.”

The IRS is currently requesting comments on the proposed regulations.

We will continue to update you as information is received. To read the entire release, click here.

If you have questions about how these changes may affect you, please call 215.675.8364 or email us to speak with a construction accounting professional today.

DISCLAIMER: The WM Update, WM Wednesday Wisdom, WM Daily Update, and other related communications are intended to provide general information, as of the date of this communication, and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.