About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

1 1 (August 10, 2020)

handle is hein.crs/govdbgh0001 and id is 1 raw text is: Researh Sevice Section 174 and Investment in Research and Development August 10, 2020 In determining their taxable income, companies are allowed to deduct all ordinary and necessary expenses they pay or incur in generating gross income. Those expenses can be current (purchases of inputs with useful lives of less than one year, such as materials and labor compensation) or capital (purchases of assets with useful lives longer than one year, such as patents and computer systems). Current expenses are written off in the year when they are paid or incurred. Capital expenses, by contrast, are written off over the period when acquired tangible and intangible assets lose economic value through amortization or depreciation allowances. Since 1954, companies engaged in research and development (R&D) have been allowed to deduct in full certain R&D expenses in the year when they were paid or incurred when calculating their taxable income. This treatment is known as expensing and is allowed for qualified research expenses (QREs) related to domestic and foreign research under Internal Revenue Code (IRC) Section 174(a). The following research expenses qualify for expensing: (1) wages and salaries of researchers, (2) materials and supplies used in qualified research, and (3) the costs of operating and maintaining research facilities (e.g., rent, utilities, and insurance). Each expense is treated as a current expense under IRC Section 162(a). Spending on equipment and buildings used to perform research must be capitalized and recovered through claiming the appropriate depreciation allowances. Companies investing in R&D have two options for capitalizing QREs and recovering them through amortization over 5 or 10 years. IRC Section 174(b) allows companies to capitalize QREs and amortize them over a period of 5 years, beginning with the month when a company first realizes benefits from an R&D investment. (Amortization involves deducting the same amount in each year of an amortization period, until the original cost of an asset has been fully recovered.) IRC Section 59(e) allows companies to amortize QREs over 10 years, starting with the year when the expenditures were paid or incurred. Impact of P.L. 115-97 No major change was made in IRC Section 174 between 1954 and the enactment of the 2017 tax revision (P.L. 115-97, also known as the Tax Cuts and JobsAct or TCJA). The TCJArepealed the option to Congressional Research Service https://crsreports.congress.gov IN11479 CRS MN GHT Pre pa red .r Menbersand Co m : rn te $ o Cong rc : ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Already a HeinOnline Subscriber?

Log In

profiles profiles most