No Relief: R&D Expenses Must Be Amortized

The $1.7 trillion federal omnibus spending package that was signed by President Biden on Friday, December 23 did not include a provision to reverse the recently enacted requirement that businesses amortize their R&D expenses. This was despite industry pressure for an extension or removal of the requirement to begin amortizing R&D expenditures, which went into effect on January 1, 2022.

This means that companies participating in R&D related activities and generating R&D expenditures must amortize those costs and deduct them spaced out over a 5-year period. Previously, R&D costs could be immediately expensed the year that they occurred, within certain limits.

There has been no change to the R&D Tax Credit, which was made permanent as part of the Protecting Americans from Tax Hikes (PATH) Act of 2015. However, key guidance and details remain outstanding regarding the new R&D expense amortization rules and how the IRS will deploy this tax law change effective January 1, 2022. Firms who participate in R&D related activities should consult their tax advisors to strategize and quantify the immediate impact on their organization. 

As a repeal or at least a delay in implementation for 2022 has strong bipartisan support, it is still hoped that the new Congress will address this issue in early 2023.

Gray, Gray & Gray will be monitoring any updates on this evolving situation and will issue further changes as they become available. For additional information or guidance please contact us at (781) 407-0300.

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