The Department of Treasury and IRS released Notice 2023-63 on September 8, 2023, announcing plans to propose regulations addressing the capitalization and amortization of specified research or experimental (SRE) expenditures under Internal Revenue Code (IRC) Section 174, the treatment of SRE expenditures under IRC Section 460, and the application of IRC Section 482 to cost sharing arrangements involving SRE expenditures.
The Tax Cuts and Jobs Act (TCJA) amended former IRC Section 174 for amounts paid or incurred in taxable years beginning after December 31, 2021. For such amounts, IRC Section 174 disallows deductions for SRE expenditures and rather requires taxpayers to capitalize and amortize such expenditures ratably over a five-year—or 60-month—period for domestic research, or a 15-year—or 180-month—period for foreign research, beginning with the midpoint of the taxable year.
The forthcoming proposed regulations are intended to be consistent with the interim guidance provided in Notice 2023-63. The interim guidance addresses key areas taxpayers have been questioning, including the following:
The Department of Treasury and IRS anticipate the forthcoming proposed regulations would apply for taxable years ending after September 8, 2023. However, a taxpayer may choose to rely on the rules described in the notice for expenditures paid or incurred in taxable years beginning after December 31, 2021, provided the taxpayer relies on all the rules in the notice and applies them in a consistent manner.
The Department of Treasury and IRS request comments on issues arising from the interim guidance set forth in Notice 2023-63 by November 24, 2023.
For questions related to this guidance, please contact your Moss Adams professional.