In Notice 2023-63, the IRS said the agency intends to issue proposed regulations governing the capitalization and amortization of specified research and experimental (SRE) expenditures under amendments to Sec. 174 made by the law known as the Tax Cuts and Job Act (TCJA), the treatment of SRE expenditures under Sec. 460, and the application of Sec. 482 to cost-sharing arrangements involving SRE expenditures.
In the meantime, taxpayers and tax professionals can rely on the interim guidance provided in the notice. The guidance covers seven areas, including the capitalization and amortization of SRE expenditures, the scope of Sec. 174 and software development.
Before the TCJA amendments, taxpayers could expense research and experimentation costs currently, or capitalize the costs, or capitalize and amortize them over a period of not more than 60 months. Under Sec. 174 as amended, taxpayers must amortize them over five years for domestic expenditures, or 15 years for SRE expenditures attributed to foreign research, using a half-year convention. Learn more.