US House budget bill would postpone R&D tax expensing change

By Doug Connolly, MNE Tax

The reconciliation bill that passed the House Budget Committee on September 25 includes an amendment to delay for four years the requirement for companies to amortize research and development (R&D) expenditures beginning in 2022.

The amortization requirement was enacted by the Tax Cuts and Jobs Act in 2017, but with a delayed application date such that the new rules would only apply to amounts paid or incurred in tax years beginning after December 31, 2021. Businesses in the US have historically been able to deduct R&D expenditures when incurred. The change would generally require amortizing the expenditures over five years.

The House bill would push the amortization requirement back four more years so that it would apply beginning with tax years starting in 2026 or later, allowing the current rules to stay in place for the time being.

Lawmakers on both sides of the aisle have criticized the change to the expensing rules, which would increase upfront costs for businesses conducting R&D. A study earlier this month reported that allowing the change to take effect as scheduled in 2022 would significantly hurt US competitiveness in R&D. Several bills have been introduced to undo the change since it was enacted.

The provision to delay the change was not included among the slew of corporate tax changes initially proposed by the House Ways and Means Chairman for the budget bill earlier this month, but another Democratic lawmaker in August suggested incorporating such a provision into the bill. The delay is seen as a way to buy time to find a more permanent resolution to the issue while controlling the revenue cost – relative to repealing the requirement altogether – for purposes of the Democrats’ reconciliation bill.