Full Expensing of Domestic Research and Experimental Expenditures
Section 70302 · Sec. 70302 ·
What this chapter is about
This part lets a firm deduct home research costs the year they are paid. Research done abroad is spread over 15 years instead. A firm may still choose to spread home costs over 60 months. Small firms may reach back to 2022 and amend their returns.
The document says “shall”Who acts: Secretary of the TreasuryHow: statuteSec. 70302 in the PDF
What the document says
“Notwithstanding section 263, there shall be allowed as a deduction any domestic research or experimental expenditures which are paid or incurred by the taxpayer during the taxable year.”
The section adds a new section 174A to part VI of subchapter B of chapter 1 of the Internal Revenue Code of 1986 allowing a deduction, notwithstanding section 263, for domestic research or experimental expenditures paid or incurred in the taxable year.
What the document actually says
“Notwithstanding section 263, there shall be allowed as a deduction any domestic research or experimental expenditures which are paid or incurred by the taxpayer during the taxable year.”
That sentence, in plain words
Home research costs may be deducted. That is for the year they are paid or run up. One other rule is set aside to allow it.
What this is about
A deduction lowers the income that is taxed. Taking it at once beats spreading it out. The rule set aside is in the tax code.
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“the term `domestic research or experimental expenditures' means research or experimental expenditures paid or incurred by the taxpayer in connection with the taxpayer's trade or business other than such expenditures which are attributable to foreign research”
The section defines domestic research or experimental expenditures as research or experimental expenditures paid or incurred in connection with the taxpayer's trade or business, other than those attributable to foreign research within the meaning of section 41(d)(4)(F) of the Internal Revenue Code of 1986.
What the document actually says
“the term `domestic research or experimental expenditures' means research or experimental expenditures paid or incurred by the taxpayer in connection with the taxpayer's trade or business other than such expenditures which are attributable to foreign research”
That sentence, in plain words
The term covers research costs of a business. It leaves out costs tied to research done abroad.
What this is about
The cost must be linked to the firm's trade. Work done abroad falls under a different rule. That rule spreads the cost over 15 years.
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The document says “can”Who acts: Secretary of the TreasuryHow: statuteSec. 70302 in the PDF
What the document says
“be allowed an amortization deduction of such expenditures ratably over such period of not less than 60 months as may be selected by the taxpayer”
The section lets a taxpayer elect, under the Secretary's rules, to charge domestic research or experimental expenditures to capital account instead and take an amortization deduction spread evenly over a period of at least 60 months chosen by the taxpayer, beginning with the month benefits are first realized. The election must be made by the return's due date including extensions, must be followed in that year and later years unless the Secretary approves a change, and does not reach costs paid in an earlier year.
What the document actually says
“be allowed an amortization deduction of such expenditures ratably over such period of not less than 60 months as may be selected by the taxpayer”
That sentence, in plain words
The cost may be written off bit by bit. The spread must run at least 60 months. The firm picks how long.
What this is about
The choice must be made by the return date. Once made it must be kept. The Secretary may allow a change later.
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The document says “shall not”Who acts: Secretary of the TreasuryHow: statuteSec. 70302 in the PDF
What the document says
“any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure.”
The section provides that it does not apply to expenditure on acquiring or improving land, or on property used in the research that is subject to the depreciation allowance under section 167 or the depletion allowance under section 611, though allowances under those sections count as expenditures for its purposes. It also does not apply to expenditure to establish the existence, location, extent or quality of any deposit of ore or other mineral, including oil and gas. Any amount paid in connection with developing software is treated as a research or experimental expenditure.
What the document actually says
“any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure.”
That sentence, in plain words
Money spent on building software counts as a research cost.
What this is about
Money spent on land does not count. Nor does money spent looking for ore, oil or gas. Those are ruled out here.
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“in subsection (b)-- (i) by striking "specified research" and inserting "foreign research",”
The section rewrites section 174 of the Internal Revenue Code of 1986 so that it deals with foreign research or experimental expenditures, amortized over a 15-year period, replaces the word specified with foreign in the text and heading, ties the section to costs attributable to foreign research within the meaning of section 41(d)(4)(F), and adds the words or reduction to amount realized after no deduction in subsection (d). Eleven further conforming cross reference amendments carry the new section 174A through the rest of the Code.
What the document actually says
“in subsection (b)-- (i) by striking "specified research" and inserting "foreign research",”
That sentence, in plain words
The words specified research are taken out. The words foreign research are put in.
What this is about
The older section now covers work done abroad. Those costs are spread over 15 years. Eleven other spots are updated to match.
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The document says “shall”Who acts: Secretary of the TreasuryHow: statuteSec. 70302 in the PDF
What the document says
“The domestic research or experimental expenditures (as defined in section 174A(b)) otherwise taken into account as a deduction or charged to capital account under this chapter shall be reduced by the amount of the credit allowed under section 41(a).”
The section rewrites section 280C(c)(1) of the Internal Revenue Code of 1986 so that domestic research or experimental expenditures otherwise deducted or charged to capital account are reduced by the research credit allowed under section 41(a), and rewrites section 41(d)(1)(A) to point to expenditures treated as domestic research or experimental expenditures under the new section.
What the document actually says
“The domestic research or experimental expenditures (as defined in section 174A(b)) otherwise taken into account as a deduction or charged to capital account under this chapter shall be reduced by the amount of the credit allowed under section 41(a).”
That sentence, in plain words
The research costs a firm claims are cut. They are cut by the amount of the research credit.
What this is about
That stops the same cost getting two breaks. The credit is set out in the tax code. That code is not indexed here.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
The document says “shall”Who acts: Secretary of the TreasuryHow: statuteSec. 70302 in the PDF
What the document says
“The amendments made by subsection (a) shall be treated as a change in method of accounting for purposes of section 481 of the Internal Revenue Code of 1986 and--”
The section treats the new deduction as a change in method of accounting under section 481 of the Internal Revenue Code of 1986, initiated by the taxpayer, made with the Secretary's consent, and applied only on a cut-off basis for domestic research or experimental expenditures paid or incurred in taxable years beginning after December 31, 2024, with no section 481(a) adjustments. For a taxable year beginning after that date and ending before enactment, the cut-off rule does not apply and the change is made on a modified cut-off basis counting only such costs paid in that year and not deducted in it.
What the document actually says
“The amendments made by subsection (a) shall be treated as a change in method of accounting for purposes of section 481 of the Internal Revenue Code of 1986 and--”
That sentence, in plain words
The change counts as a change in how the books are kept. The rules that follow set how it works.
What this is about
The firm counts as having started the change. The Secretary counts as having agreed. Older years are not reopened.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
The document says “shall”Who acts: Secretary of the TreasuryHow: statuteSec. 70302 in the PDF
What the document says
“An election made under this subparagraph shall be made in such manner as the Secretary may provide and not later than the date that is 1 year after the date of the enactment of this Act.”
The section lets an eligible taxpayer elect to have the effective date rules read December 31, 2021 in place of December 31, 2024. The election must be made in the manner the Secretary provides and within one year of enactment, and the taxpayer must file an amended return for each affected year. An eligible taxpayer is one, other than a tax shelter barred from cash method accounting under section 448(a)(3), that meets the gross receipts test of section 448(c) for the first taxable year beginning after December 31, 2024. The election may be treated as a change in method of accounting for the first affected year, initiated by the taxpayer and made with the Secretary's consent, and a related election on the research credit is treated as timely if made within a year of enactment on an amended return.
What the document actually says
“An election made under this subparagraph shall be made in such manner as the Secretary may provide and not later than the date that is 1 year after the date of the enactment of this Act.”
That sentence, in plain words
The choice must be made the way the Secretary sets out. It must be made within one year of this law.
What this is about
A small firm may reach back to costs paid after 2021. It must then amend each affected return. Its size is tested by a receipts rule.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
The document says “can”Who acts: Secretary of the TreasuryHow: statuteSec. 70302 in the PDF
What the document says
“to deduct such remaining unamortized amount with respect to such expenditures ratably over the 2-taxable year period beginning with the first taxable year beginning after December 31, 2024.”
The section lets a taxpayer with domestic research or experimental expenditures paid in taxable years beginning after December 31, 2021 and before January 1, 2025 that were charged to capital account elect to deduct the remaining unamortized amount either in the first taxable year beginning after December 31, 2024 or evenly over the two taxable years beginning with that year. Such a taxpayer is treated as initiating a change in method of accounting made with the Secretary's consent, applied only on a cut-off basis with no section 481(a) adjustments, and the Secretary must publish guidance including for taxpayers whose year began after December 31, 2024 and ended before enactment.
What the document actually says
“to deduct such remaining unamortized amount with respect to such expenditures ratably over the 2-taxable year period beginning with the first taxable year beginning after December 31, 2024.”
That sentence, in plain words
The leftover amount may be spread over two tax years. The first is the year that begins after December 31, 2024.
What this is about
The other choice is to deduct it all at once. That covers costs from 2022 through 2024 held on the books. The firm picks one.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
The document says “shall apply”Who acts: Secretary of the TreasuryHow: statuteSec. 70302 in the PDF
What the document says
“Except as otherwise provided in this subsection or subsection (f)(1), the amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2024.”
The section applies its amendments to amounts paid or incurred in taxable years beginning after December 31, 2024, except that the change on disposition of foreign research costs applies to property disposed of, retired or abandoned after May 12, 2025 and the research credit coordination applies to taxable years beginning after December 31, 2024. Two provisions state that no inference is to be drawn about how the older rules applied to earlier years.
What the document actually says
“Except as otherwise provided in this subsection or subsection (f)(1), the amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2024.”
That sentence, in plain words
The changes reach money paid in tax years that begin after December 31, 2024. Some parts of the section are treated apart.
What this is about
One part runs from May 12, 2025 instead. Small firms may reach back further. The law says no view is taken on earlier years.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
Each distinct thing the section does: create the new deduction for domestic research or experimental expenditures, define that term, allow an election to amortize over at least 60 months, set the special rules on land, mineral exploration and software, recast the older section as covering foreign research over 15 years, coordinate with the research credit, treat the change as a change in accounting method, allow small businesses to elect retroactive application, allow unamortized amounts to be deducted, and fix the effective dates.
The eleven conforming cross reference amendments in subsection (b), the clerical amendment adding an item to a table of sections, and the two no inference provisions, which are carried in summaries.
The section adds a section to the Internal Revenue Code of 1986 and amends many others, none of which is indexed here, so the surrounding rules cannot be checked against anything on this site.
