State Responses to New Section 174 Requirements for R&D: Conforming and Nonconforming States

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Thursday, August 24, 2023

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Course Materials

This webinar will discuss how federal legislative changes to the ability to deduct research and development (R&D) expenditures impact state income taxes. Our R&D credit veteran will review the current federal requirement to capitalize R&D, states' responses to these changes, best practices for deducting or amortizing R&D expenses in conforming and nonconforming states, and the state of proposed legislative corrections.

Description

Before the Tax Act of 2017, R&D costs were deductible. Beginning in 2022, these costs must be capitalized and amortized over five years if they are domestic expenses or 15 years if foreign. Compounding the significant increase in taxes due by businesses with R&D are the additional state taxes that could be due. States may conform to federal legislation immediately, as of a specific date, or only with specific code sections. Congress may reinstate the ability to expense R&D retroactively but states that follow federal legislation will still comply at varying dates.

In states that have not conformed, opportunities exist to expense R&D at the state level. California allows a full deduction for R&D expenditures and Tennessee has decoupled from the new Section 174 rules. Some states have different rules based on the entity type. Flow-through entities in Pennsylvania can expense R&D costs while corporations cannot. SALT advisers working with multistate entities must understand the impact of recent Section 174 revisions on state taxes.

Listen as our R&D expert discusses the recent 174 legislative changes and the impact of these changes on state taxes.

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Outline

  1. Section 174 legislation update
  2. R&D costs
  3. State conformity
    1. Nonconforming states
    2. Conforming states
    3. Other states
  4. Implementing Section 174 capitalization requirements
  5. Revenue Procedure 2023-11
  6. Best practices

Benefits

The panel will cover these and other key issues:

  • What costs are included in the definition of R&D?
  • Which states are nonconforming states and how is the deduction handled in these states?
  • How is a change in accounting method made under Revenue Procedure 2023-11?
  • What is the current status of retroactive changes to restore the R&D deduction?

Faculty

Overberg, Jamie
Jamie Overberg
Partner
TaxOps Minimization

As a tax partner for TaxOps Minimization, Ms. Overberg specializes in executing and managing a wide range of tax...  |  Read More

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