Transitioning R&D Expenses: Implementing New Section 174 Capitalization Requirements

Identifying Assets, Applying Rev Proc 2023-11 for Automatic Changes, Current IRS Audit Trends

Note: CLE credit is not offered on this program

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

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Conducted on Tuesday, March 28, 2023

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Course Materials

This webinar will discuss identifying Section 174 assets, the new capitalization requirements, qualifying for the automatic method change under Revenue Procedure 2023-11, and the current state of IRS R&D audits. Our notable panel will provide advice on transitioning to the new guidelines for businesses and tax advisers.

Description

Included in the Tax Act of 2017 was a requirement to amortize Section 174 expenses, generally over five years, beginning in 2022. The initial problem is defining and identifying these assets, which are defined under Section 1.174-2 as "… expenditures incurred in connection with the taxpayer's trade or business which represent research and development costs in the experimental or laboratory sense… Whether expenditures qualify as research or experimental expenditures depends on the nature of the activity to which the expenditures relate, not the nature of the product or improvement being developed... ." The definition of qualifying assets is broad; the nature of the activity in which the asset is used dictates whether or not it is a Section 174 expense.

Making the transition will be a burden for many. Many businesses will recognize significant income due to the change, while practitioners must grasp how to make this transition effectively. The IRS released Revenue Procedure 2023-11 to facilitate the change in accounting method. Qualified taxpayers can circumvent the filing of Form 3115, Application for Change in Accounting Method, for the method change. Further complicating matters, U.S. GAAP requires expensing of R&D purchases. Practitioners working with companies engaging in research and experimental activities need to understand the new R&D requirements.

Listen as our panel of R&D experts explains the latest guidelines and how to transition to the new reporting requirements.

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Outline

  1. Background: R&D policy changes
  2. Implementing Section 174 capitalization
  3. Evaluating uncertainty to determine inclusion
  4. Revenue Procedure 2023-11 for automatic method change
  5. Included costs
  6. R&D audit trends

Benefits

The panel will review these and other key issues:

  • Steps to facilitate the transition to capitalizing R&D expenditures
  • Qualifying for the automatic method change under Revenue Procedure 2023-11
  • Identifying business activities and assets subject to the new capitalization requirements
  • The current state of IRS audits of R&D deductions and credits

Faculty

Graf, James
James Graf, CPA
Managing Director
PwC US

Mr. Graf is a managing director who has over 20 years of experience in managing, directing, and defending research tax...  |  Read More

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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