Meeting Section 174 Capitalization Requirements for R&D

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 has been a burden for many. Many businesses have and will continue to recognize significant income due to the change, while practitioners must grasp how to effectively make the transition. The IRS has released Revenue Procedure 2023-11, updated with 2023-24 and more recently 2024-9 to thoroughly confuse everyone. Further complicating matters, IRS has notices 2024-12 and 2023-63. 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.

1. Background: R&D policy changes
2. Review of implementation for 2022 tax year
3. Evaluating recognition changes for 2023 tax year
4. Revenue Procedure 2024-9 for automatic method change
5. 174 computation

The panel will review these and other key issues:

• Steps to facilitate the transition to capitalizing R&D expenditures
• Implementing an accounting method change after the initial year under all Revenue Procedures and Notices
• Identifying business activities and assets subject to the revised capitalization requirements

Learning Objectives

After completing this course, you will be able to:

• Identify what is subject to Section 174 inclusion
• Determine steps to take to effectively transition to the new reporting requirements for R&D
• Ascertain actions to take to prepare for an IRS and state R&D audits
• Decide which specific activities qualify an expenditure as a Section 174 asset

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of pass-through taxation, including taxation of partnerships, S corporations and their respective partners and shareholders.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).