New Guidance on R&D Expenses for Businesses

By Kay F. Gotshall, CPA, Tax Senior Manager

New Guidance on R&D Expenses for Businesses

Research and development accounting method change procedure update

On December 29, 2022, the Internal Revenue Service (IRS) issued guidance for businesses to use the automatic accounting method change procedures to begin capitalizing and amortizing research and development (R&D) expenses under Section 174.

  • Under the most recent guidance (Rev. Proc. 2023-11), the requirement for taxpayers to file Form 3115 to obtain IRS approval to change their method of accounting for R&D expenses has been waived. Taxpayers are allowed to file a statement with their original federal income tax return for the first taxable year in which §174 becomes effective. The change in method must be made on a cut off basis with no §481 adjustment.
  • There is transition relief for taxpayers that filed a federal tax return on or before January 9, 2023, for a taxable year beginning after December 31, 2021.
  • The guidance also states that audit protection will not apply for expenditures paid or incurred in taxable years beginning after December 31, 2021, if a voluntary accounting method change is made for the taxable year immediately after the first taxable year in which §174 becomes effective, e.g., calendar year 2023.

What are the current tax deductions for research and development?

Learn more about current research and development tax deductions in our article, 2022 R&D Tax Deduction Changes.

The Keiter Tax Team is closely monitoring research and development tax legislation. We will keep you informed on new and changing regulations to assist you with tax planning and saving strategies for your business. Questions on how to comply with the new R&D guidance? Contact your Keiter Opportunity Advisor or Email | Call: 804.747.0000

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About the Author

Kay F. Gotshall

Kay F. Gotshall, CPA, Tax Senior Manager

Kay serves several of Keiter’s larger corporate clients with their FAS 109 tax provision and returns. Currently, Kay leads the Keiter multi-state tax team, which is primarily responsible for a majority of the multi-state tax filings prepared by the firm. In addition, the Keiter multi-state tax team provides income, as well as, sales and use audit and research support services. Kay works on a wide variety of industries, since most of her clients are multi-state. Some of the specific industries she serves include services, broker-dealers, manufacturing, and construction. Furthermore she consults with a variety of clients on filing requirements for multi states and foreign company ownership and operations.

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The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.


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