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The IRS recently proposed some welcome guidance for capitalization rules of specified research or experimental (SRE) expenditures under Section 174 of the tax code. However, the SRE guidance in Notice 2023-63 has forced companies to try to make sense of how to properly account for revenue recognition and expense deductions for long-term contracts. This article explores the interaction of Section 174 with the revenue recognition rules for long-term contracts in Section 460.
The IRS recently proposed some welcome guidance for capitalization rules of specified research or experimental (SRE) expenditures under Section 174 of the tax code. However, the SRE guidance in Notice 2023-63 has forced companies to try to make sense of how to properly account for revenue recognition and expense deductions for long-term contracts. This article explores the interaction of Section 174 with the revenue recognition rules for long-term contracts in Section 460.
This is an early access version, the complete PDF, HTML, and XML versions will be available soon. Open AccessArticle by Pak Wai Chan 1,*, Chun Wing Choy 1, Betty Mak 1 and Junyi He 2 1 Hong Kong Observatory, 134A Nathan Road, Kowloon, Hong Kong, China 2 Department of Architecture and Civil Engineering, City University of Hong Kong, Hong Kong, China * Author to whom correspondence should be addressed.
Calendar-year taxpayers are faced with the reality that research and experimental, or R&E, expenditures, are no longer deductible but must be capitalized and amortized under IRC Section 174 as amended by the 2017 Tax Cuts and Jobs Act (TCJA). While everyone knew this change was coming for tax years after 2021, many held out hope that the mandatory capitalization would be repealed or at least postponed.
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