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Sec.174 R&D Expenditures in M&A Transactions: Key Considerations for Tax Counsel and Advisers

Recent IRS Guidance, Evaluating Tax Treatment, Structure Options, Tax Planning and Pitfalls to Avoid

Recording of a 90-minute premium CLE/CPE video webinar with Q&A

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Conducted on Tuesday, March 12, 2024

Recorded event now available

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This CLE/CPE webinar will provide attorneys and tax professionals guidance on the treatment of R&D expenditures under Section 174. The panel will discuss recent IRS guidance, key issues for taxpayers and tax practitioners, the impact to related expenses and basis, special rules for treatment of R&D expenses in M&As, and other key issues.

Description

The deduction of R&D costs was allowed prior to the Tax Act of 2017. However, since 2022, these costs must be capitalized and amortized over five years if they are domestic expenses or 15 years if foreign. Section 174 has raised a number of questions impacting U.S. taxpayers stemming from challenges regarding the application of these rules and the treatment of R&D expenses in M&A transactions.

Under Section 174, related expenses are charged to a capital account and give rise to basis. This raises questions regarding the R&D expenses in asset and stock sale transactions--specifically regarding what happens with the basis and how it is recovered in such transactions. This adds to the complexities relating to the treatment of capitalized expenses under Section 59(e), the treatment of R&D expenses on a disposition of the asset under Section 174(d) for amortization, and other provisions.

The implications of Sec. 174 will continue to evolve as additional guidance is released. Taxpayers, counsel, and advisers should focus on understanding the risks and maximizing the benefits of Sec. 174 when involved in M&A transactions and opportunities for strategic tax planning.

Listen as our panel discusses recent IRS guidance, key issues for taxpayers and tax practitioners, the impact to related expenses and basis, special rules for the treatment of R&D expenses in M&A, and other key issues.

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Outline

  1. Section 174
  2. R&D costs
  3. Implementing Section 174 capitalization requirements
  4. Issues stemming from recovery of capitalized costs under Section 174
    1. Taxable dispositions
    2. Tax-free transfers of IP
  5. Best practices planning opportunities for M&A transactions

Benefits

The panel will cover these and other key issues:

  • What costs are included in the definition of R&D?
  • What issues are presented when implementing Section 174 capitalization requirements?
  • What is the impact on taxable dispositions, reporting, and planning?
  • How are capitalized expenses treated if the assets are transferred tax free?
  • What are the key considerations and available planning opportunities for M&A transactions?

Faculty

Ghosh, Rono
Rono Ghosh, JD
Partner
BPM

Mr. Ghosh has 20 years of advisory experience at public accounting firms and investment banks, with specialized...  |  Read More

Houston, Robert
Robert Houston, CPA
Of Counsel
BPM

Mr. Houston's practice includes Merger & Acquisition transaction services and tax structuring for multinational...  |  Read More

Access Anytime, Anywhere

Strafford will process CLE credit for one person on each recording. CPE credit is not available on recordings. All formats include course handouts.

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