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Section 174 R&D Capitalization Requirements: New IRS Guidance, Rev. Proc. 2024-9, Identifying Assets, and More

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

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Conducted on Thursday, August 15, 2024

Recorded event now available

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This CLE/CPE webinar will discuss recent IRS guidance regarding Section 174 R&D capitalization and key items that must be considered by counsel and taxpayers. The panel will discuss the revised capitalization requirements, identifying assets, making the automatic method change under Rev. Proc. 2024-9, and other key issues.

Description

Section 174 requires costs to be capitalized and amortized over five years if they are domestic expenses or 15 years if foreign. The amendment to Section 174 has raised a number of concerns for U.S. taxpayers with recent proposed legislation being released specifically aimed at R&D expensing.

Under Section 174, related expenses are charged to a capital account and give rise to basis. However, you must first define and identify the assets connected to such expenditures. Section 1.174-2 states that "...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... ." In addition, what is considered to be qualifying assets under the rule is very broad and hinges on the nature of the activity in which the asset is used.

The current requirements under Section 174 will cause businesses to recognize significant income due to the change. The IRS released Revenue Procedure 2023-11 to facilitate the change in accounting method and offer some relief for late transitions, which has since been replaced by Revenue Procedure 2024-9. Practitioners working with companies engaging in research and experimental activities need to understand the R&D requirements.

Listen as our panel discusses the revised capitalization requirements, identifying assets, making the automatic method change under Rev. Proc. 2024-9, and other key issues.

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Outline

  1. Section 174 legislation update
  2. R&D costs
  3. Implementing Section 174 capitalization requirements
  4. Best practices

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?

Faculty

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

Zavieh, Thomas
Thomas Zavieh, CPA, MST, MBA
National Practice Leader of Credits & Incentives, Tax Partner
Frazier & Deeter

Mr. Zavieh has over 25 years of professional consulting experience as a Tax Partner and the National Practice Leader of...  |  Read More

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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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