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Bipartisan Congressional Pressure Builds Over Stalled R&D Tax Break

Calls to restore a more generous tax break for companies’ research and development (R&D) spending have received a recent surge in bipartisan support from both houses of Congress.

In early May, nearly 70 members of the U.S. House of Representatives sent a letter to party leaders calling for “immediate action” to revive businesses’ ability to fully and immediately deduct R&D costs. Meanwhile, the U.S. Senate voted 90-5 in favor of a nonbinding resolution to expand the R&D tax credit as part of the U.S. Innovation and Competition Act.

These actions come in response to a provision of the 2017 Tax Cuts and Jobs Act tax law that took effect at the start of 2022 requiring R&D and software development expenses that were previously eligible for immediate expensing be deducted over a five-year or 15-year period.

Earlier this year, the IRS also released new requirements for taxpayers who want to claim refunds for R&D credits and an updated version of its FAQs addressing the changes.

While the technical qualifications for the R&D credit remained the same, the new IRS requirements will be more burdensome for small and medium-sized businesses — which rely on the credits to access the capital they need to reinvest in themselves and become more competitive — to qualify.

Lawmakers implemented the R&D credit in 1981 as part of the Economic Recovery Act to strengthen and support American businesses and their innovation efforts to better compete on a global scale.

Current legislators argue the newly-enacted provision will hamper American businesses’ ability to globally compete, particularly against China.

Stay tuned to this blog and our social media channels for further updates on these dramatic changes.

If you have any questions about the information above, please contact your E. Cohen advisor.