IRS Publishes Guidance On Tax Rules For Software Development, Research Expenses

The Tax Cuts and Jobs Act of 2017 (TCJA) introduced significant changes to the tax treatment of specified research and experimentation (SRE) expenditures. Historically, companies were able to immediately deduct all costs associated with research and experimentation activities under Internal Revenue Code (IRC), Section 174, including costs related to laboratory research, computer software development, and contract research performed by third-party or affiliated research entities. As explained in an April 2023 Cooley client alert, the TCJA introduced new rules for tax years beginning after December 31, 2021, requiring taxpayers to capitalize SRE expenditures and amortize them over five years for research performed in the United States or 15 years for research performed outside the United States. Although members of Congress on both sides of the aisle have publicly supported a repeal of the SRE expenditure capitalization rules introduced by the TCJA, congressional action