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A Legislative Update From Capitol Hill On The Federal-Level R&D Tax Credit Program



A Legislative Update From Capitol Hill On The Federal-Level R&D Tax Credit Program

On Friday, November 19th the House of Representatives narrowly passed the Build Back Better Act, H.R. 5376, by a vote of 220 to 213. The bill encompasses a wide range of budget and spending provisions in connection to significant tax law reform as well as funding for mitigating climate change, expanded health care, housing, education, childcare amongst many other provisions. As the Senate now prepares to negotiate a final deal on this legislation several leading Democrats indicated that a bilateral agreement on the reconciliation bill was likely to include a plan to continue for the full expensing treatment for R&D expenditures through December 31st of 2025 and to delay the amortization requirements of such expenditures until January 1st of 2026.

Lawmakers from both chambers will attempt to reach an agreement on a unified bill to send before President Biden’s desk for signature into law in the coming weeks before year-end. The House Ways and Means Committee Chair Richard Neal, D-Mass., indicated that full expensing of R&D expenditures should be extended to increase economic growth as part of a broader range of tax measures. As lawmakers continue to deliberate on potential changes to the legislation, Neal indicated he and other proponents would insist upon bilateral discussions on advancing the short-term extension for the full expensing of R&D expenditures to ensure the continued success of the Federal-Level R&D Tax Credit Program which was originally introduced into the Internal Revenue Code when President Reagan signed into law the Economic Recovery Tax Act of 1981.

Rep. John Larson, D-Conn., indicated that there was bipartisan support amongst both Republicans and Democrats alike for several types of tax incentives to encourage businesses of varying sizes to invest in R&D efforts. As an example, in addition to the extension of the allowance for full expensing of R&D expenditures, the House of Representatives plan includes a proposal to double the current $ 250,000 maximum amount per year that the R&D Tax Credit can be utilized as a federal quarterly payroll tax offset if the business entity is statutorily defined as a “qualified start-up” to a new $ 500,000 maximum amount per year. As a reminder, President Obama signed into law the Protecting Taxpayers Against Tax Hikes Act of 2015 which introduced this provision into the Internal Revenue Code allowing for qualified start-ups to utilize their R&D Tax Credits as federal quarterly payroll tax offsets.

Rep. Kevin Brady, R-Texas, and ranking member of the Ways and Means Committee indicated that he supports a plan to either delay the amortization requirements for R&D expenditures or to permanently overturn the provision within President Trump’s Tax Cuts and Jobs Act of 2017 requiring amortization treatment set to go into effect on January 1st of 2022.

In closing, while I fully expect the amortization requirements of R&D expenditures to be deferred, it will be critical for the House and Senate to work together in the coming weeks to pass a unified bill to send before President Biden for possible signature into law before year-end. For continued legislative updates on the Hill, please follow me at https://www.linkedin.com/in/peterjscalise

Have a question? Contact Peter J Scalise.

 

Peter J. Scalise serves as the Federal Tax Credits & Incentives Practice Leader for Prager Metis CPAs, LLC a member of The Prager Metis International Group. Peter is a highly distinguished BIG 4 Alumni Tax Practice Leader and has approximately twenty years of progressive public accounting experience developing, managing and leading multi-million dollar tax advisory practices on both a regional and national level.

Peter is a highly acclaimed thought leader in the fields of accounting and taxation with deep subject matter expertise in connection to designing, implementing and defending sustainable methodologies for specialty tax incentives including, but not limited to, research tax incentives; orphan drug credits; therapeutic discovery credits; accounting methods and periods; energy tax incentives in connection to green building envelope efficiency and benchmarking, solar energy, bio energies, fuel cells, wind turbines, micro turbines, and geothermal systems; and comprehensive fixed asset analysis incorporating principles of construction tax planning, cost segregation analysis and the final treasury regulations governing tangible property.

Peter is a renowned keynote speaker and an extensively published author on specialty tax incentives, tax controversy matters, and legislative updates from Capitol Hill for NAREIT, AGRION, USGBC, AICPA, ASTP, NATP, ABA, AIA, and TEI. Peter serves as a member of the Tax Faculty for CPAacademy, iShade and TaxConnections University (“TCU”). Peter serves on both the Board of Directors and Board of Editors for The American Society of Tax Professionals (“ASTP”) and is the Founding President and Chairman of The Northeastern Region Tax Roundtable.

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