Skip to Content

IRS research guidance simplifies rules but has potential traps

January 4, 2023 Article 5 min read
Caitlin Slezak Emily Murphy Kurt Piwko
While Rev. Proc. 2023-8 provides welcome guidance that will simplify adoption of new Section 174 research expense rules for many, there are some pitfalls that taxpayers should avoid. In Bloomberg Tax, Caitlin Slezak, Emily Murphy, and Kurt Piwko discuss.
Pillars of U.S. government building.Beginning in 2022, the Tax Cuts and Jobs Act (TCJA) requires amortization of Section 174 research or experimentation (R&E) expenditures over five years for domestic R&E and 15 years for foreign R&E. This is a change from past practice, and the TCJA requires this to be treated as a change in method of accounting.

In the years since enactment, taxpayers have anxiously awaited further guidance from the IRS about how to file this accounting method change. That guidance finally arrived on December 12 with Rev. Proc. 2023-8.

New procedural guidance

Under the new procedure, adopting new Section 174 rules is done with an automatic accounting method change. Accounting method changes are typically accomplished through filing a Form 3115. However, the IRS is allowing taxpayers to implement this change by attaching a statement to their timely filed tax return for the first year in which R&E amortization is effective, instead of filing a Form 3115.

Related Thinking

Pillars of U.S. government building.
January 26, 2023

Section 174 research expense rule changes excluded from final bill of 2022

Article 4 min read
U.S. Capitol building in the evening.
Dec. 8, 2022

Capitalizing Section 174 research & experimental (R&E) expenses

Webinar 60 min watch
modern multi-level white office lobby with two red seats in the distance
July 29, 2022

An R&D tax credit study could help reduce the tax impact of Section 174

Article 3 min read