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CFOs Request a Return to Immediate R&D Deductability

S.J. Steinhardt
Published Date:
Nov 8, 2022

Claiming that a provision of the 2017 Tax Cuts and Jobs Act puts them at a competitive disadvantage, 178 chief financial officers (CFOs) have asked Congress to allow them, once again, to deduct their research and development (R&D) costs immediately, the Wall Street Journal reported.

Under new rules that took effect this year, companies are now required to amortize their domestic R&D costs over five years and their international ones over 15 years. For almost seven decades before the passage of the 2017 law, businesses were allowed to deduct certain R&D expenses immediately to reduce their taxable income.

The change in how deductions are treated was included in the 2017 law to help offset the fiscal costs of the law’s corporate rate cut. It has been projected to raise $29.1 billion for the government’s fiscal year that ended Sept. 30 by the Joint Committee on Taxation.

Among the CFOs signing the letter, which is not publicly available but was reviewed by the Journal, are those from Ford Motor Co., Raytheon Technologies Corp., Lockheed Martin Corp., Boeing Co., AT&T Inc., Cisco Systems Inc., Kimberly-Clark Corp., Netflix Inc. and Dell Technologies Inc. In it, the signatories warn that the amortization requirement would cause “grave harm.”

They claimed that that amortization requirement may result in a loss of more than 23,000 U.S. R&D jobs a year over a period of five years, referencing a 2019 EY report. That report also forecasts an annual $4.1 billion U.S. R&D spending reduction for five years, followed by $10.1 billion reduction in next five years after that. They also warned of the risks to U.S. national security as a result of reduced sustained spending on R&D.

In the meantime, companies have been making estimated tax payments that incorporate the R&D change, tax attorneys told the Journal. If Congress reinstituted immediate deductibility, those companies would be eligible to receive refunds. American companies can still take a credit for their increased spending on qualifying research and development.

Bipartisan support for returning to immediate deductibility for R&D expenses exists, according to the Journal, which also reported that Democrats would like to see it linked to an extension of the enhanced child tax credit, which lapsed last year. 

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