IRS Considering Whether Contractors Should Get R&D Deduction

The IRS is considering addressing in forthcoming regulations whether contractors conducting research and development on behalf of another entity can claim a write-off for their R&D expenses.

Currently, businesses can deduct the full cost of their R&D expenses immediately under tax code Section 174. But beginning in 2022—as a result of changes made in the 2017 tax overhaul—they will have to charge U.S.-based research expenses to a capital account and deduct them over five years. Expenses for research performed outside the U.S. will have to be written off over 15 years.

Tax practitioners at a Tuesday meeting held by ...