AICPA presses IRS for guidance on domestic research costs in OBBBA

The IRS should quickly provide guidance regarding the recently enacted Sec. 174A, Amortization of Research and Experimental Expenditures, so that small businesses know how to treat domestic research costs on their returns for the 2024 filing period, the AICPA said in a letter dated July 31.

Sec. 174A, as included in  H.R. 1, P.L. 119-21, commonly known as the One Big Beautiful Bill Act, addresses the treatment of domestic research and experimental expenditures, known as domestic research costs.

In its letter to Treasury and the IRS, the AICPA said it seeks guidance that would allow eligible small businesses to immediately deduct domestic research costs on their originally filed 2024 federal income tax returns rather than being required to capitalize those amounts.

The issue is pressing eligible taxpayers who have not filed income tax returns for the 2024 filing period face uncertainty about whether they can deduct these costs up front or must capitalize them and later amend their returns, the AICPA said. This lack of clarity could lead to unnecessary administrative burdens and compliance risks, the AICPA said.

“Providing the guidance cited in the AICPA’s comment letter allows immediate tax relief to eligible taxpayers and resolves uncertainty for those who may have already deducted 2024 domestic research costs,” Reema Patel, the AICPA’s senior manager–Tax Policy & Advocacy, said in a news release. “This guidance benefits sound tax administration for impacted taxpayers, practitioners, and the IRS, and we urge Treasury to act immediately to provide taxpayers with certainty and allow them to meet their tax obligations with minimal confusion.”

The AICPA recommended that Treasury and the IRS issue the following guidance:

• Eligible taxpayers may deduct 2024 domestic research costs on their originally filed 2024 federal income tax returns, provided they include a statement or reference indicating an election under Sec. 70302(f)(1)(A).
• Notwithstanding the deemed election, taxpayers may amend their 2022 and 2023 federal income tax returns to deduct domestic research costs paid or incurred in those years.
• If the election has affected a year in which the taxpayer reported a net operating loss (NOL), the taxpayer is permitted to adjust the NOL in the carryforward year(s) instead of amending the original NOL year return.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.