New §174 requirements came in like a lion in 2023, causing significant changes for taxpayers of all sizes in how they identify assets and account for expenses. Join TaxOps’ Jamie Overberg and PwC’s James Graf as they share some of the headaches and challenges of complying with rules that, in some instances, lack clear guidance in this CPE.
Transitioning R&D Expenses: Implementing New §174 Capitalization Requirements
Identifying Assets, Applying Rev Proc 2023-11 for Automatic Changes, Current IRS Audit Trends
March 28, 2023 | 1:00 – 2:50 pm EDT
A live 110-minute CPE webinar with interactive Q&As
Early Registration Discount Deadline, Friday, March 3, 2023
This webinar will discuss identifying Section 174 assets, the new capitalization requirements, qualifying for the automatic method change under Revenue Procedure 2023-11, and the current state of IRS R&D audits. Our notable panel will provide advice on transitioning to the new guidelines for businesses and tax advisers.
Description
Included in the Tax Act of 2017 was a requirement to amortize Section 174 expenses, generally over five years, beginning in 2022. The initial problem is defining and identifying these assets, which are defined under Section 1.174-2 as “… expenditures incurred in connection with the taxpayer’s trade or business which represent research and development costs in the experimental or laboratory sense… Whether expenditures qualify as research or experimental expenditures depends on the nature of the activity to which the expenditures relate, not the nature of the product or improvement being developed… .” The definition of qualifying assets is broad; the nature of the activity in which the asset is used dictates whether or not it is a Section 174 expense.
Making the transition will be a burden for many. Many businesses will recognize significant income due to the change, while practitioners must grasp how to make this transition effectively. The IRS released Revenue Procedure 2023-11 to facilitate the change in accounting method. Qualified taxpayers can circumvent the filing of Form 3115, Application for Change in Accounting Method, for the method change. Further complicating matters, U.S. GAAP requires expensing of R&D purchases. Practitioners working with companies engaging in research and experimental activities need to understand the new R&D requirements.
Listen as our panel of R&D experts explains the latest guidelines and how to transition to the new reporting requirements.
Outline
- Background: R&D policy changes
- Implementing Section 174 capitalization
- Evaluating uncertainty to determine inclusion
- Revenue Procedure 2023-11 for automatic method change
- Included costs
- R&D audit trends
Benefits
The panel will review these and other key issues:
- Steps to facilitate the transition to capitalizing R&D expenditures
- Qualifying for the automatic method change under Revenue Procedure 2023-11
- Identifying business activities and assets subject to the new capitalization requirements
- The current state of IRS audits of R&D deductions and credits
Faculty
Jamie Overberg
Partner
TaxOps Minimization
As a tax partner for TaxOps Minimization, Ms. Overberg specializes in executing and managing a wide range of tax minimization strategies, including all aspects of the Research and Development tax credit as well as financial reporting requirements under FAS 109 and Fin 48. In addition, she works with Section 199, Section 263A, and Section 382 analysis, calculations, and reporting. She works primarily with clients in the automotive, engineering, manufacturing, software, biotech and oil and gas sectors, and has worked on numerous R&D tax controversy engagements.
James Graf
Managing Director
PwC US
Mr. Graf is a managing director who has over 20 years of experience in managing, directing, and defending research tax credits as well as reviewing meals and entertainment expenditures to be deducted for tax purposes. He has vast experience in software, engineering, manufacturing and transportation industries. Mr. Graf is a leader for inbound companies performing R&D in the US. He has extensive technical knowledge in the research tax credit and has taught courses for the USC Tax Institute, Perpetual Learning Corporation, and internally at PwC.
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