KPMG report: Initial observations and analysis of Notice 2023-63 providing guidance on section 174
Guidance for taxpayers working to prepare their current year tax returns
Guidance for taxpayers working to prepare their current year tax returns
The IRS on September 8, 2023, issued Notice 2023-63 [PDF 271 KB] announcing its intent to issue proposed regulations addressing issues related to section 174 as amended by Pub. L. No. 115-97 (commonly referred to as the “Tax Cuts and Jobs Act” (TCJA)). Read TaxNewsFlash
Given the lack of a deferral of the effective date or repeal of the requirement to capitalize and amortize specified research or experimental (SRE) expenditures, the notice was welcome guidance for taxpayers working to prepare their current year tax returns.
The notice covers several areas that have been unclear in previous guidance and for which there has been much debate over the past two years as taxpayers have sought to apply the section 174 requirements. Specifically, the notice addresses issues related to short tax years and the definition of the midpoint of the taxable year, the types of costs that constitute SRE expenditures including allocation methods, software development, research performed under contract, dispositions of property, and how to apply the long-term contract rules under section 460 to allocable contract costs that include SRE expenditures.
Further, the notice expresses an intent to issue procedural guidance that will allow taxpayers to follow automatic consent procedures to change accounting methods to comply with the notice after the first effective year.
Read a September 2023 report [PDF 432 KB] prepared by KPMG LLP: What’s News in Tax: IRS Releases Initial Guidance on Section 174 SRE Expenditures
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