Update November 22, 2023:
The SBTC and Sycamore Group have both submitted comments to the Federal Register highlighting our concerns with the IRS guidance, and recommendations to revise the guidance to be more in line with Congressional intent. Follow the links below to view the comments:
On November 14 the Small Business Technology Council in conjunction with the Sycamore Growth Group hosted a webinar for SBIR firms to discuss the proposed IRS Guidance for Sec. 174 R&D Tax Expensing, as well as give an update on legislative issues related to Sec. 174. To download a recording of the webinar, as well as the powerpoint presentations used, follow the link to the dropbox below:
As many SBIR and other high-tech small businesses have learned this year, changes to the tax code related to R&D that went into effect in 2022 meant that they suddenly have a huge increase in their tax obligation. Since then the IRS has released proposed guidance on how businesses should use Sec. 174 for R&D work, and requested comments for the public. Click below to follow the link to IRS guidance and comment portal:
- IRS Notice 2023-63: Guidance on Amortization of Specified Research or Experimental Expenditures under Section 174
- Federal Register: Submit Comment on proposed IRS Guidance for Sec. 174 Changes
SBTC strongly disagrees with this interpretation, which we believe is not consistent with caselaw or Congressional intent. We believe that this proposed guidance substantially changes Sec. 174, rather than clarifies it. Of particular concern to SBIR firms and other companies who do contract R&D with the government is section 6.04, which states that even if a firm does not bear a financial risk with the associated R&D, if the companies “exploit” products or services resultant from the R&D, then that R&D would be covered by Sec. 174. There are questions about what this means for companies that win SBIR awards, since, by law, small businesses keep data rights to any research they conduct under.