On Friday, November 19th the House of Representatives narrowly passed the Build Back Better Act, H.R. 5376, by a vote of 220 to 213. The bill encompasses a wide range of budget and spending provisions in connection to significant tax law reform as well as funding for mitigating climate change, expanded health care, housing, education, childcare amongst many other provisions. As the Senate now prepares to negotiate a final deal on this legislation several leading Democrats indicated that a bilateral agreement on the reconciliation bill was likely to include a plan to continue for the full expensing treatment for R&D expenditures through December 31st of 2025 and to delay the amortization requirements of such expenditures until January 1st of 2026.
Lawmakers from both chambers will attempt to reach an agreement on a unified bill to send before President Biden’s desk for signature into law in the coming weeks before year-end. The House Ways and Means Committee Chair Richard Neal, D-Mass., indicated that full expensing of R&D expenditures should be extended to increase economic growth as part of a broader range of tax measures. As lawmakers continue to deliberate on potential changes to the legislation, Neal indicated he and other proponents would insist upon bilateral discussions on advancing the short-term extension for the full expensing of R&D expenditures to ensure the continued success of the Federal-Level R&D Tax Credit Program which was originally introduced into the Internal Revenue Code when President Reagan signed into law the Economic Recovery Tax Act of 1981.
Rep. John Larson, D-Conn., indicated that there was bipartisan support amongst both Republicans and Democrats alike for several types of tax incentives to encourage businesses of varying sizes to invest in R&D efforts. As an example, in addition to the extension of the allowance for full expensing of R&D expenditures, the House of Representatives plan includes a proposal to double the current $ 250,000 maximum amount per year that the R&D Tax Credit can be utilized as a federal quarterly payroll tax offset if the business entity is statutorily defined as a “qualified start-up” to a new $ 500,000 maximum amount per year. As a reminder, President Obama signed into law the Protecting Taxpayers Against Tax Hikes Act of 2015 which introduced this provision into the Internal Revenue Code allowing for qualified start-ups to utilize their R&D Tax Credits as federal quarterly payroll tax offsets.
Rep. Kevin Brady, R-Texas, and ranking member of the Ways and Means Committee indicated that he supports a plan to either delay the amortization requirements for R&D expenditures or to permanently overturn the provision within President Trump’s Tax Cuts and Jobs Act of 2017 requiring amortization treatment set to go into effect on January 1st of 2022.
In closing, while I fully expect the amortization requirements of R&D expenditures to be deferred, it will be critical for the House and Senate to work together in the coming weeks to pass a unified bill to send before President Biden for possible signature into law before year-end. For continued legislative updates on the Hill, please follow me at https://www.linkedin.com/in/peterjscalise
About the Author
Peter J. Scalise serves as the Federal Tax Credits and Incentives Practice Leader for the Americas at Prager Metis CPAs, LLC, a member of the Prager Metis International Group. Mr. Scalise is a highly distinguished Big Four Alumni Tax Practice Leader with approximately thirty years of progressive public accounting firm experience developing, managing, and leading multi-million-dollar tax advisory practices on a regional, national, and global level.
Mr. Scalise is also a prominent philanthropist who champions many charities nationwide in connection to poverty and hunger alleviation; economic development; health and social services; veteran and military service personnel along with preserving arts and cultural programs. Mr. Scalise is currently serving on the National Board of Directors for the Prager Metis Charitable Foundation Inc, a I.R.C. § 501(c)(3) organization and is the Founding Chairman of the Accounting Industry Leadership Council to benefit the Alzheimer’s Association. Mr. Scalise is the former Manhattan Event Chairman and Sponsorship Chairman for the Alzheimer’s Association’s annual signature fundraising event entitled “The WALK to END ALZ” at the historic South Street Seaport District.
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