IRS Issues Crippling Guidance for American Companies Investing in Innovation

ABGi CEO encourages Congress to act on legislation protecting small- and mid-sized American companies investing in research and development

HOUSTON, Sept. 13, 2023 /PRNewswire/ -- On Friday, September 8^th, the IRS issued crippling guidance regarding a change in the tax treatment of research and experimentation expenses. Until now, the IRS had been silent on the issue, failing to issue guidance for taxpayers to rely on in implementation of the new law. Now, with less than a week before the filing extension deadline, the IRS issued complex guidance that will significantly impact American companies.

Due to a change in the tax treatment of research and experimentation expenses, commonly referred to as Section 174, many small- and medium-size businesses now face 2022 tax bills that are, on average, four times more expensive than previous years.

"ABGi has been hearing from clients for months stating that their R&D and innovation departments are being cut entirely and massive layoffs are coming if the current 174 rules are not repealed," said Craig Riebe, CEO of ABGi, a tax consulting firm specializing in R&D. "Now, we are given guidance by the IRS that further hurts small and medium sized American companies. American innovation and competitiveness, along with high paying STEM jobs and skilled trade labor, will be decimated under the current 174 rules."

The guidance from the IRS comes only days before the September 15^th deadline that the majority of small- and mid-size businesses on extension must file by.

"This change in Section 174 of the Tax Code, and how the IRS has now proposed to administer it on taxpayers, will result in the most regressive innovation tax policy on earth," said Riebe. "The IRS, and by extension Congress, has just told every company in America to stop innovating, because when you innovate, your taxes will be significantly higher. At a time when other countries are courting and incentivizing innovators away from the United States, the IRS and Congress are taxing them at higher rates than any other type of business sector."

Legislation has been introduced in both the House and Senate to address the issue, however Congress has failed to act. The American Innovation and Jobs Act (S.866) was introduced in the Senate with broad bi-partisan support, led by Senators Maggie Hassan (D-NH) and Todd Young (R-IN). Companion legislation, the American Innovation and R&D Competitiveness Act (H.R.2673), was introduced in the House by Representatives Ron Estes (R-KS) and John Larson (D-CT). These bipartisan pieces of legislation would allow businesses to fully deduct R&D expenses in the year they are made, as well as expand the non-refundable R&D tax credit.

Without Congressional intervention, American companies will continue to be pummeled by high taxes and punished for innovation. By the IRS's own guidance, a company spending approximately $1M in R&D will be forced to pay an additional $345,000 in taxes.

"Congress must act now so American businesses continue to invest in innovation, saving jobs, and protecting America as the world leader in innovation," Riebe said.

For more information about ABGi and Section 174 in particular, please visit www.abgi-usa.com and www.abgi-usa.com/section174/latest-and-greatest.

SOURCE ABGi