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The Federal-Level R&D Tax Credit Program remains a top priority on the Hill

A. Chris Ostler, CPA

July 12, 2022

The Federal-Level R&D Tax Credit Program (the “Program’) was born out of the Economy Recovery Act of 1981 under the President Reagan Administration over 40 years ago. The Program has been credited to helping the US economy not only come out of our then deep recession of the early 1980’s, but also helped foster enormous growth across diverse industry sectors within the US economy for the last four decades!

Consequently, it is not surprising that there is strong bi-partisan support to reinstate the Program retroactively to January 1st of 2022 (i.e., the effective date requiring capitalization treatment of R&D expenditures as required under President Trump’s TCJA of 2017). This past May, dozens of House members sent a letter to party leaders calling for immediate action to restore a more generous tax break for US-based companies’ research and development spending.

The bipartisan letter led by Reps. John B. Larson, D-Conn., and Ron Estes, R-Kan., and signed by 67 other lawmakers argues that reviving businesses’ ability to fully and immediately deduct research and development costs is a matter of global competitiveness, particularly as the U.S. tries to compete economically with India’s and China’s growth.

In the meantime, a bipartisan Senate duo teed up a nonbinding motion to instruct conferees to restore the Program as part of a bill aimed at boosting U.S. industrial competitiveness in part by providing financial aid for domestic semiconductor manufacturing. The letter to Speaker Nancy Pelosi and House Minority Leader Kevin McCarthy comes as the House and Senate are beginning negotiations to reconcile differences between competitiveness bills.

The nonpartisan Joint Committee on Taxation estimates that the absence of full and immediate expensing will cost companies $29 billion by the end of the third quarter this year, with about $8 billion already due at tax time last month.

While the elimination of the Program could result in job losses and a competitive disadvantage globally, all indications on the Hill are pointing to strong bi-partisan support to reinstate the Program retroactively back to January 1, 2022 through December 31, 2025. My bold prediction is that the Program will be reinstated with other tax extenders after the midterm elections in November with unified bills ultimately passed into law by President Biden during the upcoming holiday season in December which will bring much needed joy to all for the holidays.

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