Interim Guidance for SRE Expenditures

The following article Interim guidance for SRE expenditures, originally appeared in the May 2024 issue of The Tax Adviser.

The days immediately preceding a federal holiday, calendar year end, or return deadline are often days to watch for new IRS guidance, and the 2023 holiday season did not disappoint. The latest interim guidance on specified research or experimental (SRE) expenditures dropped mere hours before the December 25 holiday. It was largely taxpayer-favorable and highly responsive to practitioner comments, which perhaps supports an interpretation of it as a modest holiday gift from the IRS to taxpayers.

The release contained both procedural guidance (Rev. Proc. 2024-9) and substantive guidance (Notice 2024-12) on the 2017 amendment, which removed the ability to expense SRE expenditures, requiring them instead to be capitalized and amortized.

Based on the numerous tranches of guidance on the topic, the Section174 amendment is proving particularly challenging for the IRS to administer and interpret and, as a result, for taxpayers to implement. Lina Georgieva-Ivanova and Lori Anne Johnston explore the questions and complexities that remain following the release of the most recent guidance.

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