Revised by the 2017 TAX CUTS and JOBS ACT
SEC. 13206. AMORTIZATION OF RESEARCH AND EXPERIMENTAL EXPENDITURES.
(a) IN GENERAL.—Section 174 is amended to read as follows:
‘‘SEC. 174. AMORTIZATION OF RESEARCH AND EXPERIMENTAL EXPENDITURES.
‘(a) IN GENERAL.—In the case of a taxpayer’s specified research or experimental expenditures for any taxable year—
‘‘(1) except as provided in paragraph (2), no deduction shall be allowed for such expenditures, and
‘‘(2) the taxpayer shall—
‘‘(A) charge such expenditures to capital account, and
‘‘(B) be allowed an amortization deduction of such expenditures ratably over the 5-year period (15-year period in the case of any specified research or experimental expenditures which are attributable to foreign research (within the meaning of section 41(d)(4)(F))) beginning with the midpoint of the taxable year in which such expenditures are paid or incurred.
‘‘(b) SPECIFIED RESEARCH OR EXPERIMENTAL EXPENDITURES.—
For purposes of this section, the term ‘specified research or experimental expenditures’ means, with respect to any taxable year, research or experimental expenditures which are paid or incurred by the taxpayer during such taxable year in connection with the taxpayer’s trade or business.
‘‘(c) SPECIAL RULES.—
‘‘(1) LAND AND OTHER PROPERTY.—This section shall not apply to any expenditure for the acquisition or improvement of land, or for the acquisition or improvement of property to be used in connection with the research or experimentation and of a character which is subject to the allowance under section 167 (relating to allowance for depreciation, etc.) or section 611 (relating to allowance for depletion); but for purposes of this section allowances under section 167, and allowances under section 611, shall be considered as expenditures.
‘‘(2) EXPLORATION EXPENDITURES.—This section shall not apply to any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral (including oil and gas).
‘‘(3) SOFTWARE DEVELOPMENT.—For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure.
‘‘(d) TREATMENT UPON DISPOSITION, RETIREMENT, OR ABANDONMENT.—If any property with respect to which specified research or experimental expenditures are paid or incurred is disposed, retired, or abandoned during the period during which such expenditures are allowed as an amortization deduction under this section, no deduction shall be allowed with respect to such expenditures on account of such disposition, retirement, or abandonment and such amortization deduction shall continue with respect to such expenditures.’’.
(b) CHANGE IN METHOD OF ACCOUNTING.—The amendments made by subsection (a) shall be treated as a change in method of accounting for purposes of section 481 of the Internal Revenue Code of 1986 and—
(1) such change shall be treated as initiated by the tax- payer,
(2) such change shall be treated as made with the consent of the Secretary, and
(3) such change shall be applied only on a cut-off basis for any research or experimental expenditures paid or incurred in taxable years beginning after December 31, 2021, and no adjustments under section 481(a) shall be made.
(c) CLERICAL AMENDMENT.—The table of sections for part VI of subchapter B of chapter 1 is amended by striking the item relating to section 174 and inserting the following new item: ‘‘Sec. 174. Amortization of research and experimental expenditures.’’.
(d) CONFORMING AMENDMENTS.—
(1) Section 41(d)(1)(A) is amended by striking ‘‘expenses under section 174’’ and inserting ‘‘specified research or experimental expenditures under section 174’’.
(2) Subsection (c) of section 280C is amended—
(A) by striking paragraph (1) and inserting the following:
‘‘(1) IN GENERAL.—If—
‘‘(A) the amount of the credit determined for the taxable year under section 41(a)(1), exceeds
‘‘(B) the amount allowable as a deduction for such taxable year for qualified research expenses or basic research expenses,
the amount chargeable to capital account for the taxable year for such expenses shall be reduced by the amount of such excess.’’,
(B) by striking paragraph (2),
(C) by redesignating paragraphs (3) (as amended by this Act) and (4) as paragraphs (2) and (3), respectively, and
(D) in paragraph (2), as redesignated by subparagraph (C), by striking ‘‘paragraphs (1) and (2)’’ and inserting ‘‘paragraph (1)’’.
(e) EFFECTIVE DATE.—The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2021.