Repeal IRC §174 | February 2, 2023

As tax season approaches, MC would like to encourage everyone to take a few minutes to contact their members of Congress and urge them to pass legislation that will repeal IRC §174.  Many U.S. companies, including nearly all Architectural and Engineering firms, will face significant increases in 2022 taxable income due to a little-publicized provision of the 2017 Tax Cuts and Jobs Act (TCJA).  Under the new rules, Research and Experimental (R&E) costs must now be capitalized and amortized over a five-year period, whereas prior to December 21, 2022, these costs were able to be deducted on a yearly basis.  This change will cause an immediate increase in taxable income and a severe reduction in cash flow for impacted firms.  The credit has been used for many years by companies to save significant federal and state taxes.  This new capitalization rule discourages innovation and penalizes firms that leverage the R&D credit.  It has been assumed that since these amortization rules were passed in 2017, Congress would repeal or delay their enaction prior to 2022.  To date nothing has changed, but there is hope that the legislation being introduced in early February will repeal these provisions. Follow the link below to ACEC (American Council of Engineering Companies) who has made it very easy to send a prepared letter to your local representatives, encouraging repeal of IRC §174.  Click “Register” to create an account and then log back in with your new account information to generate the email and forward it to your Congress members.