Yesterday the US House of Representatives passed a franken-bill to address a grab bag of tax issues. The $78 billion tax bill was argued over for a while, unlike some other expensive bills. (You know the ones.) But 5 or 6 or 7 years after tax experts first said “hey, this 174 thing is a problem that needs to be corrected,” one half of the Congress has done it! Now it needs to go to the Senate for more soundbites and partisan wrangling, and finally to be signed by whoever is signing bills into law in the White House. I haven’t seen Schoolhouse Rock in years, so I’m winging it here.
As the legislation stands:
Delays the mandatory capitalization of R&D expenditures until tax year 2026
has some other stuff that isn’t R&D related*
So, where do you stand if you’re in the technical jobs/ R&D space? With a very temporary reprieve from dealing with phantom net income issues and a LIMITED window to get ahead on cash flow, if the legislation makes it to the finish line. I expect to see more political wrangling that will be hitting late 2025, early 2026, or maybe 2028 if the next Congress waits until well after the impacts started happening to taxpayers.
If you’re not already thinking about calling us, and you do anything “technical” in your work— engineering, architecture, biology, sciences, computer programming, software development, manufacturing— maybe give it a ponder.
The vote was passed by an obvious majority voice vote, and then House TX District 21 Rep. Chip Roy** asked for the tally. At the end, 357 yays to 70 nays, with 169 Republicans voting yay and 188 Democrats voting yay, and the nays were 47 and 23 respectively by party. 5 Congress members were maybe too busy with other things and didn’t vote.
Here in Texas, the No votes were:
TX 21- Chip Roy - R
TX 37- Lloyd Doggett - D
TX 26- Burgess - R
TX 35 - Casar- D
TX 29- Garcia - D
TX 5 - Gooden - R
TX 27- Cloud- R
With Roy, Doggett, Casar, and Cloud all voting nay in a bipartisan way, our local R&D clients have a long way to go to get our representation that understands how bad the 174 provision is. Or maybe they understand (maybe Roy does now?) but it still wasn’t enough for a yay vote because of the other parts they did not like. We did notice Rep. Roy went from some spicy comments about whores (sic) for corporations to a more measure approach on the R&D expensing issue.
My free commentary, if anyone is foolish enough to still be reading: The R&D provisions being called corporate welfare is insane. Most R&D expenditures under the tax code are employee wages, and since when is it corporate welfare to be allowed to expense an operating cost like wages? It completely distorts taxable net income if you can only deduct a small portion of employee wages, or only a small portion of supply expenditures used that year, or only a small portion of your contractors’ invoices. Then you end up with a huge net income on paper, but only a normal net income in your bank account, and a tax bill that matches the former, not the latter. But who cares about understanding actual tax math and 40 years of case law? Not good for soundbites. Not good for Super Bowl small talk, either. Only good for Blackland staff and our accounting friends!
We will post updates on whatever happens to the 174 delay as the legislation moves forward, or doesn’t.
-Jimmy
*Child Tax Credit, Bonus Depreciation, Taiwan stuff, disaster tax stuff, ERTC fraud enforcement, and something about low income housing.
** February 2nd update: We’ve been in contact with Rep. Roy’s office. They seem to be willing to learn more about the mechanics and case law of R&D provisions, and we do acknowledge that Rep. Roy has voted no because of one of those other parts of the bill. I hope that Rep. Roy and others can advance a 174 specific fix sometime between now and 2026.