Editor's note: From 2022 through 2024, every business with research or experimental expenditures lived under the most punitive R&D tax provision in modern U.S. tax history: mandatory capitalization of all §174 costs over 5 years (15 for foreign R&E), with no immediate deduction. OBBBA §70302 ⁴, enacted July 4, 2025, finally restored full expensing and provided retroactive relief for small businesses. This essay describes how our clients managed the three-year crisis and what restoration looked like.
For sixty-eight years, from 1954 to 2021, Internal Revenue Code §174 ¹ allowed taxpayers to immediately deduct research and experimental expenditures in the year incurred. It was one of the most consistent and least controversial business tax provisions in the Code. Then the Tax Cuts and Jobs Act of 2017 ³ included an obscure timing provision that, to pay for other TCJA cuts, eliminated immediate expensing of R&E for tax years beginning after December 31, 2021. Domestic R&E became mandatory 5-year amortization; foreign R&E mandatory 15-year amortization. Congress was widely expected to fix the §174 problem before it took effect. It did not.
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