American Innovation and R&D Competitiveness Act would Repeal R&D Amortization

A new bipartisan bill has been introduced in the House of Representatives that seeks to eliminate the harmful new version of code Section 174. Section 174 now requires amortization of all R&D expenses, meaning that businesses engaged in R&D are facing substantial tax hikes. The American Innovation and R&D Competitiveness Act  (H.R 2673) was reintroduced on April 18th by Reps Ron Estes (R-KN) and John Larson (D-CT), with 77 co-sponsors.

Across the country, businesses are becoming aware of the fact that they are losing 90% of their R&D deductions for 2022 and will have to cut a massive check to Uncle Sam. The forced amortization of R&D expenses is the largest tax hike in history for many businesses, yet it has flown under the media radar.

HR 2673 would restore companies’ ability to deduct R&D expenses in the year incurred, a commonsense tax policy that has been in place for over 70 years. The House Bill mirrors a Senate Bill (S.866) introduced in March by Senators Maggie Hassan (D-NH) and Todd Young (R-IN). The Senate Bill has garnered 23 co-sponsors.

ATS Takeaway

ATS has been fortunate to be in communication with Senator Todd Young’s office on this matter. It is likely that Congress will work to develop a deal to raise the debt ceiling before they take up the R&D issue. Both of these Bills have been introduced in previous Congresses (albeit with fewer sponsors).

This law has very wide bipartisan support. The major hurdle in passing the Bill has been Senate Majority Leader Chuck Schumer’s (D-NY) attempts to attach priorities of the Democratic caucus to the R&D law. Thus far these riders have acted as a poison pill that the Republican caucus would never swallow. For example, most recently, Democrats have said they will not agree to fixing the R&D law and helping businesses until Republicans agree to reinstate the COVID-era Child Tax Credit and remove any work requirements. While most Republicans agree that the Child Tax Credit should be made permanent, they believe it would be too expensive if it were given to taxpayers who do not work.

Small Businesses Need to take Action

One thing ATS has heard from various staffers on the Hill is that Congress Members are not used to hearing from Small Business owners. They have been bombarded by large corporations and lobbying groups on this issue and many believe that passing either HR 2673 or S. 866 amounts to merely another corporate tax break.

Members of Congress need to be made aware of the fact that failing to fix R&D amortization will hurt small businesses far more than it will large corporations. Small businesses do not have the deep pockets and access to capital to pay massive 2022 tax bills, some of which will cost these businesses millions of dollars.

ATS knows that if this law is not passed, small businesses will have to cease hiring, stall capital purchases, and potentially abandon R&D efforts. Every small business that is affected by R&D amortization needs to reach out to their Congressman and Senator to make sure they are aware of and support this bill. A list of co-sponsors can be found on the links provided above for each bill.

For any questions on how these laws impact your business, please contact ATS today.