{"id":14260,"date":"2025-02-12T18:42:03","date_gmt":"2025-02-12T18:42:03","guid":{"rendered":"https:\/\/taxops.com\/?p=14260"},"modified":"2025-02-12T18:48:27","modified_gmt":"2025-02-12T18:48:27","slug":"section-174-capitalization-here-to-stay-for-now","status":"publish","type":"post","link":"https:\/\/taxops.com\/section-174-capitalization-here-to-stay-for-now\/","title":{"rendered":"Section 174 Capitalization: Here to Stay for Now"},"content":{"rendered":"\n<div style=\"height:41px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" width=\"1024\" height=\"536\" src=\"data:image\/gif;base64,R0lGODlhAQABAIAAAAAAAP\/\/\/yH5BAEAAAAALAAAAAABAAEAAAIBRAA7\" data-src=\"https:\/\/taxops.com\/wp-content\/uploads\/2025\/02\/section-174-updates-2025-1024x536.png\" alt=\"\" class=\"wp-image-14296 lazyload\" data-srcset=\"https:\/\/taxops.com\/wp-content\/uploads\/2025\/02\/section-174-updates-2025-1024x536.png 1024w, https:\/\/taxops.com\/wp-content\/uploads\/2025\/02\/section-174-updates-2025-980x513.png 980w, https:\/\/taxops.com\/wp-content\/uploads\/2025\/02\/section-174-updates-2025-480x251.png 480w\" sizes=\"(min-width: 0px) and (max-width: 480px) 480px, (min-width: 481px) and (max-width: 980px) 980px, (min-width: 981px) 1024px, 100vw\" \/><noscript><img decoding=\"async\" width=\"1024\" height=\"536\" src=\"https:\/\/taxops.com\/wp-content\/uploads\/2025\/02\/section-174-updates-2025-1024x536.png\" alt=\"\" class=\"wp-image-14296 lazyload\" srcset=\"https:\/\/taxops.com\/wp-content\/uploads\/2025\/02\/section-174-updates-2025-1024x536.png 1024w, https:\/\/taxops.com\/wp-content\/uploads\/2025\/02\/section-174-updates-2025-980x513.png 980w, https:\/\/taxops.com\/wp-content\/uploads\/2025\/02\/section-174-updates-2025-480x251.png 480w\" sizes=\"(min-width: 0px) and (max-width: 480px) 480px, (min-width: 481px) and (max-width: 980px) 980px, (min-width: 981px) 1024px, 100vw\" \/><\/noscript><\/figure>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\"><em>The ongoing saga of Section 174 capitalization continues to be a significant concern for businesses engaged in research and development (R&amp;D). Despite bipartisan support for its repeal, the high cost of removing this requirement has kept it in place. <\/em><\/p>\n<\/blockquote>\n\n\n\n<p class=\"wp-block-paragraph\">Section 174, introduced in the Tax Cuts and Jobs Act (TCJA) of 2017, mandates the capitalization and amortization of specified research or experimental (SRE) expenditures. This change has been a hot topic since its inception (<em>see <a href=\"https:\/\/taxops.com\/irs-new-rules-for-amortizable-research-expenses-and-automatic-accounting-changes\/\">IRS New Rules for Amortizable Research Expenses and Automatic Accounting Changes<\/a>)<\/em>, as it significantly impacts how businesses account for their R&amp;D expenses. Initially, businesses could deduct these expenses in the year they were incurred, but under the TCJA, they must now amortize these costs over five years for domestic expenses and 15 years for international expenses.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Politics Still at Play<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">There is bipartisan support for jettisoning these changes due to the detrimental impact of Section 174 on R&amp;D activities in the U.S. R&amp;D credits are an incentive for businesses to invest in research and development. The loss of the ability to expense R&amp;D activities has been a big blow to companies engaged in innovation in the U.S.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Reversing Section 174 amortization to pre-TCJA provisions would be pricey, making this issue challenging to resolve. While there have been discussions, and even bills about its repeal (<em>see <a href=\"https:\/\/taxops.com\/failed-tax-relief-how-h-r-7024s-defeat-affects-section-174\/\">Failed Tax Relief: H.R. 7024\u2019s Defeat Affects Section 174<\/a><\/em>), there is no established timeline for reversal.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In the absence of Congressional movement on this issue, we have to stay the course assuming that Section 174 directives in IRS interim guidance Notices and Revenue Procedures, including <a href=\"https:\/\/www.irs.gov\/pub\/irs-drop\/n-23-63.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">2023-63<\/a>, <a href=\"https:\/\/www.irs.gov\/pub\/irs-drop\/n-24-12.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">2024-12<\/a>&nbsp; and <a href=\"https:\/\/www.irs.gov\/pub\/irs-drop\/rp-24-09.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">2024-9<\/a> , are in place and effective in 2025. Since aspects of this guidance are open to interpretation, businesses and their tax advisors will have to figure out the details on their own for now.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In this twilight period when the future of Section 174 remains uncertain, businesses must continue to adapt to IRS requirements. The ongoing discussions and interim guidance highlight the complexities and challenges associated with implementing this provision. As your <a href=\"https:\/\/taxops.com\/contact\/\" target=\"_blank\" rel=\"noopener\" title=\"TaxOps Advisors\">TaxOps Advisors<\/a>, we are monitoring developments in the political and economic landscape and will continue to work with you to be prepared for any potential changes.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">IRS Guidance\u200b<\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Revenue Procedure <a href=\"https:\/\/www.irs.gov\/pub\/irs-drop\/rp-24-09.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">2024-9<\/a> \u2013 updates on accounting method changes and clarification on certain inclusions<\/li>\n\n\n\n<li>Notice <a href=\"https:\/\/www.irs.gov\/pub\/irs-drop\/n-23-63.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">2023-63<\/a> \u2013 defines what should be included; final Revenue Procedures to be released\u200b<\/li>\n\n\n\n<li>Notice <a href=\"https:\/\/www.irs.gov\/pub\/irs-drop\/n-24-12.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">2024-12<\/a> \u2013 notification that Revenue Procedure 2024-9 has been issued\u200b<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">For more information, contact your<a href=\"https:\/\/taxops.com\/contact\/\" target=\"_blank\" rel=\"noopener\" title=\"TaxOps Advisor\"> TaxOps Advisor<\/a>.<\/p>\n\n\n\n<div style=\"height:57px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-buttons is-content-justification-center is-layout-flex wp-container-core-buttons-is-layout-fe48e5de wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link wp-element-button\" href=\"https:\/\/taxops.com\/contact\/\">Talk to a Business Tax Advocate<\/a><\/div>\n<\/div>\n\n\n\n<div style=\"height:53px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h2 class=\"wp-block-heading\">Read more<\/h2>\n\n\n<ul class=\"wp-block-latest-posts__list wp-block-latest-posts\"><li><a class=\"wp-block-latest-posts__post-title\" href=\"https:\/\/taxops.com\/auditor-independence-in-the-age-of-private-equity\/\">Auditor Independence in the Age of Private Equity: What CFOs Need to Know<\/a><\/li>\n<li><a class=\"wp-block-latest-posts__post-title\" href=\"https:\/\/taxops.com\/r-d-credits-for-software-companies\/\">R&amp;D Credits for Software Companies: Scrum Teams, Qualifiers, and Section 174 After OBBBA<\/a><\/li>\n<li><a class=\"wp-block-latest-posts__post-title\" href=\"https:\/\/taxops.com\/section-174-decoupling-what-tax-pros-need-to-know-state-by-state\/\">Section 174 Decoupling: What Tax Pros Need To Know State By State<\/a><\/li>\n<li><a class=\"wp-block-latest-posts__post-title\" href=\"https:\/\/taxops.com\/sean-espy-new-partner\/\">TaxOps Welcomes Sean Espy as Partner, Tax Minimization<\/a><\/li>\n<li><a class=\"wp-block-latest-posts__post-title\" href=\"https:\/\/taxops.com\/state-nexus-demystified-navigating-tax-compliance-after-wayfair-episode-1-2\/\">Your Tax Footprint Is Probably Bigger Than You Think: What Finance Leaders Need to Know About State Nexus<\/a><\/li>\n<\/ul>","protected":false},"excerpt":{"rendered":"<p>The ongoing saga of Section 174 capitalization continues to be a significant concern for businesses engaged in research and development (R&amp;D). Despite bipartisan support for its repeal, the high cost of removing this requirement has kept it in place. Section 174, introduced in the Tax Cuts and Jobs Act (TCJA) of 2017, mandates the capitalization [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":14296,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"off","_et_pb_old_content":"<!-- wp:spacer {\"height\":\"41px\"} -->\n<div style=\"height:41px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n<!-- \/wp:spacer -->\n\n<!-- wp:image {\"id\":14221,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https:\/\/taxops.com\/wp-content\/uploads\/2025\/01\/2025-Colorado-State-and-Local-Tax-Legislation-1024x576.png\" alt=\"\" class=\"wp-image-14221\"\/><\/figure>\n<!-- \/wp:image -->\n\n<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><!-- wp:paragraph {\"align\":\"center\"} -->\n<p class=\"has-text-align-center\"><em>Judy Vorndran, lead partner of state and local tax at TaxOps, testified before the Colorado Senate Finance Committee on January 28, 2025. She addressed SB25-018 and SB25-046, proposed legislation that would create a searchable database and enhance audit confidentiality. Below is a summary of her remarks<\/em>.<\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph {\"align\":\"center\"} -->\n<p class=\"has-text-align-center\"><em>Following testimony and discussion, the Finance Committee unanimously passed both bills. SB25-018 now moves to the Committee on Appropriations while SB25-046, as amended, has been referred to the full Senate and placed on the Senate consent calendar.<\/em> <\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph {\"align\":\"center\"} -->\n<p class=\"has-text-align-center\"><em>\"It was an amazing experience to look in all of their faces and explain why these laws make Colorado more competitive and are good for both government and taxpayers<\/em>,\"<em>  ~ Judy Vorndran <\/em><\/p>\n<!-- \/wp:paragraph --><\/blockquote>\n<!-- \/wp:quote -->\n\n<!-- wp:group {\"layout\":{\"type\":\"constrained\"}} -->\n<div class=\"wp-block-group\"><!-- wp:spacer {\"height\":\"34px\"} -->\n<div style=\"height:34px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n<!-- \/wp:spacer -->\n\n<!-- wp:heading {\"textAlign\":\"center\"} -->\n<h2 class=\"wp-block-heading has-text-align-center\">Testimony on SB25-018, Online Search of Sales and Use Tax, and SB25-046, Local Government Tax Audit Confidentiality Standards<\/h2>\n<!-- \/wp:heading -->\n\n<!-- wp:spacer {\"height\":\"42px\"} -->\n<div style=\"height:42px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n<!-- \/wp:spacer --><\/div>\n<!-- \/wp:group -->\n\n<!-- wp:paragraph -->\n<p>Good afternoon, members of the <a href=\"https:\/\/leg.colorado.gov\/committees\/finance\/2024-regular-session\" target=\"_blank\" rel=\"noopener\" title=\"Senate Finance Committee\">Senate Finance Committee<\/a>. My name is <a href=\"https:\/\/taxops.com\/judith-vorndran\/\" target=\"_blank\" rel=\"noopener\" title=\"Judy Vorndran\">Judy Vorndran<\/a>. I am a partner in the tax specialty firm TaxOps and a member of the &nbsp;Sales and Use Tax Simplification Task Force.<\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>I am here to testify in support of two bills, SB25-018 and SB25-046. A summary of my statement follows.<\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:spacer {\"height\":\"43px\"} -->\n<div style=\"height:43px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n<!-- \/wp:spacer -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3 class=\"wp-block-heading\">SB25-018, Online Search of Sales and Use Tax<\/h3>\n<!-- \/wp:heading -->\n\n<!-- wp:paragraph -->\n<p>SB25-018 aims to create a searchable database for sales and use tax licenses and exemption certificates. This bill is crucial for improving transparency and compliance in our tax system.<\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3 class=\"wp-block-heading\">Key Points<\/h3>\n<!-- \/wp:heading -->\n\n<!-- wp:list -->\n<ul class=\"wp-block-list\"><!-- wp:list-item -->\n<li><strong>Importance of a Searchable Database:<\/strong><\/li>\n<!-- \/wp:list-item -->\n\n<!-- wp:list-item -->\n<li>SB25-018 proposes the creation of a database at the state and department of revenue level, allowing taxpayers to look up licenses and entities.<\/li>\n<!-- \/wp:list-item -->\n\n<!-- wp:list-item -->\n<li><strong>Benefits for Taxpayers:<\/strong><ol><li>Having access to a searchable database would be a significant advantage for taxpayers. It would help them ensure that vendors are properly licensed and collecting the correct tax amounts.<\/li><\/ol><!-- wp:list {\"ordered\":true} -->\n<ol class=\"wp-block-list\"><!-- wp:list-item -->\n<li>This measure would also align Colorado with other states, such as Texas, which already have similar databases in place. These databases have proven to be extremely helpful for taxpayers in those states.<\/li>\n<!-- \/wp:list-item --><\/ol>\n<!-- \/wp:list --><\/li>\n<!-- \/wp:list-item -->\n\n<!-- wp:list-item -->\n<li><strong>Improved Compliance:<\/strong><!-- wp:list {\"ordered\":true} -->\n<ol class=\"wp-block-list\"><!-- wp:list-item -->\n<li>The searchable database would facilitate better compliance with tax laws. Taxpayers would be able to verify the status of vendors and themselves, reducing the risk of errors and ensuring accurate tax collection.<\/li>\n<!-- \/wp:list-item --><\/ol>\n<!-- \/wp:list --><\/li>\n<!-- \/wp:list-item --><\/ul>\n<!-- \/wp:list -->\n\n<!-- wp:paragraph -->\n<p>SB25-018 is a vital step towards enhancing transparency and compliance in Colorado's tax system. I urge the Committee to support this bill and help create a more efficient and taxpayer-friendly environment.<\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:spacer {\"height\":\"46px\"} -->\n<div style=\"height:46px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n<!-- \/wp:spacer -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3 class=\"wp-block-heading\">SB25-046, Local Government Tax Audit Confidentiality Standards<\/h3>\n<!-- \/wp:heading -->\n\n<!-- wp:paragraph -->\n<p>SB25-046 addresses the confidentiality standards for local government sales or use tax audits. This bill would both protect taxpayer information and ensure fairer audit practices.<\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3 class=\"wp-block-heading\">Key Points<\/h3>\n<!-- \/wp:heading -->\n\n<!-- wp:list {\"ordered\":true} -->\n<ol class=\"wp-block-list\"><!-- wp:list-item -->\n<li>Confidentiality Concerns:<ol><li>SB25-046 aims to establish uniform confidentiality standards for local government tax audits. This is important because third-party auditors often conduct these audits, and there are concerns about how taxpayer information is handled and shared.<\/li><\/ol><!-- wp:list {\"ordered\":true} -->\n<ol class=\"wp-block-list\"><!-- wp:list-item -->\n<li>Currently, third-party auditors are not always licensed professionals, and there is no regulation ensuring their confidentiality practices. This raises significant concerns about the protection of sensitive taxpayer information.<\/li>\n<!-- \/wp:list-item --><\/ol>\n<!-- \/wp:list --><\/li>\n<!-- \/wp:list-item -->\n\n<!-- wp:list-item -->\n<li>Issues with Third-Party Auditors:<ol><li>Many home-rule cities do not have captive auditors and rely on third-party auditors who may conduct audits on behalf of multiple jurisdictions. This can lead to inefficiencies and increased taxpayer burdens.<\/li><\/ol><!-- wp:list {\"ordered\":true} -->\n<ol class=\"wp-block-list\"><!-- wp:list-item -->\n<li>There are instances where third-party auditors may target large taxpayers, leading to multiple audits across different cities. This practice is also burdensome and raises concerns about the confidentiality of taxpayer information.<\/li>\n<!-- \/wp:list-item --><\/ol>\n<!-- \/wp:list --><\/li>\n<!-- \/wp:list-item -->\n\n<!-- wp:list-item -->\n<li>Need for Regulation:<ol><li>There is a need for stricter regulation and oversight of third-party auditors to ensure they adhere to uniform confidentiality standards. This includes establishing ethical and fiduciary duties similar to those required of licensed professionals.<\/li><\/ol><!-- wp:list {\"ordered\":true} -->\n<ol class=\"wp-block-list\"><!-- wp:list-item -->\n<li>The bill also highlights the importance of transparency in the contracts between cities and third-party auditors. These contracts should be subject to public scrutiny to ensure accountability.<\/li>\n<!-- \/wp:list-item --><\/ol>\n<!-- \/wp:list --><\/li>\n<!-- \/wp:list-item --><\/ol>\n<!-- \/wp:list -->\n\n<!-- wp:paragraph -->\n<p>SB25-046 is essential for protecting taxpayer information and ensuring fair audit practices. I urge the Finance Committee to support this bill and help create a more transparent and accountable audit process. <\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>I would be happy to answer related questions you may have, and I thank you for the opportunity to weigh in on these important pieces of legislation.<\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:spacer {\"height\":\"57px\"} -->\n<div style=\"height:57px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n<!-- \/wp:spacer -->\n\n<!-- wp:buttons {\"layout\":{\"type\":\"flex\",\"justifyContent\":\"center\"}} -->\n<div class=\"wp-block-buttons\"><!-- wp:button -->\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link wp-element-button\" href=\"https:\/\/taxops.com\/contact\/\">Talk to a Business Tax Advocate<\/a><\/div>\n<!-- \/wp:button --><\/div>\n<!-- \/wp:buttons -->\n\n<!-- wp:spacer {\"height\":\"53px\"} -->\n<div style=\"height:53px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n<!-- \/wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n<!-- \/wp:separator -->\n\n<!-- wp:heading -->\n<h2 class=\"wp-block-heading\">Read more<\/h2>\n<!-- \/wp:heading -->\n\n<!-- wp:latest-posts \/-->","_et_gb_content_width":"","spt_transcript":"","footnotes":""},"categories":[230,228,382,229,78,226],"tags":[252,1145,284,12,1144,1158,126,26,265,1135,492,1134,18,19,316,1136,30,810,101,799,605,262,79,267,620,80,712,1138,1137,74],"class_list":["post-14260","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-asc-740","category-federal-tax","category-main-tax-min","category-state-and-local","category-tax-savings","category-tax-news","tag-accountant","tag-advocate","tag-cfo","tag-colorado","tag-colorado-society-of-cpa","tag-continuous-education","tag-cpa","tag-cpe","tag-finance-professional","tag-iaas","tag-leadership","tag-saas","tag-sales-and-use-tax","tag-sales-tax","tag-salt","tag-software-providers","tag-state-and-local-tax","tag-state-income-tax","tag-state-tax","tag-tax-advisor","tag-tax-automation","tag-tax-planning","tag-tax-preparer","tag-tax-professional","tag-tax-professionals","tag-tax-provider","tag-tax-school","tag-tax-tools","tag-tax-vendors","tag-taxops"],"aioseo_notices":[],"jetpack_featured_media_url":"https:\/\/taxops.com\/wp-content\/uploads\/2025\/02\/section-174-updates-2025.png","_links":{"self":[{"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/posts\/14260","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/comments?post=14260"}],"version-history":[{"count":4,"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/posts\/14260\/revisions"}],"predecessor-version":[{"id":14300,"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/posts\/14260\/revisions\/14300"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/media\/14296"}],"wp:attachment":[{"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/media?parent=14260"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/categories?post=14260"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/tags?post=14260"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}