IRS Proposes to Expand Research and Development Deductions

By SEMA Washington, D.C., Staff

The Internal Revenue Service (IRS) has issued a proposed rule to clarify that research and development (R&D) expenditures would be deductible regardless of whether the resulting product is sold or used in the taxpayer’s trade or business. The rule would eliminate confusion on whether expenditures are no longer deductible as IRS Code Section 174 R&D expenses after the uncertainty relating to the product’s development or improvement has been eliminated. The rule would also define the term “pilot model” as any representation, model or product that is produced to evaluate and resolve uncertainty during product development. 

On a related note, SEMA is encouraging Congress to reauthorize the R&D tax credit, which expires at the end of 2013. SEMA has recommended that it be made permanent so that companies can make long-term spending commitments for research and product development. 

For more information, contact Stuart Gosswein at