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 Treasury Clarifies the Research and Experimentation Expenditure Rules for Businesses



New Rules Will Help Promote Innovation and Encourage Investment


WASHINGTON – The U.S. Department of the Treasury and Internal Revenue Service (IRS) today issued proposed regulations that would clarify the application of the tax code provision allowing deduction or amortization of research and experimentation (R&E) expenditures for prototypes and other tangible property.  These proposed regulations would resolve discrepancies between how taxpayers and the IRS interpret the tax code when R&E expenditures result in the creation of tangible property that is subsequently sold or used in the taxpayer’s business.  The proposed regulations will also apply for purposes of certain requirements for claiming the R&E credit.


“Today’s proposed rules provide the tax certainty necessary to reward businesses that invest in innovation,” said Assistant Secretary for Tax Policy Mark J. Mazur.  “Research and development are critical to addressing the challenges we face as a nation, and we will continue to pursue opportunities to clarify the tax code in a way that promotes economic growth and job creation.”


The proposed regulations published today would specify that subsequent actions taken by the taxpayer’s trade or business with the resulting product have no effect on the eligibility of R&E expenditures for a tax deduction if the expenditures are otherwise qualifying R&E expenditures.  The proposed regulations would also clarify how the rules are applied to production costs and depreciable property, and would define the term “pilot model.” 

Taxpayers may rely on the proposed regulations pending finalization.

For proposed regulations published on the Federal Register, click here.

Further information about the Administration’s key proposals regarding job creation, economic growth and U.S. business innovation is available here:


  • For a July 2013 video of highlights from President Barack Obama’s remarks on jobs and the economy, click here.
  • For the July 2013 White House fact sheet on its pro-growth tax reform and jobs package, click here.



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