IRS Proposes Rule Encouraging Research Spending

The IRS is proposing new regulations designed to encourage businesses to conduct research and development. The rules announced last week clarify the agency’s policies on when companies can deduct expenses for new tests and experiments.

“Today’s proposed rules provide the tax certainty necessary to reward businesses that invest in innovation,” said the IRS Assistant Secretary for Tax Policy Mark Mazur, in a statement. “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 draft rules explain that businesses that profit from products that come from their research are still eligible to claim a deduction for the spending that went into their development.

According to the proposal, “if expenditures qualify [for tax deductions] as research or experimental expenditures, it is irrelevant whether a resulting product is ultimately sold or used in the taxpayer’s trade or business.”

The IRS is accepting comments on the proposal for 90 days. At that time it will review the comments and seek to finalize the rule. S