2023 Marcum Year-End Tax Guide

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B. Notice 2023-63 On September 8, 2023, the IRS released interim guidance and signaled its intention to issue proposed regulations to clarify IRC Section 174 capitalization. Taxpayers are not required to apply the rules in Notice 2023-63 immediately but may use them for tax years beginning after September 8, 2023, provided they rely on all the rules and apply them consistently. The interim guidance within Notice 2023-63 covers uncertainties that Taxpayers were facing in addressing the IRC Section 174 capitalization, including: • Capitalization and Amortization of SRE Expenditures • Scope of Section 174 • Software Development • Research Performed Under Contract • Disposition, Retirement, or Abandonment of Property • Long-Term Contracts Under Section 460 • Cost Sharing Regulations at IRC Treasury Regulation section 1.482.7 The IRS has requested feedback on the interim guidance and any issues needing further consideration for proposed regulations.

C. Proposed Changes to Form 6765

BEYOND FEDERAL CREDITS In addition to the Federal credit, many states offer R&D tax credits. Effectively using both Federal and state credits can help small and mid-sized companies increase cash flow during their early growth years. The Federal Research and Development (R&D) tax credit is valuable for companies to reduce tax liabilities and incentivize R&D spending in the United States. Despite being underutilized, the R&D tax credit offers significant benefits. However, recent legislation has added complexity to the tax deductibility of R&D expenditures, including the requirement to capitalize and amortize such expenses over several years. It is essential for companies to carefully consider their eligibility for R&D tax credits and consult with their Marcum advisor to optimize their tax savings.

On September 15, 2023, the IRS released a preview of proposed changes to certain sections of Form 6765 for claiming the R&D credit. The proposed changes aim to provide taxpayers with consistent and predefined formats for tax reporting and improve the information received for tax administration, building on ongoing efforts to manage issues and resources regarding research credit claim matters. The IRS is considering making the changes effective beginning with tax year 2024. The proposed additional sections would require taxpayers to provide more expansive information associated with their research credit claim, including additional information related to the identification of officers’ wages claimed for the credit, additional information defining a business as a member of a controlled group and expanding information requirements associated with a Taxpayer’s business components for which research expenditures are being claimed for credit.

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