A new legislative push in Congress could reshape how businesses account for research and development (R&D) expenses. On March 10, 2025, a bipartisan group of lawmakers introduced the American Innovation and R&D Competitiveness Act. If enacted, this bill would undo a key provision of the 2017 Tax Cuts and Jobs Act (TCJA) that forced businesses to spread R&D deductions over several years instead of deducting them immediately.
The TCJA’s Burden on R&D Investment
Before 2022, businesses had the flexibility to fully deduct R&D costs in the same tax year they were incurred. However, the TCJA required companies to amortize these expenses—over five years for domestic research and 15 years for foreign research—dramatically increasing taxable income and reducing available capital for reinvestment. This change led to cash flow challenges, particularly for industries that rely on innovation, such as engineering and architecture firms, manufacturing, and technology.
How the New Legislation Would Change R&D Expensing
The proposed bill seeks to ease this burden by reinstating immediate R&D expensing. Key provisions include:
- Full Deduction in the Year Incurred – The bill eliminates the amortization requirement, allowing businesses to deduct R&D costs upfront.
- Optional Amortization for Flexibility – Companies that prefer to spread costs over time for financial planning purposes may still do so.
- Clarification of Ineligible Costs – Certain expenditures, such as land purchases and resource extraction (oil, gas, and mining), remain excluded from eligibility.
- Adjustments to Prevent Double Benefits – The bill modifies Section 280C to ensure R&D tax credits remain appropriately applied.
- Retroactive Impact – The change would apply retroactively to expenses incurred after December 31, 2021, potentially reversing years of amortization.
Potential Taxpayer Benefits from Retroactive Application
For businesses that have been required to amortize R&D costs since 2022, this legislation could provide an opportunity to amend prior tax filings. By reclaiming immediate deductions, companies might secure refunds or reduce previously reported taxable income. Businesses should assess whether filing adjustments or carrybacks could improve their financial position.
Economic and Competitive Implications
If enacted, the legislation is expected to stimulate U.S. innovation by easing financial constraints on research-driven companies. Compared to global competitors—some of whom offer aggressive R&D tax incentives—this reform would enhance the attractiveness of the U.S. as a hub for technological advancement. Countries like China, for example, allow businesses to deduct significantly more than their actual R&D expenditures, giving them a competitive edge. Restoring immediate expensing could help level the playing field
Legislative Prospects
The bill enjoys bipartisan support, a strong indicator of its potential to move forward. However, it will need to navigate broader tax policy discussions and fiscal negotiations. Lawmakers acknowledge the importance of R&D investment for economic growth, but its passage may be influenced by the political climate and competing legislative priorities. It is likely that some component, if not all of the bill will end up in a singular bill for tax reform or a within a budget reconciliation package later this year.
Next Steps for Businesses
Corporate Tax Advisors is actively tracking this legislation to help businesses understand its implications. Companies affected by the TCJA’s amortization rules should evaluate how potential changes could impact their tax strategy. For guidance on optimizing R&D deductions and planning for potential tax law shifts, reach out to Corporate Tax Advisors today.
