06 SEP 2024 / IRS UPDATES

IRS Updates Research Expense Accounting Method

Wondering what the IRS has up its sleeve now? On August 29, the IRS issued Revenue Procedure 2024-34, modifying the rules under Section 446 of the tax code and Treasury Regulation Section 1.446-1(e). If you’re dealing with research or experimental expenses for tax years starting after December 31, 2021, this update is definitely one to watch.

Here’s the key takeaway: This new procedure expands the waiver of eligibility rules from Rev. Proc. 2015-13, making it easier for taxpayers to change their accounting methods in any tax year beginning in 2022 or 2023. In simple terms, the IRS is offering more flexibility for businesses looking to adjust their accounting methods for R&D expenses without the usual hurdles.

However, there’s a catch: For changes made in 2022 or 2023, the IRS has placed limits on audit protection for research expenses paid or incurred in the first tax year beginning after December 31, 2021. If you didn’t make the necessary change for these expenses in the applicable tax year, your audit shield just got a little thinner.

Why is this important? These adjustments could significantly impact how businesses manage their research expenditures, and missing a key filing could leave you exposed in an audit. As accounting professionals, keeping up with these changes ensures that your strategies are in line with the latest regulations, potentially saving your clients from costly compliance issues.

The bottom line? If research expenses are part of your accounting landscape, make sure you’re up-to-date with these new IRS guidelines. Staying proactive with your accounting methods can help navigate these changes smoothly and keep you on the right side of compliance. Learn about more recent updates from the IRS here.