Overview
Title
To amend the Internal Revenue Code of 1986 to restore the deduction for research and experimental expenditures.
ELI5 AI
The American Innovation and R&D Competitiveness Act of 2025 lets people who spend money on research and experiments take those expenses off their taxes instead of having to count them slowly over time. This makes it easier for them to save money on taxes right away when they try new things.
Summary AI
H.R. 1990, titled the “American Innovation and R&D Competitiveness Act of 2025,” aims to amend the Internal Revenue Code of 1986 to restore the deduction for research and experimental expenditures. This bill allows taxpayers to treat these expenditures as expenses instead of capital accounts, enabling deductions in their taxable income. It also provides an option for taxpayers to amortize certain expenditures over a period of not less than 60 months. The bill applies to taxable years beginning after December 31, 2021.
Published
Keywords AI
Sources
Bill Statistics
Size
Language
Complexity
AnalysisAI
To amend the Internal Revenue Code of 1986 to restore the deduction for research and experimental expenditures, House Bill H.R. 1990 seeks to alter tax rules concerning how businesses account for their research and development (R&D) expenditures. Introduced to the House of Representatives in March 2025, the bill primarily aims to provide tax incentives to businesses by allowing them to deduct R&D expenses, returning to a tax policy approach that was in place prior to recent changes.
General Summary of the Bill
The proposed legislation, officially titled the “American Innovation and R&D Competitiveness Act of 2025,” seeks to amend the Internal Revenue Code by altering Section 174. The changes focus on enabling taxpayers to treat qualifying research and experimental expenditures as immediate deductions rather than as capital items, which need to be amortized over several years. Furthermore, it gives businesses the option to amortize these expenses over a period of at least 60 months under certain conditions, creating flexibility between immediate expensing and amortization. The bill aims to encourage more investment in R&D by reducing the tax burden associated with such investments.
Summary of Significant Issues
Several significant issues emerge from the bill that bears attention. First, the language used is technically complex, potentially posing challenges for small business owners and taxpayers unfamiliar with tax terminology. The bill introduces opportunities for different methods of expensing R&D costs without needing consent from the tax authorities, which could lead to inconsistent practices and potential misuse. Additionally, the need for the Secretary's consent for changing the method once adopted presents administrative challenges for taxpayers.
Another substantial issue involves the eligibility criteria for what constitutes reasonable research expenditures. The ambiguity in these criteria can lead to variability in how businesses apply the deduction, potentially causing confusion and uneven tax compliance.
The legislation also notably excludes expenditures related to land acquisition and certain mineral exploration activities, which could disadvantage specific industries, such as mining. Furthermore, the retroactive element of the bill—applying regulations back to the 2022 tax year—imposes significant administrative adjustments for businesses.
Impact on the Public
Broadly, by allowing businesses to immediately deduct R&D expenses, the bill intends to stimulate economic growth and innovation. The financial incentives could lead to an increase in R&D activities, potentially leading to technological advancements, job creation, and improved competitiveness on a global scale. However, for the general public, the complexity and administrative implications of the bill might reduce its effectiveness if not adequately understood or implemented by all businesses uniformly.
Impact on Specific Stakeholders
Small Businesses: The bill holds potential benefits for small businesses by lowering the accounting complexity and tax burden associated with R&D investments, encouraging them to invest in innovation. However, the complexity of the language and the administrative requirements for changing expense methods might disproportionately challenge smaller businesses without access to expert tax advice.
Large Corporations: For larger corporations with sophisticated accounting operations, the bill presents an opportunity to plan and optimize their R&D investments with greater flexibility and tax efficiency. However, disparities in application could lead to criticisms if these entities are perceived as exploiting flexible regulations more effectively than smaller businesses.
Mining and Extraction Industries: As explicitly mentioned in the bill, businesses in the mining and extraction sectors might see these changes as limiting, as their typical R&D-related activities may not qualify under the new expensing rules. This could discourage investment in innovation within these industries and create a perceived inequity in how different sectors are treated under tax law.
In summary, while the bill aims to strengthen America’s competitive stance in R&D by altering the tax landscape, its effects will vary widely among different stakeholders, potentially demanding a nuanced understanding and adaptation to realize its full benefits.
Issues
The language used in section 2's amendment of Section 174 under 'Treatment as Expenses' and 'Amortization of Certain Research and Experimental Expenditures' is complex and might be difficult for taxpayers, especially small business owners, to fully understand without professional assistance. This issue has implications for transparency and ease of compliance.
The provision in Section 2 allowing a taxpayer to adopt an expense treatment method 'without the consent of the Secretary' while requiring consent for other methods could lead to inconsistent application among taxpayers, posing potential risks for exploitation and creating disparities especially between large and small taxpayers.
The requirement for the Secretary's consent to change the method or period of expense treatment after it has been adopted may create administrative burdens and delays for taxpayers and the IRS. This could disproportionately affect smaller taxpayers without resources to navigate bureaucratic processes.
The exclusion of land and other property in Section 2(c) from eligible expenditure categories might create confusion about what expenses are eligible for deduction or amortization, potentially leading to inconsistent practices among taxpayers.
The distinctions between 'expenses,' 'deferred expenses,' and 'reasonable research expenditures' in Section 174 can be complex. This complexity can lead to different interpretations among taxpayers regarding applicable deductions, affecting equitable tax compliance.
The section's requirement that only 'reasonable' research expenditures are eligible without a clear definition can lead to ambiguities and inconsistencies in application. This could result in potential disputes or challenges, particularly impacting those with limited accounting resources.
The exclusion in Section 2(d) for expenditures related to the exploration of ore or minerals may disadvantage those in the mining or extraction industries, raising fairness concerns about the equitable treatment of different business sectors.
The effective date clause requiring taxpayers to apply regulations retroactively to the 2022 tax year could result in administrative burdens for taxpayers who have to adjust their accounting practices according to new rules that are applied retrospectively.
Sections
Sections are presented as they are annotated in the original legislative text. Any missing headers, numbers, or non-consecutive order is due to the original text.
1. Short title Read Opens in new tab
Summary AI
The first section of this bill gives it the official name "American Innovation and R&D Competitiveness Act of 2025."
2. Research and experimental expenditures Read Opens in new tab
Summary AI
Section 174 of the Internal Revenue Code of 1986 has been updated to allow taxpayers to treat research or experimental expenses as deductible, rather than capitalizing them. It also provides options for amortizing certain research expenditures, specifies exclusions such as land acquisition, and adjusts related tax credit rules, effective for taxable years starting after December 31, 2021.
174. Research and experimental expenditures Read Opens in new tab
Summary AI
A taxpayer can choose to treat research and experimental costs as either immediate expenses or defer them to be deducted over a period of at least 60 months, except for costs linked to buying or improving land or property, or exploration for minerals. This choice must be consistent each year unless a change is approved, and only reasonable expenses qualify.