26 U.S.C. § 174 : US Code - Section 174: Research and experimental expenditures

Search 26 U.S.C. § 174 : US Code - Section 174: Research and experimental expenditures

(a) Treatment as expenses
(1) In general
A taxpayer may treat research or experimental expenditures
which are paid or incurred by him during the taxable year in
connection with his trade or business as expenses which are not
chargeable to capital account. The expenditures so treated shall
be allowed as a deduction.
(2) When method may be adopted
(A) Without consent
A taxpayer may, without the consent of the Secretary, adopt
the method provided in this subsection for his first taxable
year -
(i) which begins after December 31, 1953, and ends after
August 16, 1954, and
(ii) for which expenditures described in paragraph (1) are
paid or incurred.
(B) With consent
A taxpayer may, with the consent of the Secretary, adopt at
any time the method provided in this subsection.
(3) Scope
The method adopted under this subsection shall apply to all
expenditures described in paragraph (1). The method adopted shall
be adhered to in computing taxable income for the taxable year
and for all subsequent taxable years unless, with the approval of
the Secretary, a change to a different method is authorized with
respect to part or all of such expenditures.
(b) Amortization of certain research and experimental expenditures
(1) In general
At the election of the taxpayer, made in accordance with
regulations prescribed by the Secretary, research or experimental
expenditures which are -
(A) paid or incurred by the taxpayer in connection with his
trade or business,
(B) not treated as expenses under subsection (a), and
(C) chargeable to capital account but not chargeable to
property of a character which is subject to the allowance under
section 167 (relating to allowance for depreciation, etc.) or
section 611 (relating to allowance for depletion),
may be treated as deferred expenses. In computing taxable income,
such deferred expenses shall be allowed as a deduction ratably
over such period of not less than 60 months as may be selected by
the taxpayer (beginning with the month in which the taxpayer
first realizes benefits from such expenditures). Such deferred
expenses are expenditures properly chargeable to capital account
for purposes of section 1016(a)(1) (relating to adjustments to
basis of property).
(2) Time for and scope of election
The election provided by paragraph (1) may be made for any
taxable year beginning after December 31, 1953, but only if made
not later than the time prescribed by law for filing the return
for such taxable year (including extensions thereof). The method
so elected, and the period selected by the taxpayer, shall be
adhered to in computing taxable income for the taxable year for
which the election is made and for all subsequent taxable years
unless, with the approval of the Secretary, a change to a
different method (or to a different period) is authorized with
respect to part or all of such expenditures. The election shall
not apply to any expenditure paid or incurred during any taxable
year before the taxable year for which the taxpayer makes the
election.
(c) Land and other property
This section shall not apply to any expenditure for the
acquisition or improvement of land, or for the acquisition or
improvement of property to be used in connection with the research
or experimentation and of a character which is subject to the
allowance under section 167 (relating to allowance for
depreciation, etc.) or section 611 (relating to allowance for
depletion); but for purposes of this section allowances under
section 167, and allowances under section 611, shall be considered
as expenditures.
(d) Exploration expenditures
This section shall not apply to any expenditure paid or incurred
for the purpose of ascertaining the existence, location, extent, or
quality of any deposit of ore or other mineral (including oil and
gas).
(e) Only reasonable research expenditures eligible
This section shall apply to a research or experimental
expenditure only to the extent that the amount thereof is
reasonable under the circumstances.
(f) Cross references
(1) For adjustments to basis of property for amounts allowed
as deductions as deferred expenses under subsection (b), see
section 1016(a)(14).
(2) For election of 10-year amortization of expenditures
allowable as a deduction under subsection (a), see section
59(e).