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OPINION
It’s become increasingly apparent that Section 174 may be around longer than anyone believed possible. The IRS is gearing up to audit innovation
A fter being passed by a greater than five-sixths majority in the House, another tax reform bill (HR 7024) is slowly dying in the hands of the Senate. It’s becoming increasingly clear that the crescendo of questions as to “Why has the 174 issue not been remedied?” is potentially no longer the right question to be asking. At present the more apt questions are “Who wins?” and “How will the new law be enforced?” To answer these questions, you need not look further than Washington, D.C., which includes all legislators and our nation’s collectors, the IRS.
Eric Tuthill, CPA MSAcc
While the Employee Retention Credit (ERC) seems to be the focus of IRS ire, it appears to be more of a red herring as the underlying law regarding the ERC is particularly favorable to taxpayers. An investment in auditing legitimate claims will yield little revenue (though the case may still be made to go after fraudsters) while there are more appetizing adjustments to focus on. Section 174 represents just such an alternative collection vehicle. Millions of preparers inappropriately bypassed or missed accounting for Section 174, assuming legislative corrections would take place and would save them from their detrimental stances. Unfortunately, the much-needed legislation failed to take place, leaving
clients and their preparers exposed to extreme jumps in taxable income. If you think audits of R&D tax credit beneficiaries are a lucrative “revenue” generator for federal and state governments, Section 174 revenue generation, i.e. Section 174 audits, will make R&D audit values look like rounding errors. The enforced capitalization under IRC 174 applies to all companies, regardless of whether a taxpayer took the R&D tax credit allowed under IRC 41. This enables the IRS to examine taxpayers and obtain large adjustments even from those who believed they were safe from Section 174 capitalization. In fact, the IRS
Jordan Wilson
See ERIC TUTHILL & JORDAN WILSON , page 10
THE ZWEIG LETTER AUGUST 19, 2024, ISSUE 1550
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