IRS Clarifies Section 174 Guidance for Contractual Research Services

Published: Jan 2, 2024

IRS Notice 2024-12 clarifies how specified research or experimental (SRE) expenses under contract are treated. If a service provider has no financial risk or product rights, those costs may be deductible. It also updates guidance from Notice 2023-63.

 

In December, the IRS issued Notice 2024-12 that clarifies the treatment of specified research or experimental (SRE) expenditures performed under contract. The notice provides that SRE incurred under contracts where the service provider has no financial risk nor acquires any “SRE product right” may, in general, deduct those expenditures. The notice also clarifies the treatment if the service provider obtains “an excluded product right” in a separate contract.  

 

Section 174 continues to be problematic for taxpayers. Tax professionals are encouraged to read Notice 2024-12, as well as Notice 2023-63 that the current notice clarifies.  

 

 

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