You may have missed it, but a requirement in the 2017 Tax Cuts and Jobs Act (TCJA) will force all businesses, including federal contractors, to begin amortizing R&D investments over 5 years rather than expensing them in the same year that the costs were incurred. As you are aware there is a time value associated with money so this change will diminish the tax advantages for contractors that invest in R&D.
There are quite a few negatives associated with this upcoming change for federal contractors. Understandably, it will result in a decreased amount of R&D being performed by contractors. This at a crucial time when agencies need more advanced information technology and cyber security. In fact, there are many federal contractors in innovation industries including providers of software, semiconductors, instruments, electric vehicles, aerospace, machine tools, and pharmaceuticals just to name a few.
Currently the United States is ranked 24th out of 34 OECD (Organization for Economic Co-operation and Development) and BRIC (emerging economies) nations in the generousness of its R&D tax incentives. Should the TCJA provision not be appealed, the U.S. ranking will fall to 32 out of 34. In particular, China currently provides incentives that are 2.7 times more generous than the U.S. and will be 5.7 times more generous when the TCJA provision takes effect.
It appears that both the American Innovation and R&D Competitiveness Act of 2021 and the American Innovation and Jobs Act would prevent the TCJA amortization provision from taking effect. At EZGovOpps Market Intelligence we believe it will be beneficial to federal contractors and all businesses for Congress to repeal this provision.
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