Comment by dcow
3 years ago
The section starts with
> In general
> In the case of a taxpayer’s specified research or experimental expenditures for any taxable year—
Note specified.
Then the special rule says
> For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure.
So the section says its purpose is to govern specified R&E expenditure. And the special rule regarding software is caveated to make it clear that it is subject to the general purpose of the section.
To your analogy, if I pay an employee to build a machine rather than buy a machine, that’s opex not capex. I don't amortize the labor cost of the machine out over 5 years and pay taxes on the 80% of the employees salary that now doesn’t count as an expense because they made a machine. I also don't get to add the value of the machine as an asset and record losses as it depreciates over the years, either.
But in "(b) Specified research or experimental expenditures" it says:
> For purposes of this section, the term "specified research or experimental expenditures" means, with respect to any taxable year, research or experimental expenditures which are paid or incurred by the taxpayer during such taxable year in connection with the taxpayer's trade or business.
So that's R&E expenditures. It's further specified that all swdev is R&E.
My interpretation would be that sw dev = R&E. And R&E = specified R&E, UNLESS it's not in connection to the trade or business. (Not sure when that would happen though).
Afaik, it works like that when activating any piece of IP using an expenses based valuation method.
I'm gonna let it rest now. I'm not affected anyway. At least not directly.