According to Journal Of Accountancy[0] this seems to only apply to software expenses that are also treated as R&D expenses. So if you expense the costs and don't claim R&D credit you lose the credit but would also not have the cash flow issue being described. It's still a net negative but at least less negative for current year cash flow.
I don't really see anywhere in that article where it says that you can have software development expenses that aren't R&E expenses under the new definition. Am I missing it or?
In fact it says:
> The TCJA added a special rule under Sec. 174(c)(3) for the treatment for software development costs, stating that βany amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure.β Prior to this addition, taxpayers relied on Rev. Proc. 2000-50, which stated that the costs of developing computer software so closely resemble Sec. 174 R&E expenditures that a similar accounting treatment should be used. When this revenue procedure was issued, R&E expenditures were currently deducted. Under the TCJA, software development costs are treated as R&E expenses but are now subject to five- or 15-year amortization.
...which is what I am saying in my example -- software dev costs are now forced to be 5-year amortized.
You could be right. I was relying on some the other less formal language like:
> companies engaged in research and development (R&D) activities should be implementing this significant change
I think it might require backing up into tax code Sec 174 "Amortization of research and experimental expenditures"[0] itself though. There it says:
> (3)Software development - 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.
Keying in on "For purposes of this section" I think we'd need to figure out is software development expense always required to be treated under this section, or is this just talking about software development expenses that are made in connection with R&D expenses which are under this section. It's hard to imagine all and any software development expenses are R&D. E.g. if you're running a software service company and have 10 engineers building something for a client, maybe it's R&D for the client but it's in not at all R&D for the service provider....right? I am not a lawyer or tax accountant so I may be way off base here.
[0] https://www.journalofaccountancy.com/issues/2022/nov/amortiz...