There are some misunderstandings in the comments that seem to stem from not having read the section, so I thought it was worth referencing the actual text [0]. It's quite short and easy to read.
The most important bits:
* Subsection (a) requires amortizing "Specified research or experimental expenditures" over 5 years (paragraph (2)) instead of deducting them (paragraph (1))
* Paragraph (c)(3) is a Special Rule that requires that all software development expenses be counted as a "research or experimental expenditure".
That's it. All software expenses must be treated as research and experimental expenses, and no research and experimental expense can be deducted instead of amortized. Ergo, all software expenses must be amortized over 5 years.
I strongly recommend reading the section before forming an opinion. It really is quite unambiguous and is unambiguously bad for anyone who builds software and especially for companies that aren't yet thoroughly established in their space (i.e. startups).
Also note that this makes Software a special case of R&D. It's the only form of R&D that Section 174 requires you to categorize as such and therefore amortize.
It had a huge impact on my personally, I'm a small R&D shop and basically I have had to end all risky long-term research projects.
In addition to the research costs, I'd also have to pay taxes on the research costs mostly up-front. Significantly, if the project doesn't work out, I'm still out of pocket for the tax money. It's a penalty for taking a risk, and it kneecaps American innovators in a globally competitive technology race.
The rules are even worse than the article notes because it double-dings open source developers. See Section 6.4 of https://www.irs.gov/pub/irs-drop/n-23-63.pdf. The relevant bit is here:
> "However, even if the research provider does not bear financial risk under the terms of the contract with the research recipient, if the research provider has a right to use any resulting SRE product ... costs paid or incurred by the research provider that are incident to the SRE activities performed by the research provider under the contract are SRE expenditures of the research provider for which no deduction is allowed ..."
The rule as written means contractors who write Windows drivers could deduct their expenses (as they would have no residual rights to a closed-source work product), but contractors who write Linux drivers may not (as they would have some rights to open-source Linux drivers).
> In addition to the research costs, I'd also have to pay taxes on the research costs mostly up-front. Significantly, if the project doesn't work out, I'm still out of pocket for the tax money.
That’s how it works for every business! If Jim Bean builds a distillation facility it has to amortize the investment in that over time. If the distillation facility doesn’t pan out, then it doesn’t get a refund for the taxes paid.
In my (admittedly lay) understanding of the issue, it boils down to software maintenance being taxed as research and development.
In general, costs for running a business (buying inventory) are immediately deductible, while establishing new business (building factories) has to be amortized, since the factory can be used for several years.
In software, the line is a bit more blurry - coding creates new IP (research), but is also required to keep many software companies running (maintenance) by e.g. fixing bugs and updating infrastructure. Here, the IRS has decided that all software development counts as research.
This would kinda make sense if you could hire programmers for a single year to develop software, fire them and then sell the software for 5 years, but I think that's rarely the case.
The comparison with Jim Beam is misplaced. Both TSMC and Jim Beam already have to amortize their production equipment over several years. I'm not arguing that this should be changed. This is because the primary risk taken in a distillery build-out or a fab build-out is if there is market demand for a known product. It's primarily a business risk, not a research risk. Tax code is a reasonable tool to regulate business risk.
The people this tax code change hurts are those doing basic research. In the context of semiconductors, that would be a company like ASML (except they are Dutch, so they can happily continue their research practices) who took a decades-long bet to build their EUV steppers.
In the case of basic research, one could be spending millions of dollars on hardware prototypes when you know it can't produce any salable product. There's no upside profit to amortize expenses against: it's like building a distillery that you know can't produce a single drop of salable bourbon because you're working out a radical new distillation technique.
In summary: in basic hardware research, one could be spending millions of dollars to put a whole system together just so you can learn how it fails. It's a true "expense", with no path to amortization.
Now, in addition to making the right technical decisions, the tax law changes force the R&D teams to also consider how to amortize their experiments over many years. You now have have pressure from management to do things like stage prototypes and expenses in the right tax year so the company can continue to show a profit for the shareholders. You could argue that the lessons learned are perhaps IP that have "goodwill" value, but now you're opening a can of worms trying to price a fair market value on a negative result, and you're now having senior research staff spend more time arguing with accountants than directing research. You also have to get to that negative result within a tax year - which effectively penalizes any research project that takes more than 12 months to complete.
Same-year 100% deduction of R&D expenses is simple and it reflects the actual nature of basic research risk. Yes, it allows companies to convert short-term windfalls into long-term research gains by converting taxable profits into research projects, but I'd argue that's not actually a bad social policy.
I think US is probably unique among developed nations in having a tax code that punishes basic research; other countries at least allow it to be deducted. Some even allow super-deductions (e.g. you can deduct $2 for every $1 of R&D expense) or the research is explicitly subsidized through grants.
The argument for special treatment of research is that pioneers put their careers on the line to discover new things, so the rest of us can live in risk-free comfort; so, as a collective we give them some reward for taking that risk.
I suppose the counter-argument is that research incentives and subsidies are socialist "market manipulation" and violate the "free market" principle, and thus America is justified in sanctioning and trade warring with the rest of the world that is socializing basic research costs. That's an opinion one is entitled to hold, but we'll have to agree to disagree on that opinion.
Norway did something similar with oil[1]. Companies could get most of their oil search expenses covered by the state, to encourage finding new oil fields.
But if a company starts extracting oil from a field they have to pay heavy taxes on that oil.
It doesn’t matter. Jim Bean doesn’t compete with an R&D software company. The R&D software company does compete with other companies in different jurisdictions with better regulations.
Jim Bean competes with other beverage makers who also operate out of different jurisdictions that may have different regulations ... not sure your point is as much of a "gotcha" as you think it is.
> The rule as written means contractors who write Windows drivers could deduct their expenses (as they would have no residual rights to a closed-source work product), but contractors who write Linux drivers may not (as they would have some rights to open-source Linux drivers).
Is it just me or are you conflating two orthogonal things?
An open-source Windows driver would have the same issue, no? And a closed-source proprietary Linux driver privately written for some company wouldn't have this issue either, right?
I could see it being inferred that way but, the way I read it, they are not meant as unilateral facts. Rather, they serve as rhetorical examples of where you might find contractors doing similar work, but where the one more in service of "public good" is taxed higher because it's open source. Strictly speaking, Windows bits are not all closed source and there exist closed source Linux bits. But it's not a point that really matters in the context of the conversation.
I think it's fair to use Windows and Linux as stand-ins for closed vs open source because it's a very accessible example. And knowing the technicalities clearly doesn't undermine the argument.
> I think it's fair to use Windows and Linux as stand-ins for closed vs open source because it's a very accessible example
We're talking about businesses here that would struggle with these tax rules. Which I guess is, mainly, contractors or startups. How common is it for them to write open-source drivers vs. closed-source ones? I would've imagined the majority of drivers in such cases are closed-source, on every platform. But I would find it interesting to hear if things are somehow different on Linux.
Linux kernel drivers often end up being GPL'd, but out of tree. This is because Linux releases many very useful (and sometimes critical to the use-case!) functions behind a GPL-license API restriction. This is EXPORT_SYMBOL_GPL.
Are you sure this is exactly what it means? You're basically saying that if I start hacking on a driver that consumes such an API tonight, I must release it as GPL somewhere publicly the moment I start consuming the API? I can't even work on it for a bit privately?
I'm surprised if so, because usually these sorts of licenses only apply if you're redistributing the code, not if you're just using it privately.
You're right, the law text doesn't specifically call out the Windows operating system or the Linux operating system. The example you gave of Open Source Windows drivers is valid.
The Grandparent's point about that "it double-dings open source developers" is still correct and poignant even with this clarification.
> The Grandparent's point about that "it double-dings open source developers" is still correct and poignant even with this clarification.
I feel like I'm missing what subset of people this is, exactly. We're talking about businesses here that would struggle with these tax rules. Which I guess is, mainly, contractors or startups. How common is it for such businesses to release their software as open-source, vs. as closed-source? I would've (naively) expected most paid OSS developers to be funded by large organizations/businesses that have plenty of money to fund them, not small businesses/contractors that would be severely impacted by this law. Is this actually a large set of people?
There are lots of small OSS businesses that are contractors to the big companies you mention. My go-to example is Igalia, who work on web browser and other core OSS tech, but there lots of others, some mentioned on the FOSSjobs wiki.
You are correct. I picked this example under the general assumption that the Windows driver would be closed-source, but you are correct that it doesn't necessarily have to be closed source.
The problem goes with the license, not with the OS.
Work-for-hire open source contributions often already bear a copyright holder of the entity paying for the work. The problem isn't who is the copyright holder.
The problem is that the license assigned says that anyone is free to use the code. Anyone is a set of people that includes the contributor, which then triggers the interpretation that the research is incrementally in the contributor's benefit and thus disqualified from preferential tax treatment.
You'd need a custom license where everyone in the world could use the results except for the contributor, and then like, a source control system that hides the source files from the contributor's view of the repository.
> Anyone is a set of people that includes the contributor
Should every other member of that set, i.e. everyone minus contributor, also amortize their software development expenses because they have a hypothetical, non-exercised right to use some (i.e. all) open-source "R&D" software... somewhere? Or should the tax liability be invoked starting on the date of first use of any open-source code?
If some code is upstreamed to Linux kernel or userspace, should this obligate every Linux distro consumer to amortize their Linux software development expenses?
There must be _some_ legal boundary for dispersal of the tax obligation with respect to open-source code, since it self-evidently cannot be intended to apply to the entire universe of businesses and union of all OSS development. If necessary, a court case can establish this distinction.
The USA hasn’t managed to completely impose their idea of intellectual property on everyone yet. Some countries you can’t sign away authorship even if you can commercial rights.
It makes software temporarily 16.7% more expensive in year one if you’re operating a profitable company, but you do eventually get to deduct that over time. Pay 8% on a 4 year loan and that drops to ~4%.
As has been said repeatedly in this thread, this change is purely a boon for existing big tech companies that now have even less to worry about from startups. It takes a startup 5 years before they'll be playing on an even field with big tech.
> if you’re operating a profitable company
You keep saying this across this thread, and keep ignoring that Section 174 has now redefined "profitable" for tax purposes to include companies who:
* Are in year 1 with no history of expenses to draw on.
* Have spent <900% of their year 1 revenue on software development expenses.
i.e., a startup that earns $1mil and spent $8mil in software dev expenses is only able to deduct 10% * 8mil = $800k of expenses, which means that as far as the government is concerned they made a profit of $200k and owe taxes on that on top of their already-net-loss of $7mil.
You can keep ignoring this fact, but ignoring it doesn't help your case. If you want to argue that this is fine and dandy you need to explain why the above math doesn't prevent new companies from competing on fair terms with big tech.
> As has been said repeatedly in this thread, this change is purely a boon for existing big tech companies that now have even less to worry about from startups. It takes a startup 5 years before they'll be playing on an even field with big tech.
The article also blames it for 2022 mass layups at existing big tech companies with cash reserves.
That seems like a big stretch compared to the "oops we over-hired in 2021" theory, especially if it's net-advantageous for big tech vs up and comers.
> The article also blames it for 2022 mass layups at existing big tech companies with cash reserves.
It's possible for two things to be true at once. The new rules can be moderately bad for big companies and cause them to do layoffs and also cause them to be catastrophically bad for startups, giving incumbent big tech companies another relative advantage over them.
This is also ignoring the short-term vs. long-term effects. In the first year the incumbent companies are in the same boat as the new ones because they already deducted all their R&D expenses from the previous year when they were still allowed to, so they get a minimal deduction this year and have no advantage. But five years from now, they'll have five years worth of R&D they're still amortizing -- notably, this means the government is no longer getting more revenue from them in the current year than they would otherwise, since their average R&D expense and their average amortized deduction are now equal -- whereas the startup has no historical R&D to deduct and is put at a disadvantage.
Article theory is bullshit, but it can still be some factor for startups, as research costs for them are effectively higher they probably just hire less.
> You keep saying this across this thread, and keep ignoring that Section 174 has now redefined "profitable" for tax purposes to include companies who:
Because generating an asset IE software isn’t a pure loss that’s why you’re doing it in the first place. Companies with a cash flow problem are different than companies which an actual loss.
> i.e., a startup that earns $1mil and spent $8mil in software dev expenses is only able to deduct 10% * 8mil = $800k of expenses, which means that as far as the government is concerned they made a profit of $200k and owe taxes on that on top of their already-net-loss of $7mil.
That assumes 100% of expenses are software development related. But the numbers are imaginary so using your example taxes are 21% of 200k, so 7 million in losses = 7.042 million in losses. A 1/2 of 1% increase, the sky is fucking falling.
Further a competent account would likely want you to carry the majority of those expenses to the future. Given the option many companies voluntarily did so because it made financial sense. You can only carry 80% of losses forward a likely future issue, but these expenses don’t fall under that category.
> That assumes 100% of expenses are software development related. But the numbers are imaginary so using your example taxes are 21% of 200k, so 7 million in losses = 7.042 million in losses. A 1/2 of 1% increase, the sky is fucking falling.
The problem here is that the losses are often in time or future liabilities but the government expects to be paid in cash. Your developers were mostly working for stock options or some other deferred compensation, which may cost you tomorrow but tomorrow you'll have more revenue. Where are you getting the cash to pay the government right now?
So you have no idea what that phrase means. If you don’t think code is an asset don’t write it.
O wait obviously that’s not what code is a liability means. Code is a liability in the same way roads or buildings are a liability, they incur an ongoing cost, but removing the US highway system would be just as idiotic as a startup deleting their source repository from a misunderstood idea.
More importantly valueless code stops being a liability because you can abandon it. Calling it a liability implies it has value.
> More importantly valueless code stops being a liability because you can abandon it. Calling it a liability implies it has value.
This is kind of missing the issue though.
Suppose you pay a million dollars this year to develop something that will also cost a million dollars a year to maintain, but is worth over a million dollars a year, so you do it anyway.
So this year you spend a million dollars, make $1.1M, have a profit of $100k. Next year you'll spend a million dollars, make $1.1M, have a profit of $100k. But if you don't do the maintenance, it ceases to comply with changing regulatory requirements and not only has to be shut down but causes you to incur criminal penalties, or develops public security vulnerabilities and then criminals break in and destroy your business and cause you to be sued into bankruptcy by your customers.
In other words, the code creates an obligation that offsets the value of the asset. These two things can easily cancel out so that the total value is ~0 -- or even negative in ways that don't allow you to walk away, e.g. because you entered into a contract to supply this thing for a defined price but underestimated the maintenance cost.
But now the government is telling you that you have something worth most of a million dollars even though it's not worth a dime without putting another million dollars into it -- and even then it still wouldn't be worth two million dollars.
The reason you continue to do it is that the continued development made you $100k this year, not because what you had left at the end of the year that would be worth something without further investment.
> O wait obviously that’s not what code is a liability means. Code is a liability in the same way roads or buildings are a liability, they incur an ongoing cost, but removing the US highway system would be just as idiotic as a startup deleting their source repository from a misunderstood idea.
I love this example! It perfectly illustrates a case where the government intentionally subsidizes a liability that no sane company would take on without government funding. Well said.
So we're agreed that the government should incentivize R&D with a favorable tax code that makes it not completely insane to take on the risk of doing something new.
> It perfectly illustrates a case where the government intentionally subsidizes a liability that no sane company would take on without government funding. Well said.
LOL, try again liabilities like buildings don’t need incentives. Software that is only barely worth maintaining isn’t worth subsidizing, highly valuable software needs no incentives.
If anything you’re making a solid argument government should discourage the creation of software so only the most valuable software is created and maintained. Except the optimum economic efficiency as so often happens occurs without government incentives.
Wow all this time I thought the key to a successful startup was to just be better and more disruptive than the competition but really I guess it all comes down to being more tax efficient.
We are small and so have been on a hiring freeze since 2022. I’d like to hire but the upfront cost is high.
For those around when this went into effect many business owners were surprised. Our accountants told us they seriously thought congress would fix this before it went into effect.
... they did that because that's exactly how Trump presented the change. The article points that out: this change was an attempt to lie to the congressional budget office, not intended to be an actual tax change.
Often the way this works is that some time bomb is added to the tax code so that forecasts for future tax revenue will be higher (justifying more spending in the short term) and congress then needs to remember to remove the time bomb before it blows up. So it isn’t that uncommon for these things to be reverted.
Everyone knows it’s a time bomb but the only way we can get an omnibus funding bill through Congress is reconciliation. That’s how our government has been functioning since like 1980 and almost nothing has been “reverted” since then except for the time bombs required to get through the reconciliation process.
Or in this case, not justifying extra spending, but justifying extra tax cuts for incomes above a half million dollars per year, inheritances of more than 5 million dollars, corporate profits, private jet flights, and a variety of other special tax cuts, mostly aimed at wealthy GOP donors.
There's another word for "educating" people until they reach the decision you want them to.
Brainwashing.
You know it's completely possible that people have a different outlook or opinion or perspective on things and that is why they disagree with you, not necessarily a lack of education?
Some people think these are good ideas and they vote or welcome them. Some people think they are bad ideas and they vote or oppose them.
No, education is not brainwashing. These terms have different definitions. One is by definition good, one bad. Words matter, definitions of words matter.
I’d love an education system that only teaches scientific consensus, and leaves moral conclusions to parents and households. However I’m sure you’d appreciate that’s not what we have.
For example: What’s the right way to live? How to relate to others? On what basis do we cooperate? What are/are not the overall goals of society? What’s the meaning of life? What is it to be a good person?
I would disagree. Many ideological worldviews are taught in the curriculums of the public education system. For instance, the idea that homosexuality is wrong (not a view I personally hold) is not tolerated. Students are taught that homosexuality is a valid, normal, way to live (and I happen to agree).
However, whether it is right or wrong, valid or invalid, is an ideological argument. Schools should simply teach that it occurs in humans, and leave the question of whether to accept or reject it to parents (there are plenty of other natural behaviours many of us reject on ideological grounds, polygamy for instance). There are countless other examples where ideology is taught as curriculum.
Fortunately our system is setup such that passionate folks like you can work to effect change. Go do it - volunteer for your local PTA, run for school board positions, show up to public hearings. Be the change you want to see in the world. God Speed my friend.
Having the ideology of the majority taught in schools is the outcome of a strictly democratic process like the one you’re describing. I’m suggesting that the separation between church and state be extended to any ideological teaching.
Maybe when churches start obeying the "no pushing any political candidate" laws and stop pushing things like "all scientists are evil", it would be a more acceptable position for those outside the church? Seriously - I've seen (not joking) statements like: all scientists know god exists, but deny it because they don't want to follow the laws of the bible. This was before I deconverted.
I’m directly responding to your point. Ideological education is brainwashing. In fact “brainwashing” is usually just another way of saying “an ideological education I disagree with”, also known as “indoctrination”.
Any conclusion that cannot be arrived at cannot be arrived at by a scientific process is inherently ideological. You’re saying flowers smell good. I say they smell bad. Neither of us is any more right than the other, since these are entirely subjective takes. The closest you could get is that flowers might smell good to x% of the population, which is what schools should teach. Not that they smell good or bad.
The distinction is small but important, since the latter conclusion doesn’t make any judgements about people with a legitimate minority opinion.
What about art,Mozart, the Dead shakespeare, south park and everything in-between? Those aren't science, but are some of the most vital components of education.
Education describing what cultural artifacts exist and how to produce them isn’t ideology. These are objective areas of study. Though lots of cultural education is ethnocentric, where minority cultures are less represented, making the education less well rounded.
Education is not about what cultural artifacts exist, but why and how. Music appreciation and art appreciation, music history and art history are a small part of a music or art Education for someone who is hoping to practice it.
I’m not sure this is exactly true. If your foreign workers are a service contract then those are services expenses immediately deductible. Same if you are using local service contracts. My understanding is this creates a drag for companies that want to hire f/t.
Foreign workers are to my knowledge effectively always a service contract, since it's pretty complicated (if even possible) to hire FTEs across borders without subsidiaries, which are expensive to maintain.
I'm curious if contract work is really exempt, would look like a major loophole to me.
> Foreign workers are to my knowledge effectively always a service contract, since it's pretty complicated (if even possible) to hire FTEs across borders without subsidiaries, which are expensive to maintain.
It's impossible (yes, I'm being absolute) to hire an employee who lives in or outside the US who is not a citizen or doesn't have a green card. All employees must have an SSN and go through i9 verification, which requires in person verification of legal ability to work in the US.
The foreign developers I'm talking about are not US citizens and do not have green cards.
Their work is subject to 15 year amortization per section 174. Period.
Not if they are contractors. That's the point the parent commenter was making. All the reasons you list make it so they need to do so, instead of "hiring" them directly.
It doesn’t matter if the foreign workers are contractors or employees. The expense is considered R&D and must be amortized over 15 years. I’ve dealt with this personally since 2023 for my company working with a legion of tax consultants. There’s no loophole here, I assure you.
There are definitely gray areas to the law, but in my decades of experience dealing with lawyers, they won't steer you to do something very far over the line. I think the companies that do step far over the line, to game the system, are doing so knowing full well they are breaking the law, but they believe they are unlikely to be caught. And they're very likely right. You could separate CEO's/CFO's in to two camps: stay legal and do what you need to do to make the almighty $$. In the 80's the phrase "greed is good" was born, but the last 2 decades have really upped the ante on this.
We don't talk about this enough. International R&D is not offshoring of call-centers to India. International R&D is the IP for the next generation of global communication standards being owned by US-based or foreign corporations, because international (e.g. Canadian, European) standards experts/developers become un-affordable for US-based corporations and are forced to work for our "adversaries" instead. Crazy.
As I understand accounting, this means that reported profits would be higher, and therefore incur more corporate income tax liability. Cash flow isn't effected besides tax.
A startup isn't likely to be making a profit yet, under either accounting rule. Is there a benefit to reporting a larger loss?
My first thought is that this effects Google and suchlike, not startups. But... assuming steady state "r&d" expenditure... it's not that much. Everything gets deducted within 5 years anyway.
So... maybe this hinders more modestly profitable, and fast growing companies most. Those that can't afford to carry 5 years worth of paper profits as easily.
Otoh... I am curious about how the difference between r&d expenses and operational ones are determined irl.
This should be quantifiable. How much extra assets are software companies actually booking?
It seems questionable that this "silent killer" had actually affected employment so much.
> A startup isn't likely to be making a profit yet, under either accounting rule. Is there a benefit to reporting a larger loss?
As an example, A two person software startup; both drawing a salary, each making $100,000 per year. Each doing things related to software development.
Startup brings in 200,000K in revenue.
Under pre Section 174 changes, the profit is zero. Both salaries are expensible in the year they were incurred.
Post Section 174, the profit is now $160,000 each year. Now they pay taxes on $160,000, even though they literally have no money left over because revenues equaled expenditures.
At 25% tax rate, that’s $40,000 in taxes, for a business that made literally no money.
That’s why this is so devastating to small software businesses; unless you’re highly profitable and have cash reserves, this change hits hard.
Wait, salary costs do not count as costs for the year they're made in? That is completely nuts, no matter what kind of company you have.
Although for a startup it might be least bad, because for their first few years, their revenue might well be closer to zero; they tend to burn money, sometimes for quite a while.
They count as costs, but towards a capital expense. The expectation is that that expenditure resulted in the creation of a valuable asset (and not one which was sold for $200,000).
The IRS releases guidance on tax code, and one of the issues with section 174 taking effect in 2022 (and the IRS believing it would be repealed before it went into effect) was that the guidance was released in 2023 under notice 2023-63
To answer your question, the following are software development activities that are capitalizable (and instead of quoting the notice itself, I’m quoting from a better written blog post by accountants:
> Section 4.03(1) of the Notice clarifies that labor costs – including those for contract employees and independent contractors – related to those who perform, supervise, or directly support SRE activities are considered Section 174 expenditures. All elements of compensation are to be included with the exception of severance, which is excludable and deducted by taxpayers in the period paid or incurred. SRE-related labor costs expenses included in the Notice expenses related to pension costs and stock-based compensation.
Section 4.03(1)(e) provides guidance pertaining to certain costs related to operation and management (i.e., rent, utilities, etc.) activities. Specifically, in addition to items such as rent, utilities, and insurance, expenditures such as taxes (i.e., property), repairs and maintenance, and security are now considered SREs subject to Section 174.
So what software development activities don’t count as “Specified Research Expenditures” (SRE)”?
> Training of employees in the use of the software
>Maintenance activities after the software is placed into service that do not constitute upgrades or enhancements (i.e., corrective maintenance to debug, diagnose, and fix programming errors)
> Data conversion activities (except activities to develop computer software that facilitates access to existing data or data conversion)
> Installation and other activities related to placing the software into service
> Marketing and promotional activities
> Distribution activities
> Customer support
If you’re a startup and you have a software developer doing the above activities as well as SRE work, then in order to expense the SRE parts of their job you either have to estimate (and be able to defend) the estimations, or your employee needs to track their time for each type of activity they do.
This example only really has the emotional impact it does because of the specific numbers used, but doesn't really generalize for an arbitrary N.
Clearly if two software engineers build a product that brings in $10M, and each pay themselves $5M, it doesn't seem so outrageous that the can't really claim they're running "a business that made literally no money." Clearly in this second example the problem is that the engineers are paying themselves way too high given the return on their efforts.
What this means is that software engineers will be required to bring in more value to justify their high pay. In your example, it simply means that a software engineer that brings in $100,000 of value to the company, probably shouldn't be paid $100,000.
This seems entirely reasonable to me, and doubly so when I consider how many large corporate teams (who I think will ultimately be impacted more than startups) has huge numbers of highly paid engineers not doing all that much.
In most startups I've worked in it was pretty common for engineers to be delivering multiples of their cost in value, and in every big company I've worked in, it was very common to be delivering fractions of one's cost in value.
In case you don't understand: obviously you still pay income tax. What you suggest would mean you now pay income tax on that $10M, which is going to be 40% or even 50% depending, far higher than corporate tax.
So with your suggested tactic the engineers get $2.55 million each. The rest, $4.5 million, is tax.
If those 2 engineers paid themselves $0, and instead paid the $10 million as dividends, they'd get 4.25 million each, and only 1.5 million would be paid as tax.
(Yes, this is a simplification, both situations are artificial and in both cases there'd be other taxes to pay, however, they'd be similar in both cases)
> Post Section 174, the profit is now $160,000 each year. Now they pay taxes on $160,000, even though they literally have no money left over because revenues equaled expenditures.
They have the $200k they pulled from their startup, far more than what most people earn. If you make enough to pay yourself $100k then you make enough to pay taxes.
If you can't afford your taxes your business model was flawed to begin with. In the above example there is more than enough money for it to still be worth doing.
You don't seem to understand the implications here. This requires bootstrapped startups to have gross margins substantially above incumbents in order to compete and not be cash flow negative after paying taxes.
It makes it substantially more cashflow intensive to build a new software business, which entrenches incumbents and reduces competition. It favors companies who have the cash to wait for the full 5-year depreciation cycle, i.e. the opposite of most bootstrapped startups.
Quick example:
$10,000 revenue
$8,000 paid to software developer
$1,000 paid to AWS
leaves $1000 in profit.
You received $10,000 into your business account, but spent 8000+1000 = $9000. Your business account has a balance of $1000 at the end of the year.
Section 174 means you can only deduct 1/10th of the $8000 in the first year, $800. Your total deductible business expenses for the year will be 800+1000 = $1800.
Your taxable profit for the year is 10000-1800 = $8,200. If your effective tax rate is 25% (generously low), you owe $2,050 in taxes.
You pay your $2,050 tax payment and your business account is overdrafted by $1,050. You need to add $1,050 from your personal funds to the business to cover the shortfall.
Your business was cash flow negative for the year. This makes it extremely difficult to bootstrap a software company.
Well, I said elsewhere, this effectively means (heavily) taxing anyone who's doing something new (meaning adding additional taxes on top of income tax). Essentially all of Europe does this, and people here often decry how they totally lack innovation across the entire continent.
I don't think these two are unrelated.
I also don't understand the objection. It's not like anyone's getting away from taxes due to this rule. This is about a temporary exemption from company income tax IF AND ONLY IF companies have someone pay income tax on that money (and only up to the point where that keeps makes sense). This "exemption" lets you not add 15%-20% tax on top of 40-55% income tax just to try a new business as a company.
That was my first thought as well, but on second thought I can see how this might cause problems:
For established profitable software companies there was a cliff edge in 2022 when this change kicked in. Staff costs for previous years had already been fully expensed while only 20% of the current year's costs could be deducted.
Second, any sudden increase in research expenditures is now discouraged. This could make companies less nimble.
For unprofitable startups it could cause issues during a phase of very high revenue growth. They could suddenly be liable to pay corporation tax in spite of the fact that they are not profitable in any reasonable sense of the word. It would smooth out later, but that may be too late for some.
What I do not believe for a second is that this is causing major job losses. Companies like Microsoft or Meta do not reduce research or software development just because there is a temporary tax hit. It could be an extra incentive for an efficiency drive I guess.
> For unprofitable startups it could cause issues during a phase of very high revenue growth.
So I guess my most question is "how this work irl?"
Say a new startup raises money and hires 20 people. Pays $5m in salaries, office space and such. All 20 people are developing a software product. Are 100% of this startups expenses amorotized?
Then they sell the product. They receive $2m in revenue. What does the P&L look like.
If they hire 20 devs in their first year paying $5m in salaries, only $1m or $500k (if the mid-year convention applies) would count as a business expense in that first year.
If their revenue was $2m, that would leave them with $1m (or $1.5m) of taxable profits unless that was eaten by other costs.
It doesn't have to be a problem, but if revenue grows fast and they go on another hiring spree in the following year then it could become a problem.
That said, if revenue grows so fast, it seems likely that they would have huge marketing and sales costs that could be expensed immediately. So maybe this isn't really a problem for many startups. I'm not sure.
1 million profit, while they have 3 million negative cashflow, that's exactly the problem. They can only take 20% of that 5 million in R&D investment as depreciation in the first year.
Your analysis is correct, but most software companies were mostly profitable or fast-growing. For every Google, there’s 1000 wordpress vendors you’ve never heard of.
In another year the initial shock will stabilize, but any growth now has a 5-year tax hit attached. And even Facebook doesn’t want to pay that if it doesn’t have to.
Google was reportedly amortizing (by choice) long before this was in effect, so while it might “affect them”, in practice it’s likely business as usual.
It depends on the department. My salary (in a mature product) was already amortized - I suspect the same is true of all their other mature products like Search, Maps, GMail, Chrome, YouTube, etc. But I think they were deducting salaries in the more research-like areas like Gemini, Jax, Assistant, etc. So there is net still a fairly large charge related to it, even if it isn't as large as it could be.
- In a steady state where you're spending the same amount every year, the tax burden of amortized vs. unamortized accounting makes no difference. It only matters for R&D - i.e., new products.
- I read once, although I have no idea how accurate this is, that a company could classify maintenance expenses (i.e., paying SREs and some SWEs to keep the service running and fix bugs) as non-R&D and therefore be able to amortize. That's another advantage to mature services over new services.
I'm not an accountant, but as I understand it, you don't pay taxes on profits, but on revenue.
So previously, some 20% of all revenue would be owned as corporate income tax, and startups would deduct it all as they're spending much more on R&D than they owe in corporate income tax. But with this tax change, the deduction would be much lower (80% lower IIUC).
Yes, but the main thing here is that ALL software development is now "profit" in the short term. In theory you've developed a capital good that benefits you over time, hence the amortization.
Simplified 2021 example before 174:
100k Revenue
100k Software Dev Costs
No profit or tax
Simplified 2022 example after 174:
100k Revenue
100k Software Dev Costs
90k "profit"
18.9k taxes
Above example is year one of suddenly having these taxes, because if your software costs are the same or lower over time it gets easier. It's just extremely painful for smaller and especially fast growing companies like startups without a lot of cash, especially when interest rates are so high.
Accountants: If I am wrong about the above, please correct me
That can't be right. It definitely isn't in my country.
If own a car dealership, and I sell a car for $50,000 that I bought from the manufacturer for $40,000, surely I would pay tax on the $10,000 profit? The tax on the the full $50,000 revenue might exceed my profit!
When taxes are paid on revenue rather than profits, the rate is obviously much lower, so that it would add up to roughly the same thing.
However, there are many benefits overall. For one, it completely kills off the various convoluted schemes to avoid classifying something that is obviously a profit as such (by shuffling things around subsidiaries etc, for example). See also: Hollywood accounting.
If companies paid tax on revenue, then there would be a tremendous incentive toward https://en.wikipedia.org/wiki/Vertical_integration , because you wouldn't be allowed to deduct the expenses paid to your suppliers.
Large companies always find a way to not pay taxes. It's the little guys that end up paying (a lot!) more, to the extend that it cripples and kills them. But transformative innovation happens with the little guys. As a result, this tax change cements monopolies for megacorps. They will be fine and still pay nothing.
The little guy always pays all taxes. Corporate tax is just a way to palatably shift tax burden to the low and middle classes and away from the owner class. It is pure double speak.
OK, but you've changed the topic from tax accounting to financial accounting/reporting.
In the US, it remains the case that programmers salaries must be treated as an expense (i.e., cannot be amortized) when calculating the company's income statement, balance sheet, etc. Not following that rule will get the accounting firm signing off on those financial reports in trouble (with the SEC, the Public Company Accounting Oversight Board, and maybe even the Justice Department if the purpose of the violation was to defraud investors).
Yes, that is tremendously important aspect here - the US tech would look better on paper - higher paper profits due lower paper expenses - while getting increased cash flow stress due to decreased deductability of the salaries which are among the main expenses in software dev business.
No, not in this case. 250k is an expense for the company. Company had to amortize this expense over 5 or 15 years. (15 for software engineers outside of the US)
> All software expenses must be treated as research and experimental expenses
From what I've read, not for software fixes to ongoing products, but for new products and I can't remember for new feature work. Also if you contract for someone else I heard you can still write off expenses without amortization.
I think the purpose of the change was to "increase revenue":
> Requiring that certain research or experimental expenditures be amortized over a five-year period or longer, starting in 2023, would increase revenues by $109 billion over the period from 2023 to 2027.
> I think the purpose of the change was to "increase revenue"
Yes, but in a specific way: they were trying to offset the tax cuts they wanted so they could pass it via the reconciliation process and avoid the Senate filibuster. They didn't actually care about this revenue and the assumption from most people was that the specific carve-out would disappear in some future bill.
And now with their attempts to keep the tax cuts around, they've just decided to ignore the rule entirely and pretend that extending a temporary tax cut counts as not costing anything. Of course, there's nothing that would stop them from getting rid of the filibuster entirely either, but that honestly just makes it weirder to pretend that this somehow fulfills the requirements rather than just is taking advantage of the rules being only self-enforced.
Idk but it was under trump. And the meta issue was balancing the budget after all his tax cuts so he needed to find more tax revenues. Which this accomplishes pretty handily
I think partially dismissing the question due to the bill happening "under trump" doesn't help the conversation here. If the bill was sponsored by particular reps/senators, then it's worth identifying those, so their voters can factor this bill in to their decision to vote for/against in the future, etc.
What i like about US is that compare to other countries (like for example Russia where i'm originally from) there is almost no lying and cheating here. Instead there is a respect of the law and an army of talented creative accountants and lawyers. Remember that stale "multi-used" sandwich served with the drink which by virtue of its existence converted drinking establishment into a food serving restaurant? Not being an accountant, i'd just speculate, out of sheer fantasy, that some hardware chip/gadget added to your software may similarly convert your software development into hardware/gadget one.
I'm not sure I buy into this. Sure, compared with Russia it's probably a lot less, at least in terms of being something everyday people engage in. But in terms of comparing with countries like Germany or Sweden I don't know.
Here's some food for thought:
* Global financial crises: Banks were paying (bribing) ratings agencies to rate junk bonds AAA.
* Bernie Madoff: Ran the largest Ponzi scheme ever, with an estimated fraud total of $65B raking in $17.5B in invested cash.
* Enron: straight up accounting fraud sprinkled with intentionally causing brownouts in California to pad their pockets with a side bonus of making Gov Davis unpopular & get him recalled (Enron was closely aligned with the Bush administration).
* Nixon straight up using psy-ops against Democrats & finally trying to burgal the DNC offices.
In terms of stats, the FBI does a few hundred bribery and corruption cases annually. Are they good at catching white collar crime? Well such crimes regularly take more than 5 years to investigate.
And hell, some things that are basically lying and cheating are straight up legal. Usury is legal with minimal to no regulation of payday loans. Pyramid schemes are legal as long as you call it multi-level marketing.
I can’t tell if they’re trying to refute the point (ie the list being long means that it’s definitionally not being hid) or support (ie the list I made is finite and therefore the corruption is hid).
But I think of it like trying to estimate the size of an iceberg by observing the tip. Just because you know a little bit doesn’t mean you actually know about the scale. And there’s every reason to believe it’s quite extensive given how easily money flows from corrupt countries through USD and US persons and companies (eg the major bank that’s constantly getting fined for laundering terrorist and drug cartel money - either they’re the only ones and they’re making a killing providing this service anyway or they’re the only ones anyone is bothering to investigate, but that business is clearly lucrative to continue to engage in).
There is corruption everywhere. If there is a short list that means that the truth is being hid, or your have way too much police (often both).
As you state, the size of the iceberg cannot be understood by what we can easially observe. While there is corruption in the US, it isn't really much worse than other places that are not known for corruption - though understand that the US has a lot higher population and so it might seem that way. (though often those other places are just hiding truth)
The US also sees a huge amount of wealth directly or indirectly flowing through it. I would say that’s the attraction for illegal activities, less the amount of people.
And I don’t know how small you think the list is, but I suspect it’s quite small because whether you get prosecuted from some corrupt act is pretty random since someone has to notice the corruption and try to investigate. Additionally the recent moves by SCOTUS is to significantly raise the bar for prosecuting corruption. So however you think America is fairing compared to other countries, I’d say America today is allowing once more, more institutionalized corruption than it had in the second half of the 20th century (and America’s history is filled with top-to-bottom corruption).
> What i like about US is that compare to other countries (like for example Russia where i'm originally from) there is almost no lying and cheating here. Instead there is a respect of the law and an army of talented creative accountants and lawyers
I thought you were being sarcastic here at first because, good lord, there is plenty of corruption here in the US (though those doing it used to care more about hiding it). The US, especially in its current state, is certainly not a place I'd describe with "almost no lying or cheating". I do understand that Russia is on another level, though, given the open assassinations and doing things like what was done to Navalny.
> I thought you were being sarcastic here at first because,
You've never been in Russia. There is no clear law abiding business there. That opens a lot of opportunities for those with some power. Corruption is one of them, selective punishment is another. I'm sure in most 3d world situation is not better, but they at least don't have laws to cheat and bribing isn't a crime.
Breaking the law is still breaking the law even if you don't hide it. If anything, not getting in trouble for breaking the law noticeably often means that there's also corruption from the ones who should be holding the corrupt accountable.
Where in that definition does it say that it can’t be done in the open?
See for example Trump’s shenanigans, which are done in plain sight for all to see, but with few if any repercussions (a very brief selection: having foreign dignitaries stay at his hotel in DC while he’s in office; having the Secret Service stay at his resorts when he goes golfing; scamming the public with his family’s meme coins; etc)
Because this is SO much better..../s The only difference in style is that the American billionaire will corrupt everything and still say it is for your own good.
No, he's saying that people respect the law, which they do. It's all about finding loopholes, and sticking to the letter of the law while working around the law to do whatever the law prohibits but doing it in a way that remains legal. This entire situation came up because of loopholes. A great way to offshore money was to spend it on software developed by overseas subsidiaries.
If you’ve never lived outside the US you have zero idea how bad it gets. It literally is an alternate world.
The amount of daily activities in the US that just work 99.999999% of the time that would have a corruption aspect in some other countries is mind boggling.
The closest analogy I can come up with is imagine if every money transaction involved cash tipping the parties involved. And that’s just the beginning.
Or are cynical Americans living in an alternate world, blind to how much better the rule of law is here than most other countries? The commenter's comparison was to Russia. When was the last time Putin lost an election?
I'd say we're slightly behind western Europe as far as rule of law goes, not really sure about the advanced east (Japan, Korea), and miles ahead of just about everywhere else (eastern Europe, Russia, Africa, China, etc). Yes, even with Trump in office, though he really makes me worry.
I mean, the sitting President was shilling cars on the White House lawn and runs an active meme coin bribery slush fund.
This is not slightly behind Western Europe. This is miles behind any developed country. China may be corrupt, but Xi Jinping hasn’t yet sold beans or cars via press conference.
The rule of law gets down to nitty-gritty levels, too, not just a reality show at the highest altitudes: trust the police don't extort you, the ability to gain relief in court (small claims or civil), trust things you build won't be looted overnight, trust in your neighborhood to walk at night or leave something unlocked, trust in your bank to wire things, trust in your title companies, trust in your package deliveries, etc.
It's not perfect, but you could do so, so much worse.
I often couch my arguments in soft language like a conversation would be in order to have a discussion. The idea that the US is miles behind developed nations is nonsense.
Why are these alternatives? I believe it is true that the situation in the US is better than many other countries (not most), and also that "almost no corruption" is false.
Being better than others really isn't the only thing that matters.
I don’t get the big hoopla. Here in Germany I’m opting to turn development costs into assets (I simplify a bit). I need assets on the balance sheet, otherwise we’re over-indebted. As long as the development costs are much higher than income (I.e. as long as you’re not profitable), then it shouldn’t matter. And once you are profitable, you pay some more corporate taxes, but aren’t they kind of not too high in the us anyway?
the big hoopla is this: you're a newish startup. You have $300k/yr revenue and $$270k/yr expenses of which $250k is paying your programmers.
prior to this rule change, what you pay your programmers is just a deductible expense, so you owe taxes (in this very simplified example with no other expenses etc. etc.) on just $50k.
after the rule change, you can deduct only $50k of the labor cost (in this year), so now you owe tax on $250k.
there is a very good chance you do not have the cash available to make this payment.
of course, after 5 years, things all balance out and are effectively "back to normal". but you have to get through those 5 years first.
How does this work, in your first year, to have 300K revenue on 270K development cost. It sounds like some very specific boot strapping case, and even then after 70K deductions its 230K profit, so like 50K in taxes on 30K profit. Sure it’s annoying, but it doesnt sound like total doom. Its more likely youll have 250K programmer expense in the first year, 100K in revenue, need 200K in outside investment, and pay very little taxes. After a couple of years it evens out anyway.
Consider some sort of logistics company. They might pay 250K for their hardware (e.g. vehicles), 50K in expenses, get 300K in revenue. Theyll be taxed the same as the startup building up their IT assets.
The logistics company example is not really relevant. The critical point about the rule change is the fact that all software related expenses, including salaries or contract labor costs, must now be amortized over 5 or 15 years. What was previously deductible no longer is, and this changes the cash flow situation dramatically for a software-intensive business, for 5 years.
Sure, for heavily capitalized startups that are losing money, the rule change is not an issue. But for companies that manage to get to profitable status soon, even if it is only a small profit, the rule change can be devastating. A quick search for past HN articles about this will provide lots of example links to follow.
It might be "quite short" but it's full of click bait style text. This tax law will change everything, but we won't say what it is for 4 or 5 paragraphs, nor what changed for another 3
Edit : sorry I just realised you meant the tax law is short. The article itself is very annoyingly written
Agreed. I think the article's text was responsible for the confusion in the comments prior to me posting this. They could have been much more clear and straightforward.
I have no doubt it's bad, but I can't believe that it's both fueling mass layoffs and also almost nobody has heard of it. Those are unlikely to both be true.
I'm not sure why TFA makes it sound like almost no one has heard of it, but it was extensively discussed on HN in early 2023 as being a primary cause of layoffs, before it was cool to blame AI.
Why the big tech firms that suddenly laid off a bunch of people the instant they started looking at their 2022 tax bill didn't tell everyone explicitly that that's what was happening I can't say, but it's not like this has been happening in secret.
Obviously interest rates also play a role, and probably a larger one. But this is objectively a very very bad contributing factor, far worse than the impact of coding LLMs.
At least one person at every company impacted knows why they're firing people, right? Likely several people who are in a decision making capacity. At every company.
Those companies have R&D for a reason. A company _wants_ to make things, right? If this is impacting their ability to make things, wouldn't it be in a company's best interest to advocate openly against the tax code, rather than be silent about the reason, fire their staff, and just not make things?
It doesn't make sense to me how so many people are aware of this to the point that many many companies are all doing the same thing for the same reason, but seemingly nobody was talking about it before this post. That doesn't make a lot of sense to me.
It's like this:
Company wants to do R&D, they have a budget, they do math that says they can afford to pay X number of R&D workers with Y budget.
Government changes tax laws in unexpected way, that changes the math so that Y budget only can support X-A R&D workers because the "A" goes to taxes now.
Also important to note, the tech R&D space is a very small part of the overall economy. We exist in a little thought bubble here on HN.
They didn't know the change was coming. Then it happened, now they have to revisit their budgets. Some thought it was going to be changed back before it went into effect, it wasnt.
But where an established company invests steadily in software, whether it is amoritized or deducted year to year is a wash. Rather than harm tech, this would seem to protect established US companies at the expense of startups. Thats probably great for shareholders in publicly traded companies. It seems just another querk of taxation meant to maintain the established order
It's only a wash if they've been amortizing all along. There's been no advantage to doing so, so established ones have all been deducting, and will have the same five year window of increased taxable income that startups will.
Startups have to face that five year window every time they start up.
Each and every startup will have a year 0 where they're spending more than they earn, and under the new Section 174 they will only get to deduct 10% of their employee's salaries that year. In year two they get to deduct 20% of year 1's salaries and 10% of year 2's salaries, which is still 30% of what the established players will be able to deduct. By year 4, if they make it that far (which most startups don't) they'll finally be at 90% of a full deduction.
Add to that the fact that startups also by definition have a much higher rate of growth than established companies and you'll find that a startup almost definitionally will be paying substantially more in taxes as long as it remains a startup, because they only get to deduct an average of the last 5 years of expenses from this year's revenue in order to calculate this year's profit. That's fine when your last five years are more or less similar to this one, but it's terrible when you've been growing.
The net effect of this change can only be to disincentive startups and cement big, slow established players.
Increasing taxes does not always increase tax revenue. It’s easy to do enough damage to the economy that total tax revenues fall. Past that point is easy for the economy and government revenue to fall into a dwindling spiral.
Not if it limits growth to a commensurate extent (or more)
A big part of why America is as rich as it is in 2025 is Big Tech. If laws and regulations had prevented that industry from taking off by stifling the now-giants back when they were starting up, you may have been more equal today (you’d have fewer billionaires), but there would also have been a lot less wealth to go around, even for the working class
This is one of the worst things MAGA has done. Tech startups are the source of so much of our wealth, and this makes it very challenging to ever build one.
I can’t believe this still exists, and no one has changed it. We truly are governed by morons
for anyone curious, this wasn’t specifically trump, but it was indeed a republican congress bill. texas republican was the initial sponsor and then republicans lined up to cosponsor.
this was done to fuel their tax cuts to a small group of a certain people.
In the U.S. Congress when a bill is introduced in either House it needs to have one or more members to formally ask the chamber to consider the bill—they are known as the bill’s sponsors.
as we are seeing now on a number of issues, sure things can be rolled back, but that doesn't mean a return to normal.
Yes, you can kick over a bee hive, then pick it up and set it back upright, but you are not going to put all the bees back in immediately. There are long term consequences.
You went back to bed after being stung 50+ times by bees? That sounds like a medical emergency. I'm glad you are okay, but I'm amazed you were able to just shrug it off.
A dead post below says it was biden and somehow Obama, but sibling reply link says it passed into law in 2017, not 2022, the first year it went into effect I think.
The article is pretty clear that the law was from 2017 had a scheduled start date of 2022. Although probably not the actual intended effect, it does have the effect of confusing who would be responsible for it by those who don't read past the effective date.
> Although probably not the actual intended effect
This is actually a really common intention in laws like this. Get the tax cuts during your term, and then kick the can down the road so your successor's term is marred by the bad law. If your successor wants to fix it, they need to pass a different tax to recoup the costs, and incur the publicity of "raising taxes".
I think it’s partly that and partly the fact that tax bills tend to be scored on a ten year time window. Note that this law doesn’t actually change the amount of tax that software companies can deduct, it just requires them to spread the deduction over several years. So if you’re scoring your new tax bill on a ten year window and five years into the bill this thing kicks in, then it looks like more tax is being collected in years 5-10. But that’s just an illusion because all the deductions are still there, they’re just being pushed out beyond the end of the window where they don’t “count”. At least this is my understanding.
You’re operating cashflow decides the health of your business, not your accounting profits, not anything else.
Only the operating cashflow and whether that grows as your startup/business grows decides whether your business lives or dies, everything else is for investors, mommy and daddy for final report card.
A business operator’s #1 focus is Operating Cashflow and this tax insanity law hurts cashflow tremendously for american service businesses who need to compete with all other major economies who dont have such an insane law.
This is 100% the intended effect of leaving a bomb like this unaddressed then stalling all legislation halfway through your opponent’s term. You make them look incompetent and then you complain about how they never fix anything, even though they never get anything done because you’ve stopped cooperating. And even though you’ve stopped you can keep complaining about how they always include things you don’t like in legislation so that’s why you never cooperate. The solution is simple in your eyes: just do exactly what you want and only what you want and then you’ll cooperate. This is how a lot of a certain party was talking on the news from 2021 to 2025 when they were interviewed.
The way this is "fixed" right now, every five years we need another round of republican government to make things great again. If only enough democrats cared to fix this.
It's not really targeted at tech, insomuch as at Democrats.
Everyone assumed it was a traditional accounting hack. But given the timing and the reinitialization, it's clearly political, not economic.
The code is a strategic time-bomb designed to cause a high-profile economic downturn during a presidential election cycle, specifically when the following president is a Democrat and Republicans have a house majority.
It was used to harm Biden's economy, and it will happen again in 2030 if the next president is a Democrat. While deferred, it will be spun as a major Trump "economic achievement" for the midterms, because companies will be able to afford to hire again.
The tech industry is merely high-profile fodder for extreme politics. It really is that petty.
The Democrats had control of the presidency and the house in 2022 when this provision first went into effect but had 2 fewer senators (1 fewer if you count the tie-breaking VP). Why didn't they try to change it? Is there some reason a change in the tax code like this can't be modified or repealed once its in place?
Generally, in tax bills they try to keep them "neutral" where any tax cuts or tax breaks are coupled with tax increases elsewhere BUT they tend to report the 10-year affect for whatever reason. This bill provided a ~30% cut in corporate tax on profits, with a delayed increase in tax cost on Software R&D pushed to the next term.
If the next party wants to reverse it, they'd have to find the money with an increase in tax - directly undoing it would be a ~50% increase in corporate tax rate, which (I guess?) would be a tough sell politically. Meanwhile, the tax code on software engineering sounds too niche to expend political capital on.
Either way, its another example of how corporate America is trading long-term growth (R&D, product development) for short term gain (lower taxes today).
> As a progressive, it seems like the Democrats always have Senate spoilers...
With Republicans usually being dominant in a number of states, if Democrats have a Senate majority, it is usually both narrow and dependent on a very small number of Democratic and/or Dem-leading moderate independent Senators from Republican-majority states who vote with the party on leadership, but are soft (or firmly opposed to the progressive preference) on a number of issues important to progressives.
If the US were approximately an equal democracy, this might be less of an issue.
No, the reason the "there is always an in-party Senate spoiler" effect (when they have a Senate majority) seems to be more true of Democrats is because it is more true of Democrats, and the reason is that when the two parties in rough balance by popular support (or even rough balance in Presidential electoral prospects, which has the same directional bias as the Senate but of lesser magnitude), the Republican Party has a systematic edge in dominance of states, which translates into a systematic advantage in the Senate, which means that when the Democrats have a Senate majority, it tends to have a decisive segment in red-state Democratic Senators who are unreliable on key priorities.
The issue being discussed in the Senate is not a symmetric issue resulting from near balance in support between the parties.
It’s also because republicans politically punish dissent, while it is more tolerated in the Democratic Party. The consequences of “disloyalty” are higher in the Republican Party.
This might change. After party leadership got 20% of democratic senators to vote for trump’s procedural blank check, the party’s approval rating dropped to 27%.
If it doesn’t change, I suspect the party will split.
I wonder which is better, the totalitarian left, or the totalitarian right?
Since technology has empowered centralized power while providing the tools easily repurposed to poison democracy, I suspect that democracy as we understand it will fail to compete with data driven central planning.
So maybe the question we should be asking is what flavor of total surveillance and centralized control do we want to live under?
Equal in voting rights. Gerrymandering has been perfected by Republicans. Through that they manage to dilute votes of the opposition. Other measures discourage voters likely to vote against them, like people who cannot easily take time off to vote in person or who have changed their name. Blocking rank choice and maintaining first past the post also disenfranchise third parties, and reinforces the power of incumbents.
Trump himself admitted it's better for Republicans when fewer people vote.
> Equal in voting rights. Gerrymandering has been perfected by Republicans. Through that they manage to dilute votes of the opposition.
This thread is talking about the Senate. The senate isn't gerrymandered. Both senators are state-wide races.
If you want to view it that way, you can view the senate as "pre-gerrymandered". But the last time that was an option was in 1959, and both of those are just "the entire area the US owned, but wasn't a state yet. To get senate gerrymandering, you have to go back to 1912 and the admission of New Mexico/Arizona.
> If you want to view it that way, you can view the senate as "pre-gerrymandered".
That is quite explicitly the history of the US Senate (and House), FWIW.
The Connecticut Compromise was reached to give low-populations states outsized legislative power in the senate. This is the main reason the senate exists.
Building on that, the 3/5th compromise was reached as part of this to give slave states outsized legislative power in the house.
The state of Maine used to be part of Massachusetts, but it was later set up as an independent state in order to increase the number of anti-slavery states in the senate (the Missouri compromise).
Gerrymandering can affect voter sentiment and trigger polling location changes during redistricting, both of which can affect voter turnout[1][2][3] (though the research doesn't seem conclusive on the effect).
And thinking about it more, though I haven't seen if there are studies on it: there are probably manpower/fundraising effects from gerrymandering.
If you're able to protect your political power in one area that probably better enables you to amass resources to use in the area you can't gerrymander.
But all that said, both parties practice gerrymandering and I don't think there's strong evidence of a significant advantage over a major party from current gerrymandering at the national level.
> On a percentage basis, over three times as many districts were competitive in states where independent commissions drew maps as in states where Republicans drew maps.
That’s just confusing cause and effect. If your seats are safe, you have no reason to agree to forming an independent commission. The same is true in both heavily blue and heavily red states. Are districts more competitive in states where Democrats draw maps? I don’t think so.
I don’t even know which group you mean, but “my group has good values and motivations, but the enemy group just values winning at any cost” is exactly what a total partisan who values winning at any cost would say.
The evidence is that independent commissions drawing maps makes for more competitive districts. Which party is most opposed to such commissions? Which party is gleefully dismantling all accountability and oversight positions and departments? Which party is openly inviting corruption and pardoning those they should be prosecuting?
I wonder why one party would be seeking to change a civil service that’s 90% staffed by members of the other party? I guess “democracy” means Democrats running the country no matter who wins the election, right?
First, your stats are wild. Please provide and unbiased citation.
Second, your solution was in place in the 1800s and was referred to as the spoils system. It led to bad outcomes and was rightfully abandoned. Your beef is with the fact that educated people tend to choose policies that you don't like (assuming your 90/10 split, which is still wild). You/the GOP have three options. First is to recognize that the policies pursued do not attract people which education (which I consider a red flag). Second is to re-adopt the spoils system despite it being illegal, and frankly just sort of dumb since when the other side is in power you suffee, but at least then you never need to think deeply about making policy for the whole country instead of a subset of supporters. Third, you/the GOP self-own via tearing up all the intellectual capital and international good will built up over the decades without a replacement, massively reducing American influence on the world in all dimensions.
OP asserts this unsource. While it does seem to tilt towards Democrats since it is ethics and mission oriented and typically requires a degree, 90/10 sounds wild in my experience.
My prior is based on experience. Most of the civilian govies are centrist, "I just want to grill" types.
That makes sense to me. This is why I suspected that attempting to claim the election was stolen would be a losing proposition; I was sadly surprised to the contrary.
Elections are run by Republicans as well as Democrats. In fact several of the key locations that Trump claimed were stealing the election from him were basically locations where the Republican party had a lock on the administration of the election. As I remind people often, when they talk about someone stealing the election, that's not a hypothetical "someone," that's Betty three houses down that has the nice flower garden and organizes the bake sale at church every month.
Providing spoilers was the explicitly designed purpose of the US Senate. It's not a one-sided problem - Senate spoilers are also why the Affordable Care Act didn't get repealed in 2017.
US Senator was an office initially designed to be selected by state legislatures rather than by direct popular election like the representatives. To a populist or a party boss, that might count as a spoiler to the will of the people or to the will of those in DC, or to both. But I may misinterpret GP's point.
I assume the person you're replying to is talking about the Filibuster and supermajority requirements not the direct election history. The filibuster is a senate rule not a constitutional design, so it wasn't part of the "design". Maybe they're both different ways of adding veto points to the same effect, but I think spoilers as "explicit design" is probably not how I'd describe it.
Not parent but the founders were like folks writing smart contract code, thinking about various exploits and vulnerabilities (that might reduce the wealth of their class) so many of the seemingly dysfunctional elements of the system turn out to be designed deliberately to be dysfunctional. Feature not bug.
They were not thinking about various exploits and vulnerabilities but rather making whatever compromises were necessary in order to form the union. It was negotiation, not planning.
No, this is a misunderstanding of the kind of taxation policy progressives tend to favor. Taxation on profit for businesses should be high, and taxation on upper tiers of individual income should be high, but taxation on funds businesses use to reinvest should be exempted or deductable. Basically the taxation we had in place after WW2 and on, with a steep corporate tax rate and more or less a maximum income for individuals. The R&D exemption removed in the 2017 bill, and discussed in the article, is key to that, because it encourages corporations to reinvest their income in building new products and paying workers rather than taking it directly as profit-- after all, at least they could reap the rewards (in growth and revenue) of the R&D later, instead of just giving the money to the government as taxes.
At first glance I support ... "social and economic equality" and "reforms to improve human conditions, combat corruption, and reduce inequality". Am I progressive?
If you ask me "should corporations pay more taxes?" I will say, yes. Famously so does Warren Buffet, is he also a progressive?
If you ask me, "hey should we gut tax incentives for R&D spending in the USA?" I will say, uhhh no? probably a bad choice?
Recently the progressives have latched on to culture war agendas against the wealthy, educated, white, male, straight and/or over the age of 35 crowd.
In other words, they have a popular agenda, but are political morons that are going to eventually wonder why they can’t break out of solidly blue districts.
I think that is a misrepresentation of the fundamental progressive position, which is to make progress but never at the cost of the marginalized. Because we historically make most progress at the cost of the marginalized it can feel limiting or even discriminatory when we make sure they don’t beat the brunt of continued progress.
There is nothing against the group you mention except that it might be the group that most fights against progress toward equality.
> I think that is a misrepresentation of the fundamental progressive position, which is to make progress but never at the cost of the marginalized.
That just means that the marginalized become an anchor preventing progress. We can’t have nice things until we solve the problems of the bottom quantile—which we never will.
If progressives had been in charge, America and everything it created wouldn’t exist. They never would have allowed us to displace the Indian tribes so the land could be put to better use.
What do you think is the best way to turn tables around and ensure that the marginalized are a net positive for progress? Perhaps we should reintroduce slavery? Or do you think that turning them into food or fertilizer would have more net benefit?
“That just means that the marginalized become an anchor preventing progress.”
And that’s the difference. Progressives view it as important that we progress all groups and that challenge is fundamental to society, whereas you view them as an anchor.
Progressives have been in charge, over and over again. You're discounting America starting from what is, by modern standards, a very regressive position.
Was the end of slavery a progressive or regressive move?
But this doesn't raise taxes on rich tech companies, it effectively does the opposite - the tax burden is proportionally lower the larger/more successful the tech company is.
Therefore, even by your own admission, this isn't progressive policy.
This tax is far more consequential for small companies than for large ones. It probably actually benefits larger companies because it hobbles competition.
This time bomb was created because the bill slashed the corporate tax rate from 35% to 21%. Maintaining the status quo would mean taxing big corporate America more than this bill does.
Why should they? Why did we allow a president to put in tax raise for the future. Replicants were playing politics from the start. Pass a bad bill, and then hope to get about it when the bad parts kick in when the other side woo be in power
If this was passed in 2017 to go into effect during the next presidential term, wouldn't that only work as a time bomb for Biden's presidency if Trump didn't expect to win a second consecutive term?
Given the history of prior presidents winning 2 consecutive terms, it seems like Trump could have reasonably expected a 2022/2023 tax change to be his problem.
if you retain power, you can fix it. the US government currently has the significant problem that one party campaigns on the government being dysfunctional, so they do their best to make it so.
But what would trump have done if he retained the presidency and lost congress? That's also been pretty common over the last few decades if I'm mistaken, a president with one or both sides of Congress is reelected but Congress flips to the opposition party.
> He would do nothing because his supporters believe misinformation and worship him.
Interesting, that hasn't been my experience.
I live in a very red part of the country and most people I know are Trump supporters, including some family members have been very MAGA since 2016.
I've been hearing more and more complaints over missed promises: no Epstein files, raising budgets, RFK is starting to water down his promises, no end to the Ukraine or Gaza wars, etc.
He missed effectively every promise from 2016. Why did these people vote for him 2 more times, especially after an attempted coup? Maybe these "complaints" are just an attempt to dodge personal responsibility for having supported a catastrophe.
Sure you can guess at a person's intentions or reasoning, but my experience here is that there weren't many complaints in the first term for whatever reason and now there are.
I couldn't get inside their head to say why. My read on them is largely that the complaints are legitimate frustrations though. This isn't exactly a part of the country where voters are somewhat evenly split and Trump supports would need to save face or smooth over interpersonal friction by giving a nod to the idea that he may not deliver.
> I've been hearing more and more complaints over missed promises: no Epstein files, raising budgets, RFK is starting to water down his promises, no end to the Ukraine or Gaza wars, etc.
I based my argument on the poll averages as shown below, most are high 40s similar to the past few months. I would think if people were upset about missed promises it would be reflected in these. It's been ~5 months.
You might say people are giving him a chance to implement a plan or that some action would take time therefore they are willing to give a thumbs up for now, hence the polls. The reason I discounted this is because I'm not aware of any plan or current actions by Trump that would reduce prices. The trade wars will either increase prices due to tariffs or increase prices if products are made in the US.*1
I believe you but maybe float a question to your neighbors - "If prices don't come down would you vote Democrat in 2027?"
Political polls are extremely misleading. Ask someone if they still agree with a decision they already made, they will more often than not find a reason to say yes.
> I believe you but maybe float a question to your neighbors - "If prices don't come down would you vote Democrat in 2027?"
The fact that you're assuming people should align with one party or the other is the problem.
Who gives a shit what letter is next to a candidates name? What matters is what the candidate stands for, what matters to them, and whether you believe they'll stuck to their guns when the political machine that is DC fights back.
You have to be fair though, politicians always blame someone else and its usually the last person that was in charge.
How often do you hear any one politician claim the glory of a situation that they had nothing to do with? And when was the last time you actually heard a politician own their failing or apologize?
> You have to be fair though, politicians always blame someone else and its usually the last person that was in charge.
I don't think this is a reasonable or informed take. It's quite obvious that the tarrif lunacy is single handedly causing an economic downturn. Trump himself has downplayed the relevance of this downturn with inane comments over how tarrifs would also be painful to the US economy. If you see a politician like Trump claiming both that tarrifs will be painful to the US and that the economic pain caused by Trump's tarrifs is blamed on whoever was there before him, you need to be massively disingenuous or naive to claim that "politicians always blame both sides". There is nothing normal about Trump's actions.
My claim wasn't whether trump is responsible, of course his tariffs are having a very real impact. My point was that one should never expect a politician to admit that, at best they dodge claiming responsibility but more often than not they point at someone else, often the last person in office.
If you'd like to say my claim is uninformed that's fine, but I ask again for examples when a politician directly owned their failure or apologized for it.
Trump blaming predecessors for the problems created by his tarrifs policy goes way beyond your run-of-the-mill predecessor blaming. Trump is simultaneously warning his tarrifs policy will cause economic damage and that the economic damage created by his policies were caused by someone else.
To be clear, this is the quote that article references.
> “WILL THERE BE SOME PAIN? YES, MAYBE (AND MAYBE NOT!),” Trump said in a social media post. “BUT WE WILL MAKE AMERICA GREAT AGAIN, AND IT WILL ALL BE WORTH THE PRICE THAT MUST BE PAID.”
That doesn't read to me as Trump claiming responsibility for any pain that we might see, and it isn't an apology. Even better, he ultimately doubles down on the tariffs and claims the end result will be worth any of the pain that he doesn't directly acknowledge he will have caused.
In 2024 two bills (merged later) went through the Republican controlled House with a bipartisan vote (350+ for) [1] then the Democrat controlled Senate [2] with another bipartisan vote (79-18, attached to an Israeli funding bill) basically following whatTrump wanted.
Late 2024 - Trump then offered to save the service when the Public turned against the ban and used it as a campaign item.
2025 - His supporters were all over Tiktok praising him, including the CEO of Tiktok when he put a pause on the required sale. He's also extended the deadline multiple times now.
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Republicans might start using this tactic more now that it's been shown to work. It's similar to the "Fuck the next admin" tax bill that he put in his first term.
This civic control correlation can simply have more to do with the most-white-supremacist Democrats switching to the GOP en masse and also simultaneously leaving multiethnic cities and school districts en masse after the 1960s. That self-selection left Republicans not a competitive amount of credibility or voter pool behind to work with. Your implication that policy dysfunction has ensued on that account rather than because of fiscal drain -- that's a separate topic. Individual states and individual cities have too many fiscal policy similarities and differences, overlapping, to responsibly compare in any online discussion.
> New York is a better governed state than Florida
Yes, New York is significantly more successful than Florida in almost every way: Better education, better healthcare, longer life expectancy, less pollution, lower crime, more productivity, higher wages, more amenities, better transportation infrastructure, less poverty, happier residents, and so on.
> So by your logic New York is a better governed state than Florida? Net internal migration would seem to disagree.
Yes, and it's not even close. Choose just about any metric and NY is running laps around Florida.
And, not just Florida, but red states in general. If you look at the metrics, they typically are some of the poorest states with the worst outcomes. Bad infrastructure, bad education, not a lot of job opportunities, horribly impoverished, under-developed.
It's just that nobody cares. Nobody expects Louisiana or Florida to be decent places to live. But since California is the economic powerhouse of the US, people do expect it to be decent. That's the issue, the blue states are essentially carrying the economy of everything else on their back, so they now get a new, unfair set of standards.
I think quality of governance is a major reason, yes. When my parents immigrated to this country, they moved to a deep red state (Virginia) instead of the deep blue state next door (Maryland). Why? A focus on good schools, low crime, and low taxes, instead of a focus on economic redistribution.
I may have misunderstood, when you said internal migration in the earlier comment I assumed that was referring to people moving from one state to another rather than immigrating from another country.
> A focus on good schools, low crime, and low taxes, instead of a focus on economic redistribution.
That's also interesting. I wouldn't have rolled that up to quality of governance, but I could see why you would. To me that falls more into a sign of long standing culture, I could see a place with existing policies that match now having a terrible administration in charge.
> may have misunderstood, when you said internal migration in the earlier comment I assumed that was referring to people moving from one state to another rather than immigrating from another country.
I was just giving an example—people moving within the U.S. make the same choice. When I was growing up, Virginia was like Florida is today: a red state with a booming economy, low taxes, and a good business climate. Why did AOL start in the farmland of Loudon County instead of the farmland of eastern PG County (which is closer to DC)?
> That's also interesting. I wouldn't have rolled that up to quality of governance, but I could see why you would.
It’s a cultural trait that strongly affects governance. The government can focus its energies on making things better for middle class people and businesses, as Virginia long did, or it can focus on poor people and minorities, as Maryland long did. And the resulting differences in governance are quite apparent. Virginia has better schools, ore employment, and has grown faster than Maryland over the last 50 years.
... because nobody moves to Florida for (what they perceive of) the weather, right? Especially not retirees tired of the idea of one more winter in NY.
A government that runs the richest city in the country (SF trades this spot with NY every few years) and makes it look the way it does is the definition of dysfunction.
And Detroit... well, I guess now that they've bulldozed all the abandoned buildings it looks less like a post apocalyptic hellscape and more just abandoned. An improvement I suppose.
California also has easily solvable housing, education, transportation and mental health crises that are entirely driven by mismanagement by the state government. They haven’t done anything meaningful to address these issues in 25-40 years depending on the issue.
Heck, they ignored the water crisis for twenty years, and what they’re doing now for aquifer replenishment is still less than what makes sense.
I say they are easily addressed because simply reverting to California’s policies from ~ 1975 would greatly improve the current situation.
The biggest root problem with California governmental structure is harmful constitutional features added by public referendum, especially Proposition 13 (1978). I guess you can blame "government" for that, but it doesn't seem like quite the right target.
The water crisis is a difficult problem because water rights are complicated and central valley farmers are an influential political group very focused on short-term preservation of water access and not as concerned with long-term sustainability.
> easily solvable housing, education, transportation and mental health crises
I submit that these are much less "easily solvable" than you claim. (What have you personally done to work on these problems, if they are so "easy"?) Legislators don't get to wave a magic wand, but need support of a wide variety of stakeholders who have contradictory demands and expectations (some of which are fairly unrealistic, but anyway..).
Education for example has competing goals of local funding vs. inter-city equity. Should the wealthiest towns get to spend arbitrarily much local property tax money on their own children's public schools while the poorer town next door is running out of toilet paper, or should the state try to equalize funding between schools to give every child the best opportunity? There's not really a "correct" answer to this, and every possible choice has some serious disadvantages.
You know, I wonder if that's a sad but valuable trait for a politician.
Public opinion can change daily, and external events can appear with no warning. These things can make a prior path of action vanish, or even make it madness to pursue.
If you try to plan everything long term, I bet you hit a lot of disappoint as a politician. If you only see today, then you're not fighting for things that are now not possible.
I imagine one would be far less stressed as a result. And maybe more popular than otherwise.
Some problems require years or even decades to address. Consider how quickly a COVID vaccine was developed, yet it depended upon many years of quietly studying SARS and R&D around MRNA. Or consider trying to address developing or maintaining infrastructure.
A chaotic politican whose mind is changed by the last person they spoke with won't do well facing serious long term problems.
It gets worse if the only things they consistently stand for is their own power, personal wealth, their sycophants, and their grade-school-level (mis)understanding of complex matters.
He seems to care immensely about being viewed as the "winner" and the "best" at everything.
I also have to assume that anyone interested in slapping their name in big gold letters on as many buildings as possible is interested in the perception of legacy.
This is just wrong. It was passed in 2017 (during Trump’s presidency). It was to go into effect in 2020 (a presidential election year during Trump’s presidency). He hoped to be re-elected.
No. It went into effect in 2022 [0], which means the timeline absolutely does track with OP's theory. That gives a hypothetical Trump term 2 a full year to fix it but also imposes enough of a time crunch that they could plan on sabotaging attempts to fix it by another party.
I'm not saying it's the actual story, but the timeline does track.
I don’t think it really changes the narrative. 2020 was also a congressional election year, even had Trump won (as he appeared to want desperately) he could not have been assured of a Republican congress.
My argument is simple: Occam’s Razor
The Republicans in congress put the provision in solely as a gimmick to get past the CBO.
Frankly I don’t think legislators in either party are competent enough to have foreseen the consequences and even if they had been they wouldn’t have put a bomb like this in that would be more likely than not to backfire and affect them.
I just think that too often people interpret incompetence as malice, especially nowadays when things are so polarized that it’s fashionable to hate people who differ with one’s political opinions.
I think you’re wrong that legislators are incompetent. They’re human, and they’ve spent much of their lives learning how to get votes, but they’re not incompetent. A lot of them aren’t malicious, but there seems to be a small group of people outside of the legislative branch who are hell bent on taking control at all costs. And if you want to keep the votes rolling in you have to work with those people or get primaried. The dysfunction follows from fear more than incompetence these days.
I think legislators are skilled politicians and many are lawyers of varying competence. I would not expect them to deeply understand the negative downstream economic consequences of changing an obscure provision of the tax code. Maybe some of them could but would those have even been in the room? I get the impression most legislation is written by staffers (polysci or lawyers) and particularly spending legislation is tightly controlled in committee; only a handful of lawmakers ever saw the actual legislation before it was passed.
In general, the tax code does not provide immediate deductions for purchase of assets that generate recurring income. Instead, the cost of the asset must be depreciated over time. The provision you point to excludes land, physical property, and software from treatment as R&D expenditures. Because all of those things generate recurring revenue over time. It’s specifically listed in that statute, but it’s not treated as a “special case.”
E.g. If a whiskey maker pays to build a distillation system, it can’t deduct that cost immediately. Because that’s a capital asset that generates recurring revenue. Software is properly treated the same way.
Historically, Section 174 allowed everyone to opt in or out of R&D amortization. That amortization is required from anyone for R&D is new.
Further, software is the only type of R&D explicitly called out as required to count as R&D. Which means it should be taken as a given that most other industries are finding ways to count their R&D as anything else, while we've been intentionally given the short straw for some reason by having our specific field be the only one identified by name so as to leave no wiggle room. I'd say that definitely counts as being a special case. The section is even labeled "Special Rules".
The most important bits:
* Subsection (a) requires amortizing "Specified research or experimental expenditures" over 5 years (paragraph (2)) instead of deducting them (paragraph (1))
* Paragraph (c)(3) is a Special Rule that requires that all software development expenses be counted as a "research or experimental expenditure".
That's it. All software expenses must be treated as research and experimental expenses, and no research and experimental expense can be deducted instead of amortized. Ergo, all software expenses must be amortized over 5 years.
I strongly recommend reading the section before forming an opinion. It really is quite unambiguous and is unambiguously bad for anyone who builds software and especially for companies that aren't yet thoroughly established in their space (i.e. startups).
Also note that this makes Software a special case of R&D. It's the only form of R&D that Section 174 requires you to categorize as such and therefore amortize.
[0] https://www.law.cornell.edu/uscode/text/26/174