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.
This hurts small companies (like mine) that were priced out of the US developer market.