On February 25, 2025, the U.S. House of Representatives narrowly passed House Concurrent Resolution 14 (H.Con.Res.14) by a vote of 217-215. This sets the stage for fiscal policy decisions that could significantly impact federal spending and taxation. As a guiding framework for the U.S. budget over the next decade, the resolution has many implications. One of the most anticipated aspects for businesses and innovators is its potential effect on research and development expenditures, particularly under Section 174 of the Internal Revenue Code. With the future of R&D tax treatment up for debate, the resolution marks a crucial moment for companies investing in innovation.
Summary of House Concurrent Resolution 14 (H.Con.Res.14)
H.Con.Res.14 serves as a fiscal blueprint, guiding federal revenue and expenditure decisions over the next 10 years. Key points include:
- ○ Budget Framework: Specifies recommended federal revenue levels across various government functions.
- ○ Reconciliation Instructions: Requires the named subcommittees to propose law changes to meet targeted adjustments by March 27, 2025.
- ○ Reserve Fund and Deficit Adjustments: Allows budgetary adjustments if deficit reduction targets of at least $2 trillion are not met.
- Policy Statements
- ○ Economic Growth: Advocates for free-market policies, reduced federal spending, increased American energy production, lowered taxes, deregulation, and an enhanced job market to promote GDP growth and reduce deficits.
- ○ Mandatory Spending Reduction: Aims to reduce mandatory spending by $2 trillion over the budget window, addressing concerns over rising national debt
- ○ Government Deregulation: Promotes relieving regulatory burdens and reducing government bureaucracy
- ○ Budget Enforcement Procedures: Establishes processes for enforcing budget rules in the House of Representatives including how they are treating administrative expenses.
R&D and Section 174 Implications
One main aspect of H.Con.Res.14 is its potential impact on R&D expenditures, specifically regarding the treatment of Section 174. As of January 1, 2022, businesses have been required to amortize and capitalize research expenditures as opposed to expensing them immediately. This is a change that is raising major concerns within the innovation industry as it has disincentivized domestic R&D expenditures.
This budget resolution provides a pathway to address this issue as it enables potential legislative action to reverse the amortization requirement. This allows for the immediate expensing of R&D costs like pre 2022. This move would align with the interests of businesses advocating for a more favorable tax treatment of R&D expenditures. It would further incentivize investing in domestic innovation.
Next Steps for Section 174
While the repeal of Section 174 amortization is feasible in theory, it is far from set in stone. With the House’s approval, H.Con.Res.14 advances to the Senate for consideration. The Senate has the ability to adopt the resolution as is, amend it, or propose an entirely different one. If the Senate proposes its own version, any variances between the House and Senate resolutions would need to be reconciled. Once a resolution has approval, it will guide further legislative actions, including hopeful modifications to Section 174.
How to Remain Updated
Our team of Technical and tax experts are constantly staying on top of this everchanging world. To best help plan for your future, allow Leyton to help you! Simply book a meeting with us, let us look into the potential for the R&D Tax Credit for you, and help you navigate these unpredictable waters.
