The One Big Beautiful Bill Act was just passed in the House by a vote of 215-214. There are two provisions that I want to provide my impressions upon.
The first provision deals with amortization of research expenditures under IRC Section 174. The second provision addresses contingent fees for services.
Section 174: Temporary Relief for Domestic Research
Section 174 was modified as of tax year 2022 to require the amortization of both domestic and foreign research expenditures; specifically, five-year amortization for domestic expenditures and fifteen-year amortization for foreign expenditures. If you are at all familiar with the topic, you will know that this hit virtually every company that performed research and development in any fashion extremely hard in the pocketbook. There has been hope for a fix each year, and each year it has fallen short. Now, the One Big Beautiful Bill Act would modify the IRC to allow immediate deductions of domestic (not foreign) research expenditures beginning with the 2025 tax year through the 2029 tax year. Essentially, we are getting a temporary fix for domestic expenditures. This is a very good thing and a step in the right direction.
However, this modification does not account for the 2022-2024 tax years for research amortization. A key point is that if your company has not amortized your research expenditures for 2022-2024, then time is limited (assuming you extended) to get this fixed and in compliance. Further, foreign research amortization continues under this bill, so 174 amortization is not going completely away.
As far as the 2030 tax year goes, we will have to hope and see if the temporary fix gets extended or even made permanent.
How Contingent Fees Level the Playing Field
In late December of 2024, the Treasury Department issued Proposed Regulations for Circular 230 that, among other things, would essentially ban contingent fees for just about any item brought in relation to a tax return. As justification, the Treasury Department stated in the Proposed Regulations that contingent fee arrangements for services in connection with preparing an original tax return, amended tax return, or claim for refund or credit constitute disreputable conduct and would be subject to sanction. See https://www.federalregister.gov/d/2024-29371/p-15 (emphasis added). Needless to say, this is quite harsh.
This prohibition is less than ideal as it prevents taxpayers from accessing providers that they could not otherwise afford due to significant upfront and ongoing fees. We just need to look in the legal arena to see how contingent fees have evened the playing field so that David could take on Goliath. The language in the Proposed Regulations would affect not just tax attorneys, but CPAs, EAs, and other providers.
Fortunately, the House of Representatives agrees with me and has exclaimed this emphatically by supporting and passing the One Big Beautiful Bill Act, which contains a provision that would ban the Treasury Department from regulating, prohibiting, or restricting the use of contingent fees. This is a win for all taxpayers as they would be able to work with their tax professional in the way that makes sense for them and/or their business – whether that be a true contingent fee, a fixed fee, or something in between.
What to Look for Next
The One Big Beautiful Bill Act next heads to the Senate for reconciliation. We will have to see what changes they will make to the Act. However, in regard to IRC Section 174, I do not anticipate changes as the “fix” has always had bipartisan support; there have just been other political issues keeping it from passing. The contingent fee language is new, and I hope it is not a big deal for the Senate. Both of these are wins for taxpayers, and everyone who votes for it can claim credit.
The Trump Administration is pushing to have the One Big Beautiful Bill Act reconciled and passed by July 4. Time will tell if they can make it happen by then. However, I am hopeful we will get something passed by that date.
