It's pretty bad.
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).
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).