On June 13, the United States House Committee on Ways and Means, the chief tax-writing committee in the House of Representatives, passed the Build It in America Act (H.R. 3938). According to the Ways and Means Committee, this legislation would "counter China's growing global economic influence by restoring American business competitiveness, securing global supply chains, and prohibiting U.S. foreign land sales to companies from countries of concern."

While this bill, proposed by a Republican majority Committee, may pass through the Republican-controlled House, it may be unlikely to pass through a Democrat-controlled Senate, but it does shed light on which tax changes will be battlegrounds for Democrats and Republicans.

Research and Development Expenditures Effects of the Build It in America Act

Relevant to the accounting and tax world, one of the key takeaways from the Build It in America Act is the restoration of the ability for companies to immediately deduct research and development costs, rather than amortize them over five years.

The ability was granted by Section 174 of the Internal Revenue Code in 1954, which was designed to "eliminate uncertainty in the tax accounting treatment of research and experimental expenditures and to encourage taxpayers to carry on research and experimentation."

In recent years, Section 174 has gone on a confusing and aimless journey of being potentially amended, then potentially unamended, to being restored to its original form by the Build It in America Act.

Prior to 2022, Section 174 gave companies two options regarding the treatment of research and experimental expenditures:

• Deduct research and experimental expenditures in the year incurred.
• Capitalize and amortize the expenditures over five years (or 15 years if those expenditures are attributed to foreign research).

The Tax Cuts and Jobs Act of 2017 "TCJA" planned to amend Section 174 to eliminate the first option, leaving businesses the sole option to expense their research and development expenses over five years.

Now, with the Build It in America Act, businesses would be able to once again immediately deduct research and development costs, rather than spread them out over 5 to 15 years. For now.

Repeal of Clean Energy Provisions

Another aim of the Build It in America Act is to repeal tax credits for clean energy included in the Inflation Reduction Act. Some of the provisions to be repealed named in the legislation include:

• Clean electricity production credit
• Clean electricity investment credit
• Modification of clean vehicle credit
• Previously owned clean vehicle credit
• Qualified commercial clean vehicle credit

These credits make clean energy more affordable by crediting Americans when investing in clean energy, but the Houses and Ways Committee argues that these "tax credits are for luxury electric vehicles purchased by the wealthy and benefit a hand-picked group."

Extension of Business Interest and Bonus Depreciation

The act would retroactively extend the preferable rules for business interest deductibility under sec 163(j) by allowing the add-back of depreciation, amortization, or depletion deductions in determining adjusted taxable income or ATI used in the business interest deduction limitation calculation. Essentially using EBITDA in the calculation versus EBIT which limits interest deductions, hence the term "EBIT limitation".

Also, the legislation would restore the 100% bonus depreciation option under Section 168(k) for three years through 2025 making qualified property eligible for immediate 100% expensing. Without this provision, the property would only be eligible for 80 percent bonus depreciation expensing in 2023; 60% in 2024; 40% in 2025 and 20% in 2026.

The Houses and Ways Committee asserts "These extensions will help ensure that the United States is a competitive location to hire, invest, and grow for manufacturing, energy production, and other critical industries and that businesses are incentivized to re-shore their operations and facilities from China back to the United States."

Overall, many of the changes proposed in the Build It in America Act take aim at provisions included in the Inflation Reduction Act of 2022. And to restore With a Senate controlled by a Democrat majority, who helped to pass the Inflation Reduction Act, it may be unlikely that the legislation will pass in its current form.

For more information on how tax changes may affect your business keep following our blog and be sure to reach out to the MRPR team for consultation on accounting services such as attest, tax compliance, advisory and wealth management, and more.