For costs to be deemed eligible under Section 174, there must be uncertainty and costs incident to or resulting from development before that uncertainty is eliminated. Though not an exhaustive list, the IRS considers the following to be costs incurred incident to the R&E activities:
- Heat, light, and power
- Laboratory materials
- Attorneys’ fees
- Depreciation on build attributable to the R&E project
Costs excluded from Section 174 include:
- Ordinary testing
- Efficiency surveys, managerial studies, customer surveys
- Advertising or promotion
- Acquisition of patent, model, production or process
- Research related to literary, historical, or similar projects
Please contact the MASSIE team if you want to discuss this topic further or require assistance with your calculations.
Disclaimer: The information above is subject to change, as the IRS may implement additional guidelines in the future.
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