
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC174]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
               Subchapter B--Computation of Taxable Income
 
      PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
 
Sec. 174. Research and experimental expenditures


(a) Treatment as expenses

                           (1) In general

        A taxpayer may treat research or experimental expenditures which 
    are paid or incurred by him during the taxable year in connection 
    with his trade or business as expenses which are not chargeable to 
    capital account. The expenditures so treated shall be allowed as a 
    deduction.

                   (2) When method may be adopted

        (A) Without consent

            A taxpayer may, without the consent of the Secretary, adopt 
        the method provided in this subsection for his first taxable 
        year--
                (i) which begins after December 31, 1953, and ends after 
            August 16, 1954, and
                (ii) for which expenditures described in paragraph (1) 
            are paid or incurred.

        (B) With consent

            A taxpayer may, with the consent of the Secretary, adopt at 
        any time the method provided in this subsection.

                              (3) Scope

        The method adopted under this subsection shall apply to all 
    expenditures described in paragraph (1). The method adopted shall be 
    adhered to in computing taxable income for the taxable year and for 
    all subsequent taxable years unless, with the approval of the 
    Secretary, a change to a different method is authorized with respect 
    to part or all of such expenditures.

(b) Amortization of certain research and experimental expenditures

                           (1) In general

        At the election of the taxpayer, made in accordance with 
    regulations prescribed by the Secretary, research or experimental 
    expenditures which are--
            (A) paid or incurred by the taxpayer in connection with his 
        trade or business,
            (B) not treated as expenses under subsection (a), and
            (C) chargeable to capital account but not chargeable to 
        property of a character which is subject to the allowance under 
        section 167 (relating to allowance for depreciation, etc.) or 
        section 611 (relating to allowance for depletion),

    may be treated as deferred expenses. In computing taxable income, 
    such deferred expenses shall be allowed as a deduction ratably over 
    such period of not less than 60 months as may be selected by the 
    taxpayer (beginning with the month in which the taxpayer first 
    realizes benefits from such expenditures). Such deferred expenses 
    are expenditures properly chargeable to capital account for purposes 
    of section 1016(a)(1) (relating to adjustments to basis of 
    property).

                 (2) Time for and scope of election

        The election provided by paragraph (1) may be made for any 
    taxable year beginning after December 31, 1953, but only if made not 
    later than the time prescribed by law for filing the return for such 
    taxable year (including extensions thereof). The method so elected, 
    and the period selected by the taxpayer, shall be adhered to in 
    computing taxable income for the taxable year for which the election 
    is made and for all subsequent taxable years unless, with the 
    approval of the Secretary, a change to a different method (or to a 
    different period) is authorized with respect to part or all of such 
    expenditures. The election shall not apply to any expenditure paid 
    or incurred during any taxable year before the taxable year for 
    which the taxpayer makes the election.

(c) Land and other property

    This section shall not apply to any expenditure for the acquisition 
or improvement of land, or for the acquisition or improvement of 
property to be used in connection with the research or experimentation 
and of a character which is subject to the allowance under section 167 
(relating to allowance for depreciation, etc.) or section 611 (relating 
to allowance for depletion); but for purposes of this section allowances 
under section 167, and allowances under section 611, shall be considered 
as expenditures.

(d) Exploration expenditures

    This section shall not apply to any expenditure paid or incurred for 
the purpose of ascertaining the existence, location, extent, or quality 
of any deposit of ore or other mineral (including oil and gas).

(e) Only reasonable research expenditures eligible

    This section shall apply to a research or experimental expenditure 
only to the extent that the amount thereof is reasonable under the 
circumstances.

(f) Cross references

            (1) For adjustments to basis of property for amounts allowed 
        as deductions as deferred expenses under subsection (b), see 
        section 1016(a)(14).
            (2) For election of 10-year amortization of expenditures 
        allowable as a deduction under subsection (a), see section 
        59(e).

(Aug. 16, 1954, ch. 736, 68A Stat. 66; Pub. L. 94-455, title XIX, 
Secs. 1901(a)(30), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1769, 1834; 
Pub. L. 97-248, title II, Sec. 201(d)(9)(B) formerly Sec. 201(c)(9)(B), 
Sept. 3, 1982, 96 Stat. 420, renumbered Sec. 201(d)(9)(B), Pub. L. 97-
448, title III, Sec. 306(a)(1)(A)(i), Jan. 12, 1983, 96 Stat. 2400; 
amended Pub. L. 99-514, title VII, Sec. 701(e)(4)(D), Oct. 22, 1986, 100 
Stat. 2343; Pub. L. 100-647, title I, Sec. 1007(g)(5), Nov. 10, 1988, 
102 Stat. 3435; Pub. L. 101-239, title VII, Sec. 7110(d), Dec. 19, 1989, 
103 Stat. 2325.)


                               Amendments

    1989--Subsecs. (e), (f). Pub. L. 101-239 added subsec. (e) and 
redesignated former subsec. (e) as (f).
    1988--Subsec. (e)(2). Pub. L. 100-647 substituted ``section 59(e)'' 
for ``section 59(d)''.
    1986--Subsec. (e)(2). Pub. L. 99-514 substituted ``section 59(d)'' 
for ``section 58(i)''.
    1982--Subsec. (e). Pub. L. 97-248, Sec. 201(d)(9)(B), substituted 
``Cross references'' for ``Cross reference'' in heading, designated 
existing provisions as par. (1), and added par. (2).
    1976--Subsec. (a)(2)(A). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck 
out ``or his delegate'' after ``Secretary''.
    Subsec. (a)(2)(A)(i). Pub. L. 94-455, Sec. 1901(a)(30), substituted 
``August 16, 1954'' for ``the date on which this title is enacted'' 
after ``ends after''.
    Subsecs. (a)(3), (b)(1), (2). Pub. L. 94-455, Sec. 1906(b)(13)(A), 
struck out ``or his delegate'' after ``Secretary''.


                    Effective Date of 1989 Amendment

    Amendment by Pub. L. 101-239 applicable to taxable years beginning 
after Dec. 31, 1989, see section 7110(e) of Pub. L. 101-239, set out as 
a note under section 41 of this title.


                    Effective Date of 1988 Amendment

    Amendment by Pub. L. 100-647 effective, except as otherwise 
provided, as if included in the provision of the Tax Reform Act of 1986, 
Pub. L. 99-514, to which such amendment relates, see section 1019(a) of 
Pub. L. 100-647, set out as a note under section 1 of this title.


                    Effective Date of 1986 Amendment

    Amendment by Pub. L. 99-514 applicable to taxable years beginning 
after Dec. 31, 1986, with certain exceptions and qualifications, see 
section 701(f) of Pub. L. 99-514, set out as an Effective Date note 
under section 55 of this title.


                    Effective Date of 1982 Amendment

    Amendment by Pub. L. 97-248 applicable to taxable years beginning 
after Dec. 31, 1982, see section 201(e)(1) of Pub. L. 97-248, set out as 
a note under section 5 of this title.


  Applicability of Certain Amendments by Pub. L. 99-514 in Relation to 
                   Treaty Obligations of United States

    For applicability of amendment by Pub. L. 99-514 notwithstanding any 
treaty obligation of the United States in effect on Oct. 22, 1986, with 
provision that for such purposes any amendment by title I of Pub. L. 
100-647 be treated as if it had been included in the provision of Pub. 
L. 99-514 to which such amendment relates, see section 1012(aa)(2), (4) 
of Pub. L. 100-647, set out as a note under section 861 of this title.


Allocation or Apportionment to Sources Within United States of Research 
 and Experimental Expenditures Paid or Incurred for Research Activities 
               Conducted in United States; 2-Year Program

    Pub. L. 97-34, title II, Sec. 223(a), Aug. 13, 1981, 95 Stat. 249, 
as amended by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, 
provided that: ``In the case of the taxpayer's first 2 taxable years 
beginning within 2 years after the date of the enactment of this Act 
[Aug. 13, 1981], all research and experimental expenditures (within the 
meaning of section 174 of the Internal Revenue Code of 1986 [formerly 
I.R.C. 1954]) which are paid or incurred in such year for research 
activities conducted in the United States shall be allocated or 
apportioned to sources within the United States.''

                  Section Referred to in Other Sections

    This section is referred to in sections 41, 56, 59, 144, 168, 170, 
195, 263, 263A, 469, 543, 864, 993, 1016, 1202, 1298 of this title.
