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Changes to Internal Revenue Code on R&D Expenses (Section 174)

The Tax Cuts and Jobs Act of 2017 included major changes to section 174 of the Internal Revenue Code to take effect in 2022. These changes require businesses to amortize R&D expenses over a five-year period instead of deducting them in the year they were incurred. The NIH recognizes this change may negatively impact some small businesses.

Small businesses that receive SBIR or STTR funding should seek guidance from the IRS or a trusted tax advisor on how this change may affect them. NIH staff cannot provide tax guidance.

Note: Federal income/excess profits taxes are strictly not allowable charges to NIH awards, either as direct or indirect costs. (see FAR 48 CFR 31.205-41).

SBIR and STTR application budgets may include a  “fee” that may be used by the small business for any purpose, including payment for a tax liability. See the NIH GPS Section “Profit or Fee” for more information. 

View additional Frequently Asked Questions (FAQs) on SBIR and STTR budgets.

Date Posted:
March 17, 2023