Why R&D Tax Changes Are Hurting America’s Biotech Industry
Background
A provision in the 2017 Tax Cuts and Jobs Act (TCJA) changed the way research and development (R&D) investments are taxed and has taken effect for the 2022 tax year. Sec. 174 of TCJA requires research-intensive companies to amortize their R&D expenses over five years, instead of in the year they were incurred. It means that while companies used to be able to deduct 100% of their research and development expenses, they can now only deduct 20% per year (10% in the first year), with the other 80% being treated as taxable income.
Impact
Sec. 174 will severely limit the ability of domestic biotech organizations to sufficiently fund research and development of lifesaving treatments of diseases including Alzheimer’s, Parkinson’s, obesity, cardiovascular diseases and more. As a result, they may halt investments altogether or go abroad. This provision will be particularly devastating for pre-revenue companies that rely on federal grants to fund their R&D. Because they are required to spend the totality of their grants on R&D and have no products on the market, they are left with a hefty tax liability and no revenue stream to pay for it. Many are on the verge of bankruptcy.
How You Can Help
Please reach out to your Senators in Congress to let them know American R&D is at risk and urge them to pass legislation to restore the immediate expensing of R&D expenditures.
Senator Ron Wyden (D-OR) and Representative Jason Smith (R-MO) introduced Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) to address the issue. The bill recently passed the House and must be voted on in the Senate.
How a 2017 IRS tax law could bankrupt small American biotech companies in 2023
Send A Letter Now: Congress must act to support innovation
Urge your Senator to cosponsor the Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) today to protect the domestic development of treatments for Americans.
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