Published On: January 18th, 2023|By |Categories: RSM, Article, Tax|4.5 min read|

TAX ALERT | January 18, 2023

Executive summary

Rev. Proc. 2023-11 modifies and supersedes Rev. Proc. 2023-8 by denying audit protection to taxpayers that wait until 2023 to implement new capitalization rules under section 174. All other procedural rules governing implementation remain unchanged.

IRS updates method change procedures for section 174 R&E expenses

The Tax Cuts and Jobs Act (TCJA) amended section 174 of the Code to require capitalization of specified research and experimental (R&E) expenses (new section 174). Under new section 174, specified R&E expenses must be capitalized and amortized over a 5 or 15-year period (depending on where the research takes place), beginning in the year the expenses are paid or incurred. Further, software development costs are treated as specified R&E expenses. This treatment is in stark contrast to the favorable treatment provided prior to amendments by the TCJA, pursuant to which a taxpayer could deduct its R&E expenses and software development costs. New section 174 applies to specified R&E expenses paid or incurred in taxable years beginning after Dec. 31, 2021.

On Dec. 12, 2022, the IRS released Rev. Proc. 2023-8, providing procedural guidance necessary to implement new section 174 (see the prior alert for a detailed discussion of Rev. Proc. 2023-8: IRS issues method change procedures for sec. 174 R&E expenditures). On Dec. 29, 2022, the IRS released Rev. Proc. 2023-11, modifying and superseding Rev. Proc. 2023-8. The general procedures for implementing new section 174 remains largely the same as those provided by Rev. Proc. 2023-8; however, Rev. Proc. 2023-11 eliminates audit protection for taxpayers that wait until their 2023 tax year to implement the new capitalization rules. Specifically, a taxpayer that implements new section 174 in the year subsequent to the first year the new rules apply (i.e., 2023 for a calendar year taxpayer) will not receive audit protection for its prior-year treatment of specified R&E expenditures. Under both revenue procedures, regardless of when a taxpayer implements new section 174, no audit protection is granted for tax years beginning before 2022. Thus, the new revenue procedure primarily takes away the ability of a late adopter of new section 174 to protect any previous, improper deduction of specified R&E expenses.

Rev. Proc. 2023-11 restricts the more favorable terms and conditions generally applicable to voluntary changes in accounting methods and reflects a stricter approach to ensuring that taxpayers implement new section 174 in the first year the rules become effective.

Do you have questions or want to talk?

Call us at (800) 232-9547 or fill out the form below and we’ll contact you to discuss your specific situation.

  • Topic Name:
  • Should be Empty:

This article was written by Christian Wood, Justin Silva, Kate Abdoo and originally appeared on 2023-01-18.
2022 RSM US LLP. All rights reserved.

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.


Insero & Co. CPAs, LLP is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how Insero & Co. CPAs can assist you, please call (800) 232-9547.



Join our mailing list for insights and tools to help you achieve your goals delivered right to your inbox.