Rev. Rul. 68-144, 1968-1 C.B. 85

Where a taxpayer had elected to currently expense all research and experimental expenditures with the exception of those on particular projects to which the deferred expense method was elected, it cannot in a later taxable year elect the deferred expense method on new projects unless permission is granted by the Commissioner.

Rev. Rul. 68-144

Advice is requested as to the proper treatment for Federal income tax purposes of the research and experimental expenditures under the circumstances described below.


A taxpayer had properly elected to currently expense all research and experimental expenditures with the exception of those on two particular projects relating to new product development as to which the deferred expense method was elected. In a later taxable year the taxpayer undertook new research projects relating to new product development and in its return included a written statement described as an “election” to use the deferred expense method for these new projects. The question is whether taxpayer’s initial election to use the deferred expense method as to two projects relating to new product development entitled it to use the deferred expense method as to all research and experimental expenditures relating to new product development without the Commissioner’s consent.

Section 1.174-3(a) of the Income Tax Regulations provides in part that if the method of currently expensing research and experimental expenditures is adopted it shall apply to all such “* * * expenditures paid or incurred in the taxable year of adoption and all subsequent taxable years, unless a different method is authorized by the commissioner * * * with respect to part or all of the expenditures. * * *. Thus, if a change to the deferred expense method * * * is authorized by the Commissioner with respect to research or experimental expenditures attributable to a particular project or projects, the taxpayer, for the taxable year of the change and for subsequent taxable years, must apply the deferred expense method to all such expenditures paid or incurred during any of those taxable years in connection with the particular project or projects, even though all other research and experimental expenditures are required to be deducted as current expenses * * *” (emphasis added). Section 1.174-4(a) of the regulations provides that if a taxpayer has adopted the method of treating such expenditures as expenses he may not elect to defer any such expenditures unless permission to do so is granted by the Commissioner.

Accordingly, in the present case, where the taxpayer originally elected to expense all research and experimental expenses except as to two particular projects, if it desired to use the deferred expense method for any subsequent project or projects, permission of the Commissioner is necessary. Because the taxpayer did not receive permission to use the deferred expense method in the taxable year in which the new projects were undertaken, the “election” as to the new projects is improper and the expenses attributable to the new projects should be currently deducted in the taxable year paid or incurred.