Rev. Rul. 58-74, 1958-1 C.B. 148

Rev. Rul. 58-74

The deduction by a taxpayer of research or experimental expenditures on his income tax return for his first taxable year beginning after December 31, 1953, and ending after August 16, 1954, in which he pays or incurs research or experimental expenditures constitutes the adoption of the expense method provided by section 174(a) of the Internal Revenue Code of 1954, pursuant to the provisions of section 1.174(b)(1) of the Income Tax Regulations. The expense method of treating research or experimental expenditures so adopted is binding and is inclusive of all such expenditures as to the project or projects involved for the taxable year adopted and for all subsequent taxable years, until a change to another method is properly effected. Section 1.174-3(a) of the Income Tax Regulations.

If the taxpayer has adopted the expense method but has failed to include expenses relative to cost of obtaining a patent, such as attorneys’ fees expended in making and perfecting a patent application, or other items of research or experimental expense in such deduction for prior taxable years to which the expense method is applicable (see section 1.174-3(b) of the Income Tax Regulations), he should file a timely claim (Form 843) or amended return and claim the additional research or experimental expenses for the year or years in which they were omitted. Since adoption of the expense method cannot be changed without the Commissioner’s consent, such additional expenses cannot be treated under section 174(b) or capitalized and subsequently amortized or written off upon abandonment of the project or projects, and the deduction thereof in taxable years closed by the statute of limitations will be lost if claims or amended returns are not timely filed.