Here is an interesting one. Congress in its infinite wisdom allowed expensing of Sec. 174 research and development expenditures to sunset, and now we capitalize and amortize the expenditures. Suppose Partnership Big Ideas has a Sec. 162 trade or business whilst conducting big R&D Projects A, B, and C.
First question, does the capitalized R&D "attach" to the basis of the assets involved in Projects A, B, and C, or, does the capitalized R&D kind of float along like a tax ghost, with its own existence separate and apart from the assets?
If Partnership sells all of the rights to Project A, what happens to the associated capitalized R&D?
If Partnership completely redeems one of the partners and distributes project B to the departing partner, what happens to the associated capitalized R&D?
If Partnership decides Project C is a dog and abandons the project entirely, what happens to the associated capitalized R&D?
If Partnership does a Sec. 708 "merger" and is the partnership that goes out of existence, what happens to the capitalized R&D?
Treasury and IRS have many of the country's top legal minds in their ranks, and their interim guidance on these issues in IRS Notice 2023-63 may surprise you.
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