ment of the taxpayer is deemed to be 

 a current cost and to capitalize the 

 remainder as deferred charges and 

 amortize them according to a speci- 

 fied plan that in the judgment of the 

 taxpayer is deemed reasonable. 



This recommendation appears to 

 be clearly desirable. Its primary effect 

 would be to give clear legal sanction 

 to present practice and hence to re- 

 move the uncertainty of the present 

 law. A secondary effect would be to 

 give the taxpayer more flexibility in 

 the deduction of research and devel- 

 opment costs. Verv little change in 

 current practice, however, would ordi- 

 narily result from the increased de- 

 gree of flexibilitv. Most taxpayers 

 would continue their present policy 

 of treating research and development 

 costs as an annual expense. Since no 

 simple rule, properly applicable to 

 all cases can be devised, it seems wise 

 to give the taxpaver considerable free- 

 dom of action. 



Recovimendation (2). — Amortiza- 

 tion of expenditures for the acquisi- 

 tion of tangible capital assets used for 

 scientific research and the develop- 

 ment of new products and processes. 

 The Internal Revenue Code should 

 be amended to give the taxpayer an 

 option : 



(a) To amortize the cost of tan- 

 gible capital assets used for scientific 

 research and the development of new 

 products and processes in equal 

 amounts over a period of five years; or 



(h) To depreciate such assets at the 

 same rates as ordinarily allowed on 

 such assets. 



Recommendation (2) provides for 

 an optional accelerated amortization 

 of tangible capital assets acquired and 

 used for the development of new 

 products and processes. As such, it is 

 consistent in purpose with recom- 

 mendations made by the Roosevelt 



Administration for the accelerated 

 amortization of all depreciable assets. 

 The present recommendation would 

 not, however, raise many of the diffi- 

 culties of the general proposal, since 

 it would apply to only a very small 

 percentage of fixed assets and hence 

 would not significantly affect the 

 revenue yield of the tax structure. 



In general, expenditures for the 

 acquisition of tangible capital assets 

 constitute a minor fraction of all out- 

 lays on research and development. 

 Moreover, in some instances at least, 

 research equipment is alreadv depre- 

 ciated at a rapid rate. Nevertheless, 

 this recommendation has been sup- 

 ported bv most of the businessmen 

 whose opinion on the proposal has 

 been obtained. 



C. Broad Tax Considerations 



The preceding sections of this re- 

 port have been confined to issues 

 related directly to the treatment of 

 research and development expendi- 

 tures. Two broader tax revisions, 

 clearlv desirable on other grounds 

 than for the sole purpose of promot- 

 ing research and development work, 

 would be verv helpful in stimu- 

 latino increased research and devel- 

 opment expenditures. Consequently, 

 the Committee concurs in the recom- 

 mendations that have already been 

 made by other groups: 



(1) That immediate legislative ac- 

 tion be taken to make the tax refunds 

 from the carrv-back provisions and 

 from the postwar refund of 10 per- 

 cent of excess profits taxes more 

 promptlv available to taxpayers dur- 

 ing the transition period; and 



(2) That the net operating loss 

 carry-over provided by the present 

 tax law be increased from 2 years, to, 

 at least, 5 or 6 years. 



112 



