What the New R&D Tax Rule Means for Life Sciences Companies

This publication first ran as What the new R&D tax rule means for life sciences companies in CFO Dive.

On January 1, 2022, a crucial tax change that the currently stalled Build Back Better Act (BBBA) would have delayed quietly went into effect for calendar year taxpayers. The BBBA proposed rule would have delayed the effective date for capitalization and amortization of research and development (R&D) expenditures to tax years beginning after December 31, 2025.

For life sciences companies whose mission depends on discovering new treatments, indications, and/or devices and who spend heavily on R&D, this change has significant tax and financial reporting implications. It particularly affects early-stage companies, who can be hit hard by an unexpected tax liability if they lack the appropriate cash reserves. For more established companies with very large R&D expenses, the cash tax impacts can be a billion-dollar issue. The change comes at a time when investors are keenly focused on investing in new products and services with recent revenue growth due to COVID-19-related innovations.

In this piece, KPMG National Audit Leader for Life Sciences Mark Drozdowski and U.S. Tax Life Sciences Leader Christine Kachinsky detail the key tax and financial reporting implications of the tax change. Read the full piece at CFO Dive, here.

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