Tell HN: People laid off in my company due to IRS Section 174 changes

#1

Post by strobby » Wed, Dec 13, 2023, 8:23 PM UTC

30 engineers were laid off from the company I work for that does consulting for a US customer. The reason given was that the company’s runway got blown up due to the inflated tax bill they received as a consequence of Section 174 changes that require software development to be capitalized and amortized over 15 years (international).

Sharing this here as I don’t see much noise about this issue here or on mainstream media and just wondering how other small business and startups are handling this.

More info: https://www.onlycfo.io/p/new-tax-rule-is-terrible-for-software

Re: Tell HN: People laid off in my company due to IRS Section 174 changes

#2

Post by verdverm » Wed, Dec 13, 2023, 8:26 PM UTC

yup... everyone expected it to be repealed by now, but congress is utterly incapable of acting like adults right now

Here's the upvoted HN post from 11 months ago: https://news.ycombinator.com/item?id=34627712

I wanted to hire, but this stupid rule makes it rather unpalatable

Re: Tell HN: People laid off in my company due to IRS Section 174 changes

#3

Post by kristianp » Wed, Dec 13, 2023, 10:40 PM UTC

Clickable: https://www.onlycfo.io/p/new-tax-rule-is-terrible-for-softwa...

Re: Tell HN: People laid off in my company due to IRS Section 174 changes

#4

Post by csomar » Thu, Dec 14, 2023, 5:31 AM UTC

Can you provide more details? Is the company US-based? If not US-based, how were they affected by this tax?

Re: Tell HN: People laid off in my company due to IRS Section 174 changes

#5

Post by strobby » Thu, Dec 14, 2023, 7:35 AM UTC

csomar wrote: post #4

Can you provide more details? Is the company US-based? If not US-based, how were they affected by this tax?

US product company with a portion of their engineering team based in India. Suddenly their India costs cannot be expensed in the same year and they can only deduct 1/15th of the costs. There’s no guarantee they would be in business for 15 years to realise the deferred tax benefits.

Re: Tell HN: People laid off in my company due to IRS Section 174 changes

#6

Post by keepamovin » Thu, Dec 14, 2023, 11:49 AM UTC

verdverm wrote: post #2

yup... everyone expected it to be repealed by now, but congress is utterly incapable of acting like adults right now Here's the upvoted HN post from 11 months ago: https://news.ycombinator.com/item?id=34627712 I wanted to hire, but this stupid rule makes it rather unpalatable

i suppose one alternative for flexible companies is to reincorporate in another jurisdiction. i'm not going to jump ship yet as i think this might end up like the SVB debacle, where everyone gets spooked and 'takes steps to mitigate', but then ends up saved at the last minute.

i actually am in favor of this law strangely enough (see my comment from 39 days ago: https://news.ycombinator.com/item?id=38148161) as if you read it it's quite rational and brings software into line with other industries. what i'm hoping is they end up assessing it with a revenue test where it only applies to large enterprises (100M and above). i should be safe for a little while at least hahaha! :)

0: https://news.ycombinator.com/item?id=38120388 (Tell HN: Submit comments to IRS re tax treatment of software dev expenses, 227 comments)

Re: Tell HN: People laid off in my company due to IRS Section 174 changes

#7

Post by petercooper » Tue, Dec 19, 2023, 9:16 PM UTC

It's interesting how the definition of "R&D" varies from jurisdiction to jurisdiction. In the US it seems to now include all software development! Here in the UK it's the total opposite where something has to be considered to be innovative in relation to other companies and work that attempts to resolve scientific uncertainty to advance the state of the art.