And if the investment pays off, so that the R&D creates revenue in future years after it's already been paid for, then it will result in actual taxable profit in those future years.
It seems like the IRS is trying to speculatively tax unrealized future profits here, and that's pretty unconscionable.
This is exactly what they are doing. If this scheme sticks, it will reduce R&D investment. It certainly disincentivizes me from investing in such efforts.
We once started a revolution over unfair taxation. I sadly think the same will be necessary to fix the status quo, as system has rotted past the point of meaningful reform.
Allowing the federal government to implement an income tax was one of the most destructive changes to the constitution we've ever made, and it's only gotten worse and worse over the decades. What was originally just supposed to be another tool to generate revenue has become an end in itself at best, an a lever to manipulate society at worst.
On top of that, the necessity of shoehorning everyone's economic activity into prescriptive taxonomies in order to implement this taxation has drastically diminished innovation on the margin, and has created unintended consequences that significantly distort market incentives and diminish our ability to adapt to change, with the situation we're discussing here being a prime example.
I'm worried that you're right; that it's beyond repair, and that we may have to live through a systemic collapse before things can get better.
It seems like the IRS is trying to speculatively tax unrealized future profits here, and that's pretty unconscionable.