Two Engineers, One Codebase, Two Tax Universes
Same company. Same project. Same line of code. One engineer sits in Austin. The other sits in Bangalore. Congress just dropped a wall between them that stretches to 2041.
The Fix Everyone Celebrated
The One Big Beautiful Bill Act, signed July 4, 2025, gave American R&D a gift. A new Section 174A lets companies deduct domestic research costs right now. This year. The full dollar. No waiting. No spreading it out. And it's permanent. No sunset.
You spend a dollar on research done in the US. You write off that dollar on this year's tax return. Simple. The way it worked before 2017, and the way everyone wanted it to work again.
Every headline said the same thing. "R&D expensing is back!" Sure.
For some of it.
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The Pipe Nobody Checked
Here is what Congress left untouched. Foreign research costs still amortize over 15 years. That rule came from the Tax Cuts and Jobs Act in 2017. OBBBA didn't fix it. OBBBA split the old Section 174 into two pipes. Domestic work flows through the new 174A. Clean. Fast. Foreign work stays in the old 174. Clogged. Slow.
And here is the part that matters. The TCJA is what folded all software development into the R&E bucket in the first place. Before 2017, software costs had their own rules. The TCJA dragged them into Section 174. OBBBA never reversed that classification for foreign work. So every dollar you pay an offshore coder gets sliced into 15 thin pieces.
Your Austin engineer's salary hits the tax return today. Your Bangalore engineer's salary? You deduct a sliver this year. And next year. And the year after that. Through 2041.
The Scale of the Trap
I mean, this would be a footnote if nobody used foreign engineers. But 54% of US companies that outsource development choose India. The offshore dev market hit $122 billion in 2024.
The math gets interesting. A four-person engineering team in India costs roughly $180,000 a year. The same team in the US runs $700,000 to $950,000. That $520,000 to $770,000 in savings looks great on a spreadsheet. But the US team's $700,000 to $950,000 deducts today. The India team's $180,000 deducts over 15 years. The gap between those two tax treatments eats into the savings. It doesn't erase them. But it changes the math in ways the CFO's old model didn't price in.
The Welded Door
Now the anchor detail. The one that sticks.
You hire a team in Bangalore. They start building. You spend $300,000. The project fails. You kill it.
Under the old rules, you might write off what's left. Not anymore. OBBBA added a provision for foreign R&E: if the project is disposed of, retired, or abandoned, no deduction. No accelerated write-off. The amortization continues on its original schedule.
You killed the project. The code is dead. Nobody will use it. And you keep deducting thin slices of $300,000 through 2041.
You are paying for a ghost.
One window. One position. The kind of move that changes what you leave behind.
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The Double Lock
One more thing. Foreign R&D doesn't qualify for the Section 41 research credit either. That credit is reserved for domestic work under 174A. So the offshore dollar gets hit twice. Slow deduction. No credit.
And the compliance burden is real. Location of the work determines which pipe the dollar flows through. Not the type of work. Not the project name. The physical location. For software companies, that data lives in Git commits and Jira tickets, not the general ledger. (Good luck sorting that out in March.)
The Code Tells You What They Want
Look, this is not outrage. This is plumbing. Congress built two pipes and labeled them. The domestic pipe runs clean. The foreign pipe runs slow, and you can't shut it off even when the project dies.
The Austin engineer deducts today. The Bangalore engineer deducts through 2041. No sunset on the domestic fix. No fix on the horizon for the foreign trap.
Congress buried a reshoring incentive in the fine print. They didn't call it that. They didn't need to. The code always tells you what they want you to do.
You just have to read it.
