> maintenance activities after the taxpayer places the computer software into service
This is the part that I think makes this whole jig of treating software development like a purely capitalizable expense so nuts.
I previously worked at a public company that wanted software developers to treat as much work as possible as CapEx - it makes you look more profitable than you actually are, which is bad for taxes but good for your stock price. Developers hated it. The problem with it is that with modern web based software, CI/CD, A/B testing, etc. that the line between "new software" (i.e. CapEx) and "maint" (i.e. OpEx) is so blurred as to be pointless. E.g. many times I'd be fixing a bug (technically OpEx) but that would often lead to some new features ideas, or ways to structure the software to make it easier to add new features (technically CapEx). Software is fundamentally different from capital expenditures in other areas, and assuming a 5 year straightline depreciation schedule for software is laughably absurd.
What other sort of capital expenditure has you do releases every day, or requires 24/7 monitoring? I would argue that the business of software has changed so drastically over the past 20 or so years that it makes much more sense just to categorize it as OpEx by default (for both tax and GAAP purposes), and only have it be capitalized as CapEx for very small and specific reasons.
Your Honor, here printed on paper is what the Prosection calls "software". Actually as anyone can see on the paper, what is there is just ordinary typing A-Z and 0-9 with a lot of the typing in English. Businesses have been doing typing for many decades. E.g., this typing is much like instructions to a delivery truck driver to deliver goods to customers. And it's the same if a drone reads those instructions and makes the delivery. Prosecution has yet to show what of this paper is other than business typing ~100 years old.
It runs on a computer. It tells a computer how to do things. You can type once and have the same instructions run again and again on the same computer or on different computers. It can run on many computers simultaneously. No human intervention is required for all of the above.
> What other sort of capital expenditure has you do releases every day, or requires 24/7 monitoring?
Quite a lot of them actually. If I spend $$$$ setting up a car factory with a big production line, I'm going to have people monitoring it 24/7. If I build an airport, I'm going to have air traffic controllers working 24/7. And so on.
Of course, the air traffic controllers didn't build the runway, and the construction crew don't direct air traffic, so the whole situation is much less ambiguous.
How exactly does the construction of an airport (runway, terminals, parking, etc.) satisfy "releases every day" during the construction? I could see if it were adding a runway or a terminal, but until at least some of the infrastructure is there it's not exactly usable to the end user, the public, as say a stand-in definition for "released."
> I'm going to have people monitoring it 24/7. If I build an airport, I'm going to have air traffic controllers working 24/7. And so on.
> Of course, the air traffic controllers didn't build the runway, and the construction crew don't direct air traffic, so the whole situation is much less ambiguous.
That is precisely why those salaries are NOT capex
Your example was quite good actually. Even in sw the people that build the system is not necessarily the people that monitor, maintain and use it, even for systems used only inside a company. I used to work in a telco and we had 3 separate departments, plus a 4th one for testing. And yet all of them seem to be subject to section 174, builders, maintainers, testers.
A country wide power grid or telecommunications network are other examples that come to my mind. They are never complete, they get more features every day (new cables?), they are monitored 24/7. The owner companies also use them.
> And yet all of them seem to be subject to section 174, builders, maintainers, testers.
Do they?
Upthread one can read: > Activities that are not treated as software development vis-à-vis software developed by a taxpayer for use in its trade or business are as follows: […] • maintenance activities after the taxpayer places the computer software into service
You are right. I also read other comments pointing at that. Nevertheless it's often debatable what's maintenance and what's a new feature. Hopefully nobody is looking at it in too much detail.
Example: a one line change to ignore non Unicode codepoints in PDF files loaded in a web app (I did it yesterday.) Is that a new feature? Is that a bug fix? And if it's a bug fix, is that part of a feature that we should have developed before putting the sw into service? Is that maintenance? And what if that particular code point that triggered the issue did not even exist when we released the sw years ago (the code around it is from 2021)?
I believe that nobody has the time to dig the (tens of?) thousands of issues that a company opens and completes every year but there are a lot of gray areas to exploit if somebody has any reason to be pedantic.
> Nevertheless it's often debatable what's maintenance and what's a new feature.
The same is true for many capital assets. There are people who have time to look into these things because that’s their job.
What we do is enforce that everyone keeps one ticket in JIRA as in progress and use a timekeeping add on. The tickets role up to epics and initiatives. I review each top level initiative and epic with finance and they deem it capitalizable or not. Then we add a haircut. It’s really not that much work. We have an hour meeting monthly to work it out but I make sure to exclude my mainline engineers. They don’t need that
How many engineer-hours are lost amongst the whole company each semester to report all these mindless tickets?
A lot.
It also warps outcomes towards a metric which "is only used for tax purposes" but which also is reported ritualistically with an expectation of compliance.
The entire thing is nuts.
And no one thinks it was sensible.
The only reason it exists is for political games by Trump 1.
Now imagine all the nonsense that’s gonna go into the much bigger Trump 2 tax cut bill.