U.S. moves to expand business R&D tax break

(Reuters) - Think you have a new way of making wine? There could be research tax breaks for that.

The U.S. government on Thursday called for a wider array of business activities to be made eligible for research tax breaks, including more manufacturing process-oriented costs, giving a preliminary tax law win to manufacturers and food processors.

The Treasury Department has proposed new rules that would make the research tax deduction and, in more limited cases, the research tax credit applicable to supply and production costs.

For instance, Treasury and the Internal Revenue Service said a wine producer could claim research tax breaks for production costs associated with "a different method of crushing the wine grapes" as it tests a new manufacturing process. These testing costs could be deductible as experimental research.

Agriculture and food processors might benefit from these rules if they could claim the tax breaks as they developed new products, tax lawyers said.

The new rules also would allow a company to claim the costs of a prototype, such as an experimental aircraft, even if it later sells a completed airplane.

The hazy line between research for final products and research for production methods and equipment has been a frequent source of legal conflict between companies and the IRS.

If approved, the rules would apply to future tax filings and could not be enforced until finalized. But the IRS often changes enforcement policies to reflect proposed rules, tax lawyers said on Thursday.