In my simple mind, if software has been "released" it is no longer R&D, and "bug fixes" (which should include continuous improvements such as your example) are not research.

I may be way, way wrong though.

That seems too exploitable to pass muster in the court. If you release Beta 0.0.1 of your software after 2 months of development then spend the next 5 years getting it up to version 1.0 that's clearly a development effort not a maintenance effort.

> such as marketing and promotional activities, maintenance activities that do not give rise to upgrades and enhancements, distribution activities

If it leads to a new release, then its software dev. Meaning anything more than a minor patch is going to count.

That's the reason we have courts, to cut through those gray areas.

No. That is why you have auditors who must sign off on your financial books and records. There are fairly strict rules about capitalization of software development. If it is a meaningful number for your firm, then the auditors will review in detail.

Is it?

The IRS Guidance says this in 5.05(2), which is most relevant to software startups:

  (2) Computer software developed for sale or licensing to others. In the case of
  computer software that is developed for sale or licensing to others (or upgrades 
  and enhancements to such software), activities that occur after such software (or 
  upgrades and enhancements to such software) is ready for sale or licensing to 
  others, such as marketing and promotional activities, maintenance activities that 
  do not give rise to upgrades and enhancements, distribution activities (for 
  example, making the software available via remote access), and customer support 
  activities.

So they are maintenance as long as they "do not give rise to upgrades and enhancements", which would be the responsibility of the taxpayer to track. I'm sure there is more nuance to it in practice.

Has the IRS actually dinged anyone for fucking with how they categorise software expenses?

They have, but they’ve fired everyone. Literally. I have a relative who was fired while testifying in court, he ended up stranded in some flyover shithole.

The real issue is the auditors will flag it.

> auditors will flag it

For tax books?

llm auditors soon

The concept and determining factor is how it relates to revenue. Is it an activity that supports or contributed to current revenue generation, or is it something that is expected to only contribute to future revenue generation.