Circulation and research and experimental expenditures

(A) In general The amount allowable as a deduction under section 173, 174(a), or 174A(a) in computing the regular tax for amounts paid or incurred after December 31, 1986 , shall be capitalized and— (i) in the case of circulation expenditures described in section 173, shall be amortized ratably over the 3-year period beginning with the taxable year in which the expenditures were made, or (ii) in the case of foreign research or experimental expenditures described in section 174(a) and domestic research or experimental expenditures in section 174A(a), shall be amortized ratably over the 10-year period beginning with the taxable year in which the expenditures were made.

(B) Loss allowed If a loss is sustained with respect to any property described in subparagraph (A), a deduction shall be allowed for the expenditures described in subparagraph (A) for the taxable year in which such loss is sustained in an amount equal to the lesser of— (i) the amount allowable under section 165(a) for the expenditures if they had remained capitalized, or (ii) the amount of such expenditures which have not previously been amortized under subparagraph (A).

(C) Exception for certain research and experimental expenditures If the taxpayer materially participates (within the meaning of section 469(h)) in an activity, this paragraph shall not apply to any amount allowable as a deduction under section 174(a) or 174A(a) for expenditures paid or incurred in connection with such activity.