The IRS has issued Revenue Procedure 2025-28, giving taxpayers clear guidance on making elections, changing accounting methods, and applying transition rules under the new Section 174A rules introduced by the One Big Beautiful Bill. These streamlined procedures are designed to help businesses implement the immediate deduction option for domestic research expenditures starting in 2025, while still allowing flexibility for capitalization, retroactive elections, and relief for previously filed returns.
Contents
- Background: From TCJA to Section 174A
- Capitalization Election for Domestic Research
- Automatic Consent for Accounting Method Changes
- Retroactive Relief for Small Businesses and Section 280C Elections
- Extensions for 2024 Returns
- Effective Dates and Transition Rules
- Looking Ahead
In our earlier article on the new R&D expensing rules under the One Big Beautiful Bill (OBBB), we outlined how Section 174A allows for immediate deduction of domestic research and experimental (R&E) expenditures beginning in 2025. The IRS has now released Revenue Procedure 2025-28, which provides detailed instructions and streamlined procedures for making elections, changing accounting methods, and applying transition relief. This update highlights what businesses need to know as they prepare for the shift.
Background: From TCJA to Section 174A
The Tax Cuts and Jobs Act (TCJA) required capitalization and amortization of R&E costs—five years for domestic activities and fifteen years for foreign—starting in 2022. OBBB reversed course by adding Section 174A, which allows immediate deduction of domestic R&E expenditures beginning in tax years after December 31, 2024. Businesses also retain the option to elect capitalization and amortization, beginning when the benefits of the research first materialize.
Capitalization Election for Domestic Research
Taxpayers that prefer to spread out deductions may elect under Section 174A(c) to capitalize domestic R&E expenditures and amortize them over at least 60 months. The election requires a statement attached to the return specifying both the amortization period and when the benefits of the expenditures are first realized.
Automatic Consent for Accounting Method Changes
Rev. Proc. 2025-28 expands and modifies prior guidance to allow automatic consent for accounting method changes related to R&E expenditures. For the first taxable year beginning after December 31, 2024, taxpayers may use simplified statement filings instead of Form 3115, with duplicate filing requirements waived. These changes cover transitions from prior TCJA rules, adoption of Section 174A, and continued compliance for foreign research.
Retroactive Relief for Small Businesses and Section 280C Elections
Small businesses that meet the gross receipts test ($31 million or less for 2025) can apply Section 174A retroactively to tax years beginning after December 31, 2021. This option allows eligible businesses to deduct or amortize domestic R&E expenditures on original or amended returns. Elections must include a declaration of gross receipts qualification and compliance with applicable rules.
Importantly, amended return elections must be filed by the earlier of July 6, 2026, or three years after the date the original return was filed, in line with the statute of limitations on refund claims.
For these small businesses, Revenue Procedure 2025-28 also allows late elections or revocations under Section 280C(c)(2). This provision lets taxpayers adjust how they apply the research credit in relation to deductions, with elections or revocations made on amended returns filed by July 6, 2026.
Extensions for 2024 Returns
To ease compliance, the IRS is granting a six-month automatic extension for eligible taxpayers to file superseding returns for 2024. This relief applies to taxpayers who filed returns without extensions before September 15, 2025, and need to make elections or accounting method changes under the new revenue procedure.
Effective Dates and Transition Rules
Most provisions in Rev. Proc. 2025-28 are effective as of August 28, 2025. Automatic accounting method change procedures apply to Forms 3115 filed after this date, with transition relief for filings made before November 15, 2025.
Looking Ahead
The release of Revenue Procedure 2025-28 marks an important step in implementing Section 174A and clarifying how businesses can take advantage of the new rules for R&E expenditures. Between immediate expensing options, retroactive relief for qualifying small businesses, and streamlined accounting method changes, there are meaningful opportunities to optimize tax positions and ease administrative burdens. With deadlines approaching for elections and amended returns, now is the time to review your company’s R&E expenditures and determine which approach best supports your strategy. Reach out to your tax advisor to ensure you are positioned to make the most of these new opportunities.
Nick Lagoditz, CPA, joined ARB in 2016 as an associate and became a tax manager in 2022. He provides tax preparation and business advisory services, with a focus on partnerships, real estate professionals, and construction businesses. Previous to ARB, Nick worked at a large international firm for nearly two years.
