On August 28, 2025, the Internal Service Revenue (IRS) released Revenue Procedure 2025-28, which provides highly anticipated administrative guidance on the changes to the treatment of research and experimentation (R&E) expenditures under new Internal Revenue Code §174A introduced by P.L. 119-21, commonly referred to as the “One Big Beautiful Bill Act.”
The new Section 174A benefits taxpayers who are engaged in research activities in the U.S. and reinstates a current deduction for qualifying domestic R&E expenditures incurred in tax years beginning after December 31, 2024.
Rev. Proc. 2025-28 clarifies the statutory elections and accounting method changes applicable to domestic R&E expenditures. This guidance moves taxpayers from capitalization and amortization as required by Section 174 under the Tax Cuts and Jobs Act (TCJA 174) to currently deducting or an optional capitalization and amortization under new Section 174A.
P.L. 119-21 did not change the rules for capitalizing and amortizing foreign R&E expenditures. These expenditures continue to be capitalized under Section 174 and amortized over 15 years.
Taxpayers and tax advisors urged the IRS to offer guidance that could benefit taxpayers who have not yet filed their 2024 tax returns. Rev. Proc. 2025-28 includes favorable provisions for taxpayers making required or elective changes under P.L. 119-21.
Impacts for Qualified Small Business Taxpayers
The 2025 tax reform bill provides tax relief to qualified small business taxpayers by allowing these taxpayers to retroactively adopt Section 174A for domestic R&E expenditures paid or incurred in tax years beginning after December 31, 2021, (rather than December 31, 2024). To make this election, Rev. Proc. 2025-28 gives “early adopters” a choice to file either:
- An election statement with a current or amended return for tax years beginning before January 1, 2025 (Section 3); or
- An accounting method change statement in lieu of filing a Form 3115, Change in Accounting Method, with a current tax return (Section 7)
Early adopters can also find guidance to make a late election to apply Section 280C to tax years prior to January 1, 2025 (Section 4); or file a statement to revoke a previous Section 280C election (Section 5).
Finally, Rev. Proc. 2025-28 provides filing relief for qualified small business taxpayers who have already filed their 2024 tax returns but wish to take advantage of the guidance to make the election or accounting method change for retroactive application of Section 174A.
The IRS is granting an automatic six-month extension of time to file returns from the original due date of the return. This will allow taxpayers to file a superseding return and include the election or accounting method change with their 2024 return (Section 8). This provision is very helpful to partnerships that may otherwise be required to file an administrative adjustment request (AAR).
Impacts for All Other Taxpayers
Taxpayers who are not qualified small business taxpayers or who are, but choose not to make a retroactive election, will apply the new Section 174A for domestic R&E expenditures incurred in tax years beginning after December 31, 2024.
Rev. Proc. 2025-28 provides guidance for how taxpayers can report the change in method of accounting in their tax returns and make the election choosing the shortened amortization period for the remaining unamortized domestic TCJA 174 costs capitalized prior to the 2025 tax year (Section 7).
Rev. Proc. 2025-28 also appears to resolve the uncertainty as to whether the accelerated deduction of unamortized domestic TCJA 174 costs would be classified as a business expense or amortization expense. Section 7.02(2)(f) describes a taxpayer’s options as “amortizing the remaining unamortized amount” in full in the first tax year after December 31, 2024, or ratably over the 2-taxable year periods beginning after December 31, 2024. With the P.L. 119-21 changes to Section 163(j) definition of adjusted taxable income (ATI), the characterization of accelerated expensing as “amortization” is good news for taxpayers.
Capitalizing R&E for All Taxpayers
All taxpayers can exercise their option of capitalizing rather than expensing domestic R&E costs under Section 174A and amortizing these costs over at least 60 months. Rev. Proc. 2025-28 provides guidance for early adopters and all others on how to make this election (Section 6).
Next Steps
Qualified small business taxpayers have many factors to evaluate to determine if retroactive election of Section 174A is appropriate for their business and tax situation. Our professionals have discussed some of these factors in our webinar series and in previous articles, and we highly recommend discussing this choice with your tax advisor as soon as possible.
The timeline for taking action in a current or superseding 2024 return is ending soon, with the extended due date for these tax returns. This timeline for action may be closing, but there is more time to take action with amended returns, AARs or adoption on the 2025 return. Reach out to your Cherry Bekaert advisor today to learn more about your options.
