OBBBA Revenue Procedure 2025-28: R&E Tax Updates
Published on by Lauren Huster in Tax Services
As a follow-up to prior IRS guidance discussed in our earlier blog, the IRS released Revenue Procedure 2025-28 on August 28, 2025, providing detailed guidance on how businesses should handle research and experimental (R&E) expenses under the One Big Beautiful Bill Act (OBBBA). These changes significantly alter the tax treatment of R&E expenditures.
Changes to R&E treatment
The Tax Cuts and Jobs Act (TCJA) required all R&E expenses to be capitalized starting in 2022. Domestic research had to be amortized over five years, while foreign research required 15-year amortization. The OBBBA has changed this approach for domestic research only.
Starting with tax years beginning after December 31, 2024, businesses can immediately deduct domestic R&E expenses under new Section 174A. Alternatively, they can elect to capitalize and amortize these expenses over at least 60 months. Foreign R&E expenses remain subject to 15-year amortization under Section 174, with no deductions allowed if related property is disposed of early.
Small business retroactive relief
Businesses that meet the gross receipts test under Section 448(c) qualify if their average annual gross receipts are $31 million or less for their first tax year beginning after December 31, 2024. These businesses can retroactively apply the new domestic R&E rules back to 2022.
This allows qualifying businesses to amend their 2022 to 2024 returns to claim immediate deductions instead of amortizing the expenses and potentially receive refunds for overpaid taxes.
Businesses must not be tax shelters and must make the election by July 6, 2026, subject to the statute of limitations for tax returns. 2022 returns may have an earlier deadline.
The IRS is allowing companies that already filed their 2024 tax return to file a superseded return by the extended deadline even if no extension was filed or the entity is subject to the Bipartisan Budget Act (BBA) rules.
Transition rules for previously capitalized amounts
For domestic R&E expenses that were capitalized under the TCJA for tax years 2022-2024, businesses can elect to handle any remaining unamortized amounts by either:
- Deducting the full remaining amount in their first tax year beginning after December 31, 2024, OR
- Amortizing the remaining amount ratably over their 2025 and 2026 tax years.
This election is treated as a change in accounting method and must be made with the taxpayer’s return for the first applicable year.
Implementation and procedural requirements
Revenue Procedure 2025-28 establishes specific procedures for implementing these changes:
New Elections: Most elections require attaching specific statements to tax returns with required information and declarations.
Accounting Method Changes: Many of these elections are treated as automatic accounting method changes under Section 446(e). In some cases, taxpayers can file statements in lieu of Form 3115.
Section 280C Considerations: The changes also affect how research credits interact with R&E deductions. Small businesses can make late elections or revoke prior elections regarding reduced research credits for the 2022-2024 period.
Planning considerations
These changes present both opportunities and complexities for businesses with R&E expenses. The potential cash flow benefits can be substantial, particularly for small businesses that can apply the rules retroactively. However, the elections have long-term implications and interact with other tax provisions like research credits.
Businesses should evaluate their specific situations, considering factors such as:
- Current cash flow needs versus future tax planning objectives.
- The interaction between R&E deductions and research credits.
- Whether to make retroactive elections or focus on prospective benefits.
- The administrative burden of amending prior year returns.
Next steps
Given the complexity of these rules and the approaching deadlines, businesses that incur R&E expenses should review their situations promptly. The opportunities created by Revenue Procedure 2025-28 require timely action and careful analysis to maximize benefits while ensuring compliance with the detailed procedural requirements.
If your business has R&E expenses or has been affected by the TCJA capitalization requirements, contact us today to schedule a free consultation with one of our tax advisors. You may also be interested in how the OBBBA affects individuals and businesses. You can find our entire coverage of the OBBBA here. As always, we’re here to help.
