The One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, introduced numerous tax changes for individuals and businesses. This update explores recent IRS guidance related to research and experimental (R&E) expenditures.

For businesses in research-intensive industries, one of the most favorable OBBBA changes is the partial restoration of immediate expensing for R&E costs. Since 2022, the Tax Cuts and Jobs Act of 2017 (TCJA) required R&E expenses to be capitalized and amortized—over five years for domestic research and 15 years for foreign research.

The OBBBA restores the ability to immediately deduct domestic R&E expenditures for tax years beginning after December 31, 2024, under new Internal Revenue Code (IRC) Section 174A. Taxpayers may either:

  • Immediately deduct domestic R&E expenses; or
  • Elect to capitalize and amortize them over at least 60 months.

Foreign R&E expenses must still be capitalized and amortized over 15 years.

Transition Rules

The law includes transition rules for domestic R&E expenditures incurred in 2022–2024:

  • All affected taxpayers may elect to deduct unamortized amounts over a one- or two-year period beginning in 2025.
  • Small business taxpayers (those with three-year average annual gross receipts of $31 million or less) may amend 2022–2024 returns to elect to deduct instead of amortize R&E expenses.

However, questions remained about how to implement these changes for extended 2024 returns that haven’t been filed yet.

IRS Guidance: Revenue Procedure 2025-28

On August 28, 2025, the IRS issued Revenue Procedure 2025-28, clarifying many aspects of the OBBBA’s R&E provisions. It provides details on the timing and methods for making the changes outlined in the OBBBA. Below are key highlights from the guidance.

Small Business Taxpayer Election

The small business taxpayer election allows a qualifying taxpayer to shift the effective date from tax years beginning after December 31, 2024, retroactively to tax years beginning after December 31, 2021.

Revenue Procedure 2025-28 allows eligible small business taxpayers to:

  • Deduct 2024 R&E expenditures on their originally filed 2024 returns, provided they also amend their 2022 and 2023 returns.
  • File a superseded 2024 return by the extended due date, if they timely filed their original 2024 return.

This clarification eases the administrative burden on small businesses by eliminating the need to file an amended 2024 return. Additionally, the Procedure allows taxpayers who already filed their 2024 return to file a superseding return within six months of the original due date—even if the return was not extended—to make a Section 174A election.

Elections for All Taxpayers

All taxpayers, including those not qualifying as small businesses, may elect to deduct unamortized 2022–2024 domestic R&E expenses in 2025 or ratably over 2025 and 2026.

This election must be made in the first tax year beginning after 2024 and may be made by attaching a statement in lieu of filing Form 3115 (Application for Change in Accounting Method).

Taxpayers electing to amortize domestic R&E expenses after 2024 may:

  • Attach a statement to their timely filed return for the first election year; or
  • Use the Section 174A accounting method change for tax years beginning in 2025.

The Takeaway

Revenue Procedure 2025-28 is welcome guidance that will reduce the compliance burden for many small businesses. Its provisions, however, are complex. If your business has incurred R&E expenditures, contact your Dean Dorton advisor to determine the best approach for you.