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Revenue Procedure 2025-28: Elections, Accounting Method Changes, and Transitional Relief

28 August 2025

The “One Big Beautiful Bill Act” (OBBBA), introduces Section 174A, a new provision that permits an immediate deduction for domestic research and experimental (R&E) expenditures, including software development costs, paid or incurred in tax years beginning after December 31, 2024. The OBBBA also provides elections for taxpayers to capitalize and amortize domestic R&E expenditures over specified periods and provides special rules for unamortized domestic R&E expenditures paid or incurred after December 31, 2021 and before January 1, 2025.

Revenue Procedure 2025-28, provides guidance for taxpayers to implement the changes in the tax law.

1. Key Background

-TCJA §174 (2017 law):

Starting 2022, all research costs must be capitalized.
Domestic R&E → amortized over 5 years.
Foreign R&E → amortized over 15 years.

-OBBBA §70302 (2025 law):

Separates treatment of domestic and foreign R&E.
Domestic R&E: new §174A allows immediate deduction or optional 60+ month amortization.
Foreign R&E: remains under §174, capitalized and amortized over 15 years.

-§280C coordination with research credits:

Expenses are reduced by research credit, unless a reduced credit election (§280C(c)(2)) is made.

2. Foreign vs. Domestic R&E

-Foreign R&E (post-2024):

Must be amortized over 15 years.
No loss recovery if property disposed/abandoned — amortization continues.

-Domestic R&E (post-2024):

Deductible in year incurred (§174A(a)).
Option to amortize over 60+ months (§174A(c)).
Applies to software development costs as well.
Exclusions: land, depreciable/depletable property, mineral exploration.

3. Small Business Elections

-Eligible taxpayers (≤$31M average receipts, not a tax shelter) can:

Retroactively apply §174A back to 2022–2024.
Choose to deduct domestic R&E immediately or amortize.
Must file amended returns or accounting method change.
Deadline for election: July 6, 2026.

-Transitional relief:

Remaining unamortized TCJA §174 costs from 2022–2024 may be deducted fully in 2025 or spread over 2 years.

4. Research Credit Coordination (§280C)

-After OBBBA, R&E deductions or capitalized amounts are reduced by the §41 research credit.

-Small businesses may elect a reduced credit under §280C(c)(2).

-Elections/revocations for 2022–2024 may be made late if done by July 6, 2026.

5. Method of Accounting Rules (§446, §481)

-Generally, taxpayers must file Form 3115 to change methods.

-Automatic consent available for:

Shifting from TCJA §174 capitalization to §174A immediate deduction.
Retroactive small business elections.
Recovery of unamortized TCJA costs.
Foreign R&E capitalization.

6. Filing Deadlines & Superseding Returns

-Normal filing rules apply for partnerships, S corps, C corps, individuals, trusts, estates, and exempt orgs (Forms 1065, 1120-S, 1120, 1040, 1041, 990-T).

-Generally due March/April/May 15, with 6-month extensions.

-Rev. Proc. 2025-28 provides a special six-month automatic extension for 2024 returns, allowing eligible taxpayers to re-file (superseding returns) to make elections.

7. Elections Summary

-§174A election (domestic R&E): deduct immediately or amortize ≥60 months.

-Small business retroactive election: apply §174A for 2022–2024 by filing amended returns by July 4, 2026 [because this falls on a weekend it’s July 6, 2026]. Alternatively for 2024 returns filed (or not yet filed), an automatic extension is provided and taxpayers may file superceded returns before the extended due date.

-Amortization recovery election: deduct or spread unamortized TCJA costs from 2022–2024 in 2025 or ratably between 2025 and 2026.

-§280C(c)(2) election/revocation: late or corrective elections allowed until July 6, 2026 if not previously made in 2022-2024 tax years.

Bottom Line

-Rev. Proc. 2025-28 gives businesses flexibility in how they treat R&E expenditures:

Domestic R&E (new default): deductible when paid, optional amortization.
Foreign R&E: still amortized over 15 years.
Administrative relief: automatic method changes, extended deadlines, superseding returns.

Next Steps

These changes create both opportunities and complexities for taxpayers navigating the new requirements for R&E expenditures. If your organization is unsure how to take advantage of the elections, retroactive provisions, or extended filing deadlines, our team can help you evaluate the impact and implement the right strategy for your situation.

Full text of the IRS guidance: Revenue Procedure 2025-28

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