New IRS guidance on accounting for R&D tax credits under OBBB
Revenue Procedure 2025-28, released August 28, 2025, outlines updated procedures for accounting method changes and elections related to domestic specified research or experimental (SRE) expenditures under the One Big Beautiful Bill (OBBB) Act. This guidance introduces significant flexibility for taxpayers, particularly small businesses, in how they treat R&E costs.
However, while the new guidance provides strategic opportunities for taxpayers to optimize R&D expenses tax treatment, compliance requires careful attention to eligibility, documentation and deadlines.
How do you record R&D in accounting?
For tax years beginning after December 31, 2024, taxpayers may now expense domestic SRE expenditures under the new Section 174A or elect to amortize them over a minimum 60-month period beginning when benefits are first realized.
Foreign SRE expenditures remain subject to 15-year amortization. Software development costs continue to qualify as SRE expenditures.
Small business R&D tax credits
Small businesses — defined as non-tax shelter entities meeting the $31 million gross receipts test — may retroactively apply Section 174A to 2022-2024 expenditures.
This election must be made by July 6, 2026, or before the expiration of the statute of limitations on assessment if earlier, and requires a statement attached to an amended return or administrative adjustment request (AAR). Once made, the election must be applied consistently across all open applicable years.
In 2024, there is a deemed election if the small business taxpayer properly deducted or capitalized and amortized domestic SRE expenditures under the new Section 174A. Alternatively, small business taxpayers may treat this change as an accounting method change in 2024 with a Section 481(a) adjustment.
Recovering R&D credits
Taxpayers may also elect to recover unamortized Tax Cuts and Jobs Act Section 174 amounts either fully in 2025 or over a two-year period. These changes are treated as automatic accounting method changes and may be implemented via Form 3115 or a statement in lieu.
Additional relief includes a six-month automatic extension for superseding 2024 returns where the original return was filed before September 15, 2025, without an extension. Small businesses may also retroactively elect or revoke reduced research credit treatment under Section 280C(c)(2) for 2022-2024, subject to similar filing and declaration requirements. These two elections directly impact the amount of the Section 41 credit for increasing research activities.
Revenue Procedure 2025-28 also modifies Revenue Procedure 2025-23 by updating designated change numbers and clarifying procedures for domestic and foreign SRE method changes. Taxpayers filing timely, short-year 2025 returns before September 15, 2025, are deemed to have made elections under Section 174A if they properly deducted or amortized domestic SRE expenditures.
How Wipfli can help
The new IRS guidance opens the door to meaningful tax savings — but only if you act strategically.
Discover how Section 174 updates can help R&D-intensive businesses reduce taxable income and strengthen innovation budgets in our upcoming webinar: Unlock R&D tax relief: Navigating the OBBB and IRC 174 updates. Register today and let Wipfli’s tax professionals help you assess your eligibility and take advantage of recent tax changes.
You can also connect with our credits and incentives advisors and discuss how to get more value from your R&D investments.
See our credits and incentives servicesGain more tax insights from these additional resources:
