Treasury and the IRS issued Revenue Procedure 2025-28 related to research and experimental (R&E) expenditures as modified by the recently enacted One Big Beautiful Bill Act (OB3). In general, the revenue procedure is effective as of August 28, 2025. The guidance describes the following:
- Procedures for accounting method changes under Internal Revenue Code Section 446 and 1.446-1(e).
- Procedures for making elections to amortize domestic R&E expenditures beginning after December 31, 2024.
- Grants small businesses an automatic extension to file superseding tax and informational returns for taxable years beginning during 2024 and ending prior to September 15, 2025, for which the due date (excluding extensions) for the tax return for such taxable year was before September 15, 2025.
The revenue procedure provides that taxpayers may “amortize any remaining unamortized amount” of domestic R&E expenditures capitalized after December 31, 2021, and before January 1, 2025. While it was clear within the language of OB3 that taxpayers would be able to deduct unamortized expenditures either in tax year 2025 or ratably over two years in 2025 and 2026, it was unclear whether this deduction would be treated as an amortization expense. The Rev Proc.'s use of "amortization" is hopefully a promising step forward to clarifying this question. This is important considering OB3 also restored the amortization addback when calculating deductible business interest expense under §163(j).
Taxpayers may elect to capitalize and amortize domestic R&E expenditures paid or incurred in tax years beginning after December 31, 2024. The election must be made by the due date (including extensions) of their original tax return for the first tax year the election applies. For tax year 2025, a taxpayer who makes an accounting method change to capitalize and amortize R&E expenditures will have been deemed to have made this election.
Relief has also been provided for eligible partnerships, S corporations, C corporations, individuals, trusts, estates, and exempt organizations. Eligible taxpayers will be deemed to have filed a timely request for a six-month extension. This allows these types of taxpayers to file a superseded tax return before the expiration of the extended due date. A superseded tax return takes the place of an already filed return and relieves the taxpayer from filing an amended tax return or an administrative adjustment request (AAR) if they wish to make changes to the treatment of R&E expenditures on their 2024 tax returns as provided under OB3.
A more updated analysis is forthcoming.
Action Items and Important Dates
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