IRS Issues Revenue Procedure 2025‑28: Key Guidance for R&E Expenditures under the OBBBA

By Adam Aucoin September 3, 2025

On August 28, 2025, the Internal Revenue Service issued Revenue Procedure 2025‑28 to guide taxpayers through new laws for research and experimental (R&E) expenditures. The procedure outlines how to make elections, file amended or superseding returns and change accounting methods to comply with IRC §§ 174, 174A, and 280C—reflecting the changes enacted by OBBBA’s (One Big Beautiful Bill Act) § 70302.

This critical guidance was needed after the OBBBA created Section 174A to allow for the immediate deduction of domestic R&E (research and experimental) expenditures but left many implementation-related questions unanswered. For more information on that change (and background of tax policy regarding R&E deductions) please refer to my July 9 article – the context it provides may be helpful or even necessary in readers’ understanding of the information below.

Scope & Purpose

Rev. Proc. 2025‑28 sets forth:
1. Procedures for changes in accounting method under IRC § 446—especially for transitioning to deducting R&E expenditures or continuing to amortize those costs under the revised standards.
2. Guidance to make elections under § 174A(c), enabling taxpayers to capitalize and amortize domestic R&E expenses paid or incurred in tax years beginning after December 31, 2024.
3. Extensions allowing superseding tax and informational returns for those with tax years beginning during 2024 and ending prior to September 15, 2025, for which the due date (excluding any extension) for the return of tax for such taxable year was before September 15, 2025. (This refers to the 2024 taxable year, which for most taxpayers is calendar year 2024.  Before this Revenue Procedure, the OBBBA’s guidance on how to incorporate the new rules for many such filers was confusing, to say the least.)

Key Provisions

1. Small Business Elections and Retroactive Treatment – General Rules

Small business taxpayers (see prior article for definition) may elect to apply OBBBA’s amendments to R&E expenditures that were paid or incurred after December 31, 2021 and before December 31, 2024 per OBBBA § 70302(f)(1)(A).

This election is to be made on an originally filed tax return or an amended tax return (or Administrative Adjustment Request, AAR, for some partnerships) for any applicable tax year (which would include any year after December 31, 2021, and before January 1, 2025). To make the election a statement titled “FILED PURSUANT TO SECTION 3.03 OF REV. PROC. 2025-28” should be attached to the return. This statement must include:

(a) the name and taxpayer identification number of the small business taxpayer

(b) a declaration that the taxpayer is not a tax shelter for its first taxable year beginning after December 31, 2024 (considering the election provided in § 1.448-2(b)(2)(iii)(B) if the declaration in Section 3.03(2)(c) of this Rev. Proc 2025-28 is made).

(c) if the taxpayer has not previously made the election provided in § 1.448- 2(b)(2)(iii)(B) and the taxpayer intends to make such election for its first taxable year beginning after December 31, 2024, a declaration that the taxpayer will make the election provided in § 1.448-2(b)(2)(iii)(B) for purposes of determining whether it is a tax shelter for its first taxable year beginning after December 31, 2024, on the original federal income tax return (including extensions) filed for such taxable year;

(d) a declaration that the taxpayer meets the § 448(c) gross receipts test, as provided in § 448(c) and § 1.448-2(c), for its first taxable year beginning after December 31, 2024.

(e) a statement indicating whether the taxpayer is making the small business OBBBA election to

(i) deduct domestic research or experimental expenditures in the applicable taxable year in which they are paid or incurred or

(ii) charge such expenditures to capital account and amortize such expenditures under § 174A(c).

(f) if the taxpayer is making the small business OBBBA election to charge domestic research or experimental expenditures to capital account under § 174A(c), a declaration that:

(i) the taxpayer is charging such expenditures to a domestic research or experimental expenditures capital account in the applicable taxable year in which such expenditures are paid or incurred, and amortizing such amount over a period of not less than 60 months beginning with the month in which the taxpayer first realizes benefits from such expenditures; and

(ii) the number of months (not less than 60) selected for the amortization period; and

(g) a declaration that the taxpayer will file an AAR or amended return, as applicable, to reflect the election provided in this section 3.03 for any applicable taxable year(s) for which the taxpayer previously filed a federal income tax return prior to September 15, 2025, that specifies such applicable taxable years, if the taxpayer paid or incurred domestic research or experimental expenditures in such applicable taxable year(s).

The due date for making this election on an AAR or amended return is the earlier of July 6, 2026, or the due date for filing a claim for credit or refund under the statute of limitations.

BNN Commentary: This would appear to be an all or nothing election when it spans multiple years. If you make the election for 2024 on an original or superseded return, then you must amend 2022 and/or 2023 as applicable.

2. Small Business Elections and Retroactive Treatment – Interplay of the New Amortization and Deduction Rules with the Research Credit

Small business taxpayers may also make a late § 280C(c)(2) election for prior applicable tax years or revoke prior § 280C(c)(2) elections. (This election involves choosing a somewhat reduced credit. Taxpayers often choose the reduced credit because it allows them to sidestep the general rule that to avoid double-dipping, research costs must be reduced by the amount of the credit.) Additionally, when making the small business taxpayer election to amend, supersede, or on an original 2024 return the modifications under OBBBA to Section 280C are applicable to those years as well. Namely, either a 280C(c)(2) election is made to reduce the applicable Section 41 credit or the amount deducted is reduced by the Section 41 credit.

The late 280C(c)(2) election is made by adjusting the Section 41 R&D credit and adjusting Form 3800. Attaching the amended Form 6765 should be marked at the top with FILED PURSUANT TO SECTION 4.03 OF REV. PROC. 2025-28. Additionally, a statement like the statement in this article above needs to be attached to the amended return.

To make an election to revoke a prior 280C(c)(2) election an amended Form 6765 should be marked at the top with FILED PURSUANT TO SECTION 5.03 OF REV. PROC. 2025-28. Additionally, a statement like the statement in this article above needs to be attached to the amended return.

The due date for making this election on an AAR or amended return is the earlier of July 6, 2026, or the due date for filing a claim for credit or refund under the statute of limitations.

BNN Commentary: This is the potential catch with the amendment process. Careful consideration is needed regarding the 280C elections. A reduced credit or reduced deductions often did not apply after the TCJA because there was a “loophole” of sorts whereas you may not have to reduce the capitalized expenditures by the amount of the R&D credit if the amount of the credit does not exceed the amount allowed as a deduction (which it typically does not).

3. § 174A(c) Election for Amortization

This election allows taxpayers to opt into capitalizing and amortizing domestic R&E expenditures (paid/incurred post‑Dec 31, 2024). In other words, if taxpayers prefer the capitalization-and-amortize regime that has been required in recent years, they can continue to utilize it rather than being forced to begin currently deducting R&E costs under the new OBBBA concessions. This election does not apply to expenditures made in tax years beginning before January 1, 2025. To make the election a taxpayer will attach a statement titled: “FILED PURSUANT TO SECTION 6.02 OF REV. PROC. 2025-28” to its original federal income tax return for the first taxable year to which the election applies. Once the election is made it must be adhered to for the taxable year in which the election is made and all subsequent years (unless a method change is later used). This election statement must include:

1. 1. Name and EIN of the taxpayer;
   2. Taxable year in which the election is made;
   3. A declaration that the applicant is charging such expenditures to a research or experimental capital account, and amortizing such amount over a period of not less than 60 months, beginning with the month in which the applicant first realizes benefits from such expenditures, in accordance with § 174A(c); and
   4. The number of months (not less than 60) selected for the amortization period.

Note: An exception applies for the 2025 tax year for a taxpayer that makes a change in method of accounting for 174A(c ) amortization method under Rev. Proc 2025-23 (as modified by Rev. Proc 2025-28).

BNN Commentary: Every taxpayer’s situation could be different. While the initial inclination might be to return to deducting domestic R&E expenditures (to maximize currently-deductible expenses), it is possible that some taxpayers may benefit from continued capitalization due to net operating losses, tax credit carryforwards, or other tax attributes. In other words, we have a tax planning tool here with the 174A(c) election that should at least be considered for some taxpayers – a new flexibility that has not existed in this space in the past.

4. Automatic Extension for Superseding Returns

Taxpayers with 2024 taxable years ending before September 15, 2025, who filed timely returns WITHOUT using an extension, are granted six more months to file superseding 2024 returns or K‑1s to make the new elections or accounting method changes. Eligible entities for this relief must:

1. have timely filed a tax return and furnished any applicable Schedule K-1s prior to the application of Rev. Proc 2025-28,
2. not have filed for an extension, and
3. file a superseding return and furnish any applicable Schedules K-1s on or before the date that is six months after the taxpayer’s due date (excluding extensions) solely for the purposes of:
   • making the small business OBBBA election provided in section 3 of Rev. Proc 2025-28,
   • making the late § 280C(c)(2) election provided in Rev. Proc 2025-28,
   • revoking a prior § 280C(c)(2) election under section 5 of Rev. Proc 2025-28, or
   • making a change in method of accounting described in section 7.02(3)(c) of Rev. Proc. 2025-23, as modified by Rev. Proc 2025-28.

To utilize this relief the eligible entity should write on top of the superseding return “REVENUE PROCEDURE 2025-28.”

BNN Commentary: This provides taxpayers who filed by the original due date (for calendar year C-Corps & Individuals April 15, 2025, and for calendar year S-Corps and Partnerships March 15, 2025) an extended opportunity to file superseding returns. Generally, superseding returns are allowed only to taxpayers who filed a return but then wish to revise it BEFORE the filing deadline has expired (including extensions, if extensions were filed). The superseding return is similar to an amended return, but stronger in many ways, because it replaces the original return as if the original had never been filed. Those with valid extensions in place (who act before the extension period expires) already have the same six-month period to file original or superseded returns.  Those who didn’t can now pretend that they did. This is a very unusual concession – and a very appropriate one.

5. Modifications to Rev. Proc. 2025‑23

In June of this year, the IRS released Rev. Proc. 2025-23. That document provided an updated list of automatic accounting method changes, and it is 2025’s iteration of a similar list that is provided on an annual basis.  Rev. Proc. 2025‑28 updates and modified some of its automatic change methods and transition rules regarding R&E expenditures under the TCJA and OBBBA. The changes affect how § 481(a) adjustments and cut‑off elections are handled, define automatic accounting method change numbers, and outline audit protection limits.

It should be noted here that if the year of change is the first taxable year beginning after December 31, 2024, the requirement to file Form 3115 is waived and a statement in lieu of Form 3115 can be filed instead to make a method change to comply with Section 174A of OBBBA. That statement will need to contain specific information and is outlined in Rev. Proc 2025-28.

6. Effective Dates & Transition

– Sections 3 through 6 and Section 8 of Rev. Proc 2025-28 are effective as of August 28, 2025.
– Modifications to Rev. Proc. 2025‑23 apply to Form 3115 filings after August 28, 2025.
– Taxpayers who filed duplicate Forms 3115 before November 15, 2025, may choose to follow either the old or new procedures.

Additional Highlights & Strategic Considerations

– Taxpayers with foreign R&E expenditures must continue to capitalize and amortize over 15 years.
– Small taxpayers can make elections by attaching statements to amended returns or potentially original or superseded 2024 tax returns (followed by amended 2022 and 2023 returns if applicable).
– Consider that there could be lengthy processing times which could mean that making the alternate election through the 2025 return is more expedient.

– Certain taxpayers, like passive owners of S-corporations, partnerships, and LLCs, may find themselves for Alternative Minimum Tax (AMT) purposes forced under complex rules to capitalize and amortize R&E costs, even when allowed to immediately deduct them for regular tax purposes. Taxpayers pay the higher of regular tax or AMT and this could result in AMT applying when it otherwise would not.

– What is the state tax impact here? Each state will need careful consideration based on conformity dates and prior Section 174 legislation they may have enacted.

Take‑Aways

Revenue Procedure 2025‑28 equips taxpayers navigating R&E expense treatment under the OBBBA with clear options—through elections and method changes. It allows retroactive relief for small businesses, smooths transitions from amortization rules, and ensures taxpayers are not penalized for timely returns already filed. Acting promptly and choosing the most strategic filing route, especially considering IRS processing lags, will be vital. These rules continue to be complex and may have to be implemented in abbreviated time frames to comply with 2024 returns and deadlines. All taxpayers could have different facts and circumstances, and all scenarios should be considered before finalizing a decision because accounting method changes can be tricky to undo.

For more information, please contact your BNN tax service provider at 800.244.7444.