A deadline passed on July 6, 2026. Eligible small business taxpayers that wanted to reach back and apply the new research and experimental rules to 2022, 2023, and 2024 had until that Monday to file the election. The window is closed.
The One Big Beautiful Bill Act, Public Law 119-21, signed July 4, 2025, rewrote the treatment of research and experimental expenditures. Section 70302 of the law added Section 174A to the Code and narrowed Section 174 to a much smaller job than it had been doing.
What the Prior Rule Did
For expenditures paid or incurred in tax years beginning after December 31, 2021, Section 174 as amended by the Tax Cuts and Jobs Act required taxpayers to charge specified research or experimental expenditures to capital account. Domestic amounts amortized ratably over five years. Foreign amounts over 15. Both beginning at the midpoint of the tax year in which the expenditures were paid or incurred.
Companies with real research spend and thin margins felt it in the first filing season.
Section 174A Reverses the Domestic Rule
Section 174A(a) allows a deduction for domestic research or experimental expenditures paid or incurred during the tax year, notwithstanding Section 263. The term covers expenditures paid or incurred in connection with the taxpayer’s trade or business other than amounts attributable to foreign research within the meaning of Section 41(d)(4)(F). Generally, the amendments apply to amounts paid or incurred in tax years beginning after December 31, 2024.
Capitalization survives as a choice. Section 174A(c)(1) permits charging domestic expenditures to capital account and amortizing ratably over a period of not less than 60 months, beginning with the month the taxpayer first realizes benefits from them. The election is due no later than the return deadline including extensions, and once made it binds both the method and the selected amortization period for all subsequent years absent the Commissioner’s consent to change.
Software development gets swept in. Section 174A(d)(3) treats any amount paid or incurred in connection with the development of software as a research or experimental expenditure. Land, depreciable or depletable property, and mineral exploration costs stay outside the section.
Foreign Research Did Not Move
OBBBA amended Section 174 so it now applies only to foreign research or experimental expenditures, which continue to amortize ratably over 15 years beginning at the midpoint of the tax year.
One amendment affects clients that walk away from foreign research projects. For property disposed of, retired, or abandoned after May 12, 2025, no deduction or reduction to amount realized is allowed on account of that disposition. The amortization simply continues on its original schedule.
The Transition Paths
Rev. Proc. 2025-28, issued August 28, 2025, supplied the procedures. Four methods carry most of the traffic.
| Method | Who it applies to | Effect |
|---|---|---|
| Section 174A(a) deduction | Tax years beginning after Dec. 31, 2024 | Current deduction of domestic R&E |
| Section 174A(c) amortization | Taxpayers electing capitalization | Not less than 60 months |
| Recovery of unamortized amount | Domestic amounts capitalized in 2022-2024 | Full recovery in the first year after Dec. 31, 2024, or ratably over two years |
| Small business retroactive | Eligible taxpayers meeting the 448(c) test | Applies 174A back to years beginning after Dec. 31, 2021 |
Changes to the Section 174A methods are treated as initiated by the taxpayer, made with the Commissioner’s consent, and applied on a cut-off basis, with no Section 481(a) adjustments for amounts paid or incurred in years beginning after December 31, 2024.
The Small Business Election and the Window That Closed
An eligible taxpayer for the retroactive election was any taxpayer, other than a tax shelter barred from using the cash method under Section 448(a)(3), meeting the Section 448(c) gross receipts test for its first tax year beginning after December 31, 2024. That test is met with average annual gross receipts of $25,000,000 or less for the three prior tax years, adjusted for inflation. For a tax year beginning in 2025, the inflation-adjusted figure was $31,000,000.
That election let a small business taxpayer treat the OBBBA amendments as applying to amounts paid or incurred in tax years beginning after December 31, 2021 rather than December 31, 2024. Implementation generally ran through an amended return or administrative adjustment request for each affected year.
OBBBA didn’t amend Section 6511. For a 2022 tax year, the operative deadline was the earlier of July 6, 2026 or the close of the three-year refund claim window, which for many calendar-year corporations landed in April or May of 2026.
Section 280C and the Research Credit
OBBBA amended Section 280C(c)(1) so that domestic research or experimental expenditures otherwise taken into account as a deduction or charged to capital account are reduced by the amount of the credit allowed under Section 41. The statute makes clear this amendment creates no inference about how Section 280C(c) applied for tax years beginning before January 1, 2025.
The Section 280C(c)(2) reduced credit election came through unchanged. It is due no later than the return filing deadline including extensions, and it is irrevocable.
Mechanics: A Statement Instead of Form 3115
For changes under Section 7.02 of Rev. Proc. 2025-23 as modified, the Form 3115 requirement is waived and a statement in lieu is authorized (the duplicate copy requirement goes away too). The statement carries the taxpayer name and identification number, the designated automatic accounting method change number, and declarations covering the method adopted and, where applicable, the amortization period selected.
Three change numbers do the work: 265 for TCJA Section 174 changes, 273 for the Section 174A changes and transition methods, 274 for foreign expenditures.
Audit protection has a ceiling. A taxpayer gets none under Rev. Proc. 2015-13 for a Section 7.02 change covering expenditures paid or incurred in tax years beginning before January 1, 2025.
Documentation That Supports the Position
The election statements are the first line. Section 6.02 statements carry a required heading referencing the revenue procedure, small business election statements filed under Section 3.03 carry their own, and superseding returns filed under the Section 8 relief are marked at the top with the revenue procedure name.
Beyond the filings, the record turns on the questions it always did: which activities were research, where they were performed, how the costs were tracked. The domestic and foreign line now does far more work than it did under prior law.
Related Course
OBBBA Rules Relating to Research and Experimental Expenditures (REE2) covers the introduction of Section 174A and immediate deductions starting January 1, 2025. It works through the treatment of domestic R&E paid or incurred in tax years beginning after December 31, 2021 and before January 1, 2025, elections to amortize, elections available to small business taxpayers, options for previously capitalized expenditures, interaction with the research credit, accounting method changes, and short tax years ending before July 4, 2025. Two credits, basic level, qualifying for CPE, IRS, and CTEC.
Sources
– IRS, Rev. Proc. 2025-28: irs.gov/pub/irs-drop/rp-25-28.pdf
– IRS, Internal Revenue Bulletin 2025-38: irs.gov/irb/2025-38_IRB
– Public Law 119-21, Section 70302