What You Need to Know

by David Zaiken

On August 28, 2025, the IRS released Rev. Proc. 2025-28, offering long-awaited direction on how taxpayers should handle research and development (R&D) expenses in light of the One Big Beautiful Bill Act (OBBBA). While the guidance runs more than 60 pages, here’s the essence of what it means for businesses.

For domestic R&D costs incurred during tax years that began after December 31, 2021, and before January 1, 2025, the so-called “TCJA period,” taxpayers had been required to capitalize and amortize those expenses. OBBBA changes that, and Rev. Proc. 2025-28 provides two paths forward:

1. For all taxpayers – You may elect to deduct the unamortized balance of those R&D expenses either fully in your 2025 return or spread evenly over 2025 and 2026. This election is made with a simple statement attached to your return, rather than the more complex Form 3115.
2. For small business taxpayers – Defined as those with average annual gross receipts under $31 million (and not classified as a tax shelter), there’s another option. You may elect to deduct the expenses in the year they were originally incurred. To do so, you’ll need to file amended returns or administrative adjustment requests (AARs) for 2022 and 2023, and make the election directly on your 2024 return. Key deadlines apply — generally July 6, 2026, or the standard refund claim deadline, whichever comes first. Notably, the IRS also granted an automatic six-month extension for taxpayers who didn’t file a 2024 extension, allowing them to file a superseding return rather than an amended one.

There are real opportunities here, but timing is critical. Taxpayers who act promptly can recover deductions they might otherwise lose. It’s complicated, it’s technical, and it will shape how you handle R&D expenses for years to come.