In Revenue Procedure 2025-28, the IRS issued guidance on making accounting method changes for research or experimental expenditures. Specifically, Revenue Procedure 2025-28 modifies the procedures under IRC Section 446 and Treas. Reg. Section 1.446-1(e) for obtaining automatic consent to change:

1. Accounting methods for research or experimental expenditures that are paid or incurred in tax years beginning after December 31, 2021, and before January 1, 2025 (the TCJA Period), and subject to IRC Section 174, as in effect after enactment of the Tax Cuts and Jobs Act (TCJA) and before the modifications made by the OBBBA (TCJA IRC Section 174)
2. Accounting methods for research or experimental expenditures paid or incurred in tax years beginning after December 31, 2024, to comply with IRC Section 174, as amended by the OBBBA, and new IRC Section 174A

The Revenue Procedure also addresses how to make the small-business taxpayer election under Section 70302(f)(1) of the OBBA (to retroactively apply IRC Section 174A) and the amortization acceleration election under Section 70302(f)(2) of the OBBBA (to accelerate the remaining amortization on domestic research costs paid or incurred and capitalized during the TCJA Period).

Background

TCJA IRC Section 174 requires taxpayers to treat research or experimental expenditures paid or incurred during the TCJA Period, including software development costs, as chargeable to capital account and amortize the capitalized amount over five years (for domestic research) or 15 years (for foreign research), as applicable. Under TCJA IRC Section 174(d), any unamortized research or experimental expenditures relating to property that is disposed of, retired or abandoned during the amortization period may not be deducted on account of the disposition, retirement or abandonment and must continue to be amortized (the Disposition Rule).

The OBBBA amended TCJA IRC Section 174 so that it only applies to foreign research or experimental expenditures. However, it retained the requirement to capitalize and amortize those expenditures ratably over 15 years. The OBBBA also amended the Disposition Rule to specify that unamortized research or experimental expenditures may not reduce the amount realized from the related disposition. The OBBBA amendments to the Disposition Rule are effective for property disposed after May 12, 2025. The rest of the OBBBA amendments to TCJA IRC Section 174 are effective for expenditures paid or incurred in tax years beginning after December 31, 2024.

The OBBBA also added IRC Section 174A, which allows taxpayers to use one of the following accounting methods to account for domestic research or experimental expenditures paid or incurred in tax years beginning after December 31, 2024:

• Deduct the domestic research or experimental expenditures in the tax year in which they are paid or incurred

or

• Elect to capitalize and amortize the domestic research or experimental expenditures ratably over no less than 60 months, beginning with the month in which the taxpayer first realizes benefits from those expenditures

Additionally, the OBBBA made a conforming amendment to IRC Section 59(e) to exclude foreign research or experimental expenditures from the election to amortize research or experimental expenditures over 10 years. However, domestic research or experimental expenditures that are otherwise deductible under IRC Section 174A(a) are eligible for the election under IRC Section 59(e).

The OBBBA also made conforming amendments to other provisions of the IRC, including a conforming amendment to IRC Section 280C(c), to reduce domestic research or experimental expenditures otherwise taken into account under Chapter 1 of the IRC (whether deducted or capitalized) by the credit allowed under IRC Section 41(a).

The OBBBA also provides special transition rules. Specifically, the OBBA allows eligible small-business taxpayers to elect to apply IRC Section 174A and the OBBBA modifications to IRC Section 280C(c) to tax years beginning after December 31, 2021, rather than December 31, 2024. An eligible small-business taxpayer is a taxpayer that meets the gross receipts test of IRC Section 448(c) for the first tax year beginning after December 31, 2024. The OBBBA requires an eligible small-business taxpayer making this election to file an amended return for each tax year affected by the election. The OBBBA, however, also allows the election to be treated as a change in accounting method for an eligible small-business taxpayer's first tax year affected by the election.

For domestic research or experimental expenditures that were paid or incurred during the TCJA Period and charged to capital account, the OBBBA allows taxpayers to elect to deduct all remaining amortization (the Remaining Amortization Amount) in the first tax year beginning after December 31, 2024. Alternatively, taxpayers may deduct the Remaining Amortization Amount ratably over two tax years starting with the first tax year that begins after December 31, 2024. The OBBBA treats this election as a change in accounting method applied on a cut-off basis.

Revenue Procedure 2025-28

Small-business election to retroactively apply IRC Section 174A

Amended return option — Section 3 of Revenue Procedure 2025-28

Revenue Procedure 2025-28 allows a small-business taxpayer to elect to retroactively apply IRC Section 174A on its timely filed (including extensions) original federal income tax return for an "applicable taxable year" (i.e., any tax year beginning after December 31, 2021, and before January 1, 2025). The small-business taxpayer also may make the election on an administrative adjustment request (AAR) or amended federal income tax return, as applicable, for an applicable taxable year. The taxpayer must include an election statement with the return or AAR. The Revenue Procedure sets out the requirements for the statement.

Once made for an applicable taxable year, the election applies to all other applicable taxable years in which the taxpayer paid or incurred domestic research or experimental expenditures. For example, if a small-business taxpayer paid or incurred domestic research or experimental expenditures during its 2022, 2023 and 2024 tax years, and elects to retroactively apply IRC Section 174A on its timely filed original return for the 2024 tax year, it must also amend its 2022 and 2023 returns (or file an AAR, as applicable) to reflect the retroactive application of IRC Section 174A.

The due date for making the election on an AAR or amended return for an applicable taxable year (or filing an AAR or amended return for an applicable taxable year to carry out an election made for another applicable taxable year) is on or before July 6, 2026. For small-business taxpayers with an applicable taxable year beginning in 2022, the IRS will consider an election to be timely made on an AAR or amended return for 2022 or another applicable taxable year if it is filed on or before the earlier of (1) July 6, 2026, or (2) the due date for filing the claim for credit or refund for that tax year under IRC Section 6511 or Treas. Reg. Section 301.6511(a)-1(a)(1).

A taxpayer will be deemed to have made the small-business election for an applicable taxable year if it timely files an original federal income tax return for that year on or before November 15, 2025, and deducts the domestic research or experimental expenditures paid or incurred during that year on the original return. Taxpayers must comply with the requirements of Revenue Procedure 2025-28 for all other applicable taxable years.

Accounting-method-change option — Section 7 of Revenue Procedure 2025-28

Revenue Procedure 2025-28 allows a small-business taxpayer that does not wish to file amended returns to instead make an automatic accounting method change to retroactively apply IRC Section 174A. This automatic method change must be made for a tax year beginning before January 1, 2025, for which an original federal income tax return is filed after August 28, 2025, for domestic research or experimental expenditures that were paid or incurred during the TCJA Period. This change is made via a statement in lieu of a Form 3115 and is implemented with an IRC Section 481(a) adjustment.

Small-business election under IRC Section 280C(c)(2) — Section 4 of Revenue Procedure 2025-28

The OBBBA allows small-business taxpayers that elect to retroactively apply IRC Sections 174A and 280C(c), as amended by the OBBBA, to make a late election under IRC Section 280C(c)(2) for any prior applicable taxable year to reduce the research credit under IRC Section 41, in lieu of applying the disallowance provisions of IRC Section 280C(c)(1). Section 4 of Revenue Procedure 2025-28 outlines how to make that election.

Under Revenue Procedure 2025-28, a small-business taxpayer may make a late IRC Section 280C(c)(2) election for any applicable taxable year if it filed the original federal income tax return for that year on or before September 15, 2025 (eligible prior year). The small-business taxpayer may make the election for any eligible prior year, regardless of whether it made a late IRC Section 280C(c)(2) election for any other eligible prior year. In other words, taxpayers may make a late IRC Section 280C(c)(2) election for some applicable taxable years and not others, even though they must retroactively apply IRC Section 280C(c), as amended by the OBBBA, for all applicable taxable years, if they elect to retroactively apply IRC Section 174A for all those years. Revenue Procedure 2025-28, however, prohibits a small-business taxpayer from making a late IRC Section 280C(c)(2) election for an eligible prior year for which it previously revoked an IRC Section 280C(c)(2) election (see later discussion for how to revoke an IRC Section 280C(c)(2) election).

Revenue Procedure 2025-28 includes step-by-step instructions for making the late election. The due date for making the election on an AAR or amended return is on or before July 6, 2026. For small-business taxpayers with an applicable taxable year beginning in 2022, the IRS will consider an election timely made on an AAR or amended return for a prior applicable taxable year if it is filed on or before the earlier of (1) July 6, 2026, or (2) the due date for filing the claim for credit or refund for that tax year under IRC Section 6511 or Treas. Reg. Section 301.6511(a)-1(a)(1). Once made, the election is irrevocable for that tax year.

Revocation of IRC Section 280C(c)(2) election — Section 5 of Revenue Procedure 2025-28

The OBBBA also allows small-business taxpayers that elect to retroactively apply IRC Section 174A and IRC Section 280C(c), as amended by the OBBBA, to revoke an IRC Section 280C(c)(2) election made in an eligible prior year. Section 5 of Revenue Procedure 2025-28 sets out how to revoke the election.

Revenue Procedure 2025-28 allows a small-business taxpayer to revoke the IRC Section 280C(c)(2) election for any eligible prior year, regardless of whether it revokes the election for any other eligible prior year. Revenue Procedure 2025-28, however, prohibits a small business taxpayer from revoking a late IRC Section 280C(c)(2) election made under Revenue Procedure 2025-28 (see previous discussion on late IRC Section 280C(c)(2) elections). Small-business taxpayers must follow the steps set out in Revenue Procedure 2025-28 to revoke the election.

Similar to rules discussed previously, the due date for revoking the election on an AAR or amended return is on or before July 6, 2026. The IRS will consider a revocation timely made on an amended return for a prior applicable taxable year if it is filed on or before the earlier of (1) July 6, 2026, or (2) the due date for filing the claim for credit or refund for that tax year. Once the election is revoked, the small-business taxpayer may not make a late IRC Section 280C(c)(2) election under Section 4 of Revenue Procedure 2025-28 for the eligible prior year.

IRC Section 174A(c) election to capitalize and amortize domestic or experimental expenditures — Section 6 of Revenue Procedure 2025-28

Under Section 6 of Revenue Procedure 2025-28, a taxpayer may elect to apply IRC Section 174A(c) to capitalize and amortize all domestic research or experimental expenditures paid or incurred in tax years beginning after December 31, 2024, if the taxpayer did not elect to apply IRC Section 174A(c) by changing its accounting method under Section 7.02(3) of Revenue Procedure 2025-23, as modified by Revenue Procedure 2025-28 (see later discussion on procedures for electing to apply IRC Section 174A(c) through an accounting method change).

To make the election, the taxpayer must attach a statement marked, "FILED PURSUANT TO SECTION 6.02 OF REV. PROC. 2025-28," to its timely filed original federal income tax return. Revenue Procedure 2025-28 outlines the information each election statement must include.

After making the election and selecting the amortization period, the taxpayer must apply the election and amortization period when computing taxable income for the tax year in which the election is made and all subsequent tax years. The election and amortization period will remain in effect until the taxpayer receives the Commissioner's consent to change the accounting method or amortization period, which is currently only available through the nonautomatic consent procedures.

For a tax year beginning after December 31, 2024, and before January 1, 2026, the IRS will deem that a taxpayer has made the election in Section 6 of Revenue Procedure 2025-28, if the taxpayer makes an accounting change to apply IRC Section 174A(c) under Section 7.02(3)(b) of Revenue Procedure 2025-23, as modified by Revenue Procedure 2025-28.

Modifications to Section 7 of Revenue Procedure 2025-23 that are provided in Section 7 of Revenue Procedure 2025-28

Section 7.01 modifications

Revenue Procedure 2025-28 modifies Section 7.01 of Revenue Procedure 2025-23 to apply only to domestic research or experimental expenditures paid or incurred in tax years beginning before January 1, 2025. In-scope changes include changes to comply with TCJA IRC Section 174 and changes to rely on certain sections of Notice 2023-63. The terms and conditions of modified Section 7.01 are generally consistent with those in Section 7.01 of Revenue Procedure 2025-23, before the modifications by Revenue Procedure 2025-28.

A taxpayer is precluded from making a change under modified Section 7.01 for tax years beginning after December 31, 2024, if it made a change for domestic research or experimental expenditures in any of the five preceding tax years (including the year of change). Accordingly, for taxpayers that made a change to comply with TJCA IRC Section 174 for their 2022 or 2023 tax year, the 2024 tax year presents the last chance to correct, under the automatic method change procedures, an impermissible method of accounting for domestic research or experimental expenditures paid or incurred during the TCJA Period. Method changes filed under modified Section 7.01 will continue to use designated change number (DCN) 265.

New Section 7.02

Revenue Procedure 2025-28 adds new Section 7.02 to the list of automatic changes in Revenue Procedure 2025-23. New Section 7.02 provides several automatic method changes stemming from the OBBBBA (all under DCN 273). As provided in the applicability provisions in Section 7.02(3), these changes include:

1. A change to currently deduct, under IRC Section 174A(a), domestic research or experimental expenditures paid or incurred in tax years beginning after December 31, 2024 (the IRC Section 174(a) deduct method)
2. A change to capitalize and amortize, under IRC Section 174A(c), domestic research or experimental expenditures paid or incurred in tax years beginning after December 31, 2024 (the IRC Section 174A(c) amortization method)
3. A change to retroactively apply, in the case of a small-business taxpayer, IRC Section 174A for domestic research or experimental expenditures paid or incurred during the TCJA Period (the small-business retroactive method)
4. A change to accelerate (over either one or two tax years, beginning with the first tax year beginning after December 31, 2024) the remaining amortization of domestic research or experimental expenditures that were previously capitalized under TCJA IRC Section 174 (the recovery-of-unamortized-amount method)

The changes described in (a) and (b) may only be made for a tax year beginning after December 31, 2024, and before January 1, 2026. The change described in (c) may only be made for a tax year beginning before January 1, 2025, for which an original return is filed after August 28, 2025. The change described in (d) may only be made for the first tax year beginning after December 31, 2024 (although a special exception applies for a short tax year for which a return was filed on or before September 15, 2025).

All these changes are made on a statement in lieu of Form 3115, and Section 7.02 specifies the information to provide on the statement for each change. The change described in (a) (to follow the IRC Section 174A(a) deduct method) is made either (1) on a cut-off basis (i.e., no IRC Section 481(a) adjustment) if made for the first tax year beginning after December 31, 2024, or (2) with a modified IRC Section 481(a) adjustment (that takes into account any domestic research or experimental expenditures paid or incurred in tax years beginning after December 31, 2024) if made for a later tax year.

The change described in (b) (to follow the IRC Section 174A(c) amortization method) is implemented on a cut-off basis, regardless of the year of change. The change described in (c) (to follow the small-business retroactive method) is made with an IRC Section 481(a) adjustment. The change described in (d) (to follow the recovery-of-unamortized-amount method) is generally made on a cut-off basis with no IRC Section 481(a) adjustment.

Taxpayers that filed a federal income tax return on or before September 15, 2025, for a tax year beginning after December 31, 2024, are deemed to have complied with the accounting-method-change procedures in Section 7.02(3)(a), (b), or (d) if they properly:

(a) Deducted their domestic research or experimental expenditures in accordance with the IRC Section 174A(a) deduct method for the tax year

(b) Reported their domestic research or experimental expenditures paid or incurred for the tax year on Part VI of Form 4562, Depreciation and Amortization, filed with their federal income tax return, and properly capitalized and amortized the domestic research or experimental expenditures in accordance with the IRC Section174A(c) amortization method for the tax year

(c) Either amortized the remaining unamortized amount in full in the first tax year beginning after December 31, 2024, or started to amortize the remaining unamortized amount ratably over two tax years beginning with that tax year

A taxpayer does not receive audit protection under Section 8.01 of Revenue Procedure 2015-13 for a change described in Section 7.02 for expenditures paid or incurred in tax years beginning before January 1, 2025. Prior method changes made to comply with TCJA IRC Section 174 and related guidance are disregarded when determining eligibility for the changes described in Section 7.02.

New Section 7.03

Revenue Procedure 2025-28 adds Section 7.03 to Revenue Procedure 2025-23, which provides a new automatic accounting method change (DCN 274) for foreign research or experimental expenditures, both under TCJA IRC Section 174 and IRC Section 174, as modified by the OBBBA. As provided in Section 7.03(1)(a), this change applies to taxpayers that want to:

1. Comply with TCJA IRC Section 174 for foreign research expenditures paid or incurred in tax years beginning before January 1, 2025
2. Rely on interim guidance in Sections 3, 4, 5, 6 or 7 of Notice 2023-63, as modified by Notice 2024-12, for foreign research expenditures
3. Comply with the changes made to TCJA IRC Section 174 by the OBBBA for foreign research expenditures paid or incurred in tax years beginning after December 31, 2024, for tax years beginning before January 1, 2026

A change described in (iii) does not provide the taxpayer with audit protection under Section 8.01 of Revenue Procedure 2015-13 for its treatment of expenditures paid or incurred in tax years beginning before January 1, 2025. Revenue Procedure 2025-28 waives the prior five-year item eligibility rule in Section 5.01(1)(f) of Revenue Procedure 2015-13 for a change described in (iii) if it is made for the first tax year beginning after December 31, 2024.

For a change described in (i) or (ii), the prior five-year-item-eligibility rule is waived only if the change is made for a tax year beginning in 2023 or 2024. These changes also come with audit protection for the treatment of foreign expenditures incurred in the TCJA Period. As such, the 2024 tax year may be the last opportunity a taxpayer has to comply with TCJA IRC Section 174 for foreign expenditures via an automatic method change with audit protection if that taxpayer made a prior change for its foreign expenditures in the 2022 or 2023 tax year. The prior-five-year-item-eligibility rule would not impact a taxpayer that had not made a method change for this item previously.

Extension of time to file — Section 8 of Revenue Procedure 2025-28

Under Revenue Procedure 2025-28, the IRS will treat the timely filing of certain forms as a timely filed request for a six-month extension of the due date to file those forms. A taxpayer that timely filed a tax return may file a superseding tax return and provide Schedules K-1 before the expiration of the extended due date.

The extensions apply to a partnership, S corporation, C corporation, individual, trust, estate or exempt organization tax year that began during 2024 and ended before September 15, 2025, and for which the due date (excluding extensions) for the tax return is before September 15, 2025.

To claim this relief, taxpayers must file a superseding tax return in the same manner as the original return and write "REVENUE PROCEDURE 2025-28" on the top.

Effective date

Sections 3 through 6 and Section 8 of Revenue Procedure 2025-28 are effective August 28, 2025. New Sections 7.02 and 7.03 of Revenue Procedure 2025-23, as modified by Revenue Procedure 2025-28, are effective for a Form 3115 filed after August 28, 2025. Except as provided in the next two paragraphs, Section 7.01 of Revenue Procedure 2025-23, as modified by Revenue Procedure 2025-28, is effective for a Form 3115 filed after August 28, 2025.

Revenue Procedure 2025-28 includes a transition rule for taxpayers that properly file the duplicate copy of Form 3115 before November 15, 2025, for a change described in Section 7.01 of Revenue Procedure 2025-23, as in effect before the modifications made by Revenue Procedure 2025-28. Under the transition rule, the August 28, 2025 effective date will not apply, and the taxpayer can make the change under the old procedures.

Revenue Procedure 2025-28 also provides a transition rule for taxpayers that properly file the duplicate copy of Form 3115 before September 15, 2025, under Section 7.01 of Revenue Procedure 2025-23, as in effect before the modifications made by Revenue Procedure 2025-28. Under this transition rule, the taxpayer may either continue filing under the old procedures or convert to filing under the new procedures (provided the change otherwise qualifies under the new procedures, and the taxpayer has yet to file its original return for the year of change).

Implications

TCJA IRC Section 174 method changes

Effective August 28, 2025, taxpayers must make changes for foreign research and experimental expenditures paid or incurred in the TCJA Period separately (separate Form 3115, separate IRC Section 481(a) adjustment, etc.) from changes made for domestic research and experimental expenditures paid or incurred in that same period.

Taxpayers, however, should keep the transition rule in mind, as it allows them to use the automatic change provisions of Section 7 of Revenue Procedure 2025-23, as in effect before the modifications by Revenue Procedure 2025-28, if their duplicate copy is filed before November 15, 2025. For calendar-year (and January fiscal-year) taxpayers that are in the process of filing research-and-experimental-expenditure-related accounting method changes for 2024 tax years, this transition rule is welcome relief as they will not need to comply with any new procedures. Later fiscal-year taxpayers could also avail themselves of this transition rule, though they would have to file their duplicate copy well before the return due date.

Taxpayers, especially those with both foreign and domestic research expenditures, should evaluate the new and old procedures to consider whether filing under one is more desirable than the other. Although some differences exist, the terms and conditions for 2024 tax year changes are largely the same. Accordingly, many with Forms 3115 already in process may desire to continue filing under the old procedures.

Lastly, Revenue Procedure 2025-28 does not extend (to 2025 tax years) the waiver of the prior five-year-item-eligibility rule for changes involving research or experimental expenditures incurred in the TCJA Period. Because the eligibility rule prohibits changes from being filed under the automatic consent procedures if a change was made for the same item in the past five tax years, many taxpayers will not be eligible to make these changes for 2025 tax years under the automatic consent procedures, absent a future extension. However, taxpayers that did not change their method in an effort to comply with TCJA IRC Section 174 for their 2022, 2023 or 2024 tax year would not be subject to the prior-five-year-item-eligibility rule and, as such, would not be prohibited from filing a 2025 tax year automatic method change (with audit protection and an IRC Section 481(a) adjustment) to correct the treatment of expenditures incurred in the TCJA period.

2025 domestic research method changes

By allowing taxpayers to file a return statement in lieu of Form 3115, Revenue Procedure 2025-28 has established a simplified way for taxpayers to comply with IRC Section 174A(a) or (c), as well as make a change to the recovery-of-unamortized-amount method for domestic research costs that were capitalized and amortized in 2022–2024 tax years. Taxpayers can make a change to either the IRC Section 174A(a) deduct method or the IRC Section 174A(c) amortization method, and a change to the recovery-of-unamortized-amount method on the same statement.

If a taxpayer elects to change to the recovery-of-unamortized-amount method and accelerate its remaining amortization, Revenue Procedure 2025-28 also confirms that the accelerated deduction is amortization for US federal income tax purposes, which is relevant for IRC Section 163(j) and other provisions.

Revenue Procedure 2025-28, however, only permits these changes to be made under the automatic consent procedures for tax years beginning in 2025. While it is possible (and perhaps likely given past practice) that Treasury and the IRS will further modify Revenue Procedure 2025-23 to extend the tax years in which taxpayers may file these changes under the automatic consent procedures, that is not guaranteed to occur. Accordingly, taxpayers are incentivized to use the automatic consent procedures in Revenue Procedure 2025-28 to comply with the various OBBBA changes and make any desired OBBBA related elections for tax years beginning in 2025.

The Revenue Procedure treats the election under IRC Section 174A(c) as a method of accounting that applies to all domestic research or experimental expenditures paid or incurred in the year of the election and all future years (unless it receives consent to change that method), rather than a project-by-project election as contemplated in the regulations promulgated under IRC Section 174(b), as in effect prior to the amendments made by the TCJA and the OBBBA. Absent future modifications to Revenue Procedure 2025-23, a taxpayer that makes this election for its 2025 tax year would be bound to use this method for at least five tax years unless it files, and the IRS grants, a non-automatic method change. As such, taxpayers that wish to capitalize their domestic research or experimental expenditures should consider pairing a change to the IRC Section 174A(a) deduct method (to establish that method as the taxpayer's default method) with IRC Section 59(e) elections, which can be made on an annual basis for any dollar amount of domestic research or experimental expenditures paid or incurred in the year of the election.

Taxpayers should consider carefully modeling the election and method change options in the Revenue Procedure and IRC Section 59(e), as these election and method changes can affect other Code provisions. For example, these election and method changes could affect the corporate alternative minimum tax under IRC Section 55, the base erosion and anti-abuse tax under IRC Section 59A, the deduction for foreign-derived deduction eligible income (formerly known as foreign-derived intangible income) under IRC Section 250 and the limitation on business interest under IRC Section 163(j).

2025 foreign research method changes

Unlike the automatic method changes made to comply with the OBBBA provisions involving domestic research or experimental expenditures, which are made via a statement in lieu of a Form 3115, the automatic method change to comply with the OBBBA amendments to IRC Section 174 for foreign research or experimental expenditures requires a full Form 3115, despite also being made on a cut-off basis. However, if a taxpayer is already on a proper 15-year amortization method for its foreign research or experimental expenditures and is otherwise compliant with IRC Section 174, as amended by the OBBBA, it likely does not need to file a method change.

Small businesses

While the OBBBA was not entirely clear on how the small-business taxpayer election could be made, Revenue Procedure 2025-28 allows small-business taxpayers to choose from using amended returns, an original 2024 tax return or a method change, giving them significant flexibility in how they make the election.

There is no transition rule for making the accounting method change to the small-business retroactive method; as such, an eligible taxpayer will need to affirmatively file the statement in lieu of Form 3115 to use this option. Accordingly, a small-business taxpayer that has already filed its 2024 tax return using an IRC Section 174A(a) deduct method for its research or experimental expenditures must either supersede that return to include the accounting-method-change statement (and corresponding IRC Section 481(a) adjustment) or commit to filing amended returns for the 2022 and 2023 tax years before July 6, 2026.

A small-business taxpayer making the election on its 2024 return by deducting domestic research or experimental costs incurred in 2024 should similarly not deduct the amortization attributable to IRC Section 174 expenditures incurred in its 2022 and 2023 tax years on the 2024 return. Otherwise, after amending the 2022 and 2023 returns to deduct domestic research expenditures consistent with retroactive application of IRC Section 174A, a taxpayer would also have to amend its 2024 tax return to no longer claim the amortization on the 2022–2023 expenditures.

Additionally, small-business taxpayers should keep in mind that they are electing to retroactively apply the OBBBA modifications to IRC Section 280C if they elect to retroactively apply IRC Section 174A. This is true regardless of whether the taxpayer chooses to retroactively apply IRC Section 174A by amending its returns or filing a method change for its 2024 tax year. For small-business taxpayers that claimed the research credit under IRC Section 41 and did not make an IRC Section 280C election in their 2022–2024 tax years, electing to retroactively apply IRC Section 174A may be undesirable in that the taxpayer may need to choose between reducing the research credit claim or reducing its domestic research or experimental expenditures by the amount of the credit. For that reason, as well as for administrative ease, a small-business taxpayer should consider whether it may be more desirable to simply use the recovery-of-unamortized-amount method to accelerate the remaining amortization on previously capitalized domestic research or experimental expenditures.