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IRS Releases New Guidance on R&D Expense Deductions

IRS Releases New Guidance on R&D Expense Deductions

The Internal Revenue Service (IRS) recently released new guidance on research and development (R&D) expenses under Revenue Procedure 2025-28. The guidance provides detailed procedures for making elections and changing accounting methods for R&D expenses under the H.R. 1, One Big Beautiful Bill Act (H.R. 1).

Key Takeaways

The IRS guidance addresses the separation of domestic and foreign research and experimental (R&E) expenditures, new elections, transition relief and accounting method changes. Here are some key takeaways that taxpayers should be aware of:

Superseded 2024 Returns

Taxpayers who filed 2024 returns without extensions may file superseded returns to apply H.R. 1 provisions.

Elections for Small Businesses

Businesses under the Internal Revenue Code (IRC) §448(c) threshold ($31 million for 2025) that filed timely returns by November 15, 2025, will be deemed to have elected H.R. 1 treatment if they deduct R&D expenses on the return.

Domestic vs. Foreign R&D

For domestic R&D, immediate deductions or capitalization will begin in 2025. Foreign R&D must be capitalized before and after 2025, though method changes are available to ensure compliance.

Retroactive Application (IRC §174A)

Small businesses may apply H.R. 1 provisions retroactively to tax years beginning after December 31, 2021. The election can be made through timely filed returns, amended returns, administrative adjustment requests or changes in accounting methods. Once made, the election must be applied consistently across all applicable years. The deadline for the election is July 6, 2026, unless an earlier date applies under the refund statute of limitations.

IRC §280C(c)(2) Elections

Late elections and revocations for the years 2022 through 2024 are permitted under section 5.03(1). To make these changes, taxpayers must file an amended Form 6765 along with a statement providing certain information declarations. The same retroactive deadline of July 6, 2026, applies.

Automatic Method Changes

The new guidance provides automatic method changes to:

  • Section 265: Pre-2025 domestic research expenses under the Tax Cuts and Jobs Act of 2017.
  • Section 273: Deducting or capitalizing R&D expenses under H.R. 1, including recovering unamortized amounts over one to two years.
  • Section 274: Foreign research expenses incurred before 2026.

Next Steps and Recommendations

Taxpayers should review their 2022–2024 filings for potential refund opportunities, with particular focus on small businesses under §448(c), as they have the broadest retroactive options. It’s also important to reevaluate R&D tax credit strategies, including the impact of §280C(c)(2) elections, and to prepare superseded or amended returns promptly.

If you have any questions regarding the new guidance on R&D expenses, please contact Brown Plus today!

Posted In: Research & Development Tax Credit | Tax | Insights

About the Author - Patrick Rogers, EA, MST

Patrick is a Tax Principal and Research & Development (R&D) Director at Brown Plus, where he is one of the key members of the Firm’s Tax Department. As R&D Director, he is responsible for managing tax credit consulting and compliance services for his clients, as well as leading the Brown Plus R&D Tax Practice.

Patrick brings over 18 years of experience in public accounting to the Firm. He specializes in R&D Tax Credit Consulting, project management and tax services. He is highly active with numerous professional associations within the accounting community. His expertise also includes all aspects of consolidated federal and state tax compliance, audit defense for IRS R&D tax credits and audit support for GAAP and statutory provisions.

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