For several years, taxpayers performing R&D were required to capitalize and amortize their research expenses under Section 174 rather than deduct them immediately. This change, effective in 2022, significantly reduced the near-term tax benefit of R&D spending by spreading deductions over five years using a mid-year convention (effectively allowing just a 10% deduction in year one), or 15 years for foreign research.

The One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, reversed that result. It allows eligible taxpayers to once again immediately deduct domestic R&D expenditures under new Section 174A. Just as importantly, it provides an opportunity to apply that favorable treatment retroactively to the entire 2022–2024 period, but only if action is taken by July 6, 2026 (or earlier, if the standard three-year refund statute of limitations expires first).

Under Rev. Proc. 2025-28, taxpayers can elect to retroactively deduct domestic R&D expenses for 2022–2024 by filing amended returns. If the election is made, those costs are fully deductible in the year incurred, which can generate refunds or increase net operating losses. If the election is not made by the deadline, those same expenses remain subject to the less favorable amortization rules.

The revenue procedure also provides a limited opportunity to make or revoke a Section 280C election for those same years. Section 280C governs how R&D deductions interact with the R&D credit and can materially affect the after-tax value of the credit. For example, taxpayers must either reduce their deductions or accept a reduced credit. This choice can meaningfully impact federal and state tax outcomes, so it should be carefully evaluated alongside any Section 174A election while following strict IRS procedural requirements.

If the July 6, 2026 deadline is missed, taxpayers can still amend returns, but they must follow the original Section 174 amortization rules for 2022–2024. The opportunity to retroactively expense those costs and optimize the related credit treatment is effectively lost.

Alternatively, taxpayers that do not wish to retroactively apply Section 174A to prior returns, or that miss the July 6 deadline, may still use an automatic change in accounting method to immediately expense R&D expenditures beginning in 2025 on a prospective basis. However, an accounting method change cannot be used to make a late Section 280C election or retroactively expense prior-year costs. Taxpayers wishing to change their 2022–2024 treatment must still use separate amended filings by the July 2026 deadline.

Taxpayers with significant R&D activity during 2022–2024 should evaluate this opportunity carefully. In many cases, the ability to immediately deduct those costs and properly coordinate the Section 280C election can produce meaningful tax savings.

If you would like to discuss how these rules apply to your business or evaluate potential refund opportunities before the July 6, 2026 deadline, please contact our R&D tax credit team at ICS Tax. Our professionals can assist with modeling available options, preparing the required filings, and ensuring compliance with IRS procedural requirements.