On August 28, 2025, the IRS issued Rev. Proc. 2025-28 to provide taxpayers with guidance on how to comply with the changes made by OBBBA with respect to research and development (“R&D”) expenditures. The revenue procedure instructs taxpayers with respect to the filing of tax returns (including AARs, amended returns and superseding returns) to facilitate the changes made by OBBBA and elections made by taxpayers. This news update will focus on domestic R&D expenditures paid or incurred during tax years beginning after December 31, 2021, and before January 1, 2025 (the “TCJA Period”), that were required to be capitalized and amortized.

In the case of domestic R&D expenditures (“TCJA Domestic R&D”) that were capitalized and partially amortized during the TCJA Period, OBBBA provided two options for taxpayers to deduct TCJA Domestic R&D that are worth mentioning. The first option applies to any taxpayer, while the second option only applies to “Small Business Taxpayers” (any taxpayer, other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting, whose average annual gross receipts do not exceed $31,000,000 for the three taxable years immediately preceding the first taxable year beginning after December 31, 2024). The first option relates to any taxpayer who elects to deduct unamortized TCJA Domestic R&D in its 2025 tax year or ratably over its 2025 and 2026 tax years, with Rev. Proc. 2025-28 requiring the taxpayer to file a statement in lieu of Form 3115 informing the IRS that the taxpayer made this election. The requirements for this statement can be found at Section 7.02(5)(a)(ii) of the revenue procedure.

The second option permits the Small Business Taxpayer to elect to deduct TCJA Domestic R&D in the tax year in which the R&D expenditures were paid or incurred. For the 2024 tax year, the election is made on a timely filed original return or a superseding return. Amended returns or AARs are filed to make the election for the 2022 and 2023 tax years. The amended returns or AARs must be filed by the earlier of (i) July 6, 2026, or (ii) the due date for filing a claim for refund, which is rapidly approaching for tax returns filed for tax years beginning in 2022. Interestingly, the revenue procedure provides a gem to a Small Business Taxpayer who did not timely file an extension for the taxpayer’s 2024 tax year to preserve the ability to file a superseding 2024 return. The revenue procedure provides an automatic six-month extension from the original due date of the 2024 tax return to elect the second option on a superseding return and avoid filing an amended return or AAR for 2024. However, this window of opportunity ends soon.

Although we recommend reading Rev. Proc. 2025-28 (all 61 pages) to best serve your clients, we do not recommend reading this revenue procedure at 10:00 at night, unless you need help sleeping. The revenue procedure is complicated and must be followed to implement the changes made by OBBBA with respect to R&D.

The first of our signature Tax Planning Forum® and Fundamentals of Flow-Through® programs is rapidly approaching, and we encourage you to register early, particularly for our in-person programs in Las Vegas and Orlando (where our room blocks are closing or filling up).