Navigating OBBBA: Four Practical Paths for Treating Research & Experimental (R&E) Expenses

This article was written by Jason Mollner, Partner.

The One Big Beautiful Bill Act (OBBBA) restores long-sought flexibility in how businesses handle Research & Experimental (R&E) expenditures. For tax years beginning after 2024, companies may expense domestic R&E or elect to capitalize and amortize under new §174A (or, in limited cases, §59(e)).

For 2022–2024, the IRS released Revenue Procedure 2025-28, which provides several transition options—letting taxpayers accelerate unamortized TCJA §174 costs, make retroactive elections, and simplify small-business compliance.

This article summarizes the four primary compliance paths and provides guidance for taxpayers who never capitalized or amortized R&E under TCJA §174.

What Applies to Whom

• Applies to All Taxpayers: Options 1 and 2; accelerated recovery of unamortized pre-2025 domestic R&E; elections under §174A(a) (expense) or §174A(c) (amortize); optional §59(e) 10-year election; foreign R&E remains 15-year.
• Small Business Only (§448(c) for 2025): Options 3 and 4 plus related late/revocable §280C(c)(2) mechanics and special November 15, 2025, deadlines for deemed elections and superseding-return filings.

The Four Options (for 2022–2024 Domestic R&E)

Option 1 — Continue under §174 (Status-Quo Amortization)

Who: Any taxpayer
What: Continue amortizing domestic R&E over 5 years (60 months); foreign R&E continues over 15 years.
How (2025): Adopt §174A(a) or §174A(c) for 2025 with a statement in lieu of Form 3115; no §481(a) adjustment needed.
Why Choose It: Maintains continuity; simplest if you prefer a steady, predictable deduction profile.
Watch-Outs: Slower cash-tax benefit and no acceleration of pre-2025 costs.

Deadline Notes: File the 2025 return (including any statement) by the normal due date with extensions. If you later decide to amend under a different option, the latest possible amendment window closes July 6, 2026 (or earlier if the statute expires).

Option 2 — Switch to §174A in 2025 (Prospective Expensing or Amortization)

Who: Any taxpayer
What:

• Beginning in 2025, either expense domestic R&E (§174A(a)) or capitalize and amortize ≥60 months (§174A(c), applies to all domestic R&E).
• Accelerate remaining unamortized 2022–2024 domestic R&E using the “recovery of unamortized amount” method — deducted over one or two tax years beginning in 2025.

How: File a statement in lieu of Form 3115 with the 2025 return covering both (i) the post-2024 §174A method and (ii) the accelerated recovery of pre-2025 costs. Taxpayers wishing to capitalize only some costs may pair §174A(a) with an annual §59(e) 10-year election.

Why Choose It:

• Accelerates deductions without amending older returns.
• Keeps compliance manageable with a single statement rather than multiple amendments.
• Provides flexibility to smooth earnings or optimize §163(j) planning.

Watch-Outs:

• Accelerated recovery is still treated as amortization for §163(j) ATI add-back.
• 174A(c) must apply to all domestic R&E for the year elected and forward (no project-by-project treatment).
• Coordinate §41 and §280C(c) to avoid double benefits.
• Foreign R&E remains subject to 15-year capitalization.

Deadline Notes: Make this change on your 2025 return filed by its due date (including extensions). Amended filings to revise this choice must be completed by July 6, 2026, or the statute expiration, whichever is earlier.

Option 3 — Small-Business Retroactive §174A (Amend Prior Years)

Who: Small Business Taxpayers (SBTs) under §448(c) for 2025
What: Apply §174A retroactively to 2022–2024 and amend returns to fully deduct domestic R&E and claim refunds.
How: File amended 2022 and 2023 returns (if open); for 2024, attach a statement in lieu of Form 3115.
Why Choose It: Maximizes refunds for open years and creates a clean, retroactively compliant record.
Watch-Outs: Must apply retroactive §174A to all tax years after 2021 (no selective application). Coordinate §280C(c) reductions with any §41 credits.

Deadline Notes: Amended returns and elections must be filed by July 6, 2026, or earlier if the statute for the affected year closes. For original 2024 returns timely filed before November 15, 2025, expensing may be deemed elected if other conditions are met.

Option 4 — Small-Business Retroactive §174A via 2024 Method Change (No Amendments)

Who: Small Business Taxpayers under §448(c)
What: Make an automatic 2024 accounting method change to adopt §174A and recognize a favorable §481(a) true-up for 2022–2023 on the 2024 return — no amended returns needed.
How: Attach a statement in lieu of Form 3115 to the original 2024 return filed after August 28, 2025. Taxpayers who filed before September 15, 2025, may use the automatic 6-month superseding-return extension to implement this change through November 15, 2025.
Why Choose It: Captures catch-up deductions with minimal administrative burden and no need to amend prior years.
Watch-Outs: No audit protection for retroactive portions; must still coordinate §41 and §280C(c).

Deadline Notes: The superseding-return window for this method change closes November 15, 2025. All related statements or amended actions must be completed by July 6, 2026, or earlier if the statute expires.

If You Never Capitalized or Amortized Under TCJA §174

Many small and mid-sized taxpayers never changed how they treated R&E costs after the 2017 TCJA. They simply continued to deduct R&E expenses as incurred.

With OBBBA restoring immediate expensing under §174A, it’s natural to ask:
“If I’ve been expensing R&E all along, can I just leave it alone—or can I now go back and claim the credit?”

1. Can I “Do Nothing” and Let Sleeping Dogs Lie?

Possibly — but it depends on your status and risk tolerance.

• If you qualify as a Small Business Taxpayer (SBT) and have been consistently deducting domestic R&E, the IRS will likely accept a prospective move into §174A expensing in 2025 without amended returns.
• However, your 2022–2024 returns remain technically noncompliant with TCJA §174, which required capitalization and amortization.
• Most small domestic taxpayers who weren’t claiming credits and expensed in good faith face low audit risk, but it’s not a safe harbor.

Bottom Line: You can “do nothing,” but it’s a risk-management choice, not a compliant one. A low-effort method change or confirming statement in 2024 or 2025 secures audit protection with minimal effort.

2. Easiest Compliance Fix for Prior Expensers

If you want to stay compliant without amending:

• File a 2024 automatic method change (or 2025 statement) adopting §174A.
• Record a minimal or zero §481(a) adjustment.
• Continue expensing under §174A(a) going forward.

This “catch-up” filing brings you into conformity and preserves your ability to accelerate any unamortized amounts in 2025 or 2026.

Deadline Note: File the method change with your original 2024 return no later than November 15, 2025, or make any related amendments by July 6, 2026.

3. If You Now Want to Claim the R&D Credit (Form 6765)

If you previously deducted R&E and now wish to claim the R&D credit, you must first bring those years into compliance with §174 or §174A. Your Form 6765 credit relies on QREs determined under §174—so you cannot claim a credit on costs that weren’t properly treated.

You can correct this through either:

1. Amending returns to apply §174A retroactively (using Option 3 if you qualify as an SBT); or
2. Filing an automatic method change for 2024 (using Option 4) to adopt §174A and include the true-up in a §481(a) adjustment.

Form 6765 credit claims filed without this correction risk denial for lack of proper §174 treatment. After alignment, you may expense under §174A(a) and still claim the credit under §41 in the same year.

Deadline Notes: If amending 2022–2023 returns for credits, do so by July 6, 2026 (or earlier if the statute closes). If you plan to fix treatment via a 2024 method change, ensure the original or superseding return is filed by November 15, 2025.

4. When Action Is Required

You should take affirmative steps (amend or change methods) if:

• You intend to file or amend Form 6765 for 2022–2024.
• You are not an SBT under §448(c).
• You have foreign R&E subject to 15-year amortization.
• You expect an IRS exam, acquisition, or financing review where method compliance will be examined.

5. Key Takeaway

If you expensed R&E in 2022–2024 and don’t plan to claim credits, “doing nothing” may be low risk but isn’t technically correct.
If you plan to claim or amend for credits, those years must be aligned to §174 or §174A through a method change or amendment.

The new OBBBA framework provides clear paths for both situations—and simple, low-friction filings to stay compliant and maximize benefits.

Choosing a Path: Practical Decision Points

• Cash-Flow vs. Earnings Smoothness: Expensing and accelerated recovery increase near-term deductions; §59(e) or §174A(c) can smooth financials and support §163(j) planning.
• Administrative Effort: Avoiding amendments? Consider Option 4 (SBT) or Option 2 with accelerated recovery.
• Credit Coordination: Model §41 and §280C(c) interactions before filing—especially for retroactive moves.
• Critical Deadlines:
  • November 15, 2025: Deemed-election and superseding-return window for certain 2024 filers.
  • July 6, 2026: Final deadline for most amended returns and retroactive elections (unless the statute closes earlier).

How We Help

Our R&E specialists can:

1. Map your 2022–2025 R&E by jurisdiction (domestic vs. foreign).
2. Model cash-tax, §163(j), and §41/§280C(c) impacts across Options 1–4 and §59(e).
3. Prepare the required statements, elections, and method changes.
4. Deliver a clean, auditor-ready package and filing checklist.

Want to know your best path? Send your last three returns, R&D workpapers, and a 2025 forecast. We’ll prepare a concise strategy memo with recommended elections and filing steps.

Let’s talk. Book a consultation with our R&E team today.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.