IRS Releases Guidance on New R&D Expensing Rules (Rev. Proc. 2025-28)

How to Apply R&D Expensing Under Rev Proc. 2025-28

The IRS has released long-awaited guidance on how to comply with one of the most impactful tax provisions of the One Big Beautiful Bill Act (OBBBA). Specifically, Section 70302 of the law revives immediate expensing for domestic research and experimental (R&E) expenditures and allows small businesses to apply this benefit retroactively.

In this post we explain how R&D expensing under Rev Proc. 2025-28 gives small businesses new flexibility in maximizing their R&D tax benefit.

Key Takeaways from Rev. Proc. 2025-28

1. Automatic 6-Month Extension for Superseding Returns

Many small businesses are still evaluating whether to expense or amortize R&D costs on their 2024 return. The IRS now confirms that any return timely filed by the original deadline (9/15 or 10/15) will automatically be treated as a request for extension, allowing a superseding return to be filed within 6 months (no Form 7004 required).

This gives taxpayers time to evaluate their R&D position, gather documentation, and file a corrected return by March or April 2026 without triggering late filing penalties.

What This Means:

File your 2024 return by the deadline (even if you're uncertain about R&D treatment)
You automatically get 6 more months to file a superseding return
No need to file Form 7004 or pay for an extension
No late filing penalties during the supersede window

Practical Application:

Many CPAs and business owners were caught off-guard by the OBBBA changes. Some had already prepared 2024 returns using the old amortization rules. This supersede window gives everyone breathing room to:

Recalculate R&D positions under the new rules
Gather additional documentation
Optimize the expense vs. amortization election
File a corrected return without penalty

2. R&D Expensing Is Optional for Small Businesses in 2024

One of the most debated issues since OBBBA passed was whether R&D expensing was mandatory on 2024 returns for small businesses. Some firms argued that taxpayers must amortize R&D and amend later; others believed expensing was allowed immediately.

Rev. Proc. 2025-28 settles the issue. Eligible Small Businesses (defined as having less than $31 million in gross receipts) can fully expense R&D under Section 174A starting in 2024, without filing Form 3115. Instead they must attach a statement complying with § 3.03 of the Rev Proc.

Who Qualifies as an Eligible Small Business:

Average annual gross receipts of less than $31 million for the 3-year period ending with the current tax year
This is the same test used for certain accounting method changes

How to Make the Election:

To expense R&D costs on your 2024 return:

No Form 3115 required (this is automatic consent)
Attach a statement to your tax return that includes:
- A declaration that you're making an election under OBBBA § 70302(f)(1)(A)
- Confirmation that you're an eligible small business
- The total amount of R&D expenses being deducted
- A representation that you're applying § 70302(e)(1) early R&E expensing
Deduct the full R&D expense on your return

Example Statement:

"[Taxpayer Name] is making an election under Section 70302(f)(1)(A)
of the One Big Beautiful Bill Act to apply Section 70302(e)(1) early
R&E expensing for the 2024 tax year.

Taxpayer qualifies as an eligible small business with average annual
gross receipts of $[AMOUNT] for the 3-year period ending 2024.

Total domestic R&E expenditures deducted: $[AMOUNT]"

3. Amended Returns

Small businesses that previously amortized R&D expenses in 2022 or 2023 may now amend those returns to fully deduct those costs under the early election. This can result in significant refunds of overpaid tax, especially for startups or tech-driven businesses with large development costs.

Important Details:

Tax preparers pursuing this option must attach a statement that the taxpayer is making an election under OBBBA § 70302(f)(1)(A) to Apply for § 70302(e)(1) early R&E expensing.

Who Should Amend:

Consider amending 2022-2023 returns if:

You're an eligible small business (<$31M gross receipts)
You amortized R&D costs in those years
You would have lower tax liability with full expensing
You want immediate refunds rather than waiting to recover in 2025

Timeline for Amendments:

2022 Returns: Must amend by April 15, 2026
2023 Returns: Must amend by April 15, 2027

4. Recovering R&D Assets in 2025 Requires Form 3115

If a business does not amend prior years, they may still recover the unamortized portion of R&D costs from 2022/2023 on their 2025 return.

However, this is considered a change in accounting method under Section 446(e), and therefore:

Form 3115 must be filed
The change qualifies for automatic consent
A § 481(a) adjustment is required to deduct the full remaining R&D asset

When to Use This Approach:

The 2025 recovery method makes sense if:

You don't want to amend prior years (saves CPA fees and time)
You expect to have significant income in 2025 that can absorb the deduction
You want to use the deduction to offset future income rather than recover past overpayments
You're close to the statute of limitations and amending is impractical

How the § 481(a) Adjustment Works:

Let's say you capitalized $2M in R&D costs in 2022-2023:

2022: $1M capitalized, $200K amortized so far
2023: $1M capitalized, $200K amortized so far
Remaining balance: $1.6M unamortized

On your 2025 return with Form 3115:

You can deduct the full $1.6M as a § 481(a) adjustment
This is in addition to any current-year R&D expenses in 2025
The adjustment may create or increase an NOL

Next Steps for Businesses and CPAs

Every business affected by Section 174 amortization now has options. Whether to amend prior returns, expense in 2024, or recover R&D costs in 2025 depends on your facts, goals, and timing.

At ATS, we anticipate thousands of amended returns being filed this year, which may cause IRS refund processing delays. Careful planning is needed on how to leverage previously amortized R&D assets in combination with R&D tax credits to ensure maximum tax benefit.

Decision Framework

Here's how to decide which approach is right for you:

Amend 2022-2023 if:

You overpaid taxes due to amortization
You want cash refunds now
You have good documentation
The statute hasn't expired

Expense on 2024 original/supersede return if:

You're filing 2024 now
You're an eligible small business
You want to avoid amending

Recover via Form 3115 in 2025 if:

You don't want to amend prior years
You expect significant 2025 income
You want to minimize current-year complexity
Amending deadlines have passed

We Are Actively Working With CPAs and Business Owners To:

Prepare election statements for 2024 returns - ensuring compliance with § 3.03 of Rev. Proc. 2025-28
Model the tax impact of amending or deducting in 2025 - which saves more tax?
Coordinate R&D expensing and the R&D tax credit (§ 41) for maximum benefit

The R&D Expensing + R&D Credit Strategy

This is where it gets really interesting. You can now:

Deduct or recover R&D expenses (reducing taxable income or creating NOLs)
Claim R&D tax credits (dollar-for-dollar tax reduction)

Example:

$2M in qualified R&D expenses in 2024
Eligible small business

Tax Benefits:

Deduction: $2M × 21% tax rate = $420K tax savings
R&D Credit: $2M × 10% = $200K credit
Total benefit: $620K

The combination of expensing + credits is extremely powerful, especially for businesses that:

Were forced to amortize during 2022-2024
Accumulated large NOLs
Are approaching profitability
Are planning M&A transactions

Important Reminders

For 2024 Returns:

If you're an eligible small business, you can expense R&D immediately
Attach the required election statement
No Form 3115 needed for current-year expensing
Use the 6-month supersede window if you need more time

For 2022-2023 Amendments:

Must attach election statement to amended return
Watch the statute of limitations deadlines
Coordinate with R&D credit amendments
Plan for IRS processing delays (12-16 weeks)

For 2025 Recovery:

File Form 3115 with your 2025 return
Calculate § 481(a) adjustment for unamortized balance
Consider impact on NOLs and credit utilization
Automatic consent applies - no IRS pre-approval needed

Need Help Navigating Rev. Proc. 2025-28?

If you're unsure how to approach your R&D tax position under the new rules, the team at ATS is here to help. Contact us today for a complimentary consultation and discover how you can turn previously amortized R&D costs into real tax savings.

We can help you:

Determine if you're an eligible small business
Decide between expensing in 2024, amending 2022-2023, or recovering in 2025
Prepare required election statements
Calculate the tax impact of each approach
File Form 3115 for 2025 recovery
Coordinate R&D expensing with R&D tax credit claims
Prepare documentation for IRS compliance

The rules are complex, but the savings can be substantial. Companies with $2M-$5M in R&D expenses over 2022-2024 could recover $400K-$1M+ in tax refunds through proper application of these new rules.

Don't leave money on the table. Schedule a free consultation to discuss your specific situation.

IRS Releases Guidance on New R&D Expensing Rules (Rev. Proc. 2025-28)