Tax insight

IRS provides a clear path on new options for domestic R&E expenditures

Insight
5 minute read
September 09, 2025

What happened?

The IRS has released Rev. Proc. 2025-28, the first comprehensive guidance on new rules for domestic research or experimental (R&E) expenditures enacted by the One Big Beautiful Bill Act (the Act). This revenue procedure, effective on August 28, 2025, details (1) how companies can elect to immediately deduct or amortize domestic R&E expenditures — including software development costs — paid or incurred in tax years beginning after December 31, 2024, and (2) options for recovering previously capitalized R&E expenditures before that date under the Tax Cuts and Jobs Act (TCJA). In addition to providing retroactive options for small businesses, the comprehensive guidance also provides transition rules, adds new automatic method change procedures, and addresses interactions with other provisions, such as the research credit.

See our Tax Insight, Section 174A restores optionality to tax treatment of US research activities, for more information. 

Why is it relevant?

The issuance of Rev. Proc. 2025-28 provides companies with the clarity needed to claim deductions for domestic R&E expenditures, often resulting in an immediate cash tax benefit, or make amortization elections that manage the potential downstream impact of these expenditures on their overall tax position. The guidance also addresses options for treating previously capitalized R&E expenditures, interaction with the research credit, and requirements for changing accounting methods. Proactive review and timely elections can help companies avoid missed opportunities and reduce the risk of compliance issues or audit exposure.

Actions to consider 

Companies should review current and prior treatment of R&E expenditures, assess eligibility for new methods of accounting provided in Rev. Proc. 2025-28, and model the impact on taxable income, credits, and other tax attributes. The options to immediately expense domestic R&E activities, including retroactive application to small businesses, offer significant and unique opportunities for an immediate cash tax benefit that should be considered in computing estimated federal income tax payments for the third and fourth quarters. Additionally, companies will need to evaluate the financial reporting impacts regarding the available elections in Rev. Proc. 2025-28, including effects on other tax positions and deferred tax assets, in the period of enactment.